Crane Co.
Gabelli Asset Management
12th Annual Aircraft Supplier Conference
September 7, 2006
J. Robert Vipond
Vice President & CFO
Crane Co.
1
Forward-Looking Statements
Disclaimer
This presentation includes forward-looking statements that are by
their very nature uncertain. There can be no guarantee that any
forward-looking statement will be fulfilled. The Company assumes no
obligation to update forward-looking statements to reflect actual
results or changes in or additions to the factors affecting such
forward-looking statements. Reference is made to the Company’s
Annual Report on Form 10-K and subsequent reports filed with the
Securities and Exchange Commission for additional information
involving known and unknown risks, uncertainties and other factors.
Please also refer to the full forward-looking statements disclaimer
contained in the Company’s Form 10-K and subsequent reports filed
with the Securities and Exchange Commission.
2
Overview
 Diversified manufacturer of highly engineered products
- Focused niche markets which we dominate
- Businesses high returns and cash flow
- Acquisitions to strengthen existing businesses
 Above all conduct business with integrity and
honest dealings
 Transitioning from Holding Co. to Operating Co.
to
accelerate EVA Growth
 Our Goal is to build shareholder wealth
3
Strategy for Profitable Growth
Grow Profits from Existing Operations
 Materially Improving Operations
• Leveraging Intellectual Capital
• Improving Customer Focus
• Executing Operational Excellence
 Strategic Linkages
Integrated Operating
Company
• Portfolio Trimming
• Internal Mergers
Redeploy Free Cash Flow for Acquisitions
 Synergistic Acquisitions
•
•
•
•
•
•
2001 - $197 Million – 6 transactions
2002 - $82 Million – 7 transactions
2003 - $169 Million – 4 transactions
2004 - $51 Million – 2 transactions
2005 - $9 Million – 2 transactions
2006 - $162 Million – 3 transactions
Noble Composites pending Hart-Scott- Rodino
Strengthen Existing
Business Units
4
Gating Chart
Profitable Engineered
Sales
Materials Growth
Controls
Merch
Systems
Aerospace
Customer Metrics
Electronics
Fluid
Handling
Financial Consistency
3Q2005
0
100
200
300
400
50
5
Better Portfolio Balance
Business Segments Operating Profit
2005
2001
($214 Million)
($197 million)
Merchandising
Systems
Engineered
Materials
Controls
17%
Fluid Handling
13%
Merchandising
Systems
6%
Engineered
Materials
1%
3%Controls
25%
35%
19%
Aerospace &
Electronics
31%
50%
Aerospace &
Electronics
Fluid Handling
Note: Pie charts show relative business unit contribution before corporate expenses.
6
Crane Co.
($ in millions)
Operating Profit
Sales
$2,300
$2,200
$2,100
$2,000
$1,900
$1,800
$1,700
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
$1,000
2,150
238
*
214
2,061
$200
186
1,890
169
155
$150
1,636
1,516
$100
$50
$0
'02
•
*
$250
'03
'04
'05
'06*
'02
'03
'04
'05
'06*
Operating profit before the 2004 net non-cash charges for asbestos and environmental and for 2002 before
asbestos charge.
* Dec. ‘05 Guidance
7
2006 Guidance
Sales
Operating Profit
% to Sales
Tax Rate
EPS / EPS Guidance
2004*
2005
2006E
$
%
$1,890
186
9.9%
31%
$2,061
214
10.4%
31%
$2,150
238
11.0%
31 - 32%
89
24
4%
11%
$1.98
$2.25
$2.60-2.70
Crane Co. estimates for sales, operating profit and margin % provided in Dec. ’05
Crane Co. estimates for tax rate and EPS updated in July ’06.
•Operating profit before asbestos and environmental charge and Victaulic gain. For further details see nonGAAP reconciliation that accompanied our March 7, 2006 investor presentation on Crane Co. website at
www.craneco.com.
8
1H’06 Results
($ Millions)
Sales
Operating Profit
% to Sales
Tax rate
EPS
1H'05
1H'06
$1,033
97
9.4%
30.9%
$1.01
$1,108
123
11.1%
31.5%
$1.32
'06 vs. '05
$
%
$75
$26
7%
27%
9
2006 Guidance Free Cash Flow
Cash Flow from Operations before Asbestos
$
2006 E*
2005
2004
($ Millions)
149
$
217
$
260
Asbestos Related Payments (1)
Cash Flow from Operations
(38)
111
(36)
181
(45)
215
Capital Expenditures
(23)
(27)
(30)
Free Cash Flow (2)
$
88
$
154
$
185
(1) Net of insurance reimbursement. Furthermore, 2004 asbestos related payments includes $18M of payments relative to the
Master Settlement Agreement (“MSA”) and in 2005 includes a net receipt of funds of $5M relative to the termination
of the MSA.
(2) Free cash flow guidance was raised from $165 to $185 million in April '06
* Crane Co. estimate April ‘06
10
Capitalization
($ in millions)
Debt
Shareholder Equity
Total Capital
Total Debt % of Total Cap
FY'03
396
786
$ 1,182
34%
FY'04
297
664
$ 961
31%
FY'05
294
753
$ 1,047
28%
06/30/06
$
294
$
862
$ 1,156
25%
•12/31/05 Cash $180 million
•6/30/06 Cash $100 million
11
2006 Capital Deployment
Redeploy Capital to Accelerate Growth
$100 M of Cash at
6/30/06
$185 M ’06 Free
Cash Flow
Asbestos Liability
Crane Co.
- Recent trends more stable
Rating Agencies
$294 M of Debt - 25% of
Capital at 6/30/06
- Stable BBB Baa-2
Shareholders
- Dividends
- Acquisitions
- Stock Repurchases
•Quarterly dividend increased 20% in July 2006
•2006 acquisitions $162 million
•In 1H’06, repurchased 636,300 shares for $25 million
12
2006 Summary
Profit Growth From Existing Operations
 Strengthened Management Teams
 Strategic Acquisitions for Core Business
 Operational Excellence Traction
 Late Economic Cycle Exposure
 Expect To Surpass 2005 Record EPS
Redeploy Capital to Accelerate Growth
 $100M of Cash at 6/30/06
 $185 M ’06 Free Cash Flow
 $294 M of Debt: 25% of Capital at 6/30/06
13
Gabelli Aircraft Supplier Conference
Crane Co. (CR)
Crane Aerospace
September 7, 2006
Gregory A. Ward
President
Crane Aerospace Group, Inc.
14
Crane Aerospace Group
ELDEC - Hydro-Aire - Lear Romec – P.L. Porter
Our 4 Brands:
Elyria, OH
Lyon, France
Lynnwood, WA
Burbank, CA
North America
$ M's
OEM
A/M
M&U
Planned
M&U
Wichita, KS
Totals
Two plant
consolidations
completed
2005
Divested
2010
ResistoflexResource
Resource $M's
2006
4
2
2
3
6




2005 Sales
No. of Employees
Mfg Space
Global Business
$339M
1,450
478,800 sq ft
30+ countries
15
Products and Solutions
Solutions
Current Products
Value Proposition
AIRCRAFT
ELECTRICAL
POWER
•
•
•
•
•
Battery Systems
Ground Fault Interrupters (SafeTripTM)
Inverters
Power Management & Distribution Systems
Automatic Transformer Rectifier Units
Applications engineering excellence
(system knowledge), lightest weight, highest
value, highest power quality AC-DC
power conversion
CABIN
•
•
•
•
Seat Actuation
Lumbar Support
Integrated Control
Power Conversion
Rapid development, on time delivery and
use of emerging technology. Customers will
pay premiums for passenger comfort and
extended passenger services
FLUID
MANAGEMENT
•
•
•
•
Lube and Scavenge Pumps
Coolant Pumps and Package Systems
Fuel Boost, Transfer and Jettison Pumps
Fuel Flowmeters / Fuel Gauging Systems
Applications engineering excellence,
superior product performance and
packaging, fast development times and
outstanding product support
LANDING
SYSTEMS
•
•
•
•
Brake Control Components and Systems
Hydraulic Equipment
Gear Extension & Retraction Systems
Brake temperature monitoring
Applications engineering excellence,
superior performance and flexible business
models. Industry knowledge and
expertise. Extending the life of braking
components
SENSING/
UTILITY SYSTEMS
•
•
•
•
Proximity Switches, Sensors, & Systems
Silicon On Sapphire Pressure Sensors
Weight & Balance Systems
Wireless Sensors (incl. SmartStem pressure)
Highest reliability, most accurate, and
highest value position indication of critical
systems such as landing gear, doors, and
control surfaces (prox only)
16
OEM Sales Mix
OEM Sales
Commercial
35%
Total Civil Vs. Military
Military
Sales
Military/Defense
17%
17%
Regional Jets
12%
Civil
83%
Other
4%
BFE
16%
Business Jets
16%
* 2006E OEM Sales
* 2006E Total Sales
*Civil: Commercial, Regional, Business, BFE
*BFE:Buyer Furnished Equipment
Strong Niche Shares





Landing: Brake Control
Sensing/Utility: Proximity Sensing
Fluid: Pumps
Cabin: Seat Actuation
Aircraft Electrical Power
64%
63%
42%
41%
30%
Key Takeaway: Niche products and systems
17
Three Business Models
Classic OEM - Aftermarket Model
 All Solutions except Cabin
 Driven by new platforms
 Long development cycles
 Long payback periods
New Buyer Furnished Equipment
(BFE) Model
 Cabin Solution only
 Serves both new and fielded fleets
 Replacement cycle every 5 and 13
years
 Short development and payback
periods
Modernization & Upgrade (M&U) Model
 Focused on Operators Cost of
Operations
 Market based on fielded fleet
 Shorter development cycles
 Shorter payback periods
2006E Sales Mix
OEM (61%) /Aftermarket (39%)
AFTERMARKET
34%
OEM
52%
M&U
5%
BFE
9%
18
OEM Forecast For The Industry
Market
Large
Commercial
Transports
Regional Jets
Business Jets
Military Aircraft
and
Rotorcraft
2006
Build
Rate
800+
300+
700+
500+
2007
to 2008
CAGR
4 - 5%
(3 - 4%)
Key Industry Trends
World passenger traffic
increasing 3-5% annually and
driving demand.
50 seat market saturation. Focus
is on 70- 100 seat platform for
operating efficiencies.
2 - 3%
Global economy sustaining
modest demand. New VLJ
segment.
3 - 4%
CAGR driven by high mix of
rotorcraft & fixed wing fighters.
Uncertainty of new platforms like
JSF in the out years.
19
Strong Civil OEM Growth: 4 - 5% CAGR
Commercial OEM Summary
2,500
Crane civil OEM sales
growth consistent with
build rates
1,500
Build Rates
2,000
Revenue
1,000
500
2002
2003
2004
2005
2006
Landing Commercial OEM
Sensing Commercial OEM
Cabin Commercial OEM
AEP Commercial OEM
Other Commercial OEM
Commercial OEM Build Rate
2007
0
2008
Fluid Commercial OEM
20
Military OEM Growth: 3 - 4% CAGR
425
Crane military OEM
sales growth consistent
with build rates
375
325
225
175
Build Rates
Revenue
275
125
75
25
-25
2002
2003
Fluid Military OEM
2004
Landing Military OEM
2005
Sensing Military OEM
2006
AEP Military OEM
2007
2008
Military OEM Build Rate
Build Rate Excludes
Helicopters
21
Aftermarket Industry Forecast
Active Fleet Analysis*
Key Industry Trends:
25,000
18
 Robust Commercial Spares and
20,000
14
Avg. Aircraft Age
12
15,000
Age
10
A/C
R&O due to aircraft coming out of
warranty & Increasing active fleet
• 15,000+ aircraft today
• 3 – 5 % CAGR projected
 Growing installed base for
Modernization & Upgrade
opportunities
 More Commercial Initial
Provisioning
16
# A/C Out of Warranty
8
10,000
6
4
5,000
# A/C In Warranty
2
# A/C Parked
0
2002
2003
2004
2005
2006
Year
Commercial
Aftermarket projected
at 3 - 5% CAGR
for the Industry
2007
2008
2009
* ACAS data
0
2010
Market Issues:
 Financial stability of the operators
 Fuel prices / terrorism / air traffic control
 Increased use of third-party R&O and
logistics
22
Operators Need To Modernize and Upgrade
 Large fielded fleet
•
•
2006E M&U Mix
15,000+ Civil Aircraft
30,000+ Military Aircraft (fixed & rotorcraft)
Military M&U
35%
 New aircraft
•
•
Technology making the A/C more efficient
Difficult for legacy carriers to compete with
newer fleets
Commercial M&U
65%
 Crane focus on adding value to the older
aircraft
•
•
Mandated safety items
Systems and components that reduce
operating costs
2007 – 09E M&U Mix
 Operators will pay for added value
•
M&U tends to equate to better margins
 Focused on balancing our Civil / Military
mix
•
•
Military
43%
Commercial
57%
Adding sales force
Investing in Military technology
23
New M&U Products
 Weight and Balance System
•
AirWeighs under development
 Reduces operator costs
 New pax & baggage weights driving need
 Government funded flight demonstration
program pending contract finalization
•
•
C-130 Technology Demo completed
Competing for 777 Freighter
 Wireless Tire Pressure System
Control Unit
Senso
rs &
Actua
tors
Interf
ace
Flight Mgmt System
Senso
rs &
Actua
tors
Interf
ace
•
•
Actua
tor
Existing
Hydraulic
Pump
Strut
Manifol
d
Existing
Reservoir
Strut Gas
Isola
tor
Return Pressure
Airplane Hydraulic Pressure
Strut Oil
“SmartStem” flying now
In-service evaluation on 777
 Reduces operator costs
 Handheld version
•
Contract with Cessna
 On Board System
•
•
Boeing contract 777
Smiths contract 787
24
Crane Aftermarket Growth: 15 – 20% CAGR
M&U accelerating our
Aftermarket growth
2002
2003
2004
2005
Core Aftermarket
2006
2007
2008
M&U
25
Aerospace Market Summary
Operators
 Major U.S. Airlines making a modest profit
 Global airlines continue growth
 Impact of Oil prices & terror threat still in
question
 LCC model driving industry changes
 Steady Aftermarket Sales growth
 New opportunities due to large fleets
•
Modernization & Upgrades
 Military business hard to forecast
•
•
JSF, Tanker
Funded upgrades
OEMs
 Increasing OEM Build Rates
•
Thru 2010
 OEM Price Concessions
•
YOY with Aftermarket pricing limits
 Major military platforms in the out years
•
JSF / UCAV
 Many OEM program opportunities
•
•
•
•
•
Replace incumbent systems
Airbus A350 XWB
Narrow body replacements
LJs and VLJs
UCAVs
 Many M&U opportunities
•
•
Military
Civil
Key Takeaway: 3-5% CAGR is expected in this changing aerospace market
26
So What’s Our Strategy?
Business Factors
• Airline financial health
• Increasing build rates
• Fuel costs & terror threats
Maintain
Margins
Strategic Issues
• High program investments
• Intense price pressures
• Technical resource shortages
Protect & Maintain
All Solutions
Increase
Organic
CAGR
Intellectual Capital and Operational Excellence
Everyone, Everywhere
Commercial
Commercial
Military
Commercial
Military
Military
Prioritization of Investments
Balanced Long & Short term EVA Growth
27
Protect and Maintain the Franchises
 Satisfy our customers
• Voice of the Customer
• Dedicated team and process
• Monthly review and actions
• Train the entire workforce
 Flawless customer metrics
• Responsiveness
• On Time Delivery
• Quality
Satisfied Customers give us:
• Follow on core business
• New growth opportunities
28
Giving our customers more value
 Lean is our way of life
• Enterprise-wide Operational Excellence
• Structured daily process
• Visual controls
• All functions
• Centralization of functions and processes
• Leverage automation, standard work
• Organized by value streams
• Streamlined Organization Structure
• Easy to do business with
• Right people in the right roles
• Increased productivity
• Low cost sourcing
• Facilities Consolidation
29
Reducing Costs & Improving Service
Legacy Business
 1 Business Unit (w/ P&L)
 1 Leadership team
 One bonus system
 4 Business Units w/ P&L
 4 Leadership teams
 Separate Functional
Organizations
 Multiple internal & external
customer interfaces
 Varying strategies &
industry knowledge
Organization
Transformation
One Company Change
 Centralized several
functional organizations
2002
 Sales & Marketing single
face to the customer
 Began common ERP
system implementation
2005
 Streamlined organization
 Right People, Right Roles
 Centralized processes
 Engineering
 Quality
 Program Mgmt
 Infrastructure
 Simplified customer
interfaces
 Order entry
 Common strategic agenda
 Enterprise-wide OpEx
 SDP, Kaizen
 Value Streams
 Standard work
2004 Sales = $309M*
2005 Sales = 9.7% growth
2002 Sales = $257M
Employees = 1,433*
Employees = 10% less SG&A
Employees = 1,299
Mfg space = 584,000*
Mfg space = 27% less 2006
Mfg space = 494,000
Annual Savings = $7M 2004
Annual Savings = $5M 2006
 Unique processes and
procedures
 Group processes and
procedures
(Acquisition of PL Porter)
(Sold Resistoflex 5/06)
30
Investing more in Organic Growth
 Maintain margins while increasing R&D investments
• Growing the Core Solutions
• Expanding Solutions with new M&U opportunities
 Must Increase engineering capacity
• To take advantage of growth opportunities
• Retention of key contributors
• Re-recruit the Keepers
• Utilize remote engineering locations
• Greater mix of low cost capacity
 Self funded R&D
• 2005 - $36M
• 2006F - $43M
10% of sales
12% of sales
31
Organic Growth
Long-Term
Segment
OEM
Short-Term
Aftermarket
Modernization &
Upgrades (M&U)
Shorter Development Cycle
Condensed Delivery Cycle
Issue/Need
Strategy
 Price Reductions
 Relentless competition
 Many new platforms
 Win new platforms with
flexible business models
 Modular and reusable
technologies
 Niche products, systems
 Airline financial health
 Global support
 More efficient aircraft
 Improve TAT times
 Increase support
network
 Reliability of legacy
products
 Airlines need lower
operating costs
 Airlines ROI = <1yr
 Can retrofit fleets
quickly
 New M&U products and
services
 Focus on aircraft
systems and cabins
32
Summary: Stay the Course
 Our focus remains on
• High value niche products
• High margins
• High growth
 All five niche Solutions are in high demand
• Grow the Solutions by satisfying our customers
• Expand the Solutions with products and systems
• That lower operating costs
 Accelerate our M&U strategy
Aerospace Group Strategy Delivers:
• Franchise protection
• High margins
• High annual growth
33
Thank You.
Questions?
For more information, visit:
www.craneaerospace.com
34