Crane Co. — Fiscal 2012 Form 10-K Summary
Reporting period: Year ended December 31, 2012. The filing identifies the registrant as Crane Co., not Crane NXT, Co. Crane was a diversified manufacturer with five segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, Fluid Handling, and Controls. It employed approximately 10,500 people, and 41% of revenue was generated outside the United States.
Financial performance and key metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net sales | $2.579 billion | $2.500 billion | Up 3% |
| Operating profit from continuing operations | $310.4 million | $36.6 million | Up $273.9 million |
| Operating margin | 12.0% | 1.5% | Up 10.5 points |
| Income from continuing operations | $196.2 million | $22.8 million | Up materially |
| Net income attributable to common shareholders | $217.0 million | $26.3 million | Up materially |
| Diluted EPS | $3.72 | $0.44 | Up materially |
| Cash flow from operations | $234.8 million | $149.8 million | Up 57% |
| Capital expenditures | $29.3 million | $34.7 million | Down $5.4 million |
| Cash and equivalents | $423.9 million | $245.1 million | Up $178.9 million |
| Total debt | $400.2 million | $400.0 million | Essentially unchanged |
Reported 2012 results benefited significantly from the absence of the $241.6 million net asbestos charge and $30.3 million environmental charge recorded in 2011. The 2012 effective tax rate was 31.1%, compared with a tax benefit and negative effective rate of 55.3% in 2011.
Segment results
- Aerospace & Electronics: Sales of $701 million, operating profit of $156 million, and margin of 22.2%; sales increased 3% and profit increased 7%. Year-end backlog declined to $378 million from $411 million.
- Engineered Materials: Sales of $217 million, operating profit of $25 million, and margin of 11.3%; sales declined 2% and profit declined 18% due to lower transportation and international demand, higher raw-material costs, and restructuring charges.
- Merchandising Systems: Sales of $372 million, operating profit of $34 million, and margin of 9.1%; sales declined 1%, while profit increased 11% because of productivity gains and the absence of a prior-year purchase-accounting charge.
- Fluid Handling: Sales of $1.196 billion, operating profit of $148 million, and margin of 12.4%; sales increased 5%, but profit declined 1% due primarily to $12.7 million of restructuring charges, higher European manufacturing costs, and foreign exchange.
- Controls: Sales of $94 million, operating profit of $13 million, and margin of 13.6%; sales increased 6% and profit increased 14%.
Material changes versus 2011
- Core sales increased $105 million, or 4%, while foreign exchange reduced sales by $38 million, or 2%.
- The company recorded $18.5 million of restructuring charges, plus $1.6 million of inventory write-downs and a $0.5 million pension-curtailment charge. Actions included plant closures, manufacturing transfers, and workforce reductions of approximately 200 employees.
- Acquisition-related costs of $3.9 million were recorded for the pending MEI transaction.
- Azonix and a Houston valve service center were sold for aggregate proceeds of approximately $54 million and reported as discontinued operations. The transactions generated aggregate after-tax gains of $19.1 million.
- Dividends paid increased to $62.0 million, and the company repurchased 1.27 million shares for approximately $50.0 million.
- Net debt improved from $154.9 million at year-end 2011 to a net cash position of $23.7 million at year-end 2012.
Liquidity, debt, and cash deployment
Operating cash flow, cash on hand, the undrawn $300 million revolving credit facility, and $600 million of bank commitments were expected to fund ordinary requirements and the pending MEI acquisition. The company had no borrowings under its revolving facility at year-end. Approximately $200 million of 5.50% notes mature in September 2013; management classified them as long-term debt based on its intent and ability to refinance. Additional $200 million of 6.55% notes mature in 2036. The total-debt-to-capitalization ratio was 30%, below the 65% covenant limit.
Management expected approximately $35 million of 2013 capital expenditures, $60–$70 million of net asbestos settlement and defense payments, and approximately $15 million of pension contributions.
Guidance and outlook
Management expected 2013 sales growth of 1% to 3% and operating-profit growth of 10% to 14%. Expected drivers included approximately $12 million of repositioning savings, productivity initiatives, cost management, and market-share gains. Management anticipated modest growth in Aerospace & Electronics, Engineered Materials, Merchandising Systems, and Fluid Handling, but noted continued uncertainty in Europe, soft global power markets, possible defense-spending reductions, and project delays.
Risks, contingencies, and unusual items
- Asbestos: The company had 56,442 pending claims and an accrued liability of $796 million for pending and projected claims through 2021, partially offset by a $205 million insurance receivable. Management stated that additional liabilities after 2021 could be significant but could not reasonably be estimated.
- Environmental: The Goodyear, Arizona remediation liability was approximately $50 million, with an estimated $11 million government reimbursement receivable. Additional potential exposure existed at the Crab Orchard Superfund site and a New Jersey former manufacturing site, but the filing did not provide clear estimable amounts for those matters.
- Pensions: Accrued pension and postretirement liabilities totaled $233.6 million, and the defined benefit plan was underfunded by approximately $170.7 million before postretirement obligations. Future benefits for pension-eligible domestic employees ceased accruing effective January 1, 2013.
- MEI acquisition: The planned $820 million acquisition remained subject to regulatory approvals and customary closing conditions. MEI reported approximately $400 million of 2012 sales and was expected to be integrated into Payment Solutions.
- Other material risks included cyclical demand, raw-material-price volatility, foreign exchange, supply-chain disruptions, government-contract compliance, product liability, competition, cybersecurity, pension-asset performance, and acquisition integration.
Investor verification checklist
- Confirm the registrant identity: the supplied filing is for Crane Co., while the request metadata references Crane NXT, Co.
- Verify the closing status, financing, purchase accounting, and integration results of the $820 million MEI acquisition.
- Track actual 2013 sales and operating-profit performance against the 1%–3% sales and 10%–14% operating-profit outlook.
- Review changes in asbestos claims, cash payments, insurance recoveries, and any liabilities beyond the 2021 forecast period.
- Monitor Goodyear and other environmental proceedings, including the currently unquantified Crab Orchard and New Jersey exposures.
- Assess refinancing of the $200 million notes maturing in September 2013 and the effect of acquisition financing on leverage and liquidity.
- Reconcile reported earnings with underlying operating performance because 2012 benefited from the absence of the unusually large 2011 asbestos and environmental charges and included discontinued-operation gains.