UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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): April 18, 2011
CRANE CO.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation)
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1-1657
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13-1952290
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(Commission
File Number)
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(IRS Employer
Identification No.)
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100 First Stamford Place, Stamford, CT
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06902
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (203) 363-7300
N/A
(Former name or former address, if changed since last report)
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:
¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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SECTION 2 FINANCIAL INFORMATION
Item 2.02
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Results of Operations and Financial Condition.
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On April 18, 2011, Crane Co. announced its results of operations for the quarter ended March 31, 2011. 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 5 Corporate Governance and Management
Item 5.07
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Submission of Matters to a Vote of Security Holders
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a)
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The Annual Meeting of Shareholders was held on April 18, 2011.
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b)
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The following three Directors were elected to serve for three years until the Annual Meeting in 2014.
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Mr. E. Thayer Bigelow
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Votes for
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48,608,049
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Votes against
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2,126,986
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Abstained
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98,713
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Broker non-votes
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4,530,649
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Mr. Philip R. Lochner, Jr.
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Votes for
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49,947,600
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Votes against
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786,022
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Abstained
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100,126
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Broker non-votes
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4,530,649
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Mr. Ronald F. McKenna
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Votes for
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48,868,255
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Votes against
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1,874,886
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Abstained
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90,607
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Broker non-votes
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4,530,649
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Selection of
Deloitte & Touche LLP as independent auditors for the Company for 2011
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Votes for
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54,279,698
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Votes against
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998,508
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Abstained
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86,191
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2011 Annual Incentive
Plan
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Votes for
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49,126,821
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Votes against
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1,528,529
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Abstained
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177,265
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Broker non-votes
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4,530,649
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Uncast (more than one choice marked)
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1,134
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Advisory Vote on
Compensation of Named Executive Officers
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Votes for
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33,212,682
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Votes against
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11,851,305
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Abstained
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5,769,761
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Broker non-votes
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4,530,649
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Advisory Vote on
Frequency of Future Advisory Votes on Compensation of Named Executive Officers
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1 year
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41,493,783
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2 years
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596,816
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3 years
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3,148,316
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Abstained
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5,594,833
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Broker non-votes
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4,530,649
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2
SECTION 8 OTHER EVENTS
Asbestos Liability
Information Regarding Claims and Costs in the Tort System
As of March 31, 2011, the Company was a defendant in cases filed in various 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:
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Three Months Ended March 31,
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Year Ended
December 31,
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2011
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2010
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2010
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Beginning claims
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64,839
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66,341
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66,341
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New claims
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965
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913
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5,032
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Settlements
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(340
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(290
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(1,127
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Dismissals
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(817
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(467
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(6,363
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MARDOC claims*
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(1
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982
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956
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Ending claims
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64,646
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67,479
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64,839
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*
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As of January 1, 2010, the Company was named in 36,448 maritime actions (not included in Beginning claims) which had been administratively dismissed by
the United District Court for the Eastern District of Pennsylvania (MARDOC claims). In 2009, the Court initiated a process to review these claims. As of March 31, 2011, 955 claims were restored to active status (and have been added
to Ending claims), and 11,249 were permanently dismissed. In addition, the Company was named in 8 new maritime actions in 2010 (not included in Beginning claims) which had been administratively dismissed upon filing in 2010.
The Company expects that more of the remaining 24,252 maritime actions will be activated, or permanently dismissed, as the Courts review process continues.
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Of the 64,646 pending claims as of March 31, 2011, approximately 21,100 claims were pending in New York, approximately 13,700 claims were pending in Mississippi, approximately 10,000 claims were
pending in Texas and approximately 3,000 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
two 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.
During the fourth quarter of 2007 and the first quarter of 2008, the Company tried several cases resulting
in defense verdicts by the jury or directed verdicts for the defense by the court, one of which, the
Patrick ONeil
claim in Los Angeles, was reversed on appeal and is currently the subject of further appellate proceedings before the
Supreme Court of California, which accepted review of the matter by order dated December 23, 2009.
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On March 14, 2008, the Company received an adverse verdict in the
James Baccus
claim in
Philadelphia, Pennsylvania, with compensatory damages of $2.45 million and additional damages of $11.9 million. The Companys post-trial motions were denied by order dated January 5, 2009. The case was concluded by settlement in the
fourth quarter of 2010 during the pendency of the Companys appeal to the Superior Court of Pennsylvania. The settlement is reflected in the settled claims for 2010.
On May 16, 2008, the Company received an adverse verdict in the
Chief Brewer
claim in Los Angeles, California. The amount of the judgment entered was $0.68 million plus interest and costs. The
Company is pursuing an appeal in this matter.
On February 2, 2009, the Company received an adverse verdict in the
Dennis Woodard
claim in Los Angeles, California. The jury found that the Company was responsible for one-half of one percent (0.5%) of plaintiffs damages of $16.93 million; however, based on California court rules regarding allocation of
damages, judgment was entered against the Company in the amount of $1.65 million, plus costs. Following entry of judgment, the Company filed a motion with the trial court requesting judgment in the Companys favor notwithstanding the
jurys verdict, and on June 30, 2009 the court advised that the Companys motion was granted and judgment was entered in favor of the Company. The plaintiffs have appealed that ruling.
On March 23, 2010, a Philadelphia County, 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 have taken timely appeals of certain aspects of those judgments. All appeals are pending.
Such
judgment amounts are not included in the Companys 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 three-month periods ended March 31, 2011 and 2010 totaled $27.6 million and $27.5
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 three-month periods ended March 31, 2011 and 2010 totaled a $12.7 million net payment and an $11.1 million net payment, respectively. Detailed below are the comparable amounts for the periods
indicated.
4
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(in millions)
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Three Months Ended March 31,
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Year Ended
December 31,
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2011
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2010
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2010
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Settlement / indemnity costs incurred (1)
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$
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16.2
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$
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15.5
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$
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52.7
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Defense costs incurred (1)
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11.4
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12.0
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53.9
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Total costs incurred
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$
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27.6
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$
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27.5
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$
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106.6
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Settlement / indemnity payments
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$
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8.5
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$
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12.5
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$
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46.9
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Defense payments
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10.6
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11.4
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54.4
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Insurance receipts
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(6.4
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(12.8
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(34.6
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Pre-tax cash payments
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$
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12.7
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$
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11.1
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$
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66.7
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(1)
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Before insurance recoveries and tax effects.
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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 March 31, 2011, the Company has resolved (by settlement or dismissal)
approximately 70,000 claims, not including the MARDOC claims referred to above. The related settlement cost incurred by the Company and its insurance carriers is approximately $300 million, for an average settlement cost per resolved claim of
$4,000. The average settlement cost per claim resolved during the years ended December 31, 2010, 2009 and 2008 was $7,036, $4,781 and $4,186 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 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.
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Although the methodology used by HR&A will also 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 $30 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 monitors these trend factors over time and periodically assesses whether an alternative forecast period is appropriate.
Liability Estimate
. With the assistance of HR&A, effective as of September 30, 2007, 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 2017. The Companys previous estimate was for asbestos claims filed through 2011. As a
result of this updated estimate, the Company recorded an additional liability of $586 million as of September 30, 2007. The Companys decision to take this action at such date was based on several factors. First, the number of asbestos
claims being filed against the Company has moderated substantially over the past several years, and in the Companys opinion, the outlook for asbestos claims expected to be filed and resolved in the forecast period is reasonably stable. Second,
these claim trends are particularly true for mesothelioma claims, which although constituting approximately 5% of the Companys total pending asbestos claims, have accounted for approximately 90% of the Companys aggregate settlement and
defense costs over the past five years. Third, federal legislation that would significantly change the nature of asbestos litigation failed to pass in 2006, and in the Companys opinion, the prospects for such legislation at the federal level
are remote. Fourth, 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 claim activity. Fifth, the Company has now entered into coverage-in-place agreements with a majority 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 2017.
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 2017.
Accordingly, no accrual has been recorded for any costs which may be incurred for claims made subsequent to 2017.
Management has made its
best estimate of the costs through 2017 based on the analysis by HR&A completed in October 2007. 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, asbestosis and other non-malignant conditions) during that period. Management
discusses these trends and their effect on the liability estimate with HR&A and determines whether a change in the estimate is warranted. As part of this process, the Company also takes into account trends in the tort system such as those
enumerated above. As of March 31, 2011, 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
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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 March 31, 2011. A liability of $1,055 million was recorded as of September 30, 2007 to cover the estimated cost of asbestos claims now pending or subsequently asserted through 2017. The liability is reduced
when cash payments are made in respect of settled claims and defense costs. The liability was $701 million as of March 31, 2011, approximately two-thirds of which is attributable to settlement and defense costs for future claims projected to be
filed through 2017. 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 2017, 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 March 31, 2011 was $100 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. The
most recent such agreement became effective July 7, 2010, between the Company and Travelers Casualty & Surety Company. On March 3, 2008, the Company reached agreement with certain London Market Insurance Companies, North River
Insurance Company and TIG Insurance Company, confirming the aggregate amount of available coverage under certain London policies and setting forth a schedule for future reimbursement payments to the Company based on aggregate indemnity and defense
payments made. In addition, with six of its excess insurer groups, the Company entered into policy buyout agreements, settling all asbestos and other coverage obligations for an agreed sum, totaling $79.5 million in aggregate. The most recent of
these buyouts was reached with Munich Reinsurance America, Inc. and involved certain historical policies issued by American Re-Insurance Company and American Excess Insurance Company. Reimbursements from insurers for past and ongoing settlement and
defense costs allocable to their policies have been made as coverage-in-place and other agreements are reached with such insurers. 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 agreed to pay the shares of defense and indemnity costs the Company has allocated to it, subject to a reservation of rights, pending negotiation of a formal
settlement agreement with the Company. If the Company is not successful in concluding an agreement with that insurer, then the Company anticipates that it would pursue litigation to enforce its rights under such insurers policy. 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
7
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 September 30, 2007 (for claims filed through 2017), the insurance
consultants model forecasted that approximately 33% of the liability would be reimbursed by the Companys insurers. An asset of $351 million was recorded as of September 30, 2007 representing the probable insurance reimbursement for
such claims. The asset is reduced as reimbursements and other payments from insurers are received. The asset was $207 million as of March 31, 2011.
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, the effect of any additional lump-sum payments under policy buyout agreements, and, following consultation with legal counsel, the
consistency of any new coverage-in-place agreements with the assumptions in the model. Since September 2007, there have been no developments that have caused the Company to change the estimated 33% rate, although actual insurance reimbursements vary
from period to period, and will decline over time, for the reasons cited above. 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 through 2017) that is in excess of available insurance coverage
allocated to such years.
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. The Company cautions that its estimated liability is based on assumptions with respect to future claims, settlement and defense
costs based on recent experience during the last few years 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. A legislative solution or a structured
settlement transaction 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.
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 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. 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.
8
SECTION 9 FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01.
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Financial Statements and Exhibits.
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99.1
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Earnings Press Release dated April 18, 2011, issued by Crane Co.
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99.2
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Crane Co. Quarterly Financial Data Supplement for the quarter ended March 31, 2011
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9
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.
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Dated: April 18, 2011
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By:
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/s/ Andrew L. Krawitt
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Andrew L. Krawitt
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Principal Financial Officer
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10
EXHIBIT INDEX
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Exhibit No.
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Description
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99.1
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Earnings Press Release dated April 18, 2011, issued by Crane Co.
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99.2
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Crane Co. Quarterly Financial Data Supplement for the quarter ended March 31, 2011.
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11
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