UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One:

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from              to             

Commission File Number: 1-1657 

CRANE CO.

(Exact name of registrant as specified in its charter)

Delaware	13-1952290
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 First Stamford Place	Stamford	CT	06902
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: 203-363-7300

(Not Applicable)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $1.00	CR	New York Stock Exchange

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

(check one):
Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares outstanding of the issuer’s classes of common stock, as of March 31, 2020

Common stock, $1.00 Par Value – 57,978,486 shares

Crane Co.

Table of Contents

Form 10-Q

		Page
Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations	Page 1
	Condensed Consolidated Statements of Comprehensive Income	Page 2
	Condensed Consolidated Balance Sheets	Page 3
	Condensed Consolidated Statements of Cash Flows	Page 5
	Notes to Condensed Consolidated Financial Statements	Page 6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 37
Item 4.	Controls and Procedures	Page 37
	Part II - Other Information
Item 1.	Legal Proceedings	Page 38
Item 1A.	Risk Factors	Page 38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 38
Item 4.	Mine Safety Disclosures	Page 39
Item 5.	Other Information	Page 39
Item 6.	Exhibits	Page 40
	Signatures	Page 41

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	Three Months Ended
	March 31,
	2020			2019
Net sales	$	797.9		$	831.7
Operating costs and expenses:
Cost of sales	510.8			526.6
Selling, general and administrative	194.5			187.4
Acquisition-related and integration charges	5.2			1.1
Restructuring (gain) charges, net	(1.2		)	2.9
Operating profit	88.6			113.7
Other income (expense):
Interest income	0.4			0.6
Interest expense	(12.5		)	(11.9		)
Miscellaneous income, net	3.8			2.0
	(8.3		)	(9.3		)
Income before income taxes	80.3			104.4
Provision for income taxes	17.5			21.9
Net income before allocation to noncontrolling interests	62.8			82.5
Less: Noncontrolling interest in subsidiaries’ earnings	—			0.1
Net income attributable to common shareholders	$	62.8		$	82.4
Earnings per share:
Basic	$	1.07		$	1.38
Diluted	$	1.05		$	1.36
Average shares outstanding:
Basic	58.8			59.8
Diluted	59.6			60.7
Dividends per share	$	0.43		$	0.39

See Notes to Condensed Consolidated Financial Statements.

Page 1

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN MILLIONS)

(UNAUDITED)

 

	Three Months Ended
	March 31,
	2020			2019
Net income before allocation to noncontrolling interests	$	62.8		$	82.5
Components of other comprehensive (loss) income, net of tax
Currency translation adjustment	(45.2		)	(0.8		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	3.6			2.9
Other comprehensive (loss) income, net of tax	(41.6		)	2.1
Comprehensive income before allocation to noncontrolling interests	21.2			84.6
Less: Noncontrolling interests in comprehensive income	(0.3		)	(0.6		)
Comprehensive income attributable to common shareholders	$	21.5		$	85.2

See Notes to Condensed Consolidated Financial Statements.

Page 2

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

(UNAUDITED) 

	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	302.8	$	393.9
Accounts receivable, net	543.5		555.1
Current insurance receivable - asbestos	14.1		14.1
Inventories, net:
Finished goods	145.7		130.6
Finished parts and subassemblies	79.0		66.1
Work in process	53.6		47.7
Raw materials	211.2		212.9
Inventories, net	489.5		457.3
Other current assets	96.3		79.5
Total current assets	1,446.2		1,499.9
Property, plant and equipment:
Cost	1,241.5		1,256.9
Less: accumulated depreciation	634.4		640.6
Property, plant and equipment, net	607.1		616.3
Long-term insurance receivable - asbestos	80.1		83.6
Long-term deferred tax assets	13.3		35.1
Other assets	207.3		211.3
Intangible assets, net	545.4		505.1
Goodwill	1,565.2		1,472.4
Total assets	$	4,464.6	$	4,423.7

See Notes to Condensed Consolidated Financial Statements.

Page 3

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

	March 31, 2020			December 31, 2019
Liabilities and equity
Current liabilities:
Short-term borrowings	$	378.7		$	149.4
Accounts payable	250.2			311.1
Current asbestos liability	65.0			65.0
Accrued liabilities	350.2			378.2
U.S. and foreign taxes on income	13.5			13.0
Total current liabilities	1,057.6			916.7
Long-term debt	842.2			842.0
Accrued pension and postretirement benefits	289.7			298.4
Long-term deferred tax liability	53.3			55.8
Long-term asbestos liability	631.3			646.6
Other liabilities	183.0			187.9
Total liabilities	3,057.1			2,947.4
Commitments and contingencies (Note 11)
Equity:
Preferred shares, par value $0.01; 5,000,000 shares authorized	—			—
Common shares, par value $1.00; 200,000,000 shares authorized, 72,426,139 shares issued	72.4			72.4
Capital surplus	315.4			315.6
Retained earnings	2,149.5			2,112.2
Accumulated other comprehensive loss	(525.3		)	(483.7		)
Treasury stock	(606.8		)	(542.8		)
Total shareholders’ equity	1,405.2			1,473.7
Noncontrolling interests	2.3			2.6
Total equity	1,407.5			1,476.3
Total liabilities and equity	$	4,464.6		$	4,423.7
Share data:
Common shares issued	72,426,139			72,426,139
Less: Common shares held in treasury	14,447,653			13,423,934
Common shares outstanding	57,978,486			59,002,205

See Notes to Condensed Consolidated Financial Statements.

Page 4

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

(UNAUDITED)

	Three Months Ended
	March 31,
	2020			2019
Operating activities:
Net income attributable to common shareholders	$	62.8		$	82.4
Noncontrolling interests in subsidiaries’ earnings	—			0.1
Net income before allocation to noncontrolling interests	62.8			82.5
Loss on deconsolidation of joint venture	—			1.2
Depreciation and amortization	29.9			27.7
Stock-based compensation expense	5.8			5.5
Defined benefit plans and postretirement credit	(1.8		)	(2.0		)
Deferred income taxes	6.1			5.4
Cash used for operating working capital	(123.7		)	(203.4		)
Defined benefit plans and postretirement contributions	(1.5		)	(4.3		)
Environmental payments, net of reimbursements	(2.7		)	(1.6		)
Asbestos related payments, net of insurance recoveries	(11.7		)	(9.7		)
Other	1.3			(1.7		)
Total used for operating activities	(35.5		)	(100.4		)
Investing activities:
Payment for acquisition - net of cash acquired	(172.0		)	—
Proceeds from disposition of capital assets	2.4			—
Capital expenditures	(7.8		)	(19.8		)
Impact of deconsolidation of joint venture	—			(0.2		)
Total used for investing activities	(177.4		)	(20.0		)
Financing activities:
Dividends paid	(25.5		)	(23.4		)
Reacquisition of shares on open market	(70.0		)	—
Stock options exercised - net of shares reacquired	0.1			(0.4		)
Proceeds received from issuance of long-term debt	—			3.0
Repayment of long-term debt	—			(1.4		)
Proceeds from issuance of commercial paper with maturities greater than 90 days	170.0			55.5
Net proceeds from issuance of commercial paper with maturities of 90 days or less	14.5			—
Net borrowings under revolving credit facility	45.2			—
Total provided by financing activities	134.3			33.3
Effect of exchange rates on cash and cash equivalents	(12.5		)	0.5
Decrease in cash and cash equivalents	(91.1		)	(86.6		)
Cash and cash equivalents at beginning of period	393.9			343.4
Cash and cash equivalents at end of period	$	302.8		$	256.8
Detail of cash used for operating working capital:
Accounts receivable	$	12.0		$	(65.4	)
Inventories	(31.1		)	(29.9		)
Other current assets	(17.1		)	(7.6		)
Accounts payable	(61.1		)	(65.9		)
Accrued liabilities	(26.5		)	(45.6		)
U.S. and foreign taxes on income	0.1			11.0
Total	$	(123.7	)	$	(203.4	)
Supplemental disclosure of cash flow information:
Interest paid	$	8.0		$	9.1
Income taxes paid	$	11.3		$	5.5

See Notes to Condensed Consolidated Financial Statements.

Page 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and, therefore, reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These interim condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements - Not Yet Adopted

Simplifying the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued amended guidance to simplify the accounting for income taxes. The guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. Certain amendments should be applied prospectively, while other amendments should be applied retrospectively to all periods presented. We are currently evaluating the timing and impact of the amended guidance on our consolidated financial statements.

Disclosure Requirements for Defined Benefit Plans

In August 2018, the Financial Accounting Standards Board (“FASB”) issued amended guidance to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amended guidance removes the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the entity; and the effects of a one-percentage point change in assumed health care cost trend rates. The amended guidance requires disclosure of an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The amended guidance is required to be applied on a retrospective basis to all periods presented. We are currently evaluating this guidance to determine the impact on our disclosures.

Recent Accounting Pronouncements - Adopted

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued amended guidance that changes the impairment model for most financial assets and certain other instruments. For trade receivables, contract assets and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a current expected credit loss ("CECL") model that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. The CECL model is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability.

On January 1, 2020, we adopted the new CECL standard and developed an expected impairment model based on our historical loss experience. We believe that our previous methodology to calculate credit losses is generally consistent with the new expected credit loss model and did not result in a material adjustment during the three months ended March 31, 2020. The allowance for doubtful accounts was $9.5 million and $7.2 million as of March 31, 2020 and December 31, 2019, respectively.

Note 2 - Acquisitions

Acquisitions are accounted for in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). Accordingly, we make an initial allocation of the purchase price at the date of acquisition based upon our understanding of the fair value of the acquired assets and assumed liabilities. We obtain this information during due diligence and through other sources. In the months after closing, as we obtain additional information about these assets and liabilities, including through tangible and intangible asset appraisals, we are able to refine estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment to the purchase price allocation. We will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

In order to allocate the consideration transferred for our acquisitions, the fair values of all identifiable assets and liabilities must be established. For accounting and financial reporting purposes, fair value is defined under ASC Topic 820, “Fair Value Measurement and Disclosure” as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers

Page 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results.

Cummins-Allison Acquisition

On December 31, 2019, we completed the acquisition of Cummins-Allison Corp. (“Cummins-Allison”). The base purchase price of the acquisition was $160 million on a cash-free, debt-free basis, subject to a later adjustment reflecting Cummins-Allison’s net working capital, cash, and Cummins-Allison’s transaction expenses. The amount paid, net of cash acquired, was $156.2 million. We funded the acquisition through short-term borrowings consisting of $150 million of commercial paper, and cash on hand.

Cummins-Allison is a leading provider of high speed, cash and coin counting and sorting machines and retail cash office solutions which are primarily used in back-office applications. Cummins-Allison also has a nationwide service network to support these hardware sales. Cummins-Allison was integrated into the Payment & Merchandising Technologies segment. The amount allocated to goodwill reflects the expected synergies related to material costs, supply chain manufacturing productivity and research and development. Goodwill from this acquisition is not deductible for tax purposes.

Allocation of Consideration Transferred to Net Assets Acquired

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of Cummins-Allison. The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as required by ASC 805. We have not yet completed our evaluation and determination of certain assets acquired and liabilities assumed, primarily related to the final assessment and valuation of certain tax amounts. Therefore, the final fair values of the assets acquired and liabilities assumed may vary from our preliminary estimates presented below:

Net assets acquired (in millions)
Total current assets	$	92.6
Property, plant and equipment	26.6
Other assets	9.1
Intangible assets	66.0
Goodwill	51.6
Total assets acquired	$	245.9
Total current liabilities	$	67.3
Other liabilities	22.4
Total assumed liabilities	$	89.7
Net assets acquired	$	156.2

The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period in which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:

Intangible Assets (dollars in millions)	Intangible Fair Value		Weighted Average Life
Trademarks/trade names	$	3.0	7
Customer relationships	54.5		18
Product technology	8.5		10
Total acquired intangible assets	$	66.0

The fair values of the trademark and trade name intangible assets were determined by using an “income approach,” specifically the relief-from-royalty approach, which is a commonly accepted valuation approach. This approach is based on the assumption that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset. Therefore, a portion of Cummins-Allison’s earnings, equal to the after-tax royalty that would have been paid for the use of the asset, can be attributed to our ownership. The trade name Cummins Allison is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of seven years.

The fair values of the customer relationships intangible assets were determined by using an “income approach” which is a commonly accepted valuation approach. Under this approach, the net earnings attributable to the asset or liability being

Page 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

measured are isolated using the discounted projected net cash flows. These projected cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant net cash flows considered historical and projected pricing, operational performance including market participant synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows were adjusted to reflect the potential attrition of existing customers in the future, as existing customers are a “wasting” asset and are expected to decline over time. The attrition-adjusted future cash flows are then discounted to present value using an appropriate discount rate. The customer relationship asset is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 18 years.

The fair values of the product technology intangible assets were also determined by the relief-from-royalty approach. Similarly, this approach is based on the assumption that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of the technology. Therefore, a portion of Cummins-Allison’s earnings, equal to the after-tax royalty that would have been paid for the use of the technology, can be attributed to the firm’s ownership of the technology. The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 10 years.

Supplemental Pro Forma Data

The following unaudited pro forma combined information assumes that the acquisition was completed on January 1, 2019. The unaudited pro forma consolidated net sales for the three months ended March 31, 2019 would have been $880.1 million. The unaudited pro forma consolidated net sales are provided for illustrative purposes only and are not indicative of our actual consolidated results of operations or consolidated financial position. Consolidated pro forma net income attributable to common shareholders has not been presented since the impact is not material to our financial results.

Instrumentation & Sampling Business Acquisition

On January 31, 2020, we completed the acquisition of CIRCOR International, Inc.’s Instrumentation & Sampling Business (“I&S”) for $172 million on a cash-free and debt-free basis, subject to a later adjustment reflecting I&S' net working capital, cash, the assumption of certain debt-like items, and I&S' transaction expenses. We funded the acquisition through short-term borrowings consisting of $100 million of commercial paper and $67 million from our revolving credit facility, and cash on hand.

I&S designs, engineers and manufactures a broad range of critical fluid control instrumentation and sampling solutions used in severe service environments which complements our existing portfolio of chemical, refining, petrochemical and upstream oil and gas applications. I&S was integrated into the Fluid Handling segment. The amount allocated to goodwill reflects the expected sales synergies, manufacturing efficiency and procurement savings. Goodwill from this acquisition is not deductible for tax purposes.

Allocation of Consideration Transferred to Net Assets Acquired

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of I&S. The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as required by ASC 805. We have not yet completed our evaluation and determination of certain assets acquired and liabilities assumed, primarily 1) the final valuation of intangible assets related to trademarks/trade names and customer relationships; 2) the final assessment and valuation of certain other assets acquired and liabilities assumed, including accounts receivable, accrued expenses and other liabilities; and 3) the final assessment and valuation of certain tax amounts. Any potential adjustments made could be material in relation to the preliminary values presented below:

Page 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net assets acquired (in millions)
Total current assets	$	21.4
Property, plant and equipment	11.7
Other assets	5.9
Intangible assets	52.5
Goodwill	108.1
Total assets acquired	$	199.6
Total current liabilities	$	8.1
Other liabilities	19.5
Total assumed liabilities	$	27.6
Net assets acquired	$	172.0

The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period in which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:

Intangible Assets (dollars in millions)	Intangible Fair Value		Weighted Average Life
Trademarks/trade names	$	2.6	13
Customer relationships	49.0		14
Backlog	0.9		1
Total acquired intangible assets	$	52.5

The fair values of the trademark and trade name intangible assets were determined by using an “income approach,” specifically the relief-from-royalty approach, which is a commonly accepted valuation approach. This approach is based on the assumption that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset. Therefore, a portion of I&S’s earnings, equal to the after-tax royalty that would have been paid for the use of the asset, can be attributed to our ownership. The trade names are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 13 years.

The fair values of the customer relationships and backlog intangible assets were determined by using an “income approach” which is a commonly accepted valuation approach. Under this approach, the net earnings attributable to the asset or liability being measured are isolated using the discounted projected net cash flows. These projected cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant net cash flows considered historical and projected pricing, operational performance including market participant synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows were adjusted to reflect the potential attrition of existing customers in the future, as existing customers are a “wasting” asset and are expected to decline over time. The attrition-adjusted future cash flows are then discounted to present value using an appropriate discount rate. The customer relationship asset is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 14 years.

Supplemental Pro Forma Data

I&S’s results of operations have been included in our financial statements for the period subsequent to the completion of the acquisition on January 31, 2020. Consolidated pro forma revenue and net income attributable to common shareholders has not been presented since the impact is not material to our financial results for either period.

Acquisition-Related Costs

Acquisition-related costs are expensed as incurred. For the three months ended March 31, 2020 and 2019, we recorded $5.2 million and $1.1 million, respectively, of integration and transaction costs in our Condensed Consolidated Statements of Operations.

Page 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Segment Results

Our segments are reported on the same basis used internally for evaluating performance and for allocating resources. We have four reportable segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Assets of the reportable segments exclude general corporate assets, which principally consist of cash, deferred tax assets, insurance receivables, certain property, plant and equipment, and certain other assets. Corporate consists of corporate office expenses including compensation and benefits for corporate employees, occupancy, depreciation, and other administrative costs.

A brief description of each of our segments are as follows:

Fluid Handling

The Fluid Handling segment is a provider of highly engineered fluid handling equipment for critical performance applications that require high reliability. The segment is comprised of Process Valves and Related Products, Commercial Valves, and Pumps and Systems. Process Valves and Related Products include on/off valves and related products for critical and demanding applications in the chemical, oil & gas, power, and general industrial end markets globally. Commercial Valves includes the manufacturing and distribution of valves and related products for the non-residential construction, general industrial, and to a lesser extent, municipal markets. Pumps and Systems include pumps and related products primarily for water and wastewater applications in the industrial, municipal, commercial and military markets. The recent acquisition of I&S will be integrated into Process Valves and Related Products business. See discussion in Note 2, “Acquisitions” for further details.

Payment & Merchandising Technologies

The Payment & Merchandising Technologies segment consists of Crane Payment Innovations (“CPI”), Crane Merchandising Systems (“CMS”) and Crane Currency. CPI provides high technology payment acceptance and dispensing products to original equipment manufacturers, including coin accepters and dispensers, coin hoppers, coin recyclers, bill validators and bill recyclers. Crane Currency is a supplier of banknotes and highly engineered banknote security feature. CMS provides merchandising equipment, including include food, snack and beverage vending machines and vending machine software and online solutions. The recent acquisition of Cummins-Allison will be integrated into our CPI business. See discussion in Note 2, “Acquisitions” for further details.

Aerospace & Electronics

Aerospace & Electronics segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace and military aerospace and defense markets. 

Engineered Materials

Engineered Materials segment manufactures fiberglass-reinforced plastic (“FRP”) panels and coils, primarily for use in the manufacturing of recreational vehicles (“RVs”), truck bodies and trailers (Transportation), with additional applications in commercial and industrial buildings (Building Products).

Page 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended March 31, 2020 and 2019, operating profit includes acquisition-related and integration charges and restructuring charges. See Note 2, “Acquisitions” for discussion of the acquisition-related costs. See Note 14, “Restructuring” for discussion of the restructuring charges.

	Three Months Ended
	March 31,
(in millions)	2020			2019
Net sales
Fluid Handling	$	256.7		$	273.7
Payment & Merchandising Technologies	297.4			303.8
Aerospace & Electronics	192.9			194.6
Engineered Materials	50.9			59.6
Total	$	797.9		$	831.7
Operating profit (loss)
Fluid Handling	$	28.0		$	34.1
Payment & Merchandising Technologies	26.4			43.2
Aerospace & Electronics	43.8			44.8
Engineered Materials	6.9			9.4
Corporate	(16.5		)	(17.8		)
Total	88.6			113.7
Interest income	0.4			0.6
Interest expense	(12.5		)	(11.9		)
Miscellaneous income, net	3.8			2.0
Income before income taxes	$	80.3		$	104.4

(in millions)	March 31, 2020		December 31, 2019
Assets
Fluid Handling	$	1,111.4	$	941.6
Payment & Merchandising Technologies	2,224.8		2,303.4
Aerospace & Electronics	657.5		638.1
Engineered Materials	225.4		219.6
Corporate	245.5		321.0
Total	$	4,464.6	$	4,423.7

(in millions)	March 31, 2020		December 31, 2019
Goodwill
Fluid Handling	$	345.9	$	240.9
Payment & Merchandising Technologies	845.7		857.8
Aerospace & Electronics	202.3		202.4
Engineered Materials	171.3		171.3
Total	$	1,565.2	$	1,472.4

Page 11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Revenue

Disaggregation of Revenues

The following table presents net sales disaggregated by product line for each segment:

	Three Months Ended
	March 31,
(in millions)	2020		2019
Fluid Handling
Process Valves and Related Products	$	157.2	$	168.0
Commercial Valves	75.9		80.8
Pumps and Systems	23.6		24.9
Total Fluid Handling	$	256.7	$	273.7
Payment & Merchandising Technologies
Payment Acceptance and Dispensing Products	$	166.7	$	158.8
Banknotes and Security Products	94.2		98.6
Merchandising Equipment	36.5		46.4
Total Payment & Merchandising Technologies	$	297.4	$	303.8
Aerospace & Electronics
Commercial Original Equipment	$	80.6	$	90.3
Military and Other Original Equipment	60.4		51.5
Commercial Aftermarket Products	33.9		38.2
Military Aftermarket Products	18.0		14.6
Total Aerospace & Electronics	$	192.9	$	194.6
Engineered Materials
FRP - Recreational Vehicles	$	18.8	$	26.6
FRP - Building Products	24.9		23.6
FRP - Transportation	7.2		9.4
Total Engineered Materials	$	50.9	$	59.6
Total net sales	$	797.9	$	831.7

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations represents the transaction price of firm orders which have not yet been fulfilled, which we also refer to as total backlog. As of March 31, 2020, backlog was $1,178.0 million. We expect to recognize approximately 79% of our remaining performance obligations as revenue in 2020, an additional 11% in 2021 and the balance thereafter.

Contract Assets and Contract Liabilities

Contract assets represent unbilled amounts that typically arise from contracts for customized products or contracts for products sold directly to the U.S. government or indirectly to the U.S. government through subcontracts, where revenue recognized using the cost-to-cost method exceeds the amount billed to the customer. Contract assets are assessed for impairment and recorded at their net realizable value. Contract liabilities represent advance payments from customers. Revenue related to contract liabilities is recognized when control is transferred to the customer. We report contract assets, which are included within “Other current assets” in our Condensed Consolidated Balance Sheets, and contract liabilities, which are included within “Accrued liabilities” on our Condensed Consolidated Balance Sheets, on a contract-by-contract net basis at the end of each reporting period. Net contract assets and contract liabilities consisted of the following:

Page 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions)	March 31, 2020		December 31, 2019
Contract assets	$	66.2	$	55.8
Contract liabilities	$	96.4	$	88.4

We recognized revenue of $35.4 million during the three-month period ended March 31, 2020 related to contract liabilities as of December 31, 2019.

Note 5 - Earnings Per Share

Our basic earnings per share calculations are based on the weighted average number of common shares outstanding during the period. Potentially dilutive securities include outstanding stock options, restricted share units, deferred stock units and performance-based restricted share units. The effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method. Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during the period.

	Three Months Ended
	March 31,
(in millions, except per share data)	2020		2019
Net income attributable to common shareholders	$	62.8	$	82.4
Average basic shares outstanding	58.8		59.8
Effect of dilutive share-based awards	0.8		0.9
Average diluted shares outstanding	59.6		60.7
Earnings per basic share	$	1.07	$	1.38
Earnings per diluted share	$	1.05	$	1.36

The computation of diluted earnings per share excludes the effect of the potential exercise of stock options when the average market price of the common stock is lower than the exercise price of the related stock options. For the three-month periods ended March 31, 2020 and 2019, the number of stock options excluded from the computation was 1.4 million and 1.2 million, respectively.

Page 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Changes in Equity and Accumulated Other Comprehensive Loss

A summary of changes in equity for the year-to-date interim periods ended March 31, 2020 and 2019 is provided below:

(in millions, except share data)	Common Shares Issued at Par Value	Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity			Noncontrolling Interest			Total Equity
BALANCE DECEMBER 31, 2018	72.4	$	303.5		$	2,072.1		$	(447.6	)	$	(476.2	)	$	1,524.2		$	2.9		$	1,527.1
Net income	—	—			82.4			—			—			82.4			0.1			82.5
Cash dividends ($0.39 per share)	—	—			(23.4		)	—			—			(23.4		)	—			(23.4		)
Impact from settlement of share-based awards, net of shares acquired	—	(9.8		)	—			—			9.6			(0.2		)				(0.2		)
Stock-based compensation expense	—	5.5			—			—			—			5.5			—			5.5
Deconsolidation of a joint venture	—	—			—			—			—			—			(0.5		)	(0.5		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	—	—			—			2.9			—			2.9			—			2.9
Currency translation adjustment	—	—			—			(0.8		)	—			(0.8		)	(0.1		)	(0.9		)
BALANCE MARCH 31, 2019	72.4	$	299.2		$	2,131.1		$	(445.5	)	$	(466.6	)	$	1,590.6		$	2.4		$	1,593.0
BALANCE DECEMBER 31, 2019	72.4	$	315.6		$	2,112.2		$	(483.7	)	$	(542.8	)	$	1,473.7		$	2.6		$	1,476.3
Net income	—	—			62.8			—			—			62.8			—			62.8
Cash dividends ($0.43 per share)	—	—			(25.5		)	—			—			(25.5		)	—			(25.5		)
Reacquisition on open market of 1,221,233 shares	—	—			—			—			(70.0		)	(70.0		)	—			(70.0		)
Impact from settlement of share-based awards, net of shares acquired	—	(6.0		)	—			—			6.0			—						—
Stock-based compensation expense	—	5.8			—			—			—			5.8			—			5.8
Changes in pension and postretirement plan assets and benefit obligation, net of tax	—	—			—			3.6			—			3.6			—			3.6
Currency translation adjustment	—	—			—			(45.2		)	—			(45.2		)	(0.3		)	(45.5		)
BALANCE MARCH 31, 2020	72.4	$	315.4		$	2,149.5		$	(525.3	)	$	(606.8	)	$	1,405.2		$	2.3		$	1,407.5

The table below provides the accumulated balances for each classification of accumulated other comprehensive loss, as reflected on our Condensed Consolidated Balance Sheets.

(in millions)		Defined Benefit Pension and Postretirement Items*			Currency Translation Adjustment			Total
Balance as of December 31, 2019		$	(366.0	)	$	(117.7	)	$	(483.7	)
	Other comprehensive income (loss) before reclassifications	0.2			(45.2		)	(45.0		)
	Amounts reclassified from accumulated other comprehensive loss	3.4			—			3.4
Net current-period other comprehensive income (loss)		3.6			(45.2		)	(41.6		)
Balance as of March 31, 2020		$	(362.4	)	$	(162.9	)	$	(525.3	)

* Net of tax benefit of $136.4 million and $135.4 million as of March 31, 2020 and December 31, 2019, respectively.

Page 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below illustrates the amounts reclassified out of each component of accumulated other comprehensive loss for the three-month periods ended March 31, 2020 and 2019. Amortization of pension and postretirement components have been recorded within “Miscellaneous income, net” on our Condensed Consolidated Statements of Operations.

	Three Months Ended March 31,
(in millions)	2020			2019
Amortization of pension items:
Prior-service costs	$	(0.1	)	$	(0.2	)
Net loss	4.8			3.3
Amortization of postretirement items:
Prior-service costs	(0.3		)	—
Net gain	—			(0.1		)
Total before tax	$	4.4		$	3.0
Tax impact	1.0			0.8
Total reclassifications for the period	$	3.4		$	2.2

Note 7 - Defined Benefit and Postretirement Benefits

For all plans, the components of net periodic benefit for the three months ended March 31, 2020 and 2019 are as follows:

	Pension						Postretirement
(in millions)	2020			2019			2020			2019
Service cost	$	1.6		$	1.3		$	0.1		$	—
Interest cost	6.6			7.7			0.2			0.1
Expected return on plan assets	(14.7		)	(14.1		)	—			—
Amortization of prior service cost	(0.1		)	(0.2		)	(0.3		)	—
Amortization of net loss (gain)	4.8			3.3			—			(0.1		)
Net periodic benefit	$	(1.8	)	$	(2.0	)	$	—		$	—

The components of net periodic benefit other than the service cost component are included in “Miscellaneous income, net” in our Condensed Consolidated Statements of Operations. Service cost is recorded within “Cost of sales” and “Selling, general and administrative” in our Condensed Consolidated Statements of Operations.

Based on current actuarial calculations, we expected to contribute $21.4 million to our pension plans. As permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, we have chosen to defer pension contributions of $18.2 million until January 1, 2021. We now expect to contribute the following to our pension and postretirement plans:

(in millions)	Pension		Postretirement
Expected contributions in 2020	$	3.2	$	2.5
Amounts contributed during the three months ended March 31, 2020	$	0.5	$	1.0

Page 15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Income Taxes

Effective Tax Rates

Our quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented.

Our effective tax rates are as follows:

	Three Months Ended March 31,
	2020	2019
Effective Tax Rate	21.8%	21.0%

Our tax rate for the three months ended March 31, 2020 is higher than the prior year’s comparable periods primarily due to lower share-based compensation benefits, partially offset by a higher statutory U.S. deduction related to our non-U.S. subsidiaries’ income.

Our tax rate for the three months ended March 31, 2020 is higher than the statutory U.S. federal tax rate of 21% primarily due to earnings in jurisdictions with statutory tax rates higher than the U.S. and U.S. state taxes, partially offset by excess share-based compensation benefits and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income.

Unrecognized Tax Benefits

During the three months ended March 31, 2020, our gross unrecognized tax benefits, excluding interest and penalties, decreased by $1.3 million, primarily as a result of reductions resulting from the expiration of statutes of limitations and tax positions taken in prior periods, partially offset by increases in tax positions taken in the current year. During the three months ended March 31, 2020, the total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate decreased by $1.1 million. The difference between these amounts relates to (1) offsetting tax effects from other tax jurisdictions, and (2) interest expense, net of deferred taxes.

During the three months ended March 31, 2020, we recognized $0.3 million of interest and penalty expense related to unrecognized tax benefits in our Condensed Consolidated Statement of Operations. At March 31, 2020 and December 31, 2019, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in our Condensed Consolidated Balance Sheets was $8.3 million and $8.0 million, respectively.

During the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by $10.3 million due to expiration of statutes of limitations and settlements with tax authorities. However, if the ultimate resolution of income tax examinations results in amounts that differ from this estimate, we will record additional income tax expense or benefit in the period in which such matters are effectively settled.

Note 9 - Goodwill and Intangible Assets

Our business acquisitions have typically resulted in the recognition of goodwill and other intangible assets. We follow the provisions under ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in our condensed consolidated financial statements. These provisions require that we, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if an impairment has occurred. We perform our annual impairment testing during the fourth quarter. Impairment testing takes place more often than annually if events or circumstances indicate a change in status that would indicate a potential impairment. We believe that there have been no events or circumstances which would more likely than not reduce the fair value for our reporting units below its carrying value. A reporting unit is an operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the reporting unit. As of March 31, 2020, we had eight reporting units.

In March of 2020, we observed a significant decline in the market valuation of our common shares as a result of the COVID-19 pandemic. As such, we performed sensitivity analyses based on more recent assumptions, including entity-specific and macroeconomic factors resulting from the COVID-19 pandemic. We concluded that it was not more likely than not that the fair values of the reporting units were below their carrying values. While we believe we have made reasonable estimates and assumptions, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill may then be determined to be overstated and a charge would need to be taken against net earnings.

Page 16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes to goodwill are as follows:

(in millions)	Fluid Handling			Payment & Merchandising Technologies			Aerospace & Electronics			Engineered Materials		Total
Balance as of December 31, 2018	$	240.8		$	789.2		$	202.4		$	171.3	$	1,403.7
Additions	—			63.4			—			—		63.4
Currency translation	0.1			5.2			—			—		5.3
Balance as of December 31, 2019	$	240.9		$	857.8		$	202.4		$	171.3	$	1,472.4
Additions	108.1			—			—			—		108.1
Adjustments to purchase price allocations	—			(3.1		)	—			—		(3.1		)
Currency translation	(3.1		)	(9.0		)	(0.1		)	—		(12.2		)
Balance at March 31, 2020	$	345.9		$	845.7		$	202.3		$	171.3	$	1,565.2

For the three months ended March 31, 2020, additions to goodwill represent the preliminary purchase price allocation related to the January 2020 acquisition of I&S and an adjustment to the purchase price allocation for the December 2019 acquisition of Cummins-Allison. For the year ended December 31, 2019, additions to goodwill represent the preliminary purchase price allocation related to the acquisition of Cummins-Allison and the finalization of the purchase price allocation of the January 2018 acquisition of Crane Currency. See discussion in Note 2, “Acquisitions” for further details.

As of March 31, 2020, we had $545.4 million of net intangible assets, of which $69.4 million were intangibles with indefinite useful lives, consisting of trade names. As of December 31, 2019, we had $505.1 million of net intangible assets, of which $69.9 million were intangibles with indefinite useful lives, consisting of trade names. Intangibles with indefinite useful lives are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment. If the carrying amount of an indefinite lived intangible asset exceeds its fair value, the intangible asset is written down to its fair value. Fair value is calculated using relief from royalty method. We amortize the cost of definite-lived intangibles over their estimated useful lives. We also review all of our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

In March of 2020, we observed a significant decline in the market valuation of our common shares as a result of the COVID-19 pandemic. As such, we performed sensitivity analyses based on more recent assumptions, including entity-specific and macroeconomic factors resulting from the COVID-19 pandemic. We concluded that it was not more likely than not that the fair values of our indefinite-lived intangible assets were below their carrying values. While we believe we have made reasonable estimates and assumptions, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, indefinite-lived intangible assets may then be determined to be overstated and a charge would need to be taken against net earnings.

Changes to intangible assets are as follows:

(in millions)	Three Months Ended March 31, 2020			Year Ended December 31, 2019
Balance at beginning of period, net of accumulated amortization	$	505.1		$	481.8
Additions	52.5			66.0
Amortization expense	(11.0		)