Document B5jRwrke4N2p420KE4KnmMeoX

'V CRTX 0719 Financial Highlights '.-s'*- ' r ; .z ; v -i iln thou&ndsf Net Sales Operating Profit Income before Taxes--Continuing Operations Income Taxes Income from Continuing Operations'31 1988 $1,313,136 95,666 81,490 (32,304) $ 49,186 1987 $1,099,596 75,130 58,541 (25,837) $ 32,704'c| 1986 $1,043,718 75,044 55,305 (26,520) $ 28,785 1985 $960,702 38,394w` 20,945 (6,360) $ 14,585 Per Share (Fully Diluted):'61 Income from Continuing Operations 31 Cash Dividends Declared Average Fully Diluted Shares Outstanding $ 2.17 .92% 22,699 S 1 4V': 87% 23,872 $ 1,30 .78 24,867 $ 71 71 21,931 a Exposes `rpm seg<ert o s;r bute<3 to snare^o'cers ;t s :3 297 s 5S par s^'ei n `.983 s 29.509 -s 33 ca' s^arei recces S3 325 ;r s :4 par s:\3re *'cr a :"3`3e * acpc^t.rgr.o `S37 S3533.S 39 pars^a'a- r *935 S3 2`.2 S '.3pe' s^ara- a `.535. ara s: 574 -3 37 par sr^-e* r. *534 p {cr *'c: ://o 5toc< sc..t r `937 SC**, s:oc< j sr.pji cjp c '535 a"* 2\- 3\x*t p vca~cs np'or.aa'5 ; :.r..3`.va <Me;t ;< a ratge accent c >5 c72 sSics's^a * * . ws yyz* v t*-"*: *:<:> * 5~.,," : >25 ~2: ve 1984 $655,297 46,298 38.964 19,573) $ 29,391 S 1 29 70 22.811 ; > Continuing Operations Sales (In millionsi $1,500 Operating Profits ,ln rJior-s 84 85 86 87 88 Dividends Per Share 1985 s catore 525 4 of ~crrecurring restruCtor rg pp,s;s Income Per Share S2 50 34 35 86 87 68 r*c'udes pre-tax p^arga 'ecjrnng :esi?uc:v rg ccits r 525 - iT"jiton CRTX 0721 Letter to Shareholders Dear Shareholders: Crane Co. had an excellent year in 1988. Improved results from our Engineered Industrial Products segment increased earnings from continuing operations to $49.2 million, 50% over 1987. Sales increased 19% to $1.3 billion. Fully diluted earnings per share increased 5--% from $1.41 to $2.17, excluding $.58 per share earned by Medusa for nine months in 1988. On the same basis, cash flow, which consists of earnings plus depreciation and non-cash charges, was $3.46 compared to $2.55 per share in 1987 Our return on equity--including Medusa for nine months--was 24%, which exceeded our goal of 20% for the third consecu tive year. Corporate expenses were slightly over our goal of 1 c of sales, largely due to the Restricted Stock Plan and the Medusa distribution. Crane's Responsibility to Shareholders Crane management's primary objective is to maximize the long-term value of the investment of our shareholders. During 1988, Crane distributed .45 of a Medusa Corpo ration common share for each share of Crane. Medusa paid Crane an $84 million dividend, which was equal to its net worth, so Crane's equity was not affected wmle the Crane shareholders received approximately $6 33 per share in Medusa stock, tax-free. This transact on was equivalent to selling Medusa for approximately $310 million on a taxable basis. During 1988, Crane purchased 1.1 million shares tor $276 million or an average of $21.90 per share after adjusting for the Medusa distribution, and in 1987 the equivalent of 1.7 million shares were purchased at a cost of $42 million or an average of $1762 per share adjusted for the Medusa distribution and a 3-for-2 stock split in 1987 We will continue to purchase Crane stock when it is clearly a good investment. In November, we raised our dividend by 11 \ tne fourth increase in the last five years. It is our policy to pay out a relatively high percentage of earnings, since the tax laws treat capital gains the same as dividends. 2 CRTX 0722 Robert S. Evans, Chairman, Chief Executive Officer and President. In connection with the goal of long-term value i| i' creation, the Crane Board of Directors issued 323,000 shares of restricted stock to key management employees. The purpose of the restricted stock was threefold: one, to retain key management because it vests over five years; two, to provide a direct link between management and shareholders' interest; and three, to offer competitive 'i j compensation and benefits. I believe that this plan, 'i 'i combined with the use of stock options and stock appre ciation rights, has been an important contributor to the performance we have achieved. It should be mentioned that over the past five years, Crane has achieved a total compound annual rate of return to shareholders of 26% versus the S&P 500's of 15%. The total return for 1988, including the Medusa distribution was 44%. During the past five years, we have sold or spun off businesses which were capital-intensive, commodityoriented or did not fit the objective of being significant players in niche markets. These transactions created approximately $291 million in capital, which was returned to our shareholders or reinvested. During the same period we made eight acquisitions at a net cost of $255 million. In 1988, these businesses generated an operating profit of $34 million and pre-tax cash flow of $50 million. CRTX 0723 1 Hydro-Aire field service engineer inspecting the wheel speed transducer circuits that provide wheel/brake performance information to Hydro-Aire anti-skid control. Operations Crane reports its results in two segments which break the business up between industrial product manufactur ing and wholesale distribution. The Engineered Industrial Products segment con sists of a number of separate businesses which have high engineering content, serve industrial markets-- mostly other manufacturers--have high market share, relatively low level of capital needs and low fixed costs. The economic factor which drives this segment is capital spending. However, these businesses generally have a high level of spare or replacement parts sales which tend to be counter cyclical. Also, because we are a multi product company serving a number of different indus tries, the weakness in some of those industries--such as the oil industry, a big user of valves--is offset by strength in others--such as commercial airplanes, Hydro-Aire's market. The Wholesale Distribution segment consists of two businesses, Huttig Sash & Door Company and Crane Supply Canada. Huttig is the leading nationwide wholesale distributor of millwork products, windows, doors and mouldings. As a specialty distributor with value added products, Huttig has traditionally achieved higher margins on sales and returns on capital than other building product distributors. While new housing starts are important to Huttig, nearly 50% of the business is repair and remodeling, which is a great deal less cyclical r'an housing starts. Crane Supply Canada is a nationwide distributor of industrial supplies and plumbing products. Personnel Reflecting the improved operations in the Engineered Industrial Products segment. Jack Barnes and Robert Muller were appointed Executive Vice Presidents of Crane in October. The contributions of both these key executives have been outstanding, and these appoint ments reflect their increased responsibilities. Another key addition to our management was Robert Harris, President of Ferguson. I would like to thank all our employees who have contributed to our excellent 1988. Crane enters 1989 with a very strong management team and an equally solid financial position. We arQ confident that the pro gress achieved will continue in 1989. Sincerely, R.S. Evans Chairman, Chief Executive Officer and President February 27,1989 CRTX 0724 CRTX 0725 Engineered Industrial Products continued> The United States Valve Division continued its strong improvement in sales, with a substantial reduction of the operating losses suffered in 1987. Although commercial/ construction markets have remained static, aggressive marketing and sales efforts have enabled Crane to increase market share. The growth of OEM sales of cast iron valves has re-established Crane in this market and enabled the Washington, Iowa plant to operate more efficiently. The resurgence of the chemical, pulp and paper, and refinery industries has helped raise the demand for Aloyco Stainless Steel Valves, as well as the cast steel valve line. Valve Services Unit is responsible for the complete valve aftermarket. They repair and recondition valves in a variety of markets now experiencing an upturn due to increased capacity utilization. Valve Systems and Controls is an industrial distributor supplying automated valves and complete systems to industry. Expanded operations in 1988 to four locations and a surge of new construction of chemical plants in the Gulf Coast area contributed to increased sales. The Chempump Division is the world's leading manu facturer of canned motor pumps as well as a complete line of metering pumps and engineered control valves. Chempump had significantly higher sales as a result of operational changes and improvements begun in 1987 and carried into 1988. On time delivery performance improved dramatically and major product introductions and improvements were carried out during the year, including a new magnetic drive seal-less pump and a line of self-priming leakproof pumps. In July, Chempump acquired Pittsburgh Process Machine and Repair Co., of Eureka, West Virginia, which became the Midwest Service Center, with 20,000 square feet of capacity. Deming manufactures standard pumps for general industrial and municipal use. A revamped distribution network has successfully moved Deming toward exclusive and more committed distributors. Sales increases were mainly the result of increased penetration and share :n selected OEM and industrial niche markets. A redesigned turbine pump line gained market penetration with addi tional designs forthcoming in 1989. Cochrane Environmental Systems designs and markets water and wastewater treatment equipment for the pulp and paper, power generation, chemical and other industries. Cochrane's performance has improved significantly since 1986 with bookings and sales steadily rising. Changing markets have indicated the need to develop new opportunities and reduce reliance on capital intensive markets. Hydro-Aire provides the commercial, general aviation and military sectors of the aircraft market with an exten sive line of products including fuel pumps; hydraulic valve modules; and electronically controlled, anti-skid braking systems, where they are world leaders. In 1988, the commercial aviation market expanded with orders for new aircraft. Boeing and McDonnell Douglas, traditional Hydro-Aire customers, achieved record sales in advanced derivatives of the Boeing 737. 747, 757 and 767 aircraft, and Douglas MD-80 anc MD-11 series aircraft. It is significant to note that H\rcAire provides the anti-skid systems and, in some cases, fuel boost pumps and hydraulic valve assemblies for most of these aircraft. O CRTX 0726 High nickel alloy elbow being formed at Crane Midwest plant. Unidynamics/Phoenix motor safe and arm device ignites the solidpropellant rocket motor of the SRAM If. Programming of CNC machine at Crane Defense Systems using a CAD/CAM system with an in-house developed program. CRTX 0727 7 Engineered Industrial Products `continuedt The extraordinary growth in the commercial market more than offset the drop in the military and general aviation areas. Reduction in defense spending caused the military business of Hydro-Aire's market to fall off. However, contracts to supply braking controls to two critical military programs have provided a high degree of optimism that military sales will improve into the '90s. The general aviation market began to show signs of 'ecovery as new and upgraded models of the popular executive class aircraft are starting to come on line. National Vendors is the leading manufacturer of electronic vending machines for snacks, hot and cold drinks, food and cigarettes, as well as currency and coin changers. In 1988 National Vendors' market share increased significantly, a direct result of the many new '.ending machines successfully introduced during the past two years, including the well received Shoppertron !ood merchandiser. In 1988, two new machines were introduced, a snack unit, and a coffee maker that individ ually brews each cup of coffee starting with the bean. This new "Beaner" machine is selling at a faster rate ran anticipated, after attracting a great deal of interest wnen introduced at the industry-wide National Auto matic Merchandising Association show. Expansion into new markets such as small offices, and the establishment of a vending machine service organization to service all machines, are examples of additional market opportunities. Kami,re s the leading supplier of fiberglass reinforced plastic panels to me transportation industry. The increase v me prce cf suminum -r. 1933 helped boost sales of Glasbord laminates for trailer roofs as a replacement for aluminum. Many large trailer builders have already switched, while others are in prototype programs using Glasbord. After an extended marketing effort, the sale of automotive finish siding for use on recreational vehicles is starting to gain acceptance with some of the larger builders. Additional opportunities are being exploited in construction markets. CorTec is the number one manufacturer off berglass reinforced laminates to me trailer, truck body and marine industry. A major supplier of laminates to U-Haui International and other large transportation companies, CorTec doubled last year's backlog at year end. Other opportunities have reemerged, moving CorTec into the manufacture of highway signs and possible entrance into the European market. Polyflon manufactures microwave substrate materials and high-voltage, high-frequency capacitors for use in the communications, aerospace and medical industries. One of Crane's smaller operations, it continued to increase its position as a supplier of components and materials to the growing nuclear magnetic resonance (NMR) imagers market. In 1988, sales to this market almost doubled compared to 1987. Ferguson designs and produces precision indexing devices, parts handling systems, automated special purpose machines and cam-actuated parts handling devices. 1988 saw a particularly strong capital goods mar ket along with exceptional growth of the machine tool industry. The latter resulted in a marked increase in orders for precision rotary tables where Ferguson is tre industry leader. Ferguson's electronic indexers and posi tioning devices continue to gain increasing acceptance in the new marketing areas of packaging and corns:ners CRTX 072S National Vendors Shoppertron food merchandiser vending machine, ready for packing and shipment. .VWIOWCM Engineered Industrial Products /continued'} as these industries move to sophisticated digital controls and continuous processes. Two new, smaller pick-andplace parts handlers were introduced for applications where users are responding to Ferguson's concept that automation also offers advantages to smaller manufacturers. Ferguson's European operations continued to expand their sales as a result of increased marketing efforts and market coverage. The original Ferguson plant In Munich v/as closed and production moved to a new, highly efficient plant in the same city. This larger facility makes it possible to offer more products tailored specifi cally to the European market and possible expansion into Eastern Bloc countries in 1989. Resistollex/Industrial is a leading supplier of corro sion resistant plastic-lined pipes and fittings, valves, expansion bellows, underground gasoline hoses and reaction vessel components. A strong upturn in Resistoflex's major markets, the chemical and pharmaceutical industries, contributed to excellent sales growth.ln this, the first full year in the new Marion, North Carolina plant, aggressive marketing and operating efficiencies generated considerable momentum going into 1989. Resistoflex/Defense is a leading manufacturer of separable, high-performance fittings for use on military aircraft and aircraft engines. After a year of start-up problems at the Jacksonville, Florida facility, 1988 brought a good increase in sales and a return to profitability by the end of the year. Reaction to the re-entry of Resistoflex into me hose market has been positive across the customer base. Improved customer service, cost control, and quality should insure the future success of this business. Unidynamics/Phoenix designs and manufactures precision ordnance and related electromechanical and electronic devices for the Departments of Energy and Defense. The year produced a few new major engineering programs involving the Short Range Attack Missile (SRAM II), Small Intercontinental Ballistic Missile (SICBM) and many covert special access programs. These research and development programs are long-range funded'and will contribute to the sales growth at Phoenix into tne 1990's. During the year, mature aerospace and defense involvement, such as Trident D-5, Air-Launched Cruise Missile (ALCM) and various nuclear programs continued. The result was that 1988 showed improvement in both sales and order backlog. Crane Defense Systems designs and manufactures handling and launching systems for naval shipboard and other specialized applications for the United States and foreign military services. Current programs include continued production and support of the Tomahawk Armored Box Launching system, production of handling and storage equipment for naval towed array sonar systems and a new shock mitigating torpedo handling system. This concept is now under review by the Navy. Despite continued pressure to reduce the defense budget, the outlook for 1989 is promising with awards expected for follow-on programs to existing contracts and vigorous pursuit of such programs as underwater mine detection handling systems and the marketing of shock mitigating torpedo handling equipment as retrofit on existing vessels. Crane Midwest designs and manufactures equipment for military and commercial shipbuilding applications such as cargo and personnel elevators, 10 CRTX 0730 CorTec's smooth, seamless surface enhances the brilliance o/ trucks for image-conscious U-Hau! International. Inspection loop at Kemlite plant manufacturing Gfashord-RS smooth FRP paneling for use on recreational vehicles. Isostatic liner moulding process at Resistoflex/Industrial provides high-quality PTFF liner with strict control over wall thickness. cranes, hoists and boat davits. Special welding fittings are manufactured for use in Navy nuclear propulsion systems, power generation plants and oil and gas pipeline projects. An improvement in new orders commenced early in the year with awards for Navy nuclear propulsion fittings for a Nimitz class aircraft carrier and Los Angeles and Ohio class submarines. Follow-on contracts were received for elevators and equipment for various Navy ships. This made 1988 one of the strongest for new orders in recent years. Canada Crane Canada, through two manufacturing divisions, operates in most sectors of the residential, commercial and industrial construction markets. The Plumbing Division manufactures and markets a diversified line of high-quality plumbing products with a strong share of total industry sales. The Division continues to experience success with their vitreous china and acrylic fixtures, as well as plumbing brass. The introduction of new product lines continues to be the most important strategy in maintaining and increasing market share. Increases in the renovation market coupled with opportunities result ing from the Canada/U.S. Free Trade Agreement will provide Crane Canada with additional markets. The Valve and Industrial Division designs, pur chases, manufactures and markets a wide variety of valves to control water, steam, pulp stock, chemicals and other fluids. Sales in 1988 were impressive, with steel and bronze valves leading the v/ay. Waterworks and sewer construction remains strong, and pulp and paper capacity utilization remains high. CRTX 0731 Engineered Industrial Products -> r.ueot Po/yflon products for the growing medical imaging market. The "Phoenix Collection." a line of bathroom fixtures recently introduced by Crane Canada's plumbing division. Computer aided design equipment in use at Crane United Kingdom's Fluid Systems engineering department. Truck being loaded Tor delivery at a Huttig Distribution Center International Crane Limited, United Kingdom continues to develop its three business units. Crane Fluid Systems concentrates on the manufacture of valves, pumps and pipe fittings for heating and ventilating applications. Two new valve product lines were successfully introduced. New costefficient melting facilities for bronze valve manufacture were commissioned without any loss of production. A sales branch was established in West Germarv as.a start in the development of a broader European st.-stegv Crane Industrial expanded its industrial maintenance service activities with the acquisition of a specialist heat exchanger refurbishing company This is a growing market, as companies look for established, reliable third parties to carry out this maintenance. The manufacture of fireset pump packages has grown from nothing five years ago to a 25% UK market share in 1988. Now, efforts are being made to expand into the European market. Blackett Hutton is a small steel foundry handling low volume medium-to-high-integrity steel castings. In a market where capacity exceeded demand, Blacken Hutton retained its market share in 1988. Crane Australia Pty., Limited manufactures and supplies valves to Australia, New Zealand and related markets. Industrial disputes on the waterfront during tne year significantly affected imports of raw materials. A higher backlog at the end of the year resulted, although sales were close to 1987 levels. 2 CRTX 0732 Wholesale Distribution continued! A Crane Supply truck being unloaded at a customer's facility. Huttig Sash & Door Company is the largest nationwide distributor of millwork, windows, doors and related products in the United States. Huttig also operates a sawmill and millwork component factory in Montana, and a wood window manufacturing and assembly facility in South Carolina. 1988 was a year of rapid expansion for Huttig. In February, the Pozzi-Fenati Millwork Company with two distribution centers in California, one each in San Francisco and Los Angeles, was acquired. This acquisi::on marked the initial entry of Huttig into the West Coast market, projected to be an important growth area for the next decade. This California acquisition brought Huttig knowledge of the window business in California and led to the decision to o^en three retail window stores to service contractors and consumers. Windows sold in these stores were assembled in a new assembly operation in Fresno, California from components manufactured at the Missoula, Montana factory These new operations exemplify Huttig's marketing strategy of vertical integration and the plan to increase penetration of the remodeling and replacement, as well as new residential construction markets. Huttig's decision to emphasize vertical growth was continued during the year with the opening of a "prototype store" in Memphis, Tennessee selling direct to the con sumer with one stop shopping for replacement, remodeling or new construction buyers. Aptly named "Huttig Windows, Doors & More," the store was opened in October and has supplied valuable knowledge and expertise for fur ther expansion of this new Huttig marketing concept. Add-t ora; expansion took place in June when Huttig acquired Palmer G. Lewis of Auburn, Washington, one of the largest independent wholesale distributors of building products and related materials in the western United States. Tb:s acquisition positioned Huttig with 21 distri bution outlets in the western geographic markets from Anchorage, Alaska to Phoenix, Arizona. While the initial product offering was somewhat different than the typical Huttig distribution center, a gradual change is taking place at these Palmer G. Lewis facilities with emphasis focused on the Huttig products that traditionally produce a higher gross profit. Additionally, certain administration functions are being consolidated to reduce expenses and improve the profitability at these new units. The Crane Supply Division serves industrial and construction markets with distribution outlets through out Canada. A major distributor of pipe, valves and fittings to Canada's industry, it is also an important whole saler of plumbing and heating products. The products handled are produced by Crane Canada and other manufacturers. The demand for industrial products improved considerably in 1988. This, coupled vvitn me continued demand for plumbing products, resulted in a successful year. CRTX 0734 Huilig's new retail showroom in Memphis. Tennessee displaying windows doors mouldings and more. CRTX 0735 Consolidated Statements of Income 5' --> for Ygm hded December 31 In thousands except per share data/ Net Sales Operating Costs and Expenses: Cost of sales Selling, general and administrative Depreciation 1988 $1,313,136 1,030,689 167,037 19,744 1987 $1,099,596 860,644 145,555 18,267 1986 $1,043,718 809,410 142,873 16,391 Operating Profit Other Income (Deductions): Interest expense--net of interest income of $1,730, $1,328 and $3,816 in 1988, 1987 and 1986 Miscellaneous--net 1,217,470 95,666 (17,112) 2,936 1,024,466 75,130 (17,772) 1,183 968,674 75.044 (22.834) 3,095 Income before Taxes--Continuing Operations Provision for Income Taxes (14,176) 81,490 32,304 (16,589) 58,541 25,837 (19.7391 55.305 26,520 Income before Cumulative Effect of a Change in Accounting Cumulative effect of a change in accounting for gain on pension asset reversion, net of taxes of $5,598 49,186 -- 32,704 5,673 28.785 _ Income from Continuing Operations Income from Segment Distributed to Shareholders-- Medusa Corporation, net of taxes of $6,727, $10,869 and $7,327 in 1988, 1987 and 1986, respectively Net Income 49,186 13,297 $ 62,483 38,377 20.SC9* $ 59.2S6 28.785 C. $ 33 373 Primary Net Income Per Share: Continuing Operations: Income before cumulative effect of a change in accounting Cumulative effect of a change in accounting--pension reversion Income from Continuing Operations Income from Segment Distributed to Shareholders-- Medusa Corporation $ 2.1_9_ 2.19 .59 $ 1.45 25 1 70 93* $ 1 40 -- * 40 47 Net Income $ 2.78 $ 2.63 $ 1 87 Average primary shares outstanding 22,437 22.551 20.578 Fully Diluted Net Income Per Share: Continuing Operations: Income before cumulative effect of a change in accounting Cumulative effect of a change in accounting--pension reversion $ 2.17 -- $ 1.41 24 S 1 30 -- Income from Continuing Operations Income from Segment Distributed to Shareholders-- Medusa Corporation Net Income 2.17 .58 $ 2.75 1 65 88* $ 2.53 1 30 39 $ 1 69 Average fully diluted shares outstanding ,, ;3 - -- .>mC- 22,699 23.872 cr y S3 329 *5 or ~>3(y s"oa*c s oe* .* i *-tec ""* v : * S3 24 S67 See Financial Review 16 CRTX 0735 Consolidated Statements of Changes in Common Shareholders' Equity Crgr** C; v-; tin thousands except share data} At December 31, 1385 Net income Cash dividends 50% stock distribution, 4,569,495 shares Reacquisition of 401,873 shares Exercise of stock options, 61,700 shares; and issued for employee benefit plan, 13,202 shares Conversion of debentures, 30,479 shares Currency translation adjustment At December 31,1986 Net income Cash dividends Decrease in par value from $6.25 to $1 00 per share, 15,597,357 shares 3-for-2 stock split, 7,798,679 snares Reacquisition of 1.503,327 shares Exercise of stock options, 131.398 shades Conversion oi debentures. 2,629.810 shares Currency translation adjustment At December 31, 1987 Net income Cash dividends Distribution of Medusa Corporation common stock Reacquisition of 1,108/84 shares Exercise of stock options, 163,292 shares Conversion of debentures. 53.269 shares Restricted stock awarded 324,296 shares, net Redemption of common snare purchase rights Currency translation adjustment At December 31, 1988 See Financial Review Common Shares $56,853 _ -- 28,559 (2,511) Capital Surplus $ 51,221 _ -- (28,559) (9,756) Retained Earnings $ 65,802 38,378 (15,883) -- -- Currency Translation Adjustment $(16,379) -- _ -- Total Common Shareholders' Equity $157,497 38.378 (15.883) _ (12.267) 469 190 -- 83,560 1,519 125 - 14,550 ___ -- (81,886) 7.799 (3,739) 357 16.335 -- 22.426 _ -- *1.108) 163 53 324 ___ -- $21,858 ___ _ 81.886 (7,799) 138.304) 1.780 57,553 - 109.666 _ -- _ '26/o2l 2,261 278 7.431 (738) -- $ 92/36 -- -- 88,297 59,286 (19.589) _ -- -- -- -- 127,994 62.483 (20,468) *131) -- -- -- (6,155j -- SI 63.723 -- 3,003 (13,376) _ -- -- -- -- _ 9.014 (4,362) _ -- _ -- -- -- _ _ 972 $ (3,390) 1,988 315 3.003 173.031 59.236 (19.539) -- -2X/3! ' ' J 73.835 9.014 255,724 62/33 (20/68) .131) 27.570) 2/24 331 1,600 <738/ 972 S274.627 CRTX 0737 7 Consolidated Balance Sheets At December 31 In thousands swot shaft data! Assets Current Assets: Cash and cash equivalents Short-term investments Accounts receivable, less allowance of $2,273 ($2,077 in 1987) Inventories, at lower of cost, principally LIFO, or market; replacement cost would be higher by $43,199 ($41,092 in 1987): Finished goods Work in process Raw materials and supplies Investment m segment distributed to shareholders Other current assets Total Current Assets Property, Plant and Equipment at Cost: Land Euildmgs and improvements Vlacninery and equipment Less accumulated depreciation Other Assets: Construction funds Intangibles, less accumulated amortization of $16,196 ($11,305 in 1987) Other Cost in Excess of Net Assets Acquired, less accumulated amortization ct $3,223 ($2,156 >n 1987) See Financial Review 1988 1987 $ 40,000 1,621 170,567 141,428 45,229 26,429 213,086 -- 6,759 432,033 23,414 128,032 213,975 365,421 183,445 181,976 3,723 8,193 13,354 25,270 42,461 $681,740 $ 12,615 1.809 141,088 99,531 46,796 24,652 170,979 71,134 3,630 407.255 15,977 H4 339 202.973 333 2-*** 163,189 165,155 3.567 11.901 9.952 25.420 36.937 $634,767 IS CRTX 0738 Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt Loans payable Accounts payable Accrued liabilities U.S. and foreign taxes on income Total Current Liabilities Long-Term Debt Reserves and Other Liabilities Accrued Pension Liability Deferred Income Taxes Preferred Shares, par value $ 01, autnor.zeo---5,000,000 snares Common Shareholders' Equity: Common shares, par value $1.00: Authorized--80,000,000 shares Outstanding--21,858,461 shares (22,426,088 in 1987) after deducting 13,934,658 shares in treasury (12,826,174 in 1987) Capital surplus Retained earnings Currency translation adjustment Total Common Shareholders' Equity Crrjre C 1988 1987 $ 14,085 48,508 61,187 69,121 2,392 195,293 143,133 11,667 13,888 43,132 - $ 11,333 24,432 52,621 79,324 1,651 169,361 151,096 6 099 17.007 35 -30 - 21,858 92,436 163,723 (3,390) 274,627 $681,740 22.426 109,666 ' 127,994 - 3621 255.724 $634,767 CRTX 0739 '9 Consolidated Statements of Cash Flows For Years FadedDecember 3! tin thousands} Cash Flows From Operating Activities: Income from continuing operations Depreciation Other non-cash charges to earnings Cash provided from (used for) operating working capital Dividends received from Medusa Other Total from Operating Activities Cash Flows from Investing Activities: Capital expenditures Payments for acquisitions, net of liabilities assumed of $34,169 in 1988 and $1,155 in 1986 Disposals of property, plant and equipment Acquisition of minority interest in subsidiary Proceeds from divestitures Disposals of land and water rights Total from Investing Activities Cash Flows from Financing Activities: Long-term debt: `few debt Repayments Dividends paid Reacquisition of shares Stock options exercised Redemption of common share purchase rights Net increase in short-term debt Total from Financing Activities Effect of exchange rate on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Detail of Cash Provided from (Used forj Operating Working Capital Short-term investments Accounts receivable Inventories Other current assets Accounts payable Accrued liabilities U S. & foreign taxes on income Total Supplemental disclosure of cash flow information: Interest paid Income taxes paid See Financial Review j 20 'C: -re C'jf-i 1988 $ 49,186 19,744 9,516 (28,714) 84,300 4,489 138,521 (17,865) (47,558) 3,334 -- -- 122 (61,967) 1987 $ 32,704 18,267 9,960 1,857 13,613 (2.554) 73,847 (16,250) -- 2,530 (7,904) 7.619 1,958 (12,0471 1986 $ 28,785 15,391 12,183 (9,005) 9,134 2.734 60,222 (15,081) (31.9341 4,347 ___ 370 5.031 35 767 3,868 (17,566) (25,544) (27,570) 2,424 (738) 15,767 (49,359) 190 27,385 12.615 $ 40,000 - -.2.-62 (21.2211 (18,538) (42,043) 2,137 -- 5.178 (56.0251 502 6,277 5,338 $ 12,615 w / /-- 57 4:5 11 353: 2.267- 1 388 -- 4.973 -0,505* 124 '37.226; 43.564 $ 5 338 $ 402 (6.952) (12,899) 3,098 (3,892) (9,305) 834 $(28,714) $ 17.656 19,852 S !248) (1.219) (4.455/ (140) 917 7 394 3921 s 1.357 s 19.010 13,603 $ ' .302 '9 368 6 255 735 -- t-i 3 232 '5 533 $ 3 "C5 s 23.722 - 5.83; CRTX 0740 Financial Review ' `~,2 w sro Ss' Accounting Policies Principles of Consolidation--The consolidated financial state ments include all subsidiaries. Prior year amounts have been restated to reflect the distribution of Medusa Corporation to shareholders on October 7, 1988. All significant intercompany items have been eliminated. Certain prior year amounts have been reclassified to conform with the 1988 presentation. Statement of Cash Flows--In 1988, the company adopted Statement of Financial Accounting Standards No. 95, and is presenting a statement of cash flows in place of the statement of changes in financial position. Restatement of financial state ments for prior years has been provided for comparative pur poses Cash equivalents consist of highly liquid investments with original maturities of three months or less. Inventories--Inventories are stated at the lower of cost or market principally on the last-in, first-out (LIFO) method of inventory valuation. The effect of inventory quantity reduc tions was a reduction in cost of approximately $600,000, S5 200,000 ana $600,000 in 1988, 1937 and 1986, 'esDect.vely Plant andEtjuipment--Decreciat.cn was provided pr mar iy Dv tne straight-lm.e method ever the estimated useful ,es cf the respective assets The double declining balance method of depreciation was used for assets acquired prior to 1985 Intangibles--Cost in excess of net assets acquired is being amortized on a straight-line basis principally over forty years. Ctner intangible assets are being amortized on a straight-line basis over tneir estimated useful lives which average five years. Income Taxes--The provision for income taxes was, as in prior ,ears. determined in accordance with Accounting Principles Beard Opimon n0 11 If the Company had chosen to adopt Statement of Financial Accounting Standards No. 96 in 1988, me orange would not have been material. United States ncome taxes have not been provided on undistributed earnngs of foreign subsidiaries since these earnings will be recuired fer indefinite investment and any dividends expected to be paid will be covered by foreign tax credits Vet Income Per Share--Primary earnings per share calculat ens are based opor the weighted average number of common scares outstanding after giving effect to dilutive stock opt'cns Fully diluted earnings per share gives effect to re asSo--ed conversion of convertible debentures and the effect of triune stock oprons. All snare information has been adjusted :c re'lect the three-'or-two stock split in 1987 the 50% stocK distribution in 1986 and 2% stock dividends in pr-cr -.ears Revenues--Revenues are generally recorded wnen title passes to the customer. Revenues on long-term contracts are recognized under the percentage-of-completion method of accounting and are measured principally on either a cost-tocost or a unit of delivery basis. These contracts represent approximately 5% of sales in any one year. Acquisitions In June 1988, Huttig acquired Palmer G. Lewis Co, Inc, one of the largest independent wholesale distributors of building products and related materials in the western United States, for approximately $43.5 million. In addition, Huttig acquired two distribution centers in the Los Angeles and San Francisco areas in February 1988. A canned pump machining and ser vice company was acquired as an addition to Chempump m the Engineered Industrial Products segment in July 1988. In 1986, the company acquired the assets of PickOmatic Systems Inc., a producer of cam-operated parts handling equipment, as an addition to Engineered Industrial Products Also, seven wholesale distribution centers in the New England, northern New York, Wisconsin and New Mexico markets were purchased as additions to Huttig Eacn of these acquisitions was accounted by the pur-:"ase method, and the results of operations for each nave been included in the financial statements from their respective dates of purchase. Pro forma financial information assuming the acquisition of Palmer G. Lewis had taken place as of the beginning of 1987 is provided i,clow. The remaining acquisi tions did not have a material effect on the results of operations For :be r?3rs ended December 3t m tbousends, Net sales Operating profit Income from continuing operations Fully diluted income per share from continuing operations 1988 -;S37 si.409,279 51 3'.5`-35 96.634 78 664 48,642 22.209' S 2.15 s -40- cjfruiat ve t* s ~ r; Investment Distributed to Shareholders On October 7 1988. the company distributed to its shareholders 100% of its cement and aggregates subsidiary Medusa Corpo ration, on a tax-free basis to both the company and its share holders. Immediately prior to the distribution. Medusa paid a special cash dividend to the company of $84 3 million This transaction reduced the company's shareholders' equity bv $131,000. As a segment distributed to shareholders, the results cf Medusa's operations have not been included m tee consoi cates financial statements. Net sales of Medusa through the date of the distribution in 1988 were $138 7 million and for the full 1987 and 1986 years, net sales were $184 4 million ana $160 5 million, respectively. CRTX 0741 21 Financial Review continued Pensions The company and its subsidiaries have pension plans which cover substantially all of their employees. The plans generally provide benefit payments using a formula based on length of service and final average compensation, except for some hourly employees for whom the benefits are a fixed amount per year of service. The company's policy is to fund at least the minimum amount required by the applicable regulations. The company adopted Statements of Financial Accounting Standards Nos. 87 and 88 for all domestic plans effective January 1,1987. The effect of this change in accounting increased pension costs for 1987 approximately $2,300,000, principally due to the fact that the pension reversion credit was no longer available. The pension reversion credit resulted from the reversion of surplus assets in 1985 for the pension plans covering non-bargaining employees of the company and its subsidiary, Huttig Sash & Door Company. Included in income in 1987 as a cumulative effect of this change in accounting was $5,673,000 of the unamortized credit, net of taxes of $5,598,000. Pension expense relating to company sponsored domestic pension plans in 1988 was $5,413,000 compared to $5,688,000 in 1987 and $2,924,000 in 1986. The components of pension expense for 1988 and 1987 were as follows: (in thousands} Service cost-benefits earned during the period Interest cost on projected benefit obligation Actual return on plan assets Net amortization and deferral Domestic pension expense 1988 $4,203 5,222 (6,065) 2,053 $5,413 1987 S4.902 4.471 (1201 i3.565i 55 688 The following table sets forth by funded status the amounts recognized in the company's balance sheets at December 31. for company sponsored domestic pension plans. in thousands} Actuarial present value of benefit oDi.gation Vested Nonvested Accumulated benefit obligation Effect of future pay increases Projected benef.t obligation Assets and book reserves relating ;o sucn benefits Funded assets at fair value Book provisions Assets and book reserves 'lessi greater than protected benefit obligation Consisting of Unrecognized net asset at date o< adoption 'ess amortization Unrecognized net 'losses! gams Actuarial assumptions Discount rate Expected tong-term rate of return Rate of .ncrease comcensa: cr. eve's Domestic Plans 1988 Overfunded Underfunded Overfundea $ 35,873 3,323 39,196 23,015 62.211 $ 7,168 187 7,355 - 7.355 s 25,407 1.116 26,523 10.073 36.596 48.198 13,677 61,875 S (336) 6.306 855 7,161 $ (194) 28.482 8.909 37,391 S 795 $ 959 (1,295) S (336) $ 1,931 (2.125) $ (194) S 1,198 (403) $ 795 8.5% 9.5% 6.25% 8.5% 9.5% N. A 8 5% 9 5% 6 25% 5 *' cOC 732 '2.332 '0945 23.277 14.724 25 264 $ ; 937 s '. 383 104 5- * .93" uC' 9 5*: 5 35 22 CRTX 0742 The company participates in several multi-employer pension plans, which provide benefits to certain employees under collec tive bargaining agreements. Total contributions to these plans were approximately $1.1 million in each of the last three years. Pension costs for the company's international operations are not significant and the assets in the plans exceed the liabilities. At December 31, 1987, the accumulated plan bene fits were $44,008,000 and net assets were $86,108,000. At December 31,1988 all plan assets are invested in listed stocks and bonds. These investments include common stock of the company which represents 4% of plan assets. The cost of providing health care and life insurance benefits on a claims paid basis for certain retired employees was approximately $2,000,000, $1,800,000 and $1,600,000 in 1988, 1987 and 1986, respectively. Miscellaneous--Net hr fears f7oed December 31 > ">?isantist Gan < os$/ on exposal of -3tX3' assets--net 3a ~ ;n sa e y r-arketab'e stS-!' t ~S gf e*crarge gain t'cssi V'^cr.ty -merest recover,- ,-e!a:ed to and sales Other 1988 $1,101 1.462 341 32 S2.936 1987 1986 $ 636 $ 1421 __ 774 -432: -- 175 . 130] (469) 3.500 236 $1 183 $3,095 Accrued Liabilities - De:e~:er 31 h nsusatsst S'.ro;!s ar.d other emp-fovee resatea expenses ~scrar:e Sates allowances ar.o o:~e: -e ateo sccruais merest "axes ot^er rar income -rtress-ona! fees Persions 3 vicend payable 1988 1987 S23.430 12.000 10,628 4.265 2,492 2.401 2.228 - 11,677 S69.121 $20,686 11.106 10.863 4,286 2.7S7 1.836 7.062 5,184 15.504 $79,324 Reserves and Other Liabilities z''. 'ese".e .Vace 3~d st^er c-ne.o,ee bi'~e'".s Minority .n:eres; Ber.surarce 1988 s 4.115 2.488 1,337 2.176 1,551 $11,667 '337 S - ,913 2.791 1 395 -- - $6,099 Short-Term Financing At year-end there were available with domestic and foreign banks $217,000,000 in short-term credit lines of which $169,000,000 were unused at that time. Average compensat ing balances for lines of credit in effect at December 31, 1988 were $390,000 which were satisfied by collected balances in the company's bank accounts. Such compensating balances reflect informal agreements and are not restricted as to withdrawal. Long-Term Financing At December 31 'In thousandsI 1988 Crane Co Subordinated debt 10' :'s Sinking fund debentures due 1994 7% Sinking fund debentures due i 993 73s Debentures due 1994 d5? Convertible debeniures cue 1393 and 1994. convernb'e at S5 55 and $6 39 Otner, or-nc'party cao43. ease sc..nations $ 22,833 8,733 48,032 1.226 3,721 'ctai Cra~e Co 84.545 Subsidiaries 9'-:5c Sinking funa ceoen.tures cue 1399 rtcat.ng rate bank loans Canada due 1990-1996 United States due 1991 United Kingdom due 199) .roust; ai revenue bones Other rc*ud*ng capita" `ease ccugatsons 12.500 16,760 5,900 452 14,801 8.175 Total subsidiaries 58.588 S143.133 1987 $ 27.400 3.733 43 032 - C 5: x K 6;- ' 3 766 5 -CO o cOC 3 629 64;; 6,673 30.32: $191 :?6 Tne company had available si07.236.000 of unused long term credit agreements at year-end At December 31, 1S88. the principal amounts of long-term debt repayments, net of amounts held in treasury, required for the next five years were $14,085,000 in 1989. S 14,461000 in 1990. $18,618,000 in 1991. S 11.212.000 m. 1992 an.c $17886.000 m. 1993 In 1987 the company converted the 85-5e convertible debentures, increasing common snarehoicers' equity by apprcximatelv $73.7 million. During 1985 the company created an .rrevocab'e trust of direct On.ited States gcvernme-'t oDi'gat-ons to satisfy :-e scheduled payments of Drmacai and .meres; on the $10,606 701 outstanding principal amouni of f'e company s o' ;; Sink r: Fjr.a Debentures due 1992 not ">e:a in tne company s treasur. At December 31. 1988 t~ere was $6,063 000 outstanding CRTX 0743 Financial Review ccnfinueri1 During 1988 the company entered into a SI00 million three-year revolving credit agreement. Interest on the debt outstanding is based on the lender's prime or certificate of deposit rate, or on the London Interbank market rate. The credit agreement contains various covenants, the most restric tive of these requires a minimum level of tangible net worth. At December 31,1988, tangible net worth exceeded the required level by $26,641,000. At year-end, the company had no outstanding borrowings under this agreement. At December 31,1988, the aggregate amount of sub sidiary earnings available for dividends to the company was 8112.374,000. Commitments and Contingencies The company leases certain of its warehouse buildings, manufacturing facilities, vehicles and equipment under capital and operating leases with terms of from one to forty years. Certain leases may be renewed for periods of from three to twenty-five years and provide either an option to purchase or reduced annual rental payments of minimal amounts. Future minimum payments, by year, and in the aggregate, under these leases with initial or remam-ng terms of one year or mere consisted of the following at Decsm ber 31. 1988 Capital Leases Operating Leases Mirimum Suolease Income Net 1989 1930 * S91 t3S2 1393 7J*srsanef s 1.783 1.787 1.729 1.702 817 5.159 SI 3.075 10.264 3.422 6.519 4 443 14 255 S 652 $14,206 507 11.544 368 9.783 ;53 8.063 in 5.149 437 18.977 TotSi rnmimjm esse oaynents 12.977 S56.978 S2.233 S67.722 'meres: Present value 3.507, S 9.470* ' S`.220c.e .v rr ;re .oar The weighted average interest rate for capital leases is 5 8% These obligations mature in varying amounts through 2009. Rental expense for all operating leases was S 18.769.000. $18,450,000 and $17,233,000 for 1988, 1987 and 1986. respectively. The cost of assets capitalized under leases is as follows at December 31: M thousinisl Buildings and improvements Machinery and equipment Less accumulated depreciation 1988 $14,264 8,671 22,935 13,334 $ 9,601 1987 $ 1 5,437 8 954 39 13.961 $10430 The company has established a self-insurance program to cover certain public liability costs excluded under deauctcle clauses of its various policies in force. At December 31,1988, the company had received certam proposed notices of adjustment to federal income tax arc was involved in various other claims and legal actions arising .p the ordinary course of business. In the opinion of manage ment, the ultimate disposition of these masters v... -e; -=.= ~ material adverse effect on the comoany s `.na-'cia Income Taxes A reconciliation of income before taxes to me prc. -s.cn ;cr income taxes (federal, state and foreign) is as fellows h ttoasmlsi income before !3xes Domestic Foreign Statutory federal tax at 34% (40% in 1987 and 46% m 1986) Increase (reduction) from Foreign and local taxes Goodwill Non-taxable FSC income Minority interest Non-taxable net gams Other Provision for income taxes 3ercentage of income before taxes 1988 $60,353 21.137 81,490 27,707 3,756 363 (568) - -- 1,046 S32.304 39.6% 1987 $38,222 20 32' 53.541 23 4t5 2.306 3-6 50' * * 5* 12*" 370 S25 337 i4 * 986 s44:c: 333 55 305 35 S53 2*2 653 2'6 630' '23 4s 3\ 24 CRTX 0744 The foregoing provision includes charges for foreign taxes of $9,188,000, $10,347,000, and $5,510,000, and state taxes of $4,147,000, $2,903,000 and $2,835,000 in 1988,1987 and 1986, respectively. The provision for income taxes is composed of the following: tin thousands} Deferred income taxes Current income taxes 1988 $ 1,993 30,311 532,304 1987 $ 3,709 22,128 $25,837 1986 $ 8,618 17,902 526,520 The components of deferred income tax expense are as follows: in thousands) 1988 1987 1986 Excess tax depreciation Inventory capitalization Restructuring and other reserves Amortization of pension reversion Otrer 5 1,690 (862) S 2.849 (1.184) S 4,542 -- (574) -- 1,739 s 1,993 1,474 ~ 570 $ 3 7C9 2.362 1.416 298 S 8,613 Research and Development Product development and engineering costs aggregated approximately $12,000,000, $10,700,000, and $11,200,000 in 1988,1987 and 1986, respectively. In addition, approximately $7,500,000, $8,300,000 and $6,800,000 were received in 1988, 1987 and 1986, respectively for customer sponsored research and development relating to projects within Engi neered Industrial Products Stock Options and Stock Award Plans 4 summary of stock option transactions follows Outstanoing January 1.1938 Vedusa distr.bution acjustment Options granted Octicr.s expired Options exercisea Ojtstard rg December 31. '938 Number of Shares 702,447 229.838 237,800 (42.517) (163.292) 964,276 At December 31, 1988, options for 463,557 shares were exercisable and 485,909 shares were available for grant. Shares and per share prices (ranging from $9.84 to $24.92) have been adjusted for the distribution of Medusa Corporation to shareholders. In 1987, options for 131,398 shares were exercised. The plan is not a compensatory plan which would require a charge to income. In April 1988, the common shareholders approved the 1988 Restricted Stock Award Plan which provides for awards of common stock to key officers and employees, subject to resale restrictions which lapse over a five year period. During the year, 322,766 shares were awarded and 677,234 were avail able for grant at December 31,1988. Compensation expense is determined based on the market value at the time of award and is being amortized over the five year restriction period. Preferred Shares Purchase Rights In July 1988, the company distributed one preferred share pur chase right for each outstanding share of common stock. The company also redeemed its common share purchase rights, distributed to shareholders in May 1986. The preferred r.gnts were not exercisable when granted and may only beccm/ exercisable under certain circumstances involving actual or potential acquisitions of the company's common stock by a person or affiliated persons. Depending upon the circum stances, if the rights become exercisable, the holder may be entitled to purchase shares of the company's Series A Junior Participating Preferred Stock, or shares of common stock of the acquiring person. Preferred shares purchasable upon exercise of the rights will not be redeemable. Each preferred share will be entitled to preferential rights regarding dividend and liquidation payment, voting power, and, in the event of any merger, consolidation or other transaction in which common shares are exchanged, a preferential exchange rate. The rights will remain in existence until June 27, 1998, unless they are earlier terminated, exercised or redeemed. The company has authorized five million shares of $ 01 par value preferred stock. Analysis by Segment of Business An analysis of sales, operating profit, assets, capital expendi tures and depreciation appears on pages 30 and 31 Segment description by products and industries served is given on pages 5 through 15. CRTX 0745 25 Management's Responsibilities for Financial Reporting Independent Auditors Report The accompanying consolidated financial statements of Crane Co. and subsidiaries have been prepared by management in conformity with generally accepted accounting principles and, in the judgment of management, present fairly and consistently, except for the change in the method of accounting for pensions described in the note "Pensions," the company's financial posi tion and results of operations. These statements by necessity include amounts that are based on management's best esti mates and judgments and give due consideration to materiality. The accounting systems and internal accounting controls of the company are designed to provide reasonable assurance that the financial records are reliable for preparing consoli dated financial statements and maintaining accountability for assets and that, in all material respects, assets are safe guarded against loss from unauthorized use or disposition. Qualified personnel throughout the organization maintain and monitor these internal accounting controls on an ongoing basis. In addition, the company's internal audit department systematically reviews the adequacy and effectiveness of the controls and reports thereon. The consolidated financial statements have been audited by Oeloitte Haskins & Sells, independent certified public accountants, whose report appears on this page. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with manage ment and with the company's internal auditors and indepen dent auditors to review matters relating to the quality of financial reporting and internal accounting control and the nature, extent and results of their audits. The company's internal auditors and independent auditors have free access to the Audit Committee. /J.2. R.S. Evans Chairman, Chief Executive Officer and President \ Deloitte Haskins-Sells To the Shareholders of Crane Co. We have audited the accompanying balance sheets of Crane Co. and subsidiaries as of December 31,1988 and 1987 and the related consolidated statements of income, changes in common shareholders' equity, and cash flows for each of the three years in the period ended December 31,1988. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require assur ance about whether the financial statements are free of mate rial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing me accounting management, as well as evaluating the overall financial statement presentation. We believe that otr a_ft provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated finan cial position of Crane Co. and subsidiaries as of December 31. 1988 and 1987, and the consolidated results of its operations in conformity with generally accepted accounting principles. As discussed in the note, "Pensions" in 1987 the Company changed its method of accounting for pensions to conform witn Statement of Financial Accounting Standards Nos. 87 ara 88. hz&rtzz. New York, New York January 23,1989 R.K. Whitley Vice President--Finance and Chief Financial Officer 26 CRTX 0743 Quarterly Results for the Year mm 0-3re 2 es Quarter fa thousands except per share data! 1988 Net Sales--Continuing Operations Gross Profit Income from Continuing Operations Income (Loss) from Segment Distributed to Shareholders Net Income Primary Net Income (Loss) Per Share: Continuing Operations Segment Distributed to Shareholders Net Income Fully Diluted Net Income (Loss) Per Share: Continuing Operations Segment Distributed to Shareholders Net Income 1987131 Net Sales--Continuing Operations Gross Profit Income before Cumulative Effect of a Change in Accounting Cumulative Effect of a Change .n Accounting Income from Continuing Operations Income from Segment Distributed to Shareholders*1 Net Income First Second $275,237 55,804 9,311 (972) $ 8,339 $ .41 (.04) $ .37 $ .41 (.04) $ .37 $315,772 63,739 13,445 7,481 $ 20,926 $ .60 .33 $ .93 $ .59 .33 $ .92 $256,316 49,975 5,561 5,673 11.234 2.967 $ 14,201 $282,397 57,596 9,703 -- 9,703 5,168 $ 14.871 Third $378,258 75,498 13,898 6,788 $ 20,686 $ .62 .30 $ .92 $ .61 .30 $ .91 $284,025 58,072 9.814 -- 9.814 6,900 $ 16,714 Fourth Year $343,869 70,674 12,532 -- $ 12,532 $1,313,136 265,715 49,186 13,297 $ 62,483 $ .56 $ -- $ 56 $ 2 19 .59 2.78 $ 56 $ -- $ .56 $ 2.17 58- 2.75* $276,858 57,086 7.626 -- 7,626 5,874 $ 13,500 $1 .099.536 222.729 32.704. 5.673 38,377 20,909 $ 59,286 Primary Net Income Per Share: Continuing Operations: income before Cumulative Effect of a Change in Accounting Change in Accounting Income from Continuing Operations income from Segment Distributed to Shareholders*1 Net Income $ .27 .27 54 .14 S .68 $ 41 41 22 $ 63 $ 42 42 .29 $ .71 $ 33 $ 33 26 $ .59 $ 1.45* 25* 1 70 .93* 2.63* Fully Diluted Net Income Per Share: Continuing Operations: Income before Cumulative Effect of a Change in Accounting Change in Accounting $ 27 .23 $ 40 - $ 41 $ 33 $ 1 41 24* Income from Continuing Operations Income from Segment Distributed to Shareholders*1 .50 .40 41 33 1 65* .12 .22 29 25 82 Net Income $ .62 $ .62 $ 70 $ 58 $ 2 53* =5'-.rgs s-gr $-iare 'cr re ^3' a'e taseo or re v.e greets average i'utwi o*' $"3-'es o;jista^d rg cr*rg i*e ,ea* iar.rgs cer snare for me gjane^s 3re oaseo cr ve gr'.rC a. X'iyK : $"4'es CLtstartf rg our rg re abaters Acccrd-rgfv re earr.ngs per stare xr re quarters cJo roi equal annua* eanmgs oer snare Restated to refect segment g*sir buteo to $rarenoice*s jCes ;j~j 3've -J a c-a-ge .r*. accoj'n rg xr 3 n or-zsns on asset 'eve'S-on of 53,329 3 16 oef ?-ar, stare n me *rsi quarter 3*\: $ >* *cr re ^ear 5 '4 c<rf * j x i *j*ec s*\re CRTX 0747 27 Management's Discussion and Analysis of Operations and Financial Condition Results of Operations Sales from continuing operations for 1988 were $1,313 million, a 19% increase from the prior year. This increase plus better margins resulted in an operating profit of $95.7 million, an improvement of $20.5 million or 27% from 1987. Operating results of $75.1 million for 1987 were only slightly ahead of 1986 on 5% increase in sales. Income from continuing operations, net of taxes, was $49.2 million in 1988 compared with $32.7 million and $28.8 million in the two prior years, respectively. The increase in earnings, in addition to reflecting the improved operating results, included the reduction of borrowing costs of over $5 million from the 1986 level and the effects of lower U.S. Federal income taxes. Income tax as a percentage of income fell from 48% in 1986 to 44.1% in 1987 and to 39,6% in 1988. At the end of the third quarter of 1988, Medusa Corporation, a wholly-owned cement and aggregates business, was distributed tax-free to shareholders. Net income for 1988 was $62.5 million reflecting Medusa's $13.3 million profit for the first nine months. The 1987 net income of $59.3 million ncluded Medusa's operations for the full year plus $9 million related to a change in accounting for pension reversions as required by SFAS 88. Engineered Industrial Products The Engineered Industrial Products segment registered sharp sales and operating profit increases, with improvement coming from most of its businesses. Sales and operating profits were as fellows' ,W,cn.v Sales Operating Profit 1988 S723.3 81.2 1987 $649.8 55.4 1986 $629.1 62 3 Crane Valve operations worldwide recorded excellent sales gains and much improved operating profit from 1987. The U.S. Valve operation has reduced its operating losses during the last three years despite major write-offs of obsolete inventory. Valve operations in the United Kingdom, Canada and Australia continued to operate satisfactorily. Denning and Chempump's pump businesses both had sales and earnings increases in 1988 as did the water treatment fcusmess of Cochrane Environmental Systems. In 1988 Chempump expanded its regionalized network of strategically located parts and service centers by acquiring a machining and service company in West Virginia. The Canadian plumbing products, with lower housing starts and increased price competition in 1988, had a decrease in sales, while profits remained strong though somewhat lower than the prior year. The Hydro-Aire aircraft components operation registered a strong sales gain and operating profit improved in 1988 from the 1987 level. Order backlog at Hydro-Aire is up 26% over the prior year. National Vendors was a major contributor to the sales and profit improvement in 1988 with vending machine sales up 24% and operating profit more than doubling from 1987 levels. The continued success of this business is the result of new product development, aggressive marketing and improved market share. Kemlite's sales of fiberglass reinforced plastic products for the transportation and construction industries were down slightly in 1988, but earnings continued to be strong CorTec, benefiting from improved markets for its Cberg ass panels for transportation, and more selective sek-rg arc der ating efficiencies, had a profitable year, rather man ;ne esses incurred in the prior two years. Ferguson's U S. and European operations nad bctii sales and operating profit improvements from the disappointing 1987 results due to cost reduction and a broadening of me industry served. Resistoflex, which was relocated in 1987 to two new separate facilities for the industrial and defense operations, nad a modest profit in 1988 as a result of correcting the problems experi enced during the plant start-ups. Defense related businesses showed mixed results for 1988 A drop in Navy contracts was partially offset by orders for fittings for nuclear vessels and improvements at cur precision ordnance operation. Sales in 1987 increased approximately $21 mii -on ever 1986; however, operating profit declined 11% primarily cue to start-up costs related to replacing an old Resistofex facility with two new plants. In addition, higher pension costs were incurred due to the change in accounting The Canadian plumbing, foreign valves and National Vendors businesses arecorded significant sales and operating profit improvement but these gams were offset by decreases at Ferguson a-'c re defense related businesses. 28 CFtTX sr-is Core Co $,,cs c -res Wholesale Distribution The Wholesale Distribution segment's sales increased 31% over 1987 due to the acquisition of Palmer G. Lewis at the end of the second quarter of 1988, as well as increased shipments at Crane Supply Canada. Operating profits declined in 1988 but were above 1986. Sales and operating profits were as follows: ilnmllmsi Sales Operating Profit 1988 S610.4 28.8 1987 S467 4 32.4 1986 $428.7 25.3 Huttig Sash & Door's sales were $470.4 million in 1988, 34% above the 1987 level. Most of the sales increase was due to the acquisition of Palmer G. Lewis at the end of the second quar ter of 1988. The softness of the housing market, start-up costs of new retail outlets in California and Tennessee, and a higher level of lower margin, direct-to-customer shipments were major reasons for the decrease in operating profit for 1988. Crane Supply Canada had a successful year with sales up 25% and operating profits 70% above 1987. Sales of industrial products were strong, which contributed to improved margin r 1988 Sales in 1987 increased 20% over 1986, excluding the United States Crane Supply plumbing and heating distribution opera tions sold m February 1987 while operating profit improved 28%. Both Huttig Sash & Door and Crane Supply Canada contributed to the sales and operating profit improvements. Financial Net interest expense declined slightly from 1987 due to the conversion in Marcn 1987 of the company's 8%% debentures ard interest income from the proceeds of the Medusa dividend, partially offset by short-term borrowings to finance the acqui sition of Palmer G. Lewis Net interest expense in 1987 was S5.1 million less than in 1986, due primarily to the debt conversion in 1987 Miscellaneous income, including a $1.5 million gain on sale of marketable securities, was $2.9 million in 1988 compared with $1 2 million in 1987 In 1986, miscellaneous income amounted to $3 1 million, primarily due to a $3.5 million recovery from sales of land and water rights. The company's effective tax rate for 1988 decreased to 39 5% compared w.tn 44 1 % m 1987 and 48.0% in 1986 due to changes >n the U S tax 'aw. .n particular, the statutory rate. Liquidity and Capital Resources During 1988, the company generated cash flows from operating activities of $139 million, which included an $84 million special dividend from Medusa immediately prior to its distribution to Crane shareholders. The company continued to generate sufficient cash flows from operating activities to finance its acquisition and capital expenditure programs, service its debt and to pay dividends to its shareholders. Expenditures relating to modernization, productivity improvements and expansion of existing busi nesses amounted to $17.9 million, $16.2 million and $15.1 million in 1988, 1987 and 1986, respectively. In addition, acquisitions of new businesses amounted to approximately $48 million in 1988. The current ratio of 2.2 and working capital of $237 million at year end 1988 continue to be strong. Unused lines of credit at year end 1988 were $169 million short-term and $107 million long-term, providing the company with sufficient finan cial flexibility. The company purchased 1.1 million of its snares '"or S276 million in 1988 and 1.7 million shares at a cost of $42 ~.%cn -.n 1987 CRTX 0749 29 Analysis by Segment fit7 thousands} Net Sales: Industry Segments: Engineered Industrial Products Wholesale Distribution Intersegment Sales Geographic Region: United States Canada Other International Interregional Sales Operating Profit: Industry Segments: Engineered Industrial Products Wholesale Distribution Corporate Geographic Region United States Canada Other International Corporate Assets: industry' Segments Engineered Industrial Products Wholesale Distribution Investments Held for Disposal Corporate Geographic Region United States Canada Other International Investments Held for Disposal Corporate Co S .os co' 1988 Amount 1987 % Amount 1986 % Amount '0 $ 723,253 610,418 1,333,671 (20,535) $1,313,136 $ 975,749 216,764 138,696 1,331,209 (18,073) $1,313,136 54 $ 649,815 46 467,352 100 1,117,167 (17,571) $1,099,596 73 $ 811,380 16 183,216 11 116,724 100 1,111,320 (11,724) $1,099,596 58 $ 629,105 42 428,691 100 1,057,796 (14,078) $1,043,718 73 $ 801,169 16 154,007 11 98,542 100 1,053,718 (10,000) $1,043,718 59 41 --10m0m 76 15 9 100 $ 81,205 28,770 109,975 (14,309) $ 95,666 S 82,256 18,757 8,962 109,975 (14,309) S 95,666 74 s 55,396 26 32,435 100 87,831 (12,701) $ 75,130 75 $ 60,954 17 17,654 8 9,223 100 87,831 (12,701) $ 75,130 63 $ 62,277 S 7` 37 25.288 100 87,565 ICO il 2,5211 " $ 75,044 69 $ 71,322 20 11,259 11 4,984 100 87,565 (12.5211 $ 75.044 31 13 6 100 s 395,080 234,034 629,114 -- 52,626 S 681,740 S 464,941 86,670 77,503 629,114 -- 52,626 S 681,740 63 $ 386,710 37 148,505 100 535,215 71,258 28.294 $ 634,767 74 $ 384.030 14 76.233 12 74,952 100 535,215 71,258 28,294 $ 634,767 72 $ 377,579 28 148,503 100 526,082 65,919 20,779 $ 612,780 72 S 406.713 14 58.990 14 60,374 100 526,082 65,919 20,779 $ 612,780 72 28 100 / \* \2 10C 30 CRTX 0750 Analysis by Segment continued! Industry Segments: Engineered Industrial Products Wholesale Distribution Corporate Geographic Region: United States Canada Other International Crore Cj 5-0 S.CS.O if iS Capital Expenditures 1988 1987 1986 $11,825 5,767 273 $17,865 $12,938 3,312 $16,250 $ 9,579 5,441 61 $15,081 1988 Depreciation 1987 1986 $15,913 3,614 217 $19,744 $15,531 2,523 213 $18,267 $13,949 2,210 232 $16,391 $11,479 3,007 3,379 $17,865 $10,485 3,688 2,077 $16,250 $10,335 2,723 2,023 $15,081 $14,051 2,163 3,530 $19,744 $13,006 1,727 3,534 $18,267 $12,049 1,260 3,082 $16,391 Market and Dividend Information-Common Shares Quarter Is: 2nd 3rd 4th New York Stock Exchange Composite Price Per Share* 1988 1987 High Low High Low $25'/< 26% 2 514 25% $15% 22% 22% 21% $24% 24% 27% 27% $17% 19 22 13% A*. 35 **S38 rere accTCx.rrat^ySjOC xs-cerS si Crane Co confer stock. Ac-jstec 'O' o st' Cut on c* V*?j$3 Cc.'ocrat to s-^'e'tciders r- '968 a^o 3>fcr-2 stock scu .n `937 Five Year Summary of Selected Financial Data Dividends Per Share 1988 ^ 1337 $.22% .22 V2 .22% .25 $.92% $20 22": 22% 22% S 87% 'ij-:'Ct;3`. '-rx;5'cs ecs:: srs-e Net Sales Depreciation Operating Profit Interest Expense Income before Taxes Income Taxes Income--Continuing Operations Income Per Common Share-- Continuing Operations: Primary Fully Diluted Dividends Declared Per Common Share: Cash Stock Assets Long-Term Debt -*3tec :c *' set a to snare^cUers scares "or rg rest'actur "g costs of $25 >528 1988 $1,313,136 19,744 95,666 18,842 81,490 (32,304) $ 49,186 1987* $1,099,596 18,267 75,130 19,100 58,541 (25,837) $ 32.704 1986* $1,043,718 16.391 75,044 26,650 55,305 (26,520) s 28,785 1985* $960,702 18.132 38.394** 28.176 20.945 (6.3601 $ 14,585 1984* $655,297 9,854 46,298 14,976 38,964 i9.573) S 29 391 $2.19 2.17 $ .92% -- $681,740 $143,133 $1.45 1.41 $ SflVi -- $634,767 $151,096 $1.40 1.30 $ 78 -- $612,780 $225,931 $ 71 71 $ 71 23c $630,610 $270,501 $1 32 1 29 $ 70 2% $435,938 si 30,376 CRTX 0751 3? Operations Engineered Industrial Products Chempump Division Warrington, Pennsylvania Cochrane Environmental Systems Division King of Prussia, Pennsylvania CorTec Company Washington Court House, Ohio Crane Australia Pty Limited Sydney, Australia Crane Canada, Inc. Valve Division Plumbing Division Montreal, Canada Crane Defense Systems St, Louts, Missouri Crane Ltd. London, England Crare Midwest St. Louis, Missouri Demtng Division Salem, Ohio Ferguson St, Louis, Missouri Ferguson Machine Company, S.A Brame-le-Chateau, Belgium Hydro-Aire Dnision Burbank, California Kemlite Company ,,oliet. Illinois National Vendors St. Louis, Missouri National Rejectors, Inc., GmbH Buxtehude, West Germany Polyflon Company New Rochelle, New York Resistoflex/Defense Jacksonville, Florida Resistoflex/lndustrial Marion, North Carolina Unidynamics/Phoenix, Inc. Phoenix, Arizona Valve Division King of Prussia, Pennsylvania Wholesale Distribution Huttig Sash & Door Co Chesterfield. Missouri Crane Canada. Inc. Crane Supply Division Montreal, Canada / CRTX 3~;2 CRANE _____ Crane Co. 757 Third Avenue New York, New York 10017 I Prrted in U SA CRTX 0754