Form 8-K CRANE CO /DE/ For: Jan 26
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
�
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 26, 2015
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CRANE CO.
(Exact name of registrant as specified in its charter)
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DELAWARE
(State or other jurisdiction of incorporation)
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1-1657 | � | 13-1952290 |
(Commission File Number) | � | (IRS Employer Identification No.) |
100 First Stamford Place, Stamford, CT | � | 06902 |
(Address of principal executive offices) | � | (Zip Code) |
Registrants telephone number, including area code: (203)�363-7300
N/A
(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
� | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
� | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
� | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
� | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
SECTION 2 FINANCIAL INFORMATION
Item�2.02 | Results of Operations and Financial Condition. |
On January 26, 2015, Crane Co. announced its results of operations for the quarter ended December 31, 2014. Copies of the related press release and quarterly financial data supplement are being furnished as Exhibits 99.1 and 99.2 to this Form 8-K.
The information furnished under Item�2.02 of this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, is not deemed to be filed for purposes of Section�18 of the Securities Exchange Act of 1934, as amended.
SECTION 8 OTHER EVENTS
Item�8.01 | Other Events |
Information Regarding Claims and Costs in the Tort System
As of December�31, 2014, the Company was a defendant in cases filed in numerous state and federal courts alleging injury or death as a result of exposure to asbestos. Activity related to asbestos claims during the periods indicated was as follows:
For the year ended December 31, | 2014 | 2013 | 2012 | ||||||
Beginning claims | 51,490 | 56,442 | 58,658 | ||||||
New claims | 2,743 | 2,950 | 3,542 | ||||||
Settlements | (992 | ) | (1,142 | ) | (1,030 | ) | |||
Dismissals | (5,734 | ) | (6,762 | ) | (4,919 | ) | |||
MARDOC claims* | 2 | 191 | |||||||
Ending claims | 47,507 | 51,490 | 56,442 | ||||||
* As of January 1, 2010, the Company was named in 36,448 maritime actions which had been administratively dismissed by the United States District Court for the Eastern District of Pennsylvania ("MARDOC claims"), and therefore were not classified as active claims. In addition, the Company was named in 8 new maritime actions in 2010 (also not classified as active claims). By settlement agreement of December 30, 2013, the Company resolved all of the remaining MARDOC claims with plaintiffs counsel. The agreement resulted in the dismissal of all MARDOC claims against the Company.
Of the 47,507 pending claims as of December�31, 2014, approximately 18,700 claims were pending in New York, approximately 9,300 claims were pending in Texas, approximately 5,100 claims were pending in Mississippi, and approximately 300 claims were pending in Ohio, all jurisdictions in which legislation or judicial orders restrict the types of claims that can proceed to trial on the merits.
Substantially all of the claims the Company resolves are either dismissed or concluded through settlements. To date, the Company has paid three�judgments�arising from adverse jury verdicts in asbestos matters.�The first payment, in the amount of $2.54 million, was made on July�14, 2008, approximately two years after the adverse verdict in the Joseph Norris matter in California, after the Company had exhausted all post-trial and appellate remedies.�The second payment, in the amount of $0.02 million, was made in June 2009 after an adverse verdict in the Earl Haupt case in Los Angeles, California on April�21, 2009. The third payment, in the amount of�$0.9 million, was made in June 2014, approximately two years after the adverse verdict in the William Paulus matter in California, after the Company had exhausted all post-trial and appellate remedies.
The Company has tried several cases resulting in defense verdicts by the jury or directed verdicts for the defense by the court. The Company further has pursued appeals of certain adverse jury verdicts that have resulted in�reversals in favor of the defense.
On March�23, 2010, a Philadelphia, Pennsylvania, state court jury found the Company responsible for a 1/11th share of a $14.5 million verdict in the James Nelson claim, and for a 1/20th share of a $3.5 million verdict in the Larry Bell claim. On February�23, 2011, the court entered judgment on the verdicts in the amount of $0.2 million against the Company, only, in Bell, and in the amount of $4.0 million,�jointly, against the Company and two other defendants in Nelson, with additional interest in the amount of $0.01 million being assessed against the Company, only, in Nelson.�All defendants, including the Company, and the plaintiffs took timely appeals of certain aspects of those judgments.� The Company resolved the Bell appeal by settlement, which is reflected in the settled claims for 2012. On September 5, 2013, a panel of the Pennsylvania Superior Court, in a 2-1 decision, vacated the Nelson verdict against all defendants, reversing and remanding for a new trial.� Plaintiffs requested a rehearing in the Superior Court and by order dated November 18, 2013, the Superior Court vacated the panel opinion, and granted en banc reargument. On December 23, 2014, the Superior Court issued a second opinion reversing the jury verdict.
On August�17, 2011, a New York City state court jury found the Company responsible for a 99% share of a $32 million verdict on the Ronald Dummitt claim. The Company filed post-trial motions seeking to overturn the verdict, to grant a new trial, or to
reduce the damages, which the Company argued were excessive under New York appellate case law governing awards for non-economic losses. The Court held oral argument on these motions on October�18, 2011 and issued a written decision on August 21, 2012 confirming the jury's liability findings but reducing the award of damages to $8 million.� At plaintiffs' request, the Court entered a judgment�in the�amount of $4.9 million against�the Company, taking into account settlement offsets and accrued interest under New York law.� The Company appealed, and the judgment was affirmed in a 3-2 decision and order dated July 3, 2014. The Company has appealed to the New York Court of Appeals. The parties' briefing has concluded and oral argument will be heard in 2015.
On March�9, 2012, a Philadelphia, Pennsylvania, state court jury found the Company responsible for a 1/8th share of a $123,000 verdict in the Frank Paasch claim. The Company and plaintiffs filed post-trial motions. On May�31, 2012, on plaintiffs motion, the Court entered an order dismissing the claim against the Company, with prejudice, and without any payment.
On August 29, 2012, the Company received an adverse verdict in the William Paulus claim in Los Angeles, California. The jury found that the Company was�responsible for ten percent (10%) of plaintiffs' non-economic damages�of $6.5�million, plus a portion�of plaintiffs' economic damages of�$0.4 million. Based on California court rules regarding allocation of damages, judgment�was entered in the amount of $0.8 million against the Company.� The Company filed post-trial motions requesting judgment in the Company's favor notwithstanding the jury's verdict, which were denied. The Company appealed, and the judgment was affirmed by order dated February 21, 2014. The Company sought review of certain aspects of the ruling before the California Supreme Court, and review was denied.� Having exhausted all post-trial and appellate remedies, the Company in June 2014 paid to plaintiffs�the amount of $0.9 million,�the judgment�including interest, and this amount is included in second quarter�indemnity totals.
On October 23, 2012, the Company received an adverse verdict in the Gerald Suttner claim in Buffalo, New York. The jury found that the Company was responsible for four percent (4%) of plaintiffs' damages of $3 million.� The Company filed post-trial motions requesting judgment in the Company's favor notwithstanding the jury's verdict, which were denied. �The court entered a judgment of $0.1 million against the Company. The Company appealed, and the judgment was affirmed by order dated March 21, 2014. The Company sought reargument of this decision, which was denied.� The Company sought review before the New York Court of Appeals, which was accepted in the fourth quarter of 2014. Oral argument will be heard in 2015.
On November 28, 2012, the Company received an adverse verdict in the James Hellam claim in Oakland, CA.� The jury found that the Company was responsible for seven percent (7%) of plaintiffs'�non-economic damages of $4.5 million, plus a portion of their economic damages of $0.9 million.� Based on California court rules regarding allocation of damages, judgment was entered against the Company in the amount of $1.282 million.� The Company filed post-trial motions requesting judgment in the Company's favor notwithstanding the jury's verdict and also requesting that settlement offsets be applied to reduce the judgment in accordance with California law. �On January 31, 2013, the court entered an order disposing partially of that motion. On March 1, 2013, the Company filed an appeal regarding the portions of the motion that were denied. The court entered judgment against the Company in the amount of $1.1 million. The Company appealed. By opinion dated April 16, 2014, the Court of Appeal affirmed the finding of liability against the Company, and the California Supreme Court denied review of this ruling. The Court of Appeal reserved the arguments relating to recoverable damages to a subsequent appeal that remains pending.
On February 25, 2013, a Philadelphia, Pennsylvania, state court jury found the Company responsible for a 1/10th share of a $2.5 million verdict in the Thomas Amato claim and a 1/5th share of a $2.3 million verdict in the Frank Vinciguerra claim, which were consolidated for trial. ��The Company filed post-trial motions requesting judgments in the Company's favor notwithstanding the jury's verdicts or new trials, and also requesting that settlement offsets be applied to reduce the judgment in accordance with Pennsylvania law. �These motions were denied.� The Company has appealed.
On March 1, 2013, a New York City state court jury entered a $35 million verdict against the Company in the Ivo Peraica claim. The Company filed post-trial motions seeking to overturn the verdict, to grant a new trial, or to reduce the damages, which the Company argues were excessive under New York appellate case law governing awards for non-economic losses and further were subject to settlement offsets. �After the trial court remitted the verdict to $18 million, but otherwise denied the Companys post-trial motion, judgment also entered against the Company in the amount of $10.6 million (including interest). The Company has appealed. The Company has taken a separate appeal of the trial courts denial of its summary judgment motion. The Court has consolidated the appeals, which were heard in the fourth quarter of 2014.
On July 31, 2013,�a Buffalo, New York�state court jury entered a $3.1 million�verdict against the Company in the Lee Holdsworth� claim.� The Company filed post-trial motions seeking to overturn the verdict, to grant a new trial, or to reduce the damages, which the Company argues were excessive under New York appellate case law governing awards for non-economic losses and further were subject to settlement offsets.��Post-trial motions were denied, and the court will set a hearing to assess
the amount of damages. Plaintiffs have requested judgment in the amount of $1.1 million. The Company plans to pursue an appeal if necessary.
On September 11, 2013, a Columbia, South Carolina state court jury in the Lloyd Garvin claim entered an $11 million verdict for compensatory damages against the Company and two other defendants jointly, and also awarded exemplary damages against the Company in the amount of $11 million.� The jury also awarded exemplary damages against both other defendants.� The Company filed post-trial motions seeking to overturn the verdict, which were denied, except that the Court remitted the compensatory damages award of $2.5 million and exemplary damages award of $3.5 million. The Company plans to pursue an appeal if necessary.
On September 17, 2013, a Fort Lauderdale, Florida state court jury in the Richard DeLisle claim found the Company responsible for 16 percent of an $8 million verdict.� The trial court denied all parties post-trial motions, and entered judgment against the Company in the amount of $1.3 million. The Company has appealed.
On June 16, 2014,�a New York City state court jury entered a $15 million verdict against the Company in the Ivan Sweberg claim and a $10 million verdict against the Company in the Selwyn Hackshaw claim.� The two claims were consolidated for trial.��The Company filed post-trial motions seeking to overturn the verdicts, to grant�new trials, or to reduce the damages, which were denied, except that the court reduced the Sweberg award to $10 million, and reduced the Hackshaw award to $6 million. The Company plans to pursue appeals if necessary.
Such judgment amounts are not included in the Company's incurred costs until all available appeals are exhausted and the final payment amount is determined.
The gross settlement and defense costs incurred (before insurance recoveries and tax effects) for the Company for the years ended December 31, 2014, 2013 and 2012 totaled $81.1 million, $90.8 million and $96.1 million, respectively. In contrast to the recognition of settlement and defense costs, which reflect the current level of activity in the tort system, cash payments and receipts generally lag the tort system activity by several months or more, and may show some fluctuation from quarter to quarter. Cash payments of settlement amounts are not made until all releases and other required documentation are received by the Company, and reimbursements of both settlement amounts and defense costs by insurers may be uneven due to insurer payment practices, transitions from one insurance layer to the next excess layer and the payment terms of certain reimbursement agreements. The Companys total pre-tax payments for settlement and defense costs, net of funds received from insurers, for the years ended December 31, 2014, 2013 and 2012 totaled $61.3 million, $62.8 million and $78.0 million, respectively. Detailed below are the comparable amounts for the periods indicated.
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(in millions) For the year ended December 31, | 2014 | 2013 | 2012 | |||||||||
Settlement / indemnity costs incurred (1) | $ | 25.3 | $ | 31.6 | $ | 37.5 | ||||||
Defense costs incurred (1) | 55.9 | 59.1 | 58.7 | |||||||||
Total costs incurred | $ | 81.1 | $ | 90.8 | $ | 96.1 | ||||||
Settlement / indemnity payments | $ | 27.3 | $ | 37.8 | $ | 38.0 | ||||||
Defense payments | 57.7 | 59.5 | 59.8 | |||||||||
Insurance receipts | (23.8 | ) | (34.5 | ) | (19.8 | ) | ||||||
Pre-tax cash payments | $ | 61.3 | $ | 62.8 | $ | 78.0 | ||||||
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(1) | Before insurance recoveries and tax effects. |
The amounts shown for settlement and defense costs incurred, and cash payments, are not necessarily indicative of future period amounts, which may be higher or lower than those reported.
Cumulatively through December�31, 2014, the Company has resolved (by settlement or dismissal) approximately 107,000 claims, not including the MARDOC claims referred to above. The related settlement cost incurred by the Company and its insurance carriers is approximately $425 million, for an average settlement cost per resolved claim of approximately $4,000. The average settlement cost per claim resolved during the years ended December 31, 2014, 2013 and 2012 was $3,800, $3,300 and $6,300 respectively. Because claims are sometimes dismissed in large groups, the average cost per resolved claim, as well as the number of open claims, can fluctuate significantly from period to period. In addition to large group dismissals, the nature of the disease and corresponding settlement amounts for each claim resolved will also drive changes from period to period in the average settlement cost per claim. Accordingly, the average cost per resolved claim is not considered in the Companys
periodic review of its estimated asbestos liability. For a discussion regarding the four most significant factors affecting the liability estimate, see Effects on the Condensed Consolidated Financial Statements .
Effects on the Condensed Consolidated Financial Statements
The Company has retained the firm of Hamilton, Rabinovitz�& Associates, Inc. ( HR&A ), a nationally recognized expert in the field, to assist management in estimating the Companys asbestos liability in the tort system. HR&A reviews information provided by the Company concerning claims filed, settled and dismissed, amounts paid in settlements and relevant claim information such as the nature of the asbestos-related disease asserted by the claimant, the jurisdiction where filed and the time lag from filing to disposition of the claim. The methodology used by HR&A to project future asbestos costs is based largely on the Companys experience during a base reference period of eleven quarterly periods (consisting of the two full preceding calendar years and three additional quarterly periods to the estimate date) for claims filed, settled and dismissed. The Companys experience is then compared to the results of widely used previously conducted epidemiological studies estimating the number of individuals likely to develop asbestos-related diseases. Those studies were undertaken in connection with national analyses of the population of workers believed to have been exposed to asbestos. Using that information, HR&A estimates the number of future claims that would be filed against the Company and estimates the aggregate settlement or indemnity costs that would be incurred to resolve both pending and future claims based upon the average settlement costs by disease during the reference period. This methodology has been accepted by numerous courts. After discussions with the Company, HR&A augments its liability estimate for the costs of defending asbestos claims in the tort system using a forecast from the Company which is based upon discussions with its defense counsel. Based on this information, HR&A compiles an estimate of the Companys asbestos liability for pending and future claims, based on claim experience during the reference period and covering claims expected to be filed through the indicated forecast period. The most significant factors affecting the liability estimate are (1) the number of new mesothelioma claims filed against the Company, (2) the average settlement costs for mesothelioma claims, (3) the percentage of mesothelioma claims dismissed against the Company and (4) the aggregate defense costs incurred by the Company. These factors are interdependent, and no one factor predominates in determining the liability estimate. Although the methodology used by HR&A can be applied to show claims and costs for periods subsequent to the indicated period (up to and including the endpoint of the asbestos studies referred to above), management believes that the level of uncertainty regarding the various factors used in estimating future asbestos costs is too great to provide for reasonable estimation of the number of future claims, the nature of such claims or the cost to resolve them for years beyond the indicated estimate.
In the Companys view, the forecast period used to provide the best estimate for asbestos claims and related liabilities and costs is a judgment based upon a number of trend factors, including the number and type of claims being filed each year; the jurisdictions where such claims are filed, and the effect of any legislation or judicial orders in such jurisdictions restricting the types of claims that can proceed to trial on the merits; and the likelihood of any comprehensive asbestos legislation at the federal level. In addition, the dynamics of asbestos litigation in the tort system have been significantly affected over the past five to ten years by the substantial number of companies that have filed for bankruptcy protection, thereby staying any asbestos claims against them until the conclusion of such proceedings, and the establishment of a number of post-bankruptcy trusts for asbestos claimants, which are estimated to provide $36 billion for payments to current and future claimants. These trend factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and the related best estimate of the Companys asbestos liability, and these effects do not move in a linear fashion but rather change over multi-year periods. Accordingly, the Companys management continues to monitor these trend factors over time and periodically assesses whether an alternative forecast period is appropriate.
Each quarter, HR&A compiles an update based upon the Companys experience in claims filed, settled and dismissed during the updated reference period (consisting of the preceding eleven quarterly periods) as well as average settlement costs by disease category (mesothelioma, lung cancer, other cancer, and non-malignant conditions including asbestosis) during that period. In addition to this claims experience, the Company also considers additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. As part of this process, the Company also takes into account trends in the tort system such as those enumerated above. Management considers all these factors in conjunction with the liability estimate of HR&A and determines whether a change in the estimate is warranted.
Liability Estimate. With the assistance of HR&A, effective as of December�31, 2011, the Company updated and extended its estimate of the asbestos liability, including the costs of settlement or indemnity payments and defense costs relating to currently pending claims and future claims projected to be filed against the Company through 2021. The Companys previous estimate was for asbestos claims filed or projected to be filed through 2017. As a result of this updated estimate, the Company recorded an additional liability of $285 million as of December�31, 2011. The Companys decision to take this action at such date was based on several factors which contribute to the Companys ability to reasonably estimate this liability for the additional period noted. First, the number of mesothelioma claims (which although constituting approximately 8% of the Companys total
pending asbestos claims, have accounted for approximately 90% of the Companys aggregate settlement and defense costs) being filed against the Company and associated settlement costs have recently stabilized. In the Companys opinion, the outlook for mesothelioma claims expected to be filed and resolved in the forecast period is reasonably stable. Second, there have been favorable developments in the trend of case law which has been a contributing factor in stabilizing the asbestos claims activity and related settlement costs. Third, there have been significant actions taken by certain state legislatures and courts over the past several years that have reduced the number and types of claims that can proceed to trial, which has been a significant factor in stabilizing the asbestos claims activity. Fourth, the Company has now entered into coverage-in-place agreements with almost all of its excess insurers, which enables the Company to project a more stable relationship between settlement and defense costs paid by the Company and reimbursements from its insurers. Taking all of these factors into account, the Company believes that it can reasonably estimate the asbestos liability for pending claims and future claims to be filed through 2021. While it is probable that the Company will incur additional charges for asbestos liabilities and defense costs in excess of the amounts currently provided, the Company does not believe that any such amount can be reasonably estimated beyond 2021. Accordingly, no accrual has been recorded for any costs which may be incurred for claims which may be made subsequent to 2021.
Management has made its best estimate of the costs through 2021 based on the analysis by HR&A completed in January 2012. Through December�31, 2014, the Companys actual experience during the updated reference period for mesothelioma claims filed and dismissed generally approximated the assumptions in the Companys liability estimate. In addition to this claims experience, the Company considered additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. Based on this evaluation, the Company determined that no change in the estimate was warranted for the period ended December�31, 2014. Nevertheless, if certain factors show a pattern of sustained increase or decrease, the liability could change materially; however, all the assumptions used in estimating the asbestos liability are interdependent and no single factor predominates in determining the liability estimate. Because of the uncertainty with regard to and the interdependency of such factors used in the calculation of its asbestos liability, and since no one factor predominates, the Company believes that a range of potential liability estimates beyond the indicated forecast period cannot be reasonably estimated.
A liability of $894 million was recorded as of December�31, 2011 to cover the estimated cost of asbestos claims now pending or subsequently asserted through 2021, of which approximately 80% is attributable to settlement and defense costs for future claims projected to be filed through 2021. The liability is reduced when cash payments are made in respect of settled claims and defense costs. The liability was $614 million as of December�31, 2014. It is not possible to forecast when cash payments related to the asbestos liability will be fully expended; however, it is expected such cash payments will continue for a number of years past 2021, due to the significant proportion of future claims included in the estimated asbestos liability and the lag time between the date a claim is filed and when it is resolved. None of these estimated costs have been discounted to present value due to the inability to reliably forecast the timing of payments. The current portion of the total estimated liability at December�31, 2014 was $79 million and represents the Companys best estimate of total asbestos costs expected to be paid during the twelve-month period. Such amount is based upon the HR&A model together with the Companys prior year payment experience for both settlement and defense costs.
Insurance Coverage and Receivables. Prior to 2005, a significant portion of the Companys settlement and defense costs were paid by its primary insurers. With the exhaustion of that primary coverage, the Company began negotiations with its excess insurers to reimburse the Company for a portion of its settlement and/or defense costs as incurred. To date, the Company has entered into agreements providing for such reimbursements, known as coverage-in-place , with eleven of its excess insurer groups. Under such coverage-in-place agreements, an insurers policies remain in force and the insurer undertakes to provide coverage for the Companys present and future asbestos claims on specified terms and conditions that address, among other things, the share of asbestos claims costs to be paid by the insurer, payment terms, claims handling procedures and the expiration of the insurers obligations. Similarly, under a variant of coverage-in-place, the Company has entered into an agreement with a group of insurers confirming the aggregate amount of available coverage under the subject policies and setting forth a schedule for future reimbursement payments to the Company based on aggregate indemnity and defense payments made. In addition, with ten of its excess insurer groups, the Company entered into policy buyout agreements, settling all asbestos and other coverage obligations for an agreed sum, totaling $82.5 million in aggregate. Reimbursements from insurers for past and ongoing settlement and defense costs allocable to their policies have been made in accordance with these coverage-in-place and other agreements. All of these agreements include provisions for mutual releases, indemnification of the insurer and, for coverage-in-place, claims handling procedures. With the agreements referenced above, the Company has concluded settlements with all but one of its solvent excess insurers whose policies are expected to respond to the aggregate costs included in the updated liability estimate. That insurer, which issued a single applicable policy, has been paying the shares of defense and indemnity costs the Company has allocated to it, subject to a reservation of rights. There are no pending legal proceedings between the Company and any insurer contesting the Companys asbestos claims under its insurance policies.
In conjunction with developing the aggregate liability estimate referenced above, the Company also developed an estimate of probable insurance recoveries for its asbestos liabilities. In developing this estimate, the Company considered its coverage-in-place and other settlement agreements described above, as well as a number of additional factors. These additional factors include the financial viability of the insurance companies, the method by which losses will be allocated to the various insurance policies and the years covered by those policies, how settlement and defense costs will be covered by the insurance policies and interpretation of the effect on coverage of various policy terms and limits and their interrelationships. In addition, the timing and amount of reimbursements will vary because the Companys insurance coverage for asbestos claims involves multiple insurers, with different policy terms and certain gaps in coverage. In addition to consulting with legal counsel on these insurance matters, the Company retained insurance consultants to assist management in the estimation of probable insurance recoveries based upon the aggregate liability estimate described above and assuming the continued viability of all solvent insurance carriers. Based upon the analysis of policy terms and other factors noted above by the Companys legal counsel, and incorporating risk mitigation judgments by the Company where policy terms or other factors were not certain, the Companys insurance consultants compiled a model indicating how the Companys historical insurance policies would respond to varying levels of asbestos settlement and defense costs and the allocation of such costs between such insurers and the Company. Using the estimated liability as of December�31, 2011 (for claims filed or expected to be filed through 2021), the insurance consultants model forecasted that approximately 25% of the liability would be reimbursed by the Companys insurers. While there are overall limits on the aggregate amount of insurance available to the Company with respect to asbestos claims, those overall limits were not reached by the total estimated liability currently recorded by the Company, and such overall limits did not influence the Company in its determination of the asset amount to record. The proportion of the asbestos liability that is allocated to certain insurance coverage years, however, exceeds the limits of available insurance in those years. The Company allocates to itself the amount of the asbestos liability (for claims filed or expected to be filed through 2021) that is in excess of available insurance coverage allocated to such years. An asset of $225 million was recorded as of December�31, 2011 representing the probable insurance reimbursement for such claims expected through 2021. The asset is reduced as reimbursements and other payments from insurers are received. The asset was $147 million as of December�31, 2014.
The Company reviews the aforementioned estimated reimbursement rate with its insurance consultants on a periodic basis in order to confirm its overall consistency with the Companys established reserves. The reviews encompass consideration of the performance of the insurers under coverage-in-place agreements and the effect of any additional lump-sum payments under policy buyout agreements. Since December 2011, there have been no developments that have caused the Company to change the estimated 25% rate, although actual insurance reimbursements vary from period to period, and will decline over time, for the reasons cited above.
Uncertainties. Estimation of the Companys ultimate exposure for asbestos-related claims is subject to significant uncertainties, as there are multiple variables that can affect the timing, severity and quantity of claims and the manner of their resolution. The Company cautions that its estimated liability is based on assumptions with respect to future claims, settlement and defense costs based on past experience that may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would substantial adverse verdicts at trial that withstand appeal. A legislative solution, structured settlement transaction, or significant change in relevant case law could also change the estimated liability.
The same factors that affect developing estimates of probable settlement and defense costs for asbestos-related liabilities also affect estimates of the probable insurance reimbursements, as do a number of additional factors. These additional factors include the financial viability of the insurance companies, the method by which losses will be allocated to the various insurance policies and the years covered by those policies, how settlement and defense costs will be covered by the insurance policies and interpretation of the effect on coverage of various policy terms and limits and their interrelationships. In addition, due to the uncertainties inherent in litigation matters, no assurances can be given regarding the outcome of any litigation, if necessary, to enforce the Companys rights under its insurance policies or settlement agreements.
Many uncertainties exist surrounding asbestos litigation, and the Company will continue to evaluate its estimated asbestos-related liability and corresponding estimated insurance reimbursement as well as the underlying assumptions and process used to derive these amounts. These uncertainties may result in the Company incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if the number of claims and settlement and defense costs change significantly, or if there are significant developments in the trend of case law or court procedures, or if legislation or another alternative solution is implemented; however, the Company is currently unable to estimate such future changes and, accordingly, while it is probable that the Company will incur additional charges for asbestos liabilities and defense costs in excess of the amounts currently provided, the Company does not believe that any such amount can be reasonably determined beyond 2021. Although the resolution of these claims may take many years, the effect on the results of operations, financial position and cash flow in any given period from a revision to these estimates could be material.
SECTION 9 FINANCIAL STATEMENTS AND EXHIBITS
Item�9.01. | Financial Statements and Exhibits. |
(a) | �� | None | |
(b) | �� | None | |
(c) | �� | None | |
(d) | �� | Exhibits | |
99.1 | �� | Earnings Press Release dated January 26, 2015, issued by Crane Co. | |
99.2 | �� | Crane Co. Quarterly Financial Data Supplement for the quarter ended December 31, 2014 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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� | CRANE CO. | ||||
January 26, 2015 | � | � | |||
� | By: | � | /s/ Richard A. Maue | ||
� | � | Richard A. Maue | |||
Vice President - Finance | |||||
� | � | Chief Financial Officer | |||
EXHIBIT INDEX
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Exhibit No. | �� | Description | |
99.1 | �� | Earnings Press Release dated January 26, 2015, issued by Crane Co. | |
99.2 | �� | Crane Co. Quarterly Financial Data Supplement for the quarter ended December 31, 2014 | |
���������
Exhibit 99.1 | ||||
Crane Co. | News | |||
Contact: | ||||
Jason D. Feldman | ||||
Director, Investor Relations | ||||
203-363-7329 | ||||
www.craneco.com | ||||
Crane Co. Reports Fourth Quarter Results and Provides 2015 EPS Guidance
Fourth Quarter 2014 Highlights:
" | Excluding Special Items, earnings per diluted share (EPS) of $1.13 increased 9% compared to 2013 (GAAP EPS of $0.95 increased 13% compared to 2013) |
" | Sales of $731 million increased 7.2% compared to 2013, with flat core sales |
" | Introducing 2015 EPS guidance of $4.45-$4.65, excluding Special Items (GAAP EPS guidance of $4.32-$4.52) |
" | Incremental repositioning actions announced in Fluid Handling |
" | Raising 2016 MEI synergy target to $33 million, from $25 million |
" | Completed $50 million of share repurchases during the fourth quarter of 2014 |
STAMFORD, CONNECTICUT - January 26, 2015 - Crane Co. (NYSE: CR), a diversified manufacturer of highly engineered industrial products, reported fourth quarter 2014 earnings of $0.95 per diluted share, compared to $0.84 per share in the fourth quarter of 2013. Fourth quarter 2014 results included Special Items, net, of $11.0 million in after tax charges, or $0.18 per diluted share. Fourth quarter 2013 results included Special Items, net, of $11.9 million in after tax charges, or $0.20 per diluted share. Excluding these Special Items in both years, fourth quarter 2014 earnings per diluted share increased 9% to $1.13, compared to $1.04 in the fourth quarter of 2013. As expected, fourth quarter 2014 earnings included a $0.05 per share benefit associated with the reinstatement of the R&D tax credit in the United States. (Please see the attached Non-GAAP Financial Measures tables for additional details.)
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Special Items in the fourth quarter of 2014 consisted of the following after-tax charges: $9.9 million, or $0.17 per share, related to repositioning charges, reflecting both previously announced actions, as well as additional cost reduction measures in Fluid Handling; $4.6 million, or $0.08 per share, of integration-related charges associated with the MEI acquisition; and a $3.5 million gain, or $0.06 per share, related to a real estate divestiture. Special Items in the fourth quarter of 2013 included net costs of $11.9 million, or $0.20 per share, related to the acquisition of MEI.
Fourth quarter 2014 sales were $730.7 million, an increase of 7.2% compared to $681.4 in the fourth quarter of 2013. The sales growth was comprised of flat core sales ; sales from acquisitions, net of divestitures, of $68.0 million, or 10.0%; partially offset by unfavorable foreign exchange of $18.8 million, or 2.8%.
Operating profit in the fourth quarter increased to $89.6 million, up 7.8% compared to the fourth quarter of 2013. Excluding Special Items, fourth quarter operating profit increased to $107.3 million, up 9.5% compared to the fourth quarter of 2013. (Please see the attached Non-GAAP Financial Measures tables.)
Full Year 2014 Results
Full year 2014 earnings per diluted share were $3.23, compared to $3.73 in 2013. Excluding Special Items, 2014 earnings per diluted share increased 6.6% to $4.45, compared to $4.18 in 2013. Full year 2014 earnings per diluted share included a $0.05 benefit associated with the reinstatement of the R&D tax credit in the United States compared to a $0.10 benefit in 2013. (Please see the attached Non-GAAP Financial Measures tables.)
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Total sales in 2014 were $2.92 billion, an increase of 12.7% from 2013. The sales growth was comprised of a core sales increase of $8.6 million, or 0.3%; sales from acquisitions, net of divestitures, of $332.1 million, or 12.8%; partially offset by unfavorable foreign exchange of $11.0 million, or -0.4%.
Operating profit for the full year 2014 was $316.3 million, compared to $347.9 million in 2013. Excluding Special Items, operating profit in 2014 increased 13.5% to $426.1 million. (Please see the attached Non-GAAP Financial Measures tables.)
Our fourth quarter results were in line with our most recent guidance, said Max Mitchell, Crane Co. President and Chief Executive Officer. Our adjusted full year operating margin was strong at 14.6%, reflecting solid execution and strong productivity in a challenging growth environment. I am pleased with our progress on a number of fronts, most notably with the integration of MEI, where we exceeded our $0.20 EPS accretion target. In addition, we secured several important new program wins at Aerospace & Electronics, and drove strong operating margin expansion at Fluid Handling, reaching 15.6%, excluding Special Items, reflecting a 50 basis point improvement over last year.
However, global growth was a challenge for us throughout the year, and we expect the difficult revenue environment to persist into 2015, driven by a decline in our process valve business in Fluid Handling. This challenge will be exacerbated by unfavorable foreign exchange and higher pension expense. In response, we have initiated incremental repositioning actions at Fluid Handling and identified additional synergy opportunities related to the MEI acquisition. Reflecting our confidence in our longer-term outlook, we repurchased $50 million of Crane shares during the fourth quarter. Considering these factors, we expect earnings per diluted share, excluding Special Items, in a range of flat to up 5% compared to 2014. (Please see the attached Non-GAAP Financial Measures tables.)
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Cash Flow and Other Financial Metrics
Cash provided by operating activities for the fourth quarter of 2014 was $150.5 million, compared to $148.4 million in the fourth quarter of 2013. Cash provided by operating activities for the full year 2014 was $264.0 million, compared to $239.4 million in 2013. Capital expenditures in the fourth quarter of 2014 were $11.6 million, compared to $10.4 million in the fourth quarter of 2013. Capital expenditures for the full year 2014 were $43.7 million, compared to $29.5 million in 2013. The Company repurchased 812,793 shares of its common stock during the fourth quarter at a cost of $50 million. The Companys cash position was $346.3 million at December 31, 2014, compared to $270.6 million at December 31, 2013. Total debt was $850 million at December 31, 2014, compared to $875 million at December 31, 2013.
Segment Results
All comparisons detailed in this section refer to operating results for the fourth quarter 2014 versus the fourth quarter 2013, excluding Special Items.
Fluid Handling
Fourth Quarter | Change | ||||||||||||||
(dollars in millions) | 2014 | 2013 | |||||||||||||
Sales | $ | 313.9 | $ | 319.7 | $ | (5.8 | ) | -1.8 | �% | ||||||
Operating Profit | $ | 36.8 | $ | 48.2 | $ | (11.4 | ) | -23.6 | �% | ||||||
Operating Profit, before Special Items* | $ | 47.0 | $ | 48.2 | $ | (1.2 | ) | -2.4 | �% | ||||||
Profit Margin | 11.7 | % | 15.1 | % | |||||||||||
Profit Margin, before Special Items* | 15.0 | % | 15.1 | % | |||||||||||
*Excludes $10.2 million of repositioning charges in the fourth quarter of 2014 | |||||||||||||||
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Fourth quarter 2014 sales decreased $5.8 million, or -1.8%, which included a core sales increase of $9.1 million, or 2.8%, which was more than offset by unfavorable foreign exchange of $11.7 million, or -3.7%, and the impact from the second quarter divestiture of Crane Water of $3.0 million, or -0.9%. Adjusted operating margins were strong at 15.0%, reflecting continued productivity gains, lower pension expense and the impact of the higher volume, offset by unfavorable foreign exchange and mix. Fluid Handling order backlog was $311.0 million at December 31, 2014; after adjusting for the impact of the divestiture, comparable backlog was $328.4 million at December 31, 2013.
Payment & Merchandising Technologies
Fourth Quarter | Change | ||||||||||||||
(dollars in millions) | 2014 | 2013 | |||||||||||||
Sales | $ | 177.2 | $ | 122.7 | $ | 54.6 | 44.5 | % | |||||||
Operating Profit | $ | 17.8 | $ | 7.9 | $ | 9.9 | 125.1 | % | |||||||
Operating Profit, before Special Items* | $ | 24.3 | $ | 13.7 | $ | 10.6 | 77.8 | % | |||||||
Profit Margin | 10.1 | % | 6.5 | % | |||||||||||
Profit Margin, before Special Items* | 13.7 | % | 11.2 | % | |||||||||||
* Excludes $6.5 million of integration-related expenses in the fourth quarter of 2014 and $5.8 million of transaction- and integration-related expenses in the fourth quarter of 2013 | |||||||||||||||
Segment sales of $177.2 million increased $54.6 million, or 44.5%, driven primarily by $71.0 million of sales related to the MEI transaction, partially offset by a core sales decline of $9.8 million, or -8.0%, and unfavorable foreign exchange of $6.7 million, or -5.5%. Adjusted operating profit increased to $24.3 million, primarily reflecting the impact of the MEI acquisition, and adjusted operating margins expanded 250 basis points to 13.7%, driven primarily by integration synergies and the mix benefit of the MEI acquisition.
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Aerospace & Electronics
Fourth Quarter | Change | ||||||||||||||
(dollars in millions) | 2014 | 2013 | |||||||||||||
Sales | $ | 182.3 | $ | 186.7 | $ | (4.4 | ) | -2.4 | �% | ||||||
Operating Profit | $ | 39.9 | $ | 44.7 | $ | (4.9 | ) | -10.9 | �% | ||||||
Operating Profit, before Special Items* | $ | 40.7 | $ | 44.7 | $ | (4.0 | ) | -8.9 | �% | ||||||
Profit Margin | 21.9 | % | 23.9 | % | |||||||||||
Profit Margin, before Special Items* | 22.3 | % | 23.9 | % | |||||||||||
* Excludes $0.9 million of repositioning charges in the fourth quarter of 2014 | |||||||||||||||
Fourth quarter 2014 sales decreased $4.4 million, or -2.4%, reflecting flat sales in the Aerospace Group and a sales decline of $4.2 million, or -5.9%, in the Electronics Group. Adjusted operating profit decreased $4.0 million, driven by higher levels of engineering spending and the impact of the lower sales in Electronics. Aerospace & Electronics order backlog was $422.1 million at December 31, 2014, compared to $361.3 million at December 31, 2013.
Engineered Materials
� | Fourth Quarter | Change | |||||||||||||
(dollars in millions) | 2014 | 2013 | � | � | |||||||||||
Sales | $ | 57.2 | $ | 52.4 | $ | 4.9 | 9.3 | % | |||||||
Operating Profit | $ | 7.2 | $ | 5.8 | $ | 1.4 | 24.1 | % | |||||||
Profit Margin | 12.6 | % | 11.1 | % | |||||||||||
Sales of $57.2 million were 9.3% higher than the fourth quarter of 2013, driven by higher sales to recreational vehicle manufacturers. Adjusted operating profit increased 24.1% to $7.2 million, primarily reflecting leverage on the higher sales and strong productivity.
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2015 Guidance
Sales for 2015 are expected to be approximately $2.85 billion, reflecting core sales of 0% to +2%, more than offset by unfavorable foreign exchange of -2% to -4%, and the impact from 2014 divestitures of -0.5%. Excluding Special Items, earnings are expected to be in a range of $4.45-$4.65 per diluted share which reflects growth of 0% to 5% compared to 2014 earnings of $4.45 per diluted share. On a GAAP basis, we expect earnings of $4.32-$4.52 per diluted share. Full year 2015 free cash flow (cash provided by operating activities less capital spending) is expected to be in a range of $210-$240 million. (Please see the attached Non-GAAP Financial Measures tables.)
During 2014, repositioning charges were $22.7 million, which includes previously announced actions, as well as additional repositioning actions in Fluid Handling. Repositioning charges are expected to be $4-$6 million in 2015. Total repositioning benefits are now expected to be approximately $10 million in 2015, with an annualized rate of approximately $19 million by the end of 2016.
�
During 2014, MEI-related Special Items included transaction, integration and restructuring related costs, and inventory step-up and backlog amortization charges. These items totaled $24.9 million, and included previously announced integration and restructuring related actions, as well as additional charges in the fourth quarter associated with incremental integration and restructuring activities to consolidate certain manufacturing facilities. Total integration and restructuring related charges are expected to be $6-$8 million in 2015. Total synergy savings were $10 million in 2014 and are expected to grow to $19 million in 2015. As a result of the newly announced plant consolidation, the total
7
annualized synergy run-rate is now expected to reach $33 million by the end of 2016, compared to the prior forecast of $25 million. (Please see the attached Non-GAAP Financial Measures tables.)
Additional guidance details will be provided at the Companys Investor Day conference on February 26, 2015.
Additional Information
Please see the Non-GAAP Financial Measures tables attached to this press release for supporting details. Additional information with respect to the Companys asbestos liability and related accounting provisions and cash requirements is set forth in the Current Report on Form 8-K filed with a copy of this press release.
Conference Call
Crane Co. has scheduled a conference call to discuss the fourth quarter financial results on Tuesday, January 27, 2015 at 10:00 A.M. (Eastern). All interested parties may listen to a live webcast of the call at http://www.craneco.com. An archived webcast will also be available to replay this conference call directly from the Companys website. Slides that accompany the conference call will be available on the Companys website.
Crane Co. is a diversified manufacturer of highly engineered industrial products. Founded in 1855, Crane provides products and solutions to customers in the hydrocarbon processing, petrochemical, chemical, power generation, unattended payment, automated merchandising, aerospace, electronics, transportation and other markets. The Company has four business segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Crane has approximately 11,500 employees in the Americas, Europe, the Middle East, Asia and Australia. Crane
8
Co. is traded on the New York Stock Exchange (NYSE: CR). For more information, visit www.craneco.com.
This press release may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements present managements expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this press release, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Such factors are detailed in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and subsequent reports filed with the Securities and Exchange Commission.
(Financial Tables Follow)
9
CRANE CO.
Income Statement Data
(in thousands, except per share data)
� | Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
� | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net Sales: | ||||||||||||||||
Fluid Handling | $ | 313,910 | $ | 319,698 | $ | 1,263,722 | $ | 1,288,624 | ||||||||
Payment & Merchandising Technologies | 177,206 | 122,649 | 711,959 | 380,576 | ||||||||||||
Aerospace & Electronics | 182,326 | 186,737 | 695,998 | 693,783 | ||||||||||||
Engineered Materials | 57,216 | 52,365 | 253,318 | 232,298 | ||||||||||||
����Total Net Sales | $ | 730,658 | $ | 681,449 | $ | 2,924,997 | $ | 2,595,281 | ||||||||
Operating Profit (Loss): | ||||||||||||||||
Fluid Handling | $ | 36,794 | $ | 48,191 | $ | 181,626 | $ | 194,879 | ||||||||
Payment & Merchandising Technologies | 17,829 | 7,920 | 69,054 | 34,822 | ||||||||||||
Aerospace & Electronics | 39,864 | 44,719 | 138,176 | 159,976 | ||||||||||||
Engineered Materials | 7,209 | 5,809 | 36,811 | 34,347 | ||||||||||||
Corporate * | (12,105 | ) | (23,518 | ) | (53,577 | ) | (76,148 | ) | ||||||||
Environmental Provision | (55,800 | ) | ||||||||||||||
����Total Operating Profit | 89,591 | 83,121 | 316,290 | 347,876 | ||||||||||||
Interest Income | 577 | 379 | 1,713 | 1,867 | ||||||||||||
Interest Expense | (10,093 | ) | (5,809 | ) | (39,222 | ) | (26,460 | ) | ||||||||
Miscellaneous- Net | 3,751 | 2,903 | 2,375 | 2,733 | ||||||||||||
Income Before Income Taxes | 83,826 | 80,594 | 281,156 | 326,016 | ||||||||||||
Provision for Income Taxes | 27,254 | 30,482 | 87,587 | 105,065 | ||||||||||||
Net income before allocation to noncontrolling interests | 56,572 | 50,112 | 193,569 | 220,951 | ||||||||||||
����Less: Noncontrolling interest in subsidiaries' earnings | 360 | 406 | 897 | 1,449 | ||||||||||||
Net income attributable to common shareholders | $ | 56,212 | $ | 49,706 | $ | 192,672 | $ | 219,502 | ||||||||
Share Data: | ||||||||||||||||
Earnings per Diluted Share | $ | 0.95 | $ | 0.84 | $ | 3.23 | $ | 3.73 | ||||||||
Average Diluted Shares Outstanding | 59,344 | 59,156 | 59,603 | 58,839 | ||||||||||||
Average Basic Shares Outstanding | 58,526 | 58,161 | 58,770 | 57,896 | ||||||||||||
Supplemental Data: | ||||||||||||||||
Cost of Sales | $ | 479,965 | $ | 454,598 | $ | 1,901,240 | $ | 1,707,105 | ||||||||
Selling, General & Administrative | 143,399 | 128,906 | 604,115 | 512,881 | ||||||||||||
Environmental Provision | 55,800 | |||||||||||||||
Repositioning Charges (see non-GAAP measures) | 11,095 | 22,687 | ||||||||||||||
Acquisition Related Charges (see non-GAAP measures) | 6,608 | 14,824 | 24,865 | 27,419 | ||||||||||||
Depreciation and Amortization ** | 17,812 | 16,678 | 75,766 | 54,837 | ||||||||||||
Stock-Based Compensation Expense | 4,914 | 6,492 | 20,858 | 22,791 | ||||||||||||
* Corporate includes $6.5 million for a settlement of a lawsuit recorded in June 2014. Corporate also included acquisition related costs of $0.1 million and $9.1 million for the three months ended December 31, 2014 and 2013, respectively and $1.3 million and $21.7 million of cost for the twelve months ended December 31, 2014 and 2013, respectively. | ||||||||||||||||
** Amount included within cost of sales and selling, general & administrative costs. | ||||||||||||||||
1
CRANE CO.
Condensed Balance Sheets
(in thousands)
�
December 31, 2014 | December�31, 2013 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and Cash Equivalents | $ | 346,266 | $ | 270,643 | ||||
Accounts Receivable, net | 410,931 | 437,541 | ||||||
Current Insurance Receivable - Asbestos | 20,500 | 22,783 | ||||||
Inventories, net | 369,719 | 368,886 | ||||||
Other Current Assets | 47,602 | 49,239 | ||||||
Total Current Assets | 1,195,018 | 1,149,092 | ||||||
Property, Plant and Equipment, net | 290,264 | 305,055 | ||||||
Long-Term Insurance Receivable - Asbestos | 126,750 | 148,222 | ||||||
Other Assets | 644,437 | 707,922 | ||||||
Goodwill | 1,191,459 | 1,249,316 | ||||||
Total Assets | $ | 3,447,928 | $ | 3,559,607 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Notes Payable and Current Maturities of Long-Term Debt | $ | 100,806 | $ | 125,826 | ||||
Accounts Payable | 228,822 | 229,828 | ||||||
Current Asbestos Liability | 79,000 | 88,038 | ||||||
Accrued Liabilities | 225,772 | 223,148 | ||||||
Income Taxes | 5,624 | 2,062 | ||||||
Total Current Liabilities | 640,024 | 668,902 | ||||||
Long-Term Debt | 749,213 | 749,170 | ||||||
Long-Term Deferred Tax Liability | 46,301 | 76,041 | ||||||
Long-Term Asbestos Liability | 534,515 | 610,530 | ||||||
Other Liabilities | 410,131 | 240,291 | ||||||
Total Equity | 1,067,744 | 1,214,673 | ||||||
Total Liabilities and Equity | $ | 3,447,928 | $ | 3,559,607 | ||||
2
CRANE CO.
Condensed Statements of Cash Flows
(in thousands)
�
� | Three Months Ended December 31, | Twelve Months Ended December�31, | ||||||||||||||
� | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Activities: | ||||||||||||||||
Net income attributable to common shareholders | $ | 56,212 | $ | 49,706 | $ | 192,672 | $ | 219,502 | ||||||||
Noncontrolling interest in subsidiaries' earnings | 360 | 406 | 897 | 1,449 | ||||||||||||
Net income before allocations to noncontrolling interests | 56,572 | 50,112 | 193,569 | 220,951 | ||||||||||||
Environmental provision | 55,800 | |||||||||||||||
Gain on divestiture | (4,111 | ) | (2,727 | ) | (4,111 | ) | (2,727 | ) | ||||||||
Restructuring - Non Cash | 954 | |||||||||||||||
Depreciation and amortization | 17,812 | 16,678 | 75,766 | 54,837 | ||||||||||||
Stock-based compensation expense | 4,914 | 6,492 | 20,858 | 22,791 | ||||||||||||
Defined benefit plans and postretirement (credit) expense | (2,925 | ) | 1,240 | (11,700 | ) | 4,779 | ||||||||||
Deferred income taxes | 32,797 | 30,840 | 36,483 | 48,964 | ||||||||||||
Cash provided by (used for) operating working capital | 72,012 | 62,136 | 24,702 | (26,672 | ) | |||||||||||
Defined benefit plans and postretirement contributions | (5,122 | ) | (2,744 | ) | (27,866 | ) | (15,929 | ) | ||||||||
Environmental payments, net of reimbursements | (1,808 | ) | (4,201 | ) | (10,405 | ) | (15,403 | ) | ||||||||
Other | (4,519 | ) | 5,120 | (28,801 | ) | 10,668 | ||||||||||
��Subtotal | 165,622 | 162,946 | 325,249 | 302,259 | ||||||||||||
Asbestos related payments, net of insurance recoveries | (15,104 | ) | (14,513 | ) | (61,297 | ) | (62,827 | ) | ||||||||
��Total provided by operating activities | 150,518 | 148,433 | 263,952 | 239,432 | ||||||||||||
Investing Activities: | ||||||||||||||||
Capital expenditures | (11,580 | ) | (10,445 | ) | (43,732 | ) | (29,461 | ) | ||||||||
Proceeds from disposition of capital assets | 4,718 | 83 | 9,694 | 455 | ||||||||||||
Proceeds from divestiture | 6,836 | 2,081 | 6,836 | |||||||||||||
Proceeds from (payments for) acquisitions | (801,781 | ) | 6,100 | (801,781 | ) | |||||||||||
�Total used for investing activities | (6,862 | ) | (805,307 | ) | (25,857 | ) | (823,951 | ) | ||||||||
Financing Activities: | ||||||||||||||||
Dividends paid | (19,125 | ) | (17,494 | ) | (73,884 | ) | (67,272 | ) | ||||||||
Reacquisition of shares on open market | (50,000 | ) | (50,000 | ) | ||||||||||||
Stock options exercised - net of shares reacquired | (561 | ) | 839 | 8,186 | 24,922 | |||||||||||
Excess tax benefit from stock-based compensation | (168 | ) | 566 | 7,701 | 6,353 | |||||||||||
Proceeds received from credit facility | 125,000 | |||||||||||||||
Change in short-term debt | (14,000 | ) | 1,482 | (25,000 | ) | (321 | ) | |||||||||
Proceeds received from issuance of long-term notes | 550,000 | 550,000 | ||||||||||||||
Debt issuance costs | (6,006 | ) | (6,006 | ) | ||||||||||||
Repayment of long-term debt | (200,000 | ) | ||||||||||||||
�Total used for financing activities | (83,854 | ) | 529,387 | (132,997 | ) | 432,676 | ||||||||||
Effect of exchange rate on cash and cash equivalents | (15,208 | ) | (5,274 | ) | (29,475 | ) | (1,461 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | 44,594 | (132,761 | ) | 75,623 | (153,304 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 301,672 | 403,404 | 270,643 | 423,947 | ||||||||||||
Cash and cash equivalents at end of period | $ | 346,266 | $ | 270,643 | $ | 346,266 | $ | 270,643 | ||||||||
3
CRANE CO.
Order Backlog
(in thousands)
�
December 31, 2014 | September 30, 2014 | June 30, 2014 | March 31, 2014 | December 31, 2013 | ||||||||||||||||
Fluid Handling * | $ | 310,996 | $ | 349,618 | $ | 369,483 | $ | 350,720 | $ | 333,860 | ||||||||||
Payment & Merchandising Technologies | 68,286 | 58,832 | 69,857 | 58,787 | 51,888 | |||||||||||||||
Aerospace & Electronics | 422,104 | 404,833 | 396,835 | 397,541 | 361,323 | |||||||||||||||
Engineered Materials | 16,690 | 14,406 | 17,017 | 16,624 | 14,661 | |||||||||||||||
����Total Backlog | $ | 818,076 | $ | 827,689 | $ | 853,192 | $ | 823,672 | $ | 761,732 | ||||||||||
* Includes Order Backlog of $5.4 million at March 31, 2014 and $5.5 million at December 31, 2013 pertaining to a business divested in June 2014. | ||||||||||
4
CRANE CO.
Non-GAAP Financial Measures
(in thousands)
� | Three Months Ended December 31, | Twelve Months Ended December 31, | Percent�Change December 31, 2014 | Percent�Change December 31, 2014 | ||||||||||||||||||
� | 2014 | 2013 | 2014 | 2013 | Three Months | Twelve Months | ||||||||||||||||
INCOME ITEMS | ||||||||||||||||||||||
Net Sales | $ | 730,658 | $ | 681,449 | $ | 2,924,997 | $ | 2,595,281 | 7.2 | % | 12.7 | �% | ||||||||||
Operating Profit | 89,591 | 83,121 | 316,290 | 347,876 | 7.8 | % | -9.1 | �% | ||||||||||||||
Percentage of Sales | 12.3 | % | 12.2 | % | 10.8 | % | 13.4 | % | ||||||||||||||
Special Items impacting Operating Profit: | ||||||||||||||||||||||
Acquisition transaction costs (a) | 10,170 | 22,765 | ||||||||||||||||||||
Acquisition related inventory and backlog amortization (b) | 4,654 | 4,790 | 4,654 | |||||||||||||||||||
Acquisition related integration costs (c) | 2,014 | 9,753 | ||||||||||||||||||||
Acquisition related restructuring costs (d) | 4,594 | 10,322 | ||||||||||||||||||||
Repositioning charges (e) | 11,095 | 22,687 | ||||||||||||||||||||
Lawsuit settlement charge (f) | 6,500 | |||||||||||||||||||||
Environmental Provision (g) | 55,800 | |||||||||||||||||||||
Operating Profit before Special Items | $ | 107,294 | $ | 97,945 | $ | 426,142 | $ | 375,295 | 9.5 | % | 13.5 | �% | ||||||||||
Percentage of Sales | 14.7 | % | 14.4 | % | 14.6 | % | 14.5 | % | ||||||||||||||
Net Income Attributable to Common Shareholders | $ | 56,212 | $ | 49,706 | $ | 192,672 | $ | 219,502 | ||||||||||||||
Per Share | $ | 0.95 | $ | 0.84 | $ | 3.23 | $ | 3.73 | 12.7 | % | -13.3 | �% | ||||||||||
Special Items impacting Net Income Attributable to Common Shareholders: | ||||||||||||||||||||||
Acquisition transaction costs - Net of Tax (a) | 9,837 | 22,432 | ||||||||||||||||||||
Per Share | $ | 0.17 | $ | 0.38 | ||||||||||||||||||
Acquisition related inventory and backlog amortization - Net of Tax (b) | 2,839 | 3,018 | 2,839 | |||||||||||||||||||
Per Share | $ | 0.05 | $ | 0.05 | $ | 0.05 | ||||||||||||||||
Acquisition related integration costs - Net of Tax (c) | 1,367 | 7,130 | ||||||||||||||||||||
Per Share | $ | 0.02 | $ | 0.12 | ||||||||||||||||||
Acquisition related restructuring costs - Net of Tax (d) | 3,212 | 7,017 | ||||||||||||||||||||
Per Share | $0.05 | $ | 0.12 | |||||||||||||||||||
Repositioning charges - Net of Tax (e) | 9,919 | 17,982 | ||||||||||||||||||||
Per Share | $ | 0.17 | $ | 0.30 | ||||||||||||||||||
Lawsuit settlement charge - Net of Tax (f) | 4,225 | |||||||||||||||||||||
Per Share | $ | $ | 0.07 | |||||||||||||||||||
Environmental Provision - Net of Tax (g) | 36,270 | |||||||||||||||||||||
Per Share | $ | $ | 0.61 | |||||||||||||||||||
Loss on business divestiture - Net of Tax (h) | 1,055 | |||||||||||||||||||||
Per Share | $ | 0.02 | ||||||||||||||||||||
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Gain on real estate divestitures - Net of Tax (i) | (3,498 | ) | (4,158 | ) | ||||||||||||||||||
Per Share | $ | (0.06 | ) | $ | (0.07 | ) | ||||||||||||||||
Withholding taxes related to acquisition funding (j) | 1,192 | 2,892 | ||||||||||||||||||||
Per Share | $ | 0.02 | $ | 0.05 | ||||||||||||||||||
Acquisition remedy related gain on sale of product line (k) | (2,006 | ) | (2,006 | ) | ||||||||||||||||||
Per Share | $ | (0.03 | ) | $ | (0.03 | ) | ||||||||||||||||
Net Income Attributable To Common Shareholders Before Special Items | 67,212 | 61,568 | 265,211 | 245,659 | 9.2 | % | 8.0 | �% | ||||||||||||||
Per Share | $ | 1.13 | $ | 1.04 | $ | 4.45 | $ | 4.18 | 8.8 | % | 6.6 | �% | ||||||||||
(a) During the three and twelve months ended December 30, 2013, the Company recorded transaction costs associated with the acquisition of MEI. | |||||||||||||||||
(b) During the three months ended March 31, 2014 and three months ended December 31, 2013 the Company recorded inventory step-up and backlog amortization relating to the acquisition of MEI. | |||||||||||||||||
(c) During the three and twelve months ended December 31, 2014, the Company recorded integration costs associated with the acquisition of MEI. | |||||||||||||||||
(d) During the three and twelve months ended December 31, 2014, the Company recorded restructuring costs associated with the acquisition of MEI. | |||||||||||||||||
(e) During the three and twelve months ended December 31, 2014, the Company recorded repositioning charges in our Fluid Handling and Aerospace & Electronics segments. | |||||||||||||||||
(f) During the three months ended June 30, 2014, the Company recorded a $6.5 million charge related to the settlement of the previously disclosed environmental lawsuits by certain homeowners in Roseland, New Jersey. | |||||||||||||||||
(g) During the three months ended September 30, 2014, the Company recorded two Environmental Provisions, 1) a $49.0 million charge related to an increase in the Company's liability at its Goodyear, AZ Superfund Site, and 2) $6.8 million charge for expected remediation costs associated with a previously disclosed environmental site in Roseland, New Jersey. | |||||||||||||||||
(h) During the three month ended June 30, 2014, the Company recorded a loss on the divestiture of a small business. | |||||||||||||||||
(i) During the three and twelve month ended December 31, 2014, the Company recorded gains on real estate divestitures. | |||||||||||||||||
(j) In the three and twelve months ended December 31, 2013, the Company incurred withholding taxes related to the cash marshaling activities supporting the acquisition of MEI. | |||||||||||||||||
(k) During the three months ended December 31, 2013, the Company divested a product line within the Merchandising Systems segment pertaining to the execution of remedies associated with the MEI acquisition. | |||||||||||||||||
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2015 Full Year Guidance | ||||||||||
2015 Earnings Per Share Guidance | Low | High | ||||||||
Earnings Per Share - GAAP basis | $ | 4.32 | $ | 4.52 | ||||||
Acquisition integration costs - Net of Tax (l) | 0.08 | 0.08 | ||||||||
Anticipated repositioning actions - Net of Tax (m) | 0.05 | 0.05 | ||||||||
Earnings Per Share - Non-GAAP basis | $ | 4.45 | $ | 4.65 | ||||||
(l) In 2015, the Company expects to incur integration related costs in a range of $6 million to $10 million in connection with the MEI acquisition. The $0.08 represents the estimated Earnings Per Share impact for the mid-point of the $6 million to $10 million range. | |||||||||||||||||
(m) In 2015, the Company expects to incur costs associated with facility repositioning actions related to the consolidation of certain smaller manufacturing sites. | |||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||
December 31, | December 31, | 2015 Full Year Guidance | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | Low | High | |||||||||||||||||||
CASH FLOW ITEMS | ||||||||||||||||||||||||
Cash Provided from Operating Activities before Asbestos - Related Payments | $ | 165,622 | $ | 162,946 | $ | 325,249 | $ | 302,259 | $ | 328,500 | $ | 338,500 | ||||||||||||
Asbestos Related Payments, Net of Insurance Recoveries | (15,104 | ) | (14,513 | ) | (61,297 | ) | (62,827 | ) | (63,500 | ) | (53,500 | ) | ||||||||||||
Cash Provided from Operating Activities | 150,518 | 148,433 | 263,952 | 239,432 | 265,000 | 285,000 | ||||||||||||||||||
Less: Capital Expenditures | (11,580 | ) | (10,445 | ) | (43,732 | ) | (29,461 | ) | (55,000 | ) | (45,000 | ) | ||||||||||||
Free Cash Flow | $ | 138,938 | $ | 137,988 | $ | 220,220 | $ | 209,971 | $ | 210,000 | $ | 240,000 | ||||||||||||
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Certain non-GAAP measures have been provided to facilitate comparison with the prior year. |
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. |
In addition, Free Cash Flow provides supplemental information to assist management and investors in analyzing the Companys ability to generate liquidity from its operating activities. The measure of Free Cash Flow does not take into consideration certain other non-discretionary cash requirements such as, for example, mandatory principal payments on the Company's long-term debt. Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Companys reported results prepared in accordance with GAAP. |
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