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, 2021

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 April 30, 2021

Common stock, $1.00 Par Value – 58,408,535 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 38
Item 4.	Controls and Procedures	Page 38
	Part II - Other Information
Item 1.	Legal Proceedings	Page 39
Item 1A.	Risk Factors	Page 39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 39
Item 3.	Defaults Upon Senior Securities	Page 39
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

(UNAUDITED)

	Three Months Ended
	March 31,
(in millions, except per share data)	2021		2020
Net sales	$	833.5	$	797.9
Operating costs and expenses:
Cost of sales	513.6		510.8
Selling, general and administrative	186.6		194.5
Acquisition-related and integration charges	—		5.2
Restructuring gain, net	(13.1)		(1.2)
Operating profit	146.4		88.6
Other income (expense):
Interest income	0.4		0.4
Interest expense	(13.6)		(12.5)
Miscellaneous income, net	3.9		3.8
Total other expense	(9.3)		(8.3)
Income before income taxes	137.1		80.3
Provision for income taxes	28.7		17.5
Net income attributable to common shareholders	$	108.4	$	62.8
Earnings per share:
Basic	$	1.86	$	1.07
Diluted	$	1.84	$	1.05
Average shares outstanding:
Basic	58.2		58.8
Diluted	58.9		59.6
Dividends per share	$	0.43	$	0.43

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

	Three Months Ended
	March 31,
(in millions)	2021		2020
Net income before allocation to noncontrolling interests	$	108.4	$	62.8
Components of other comprehensive income (loss), net of tax
Currency translation adjustment	(34.9)		(45.2)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	4.9		3.6
Other comprehensive loss, net of tax	(30.0)		(41.6)
Comprehensive income before allocation to noncontrolling interests	78.4		21.2
Less: Noncontrolling interests in comprehensive income	0.8		(0.3)
Comprehensive income attributable to common shareholders	$	77.6	$	21.5

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED) 

(in millions)	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	578.4	$	551.0
Accounts receivable, net	483.4		432.7
Current insurance receivable - asbestos	14.4		14.4
Inventories, net:
Finished goods	139.0		130.5
Finished parts and subassemblies	50.4		54.5
Work in process	45.6		45.2
Raw materials	201.9		208.0
Inventories, net	436.9		438.2
Other current assets	129.3		137.4
Total current assets	1,642.4		1,573.7
Property, plant and equipment:
Cost	1,280.8		1,295.8
Less: accumulated depreciation	706.3		695.4
Property, plant and equipment, net	574.5		600.4
Long-term insurance receivable - asbestos	70.0		72.5
Long-term deferred tax assets	6.4		14.9
Other assets	195.1		198.1
Intangible assets, net	503.0		520.3
Goodwill	1,595.1		1,609.0
Total assets	$	4,586.5	$	4,588.9

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in millions, except per share and per share data)	March 31, 2021		December 31, 2020
Liabilities and equity
Current liabilities:
Short-term borrowings	$	346.9	$	375.7
Accounts payable	233.6		218.4
Current asbestos liability	66.5		66.5
Accrued liabilities	374.7		395.9
U.S. and foreign taxes on income	12.9		0.1
Total current liabilities	1,034.6		1,056.6
Long-term debt	843.2		842.9
Accrued pension and postretirement benefits	305.3		329.7
Long-term deferred tax liability	49.1		53.6
Long-term asbestos liability	590.3		603.6
Other liabilities	166.0		171.4
Total liabilities	2,988.5		3,057.8
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	334.7		330.7
Retained earnings	2,276.2		2,192.8
Accumulated other comprehensive loss	(497.2)		(466.4)
Treasury stock	(591.1)		(600.6)
Total shareholders’ equity	1,595.0		1,528.9
Noncontrolling interests	3.0		2.2
Total equity	1,598.0		1,531.1
Total liabilities and equity	$	4,586.5	$	4,588.9
Share data:
Common shares issued	72,426,139		72,426,139
Less: Common shares held in treasury	14,048,660		14,298,191
Common shares outstanding	58,377,479		58,127,948

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	March 31,
(in millions)	2021		2020
Operating activities:
Net income attributable to common shareholders	$	108.4	$	62.8
Gain on sale of property	(12.7)		—
Depreciation and amortization	31.6		29.9
Stock-based compensation expense	6.3		5.8
Defined benefit plans and postretirement credit	(1.7)		(1.8)
Deferred income taxes	0.3		6.1
Cash used for operating working capital	(54.8)		(123.7)
Defined benefit plans and postretirement contributions	(15.8)		(1.5)
Environmental payments, net of reimbursements	(1.5)		(2.7)
Asbestos related payments, net of insurance recoveries	(10.8)		(11.7)
Other	0.9		1.3
Total provided by (used for) operating activities	50.2		(35.5)
Investing activities:
Payment for acquisition - net of cash acquired	—		(172.0)
Proceeds from disposition of capital assets	14.5		2.4
Capital expenditures	(4.9)		(7.8)
Purchase of marketable securities	(10.0)		—
Proceeds from sale of marketable securities	30.0		—
Total provided by (used for) investing activities	29.6		(177.4)
Financing activities:
Dividends paid	(25.0)		(25.5)
Reacquisition of shares on open market	—		(70.0)
Stock options exercised - net of shares reacquired	7.2		0.1
Repayments of commercial paper with maturities greater than 90 days	(27.1)		—
Proceeds from issuance of commercial paper with maturities greater than 90 days	—		170.0
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 (used for) provided by financing activities	(44.9)		134.3
Effect of exchange rates on cash and cash equivalents	(7.5)		(12.5)
Increase (decrease) in cash and cash equivalents	27.4		(91.1)
Cash and cash equivalents at beginning of period	551.0		393.9
Cash and cash equivalents at end of period	$	578.4	$	302.8
Detail of cash used for operating working capital:
Accounts receivable	$	(55.1)	$	12.0
Inventories	(1.6)		(31.1)
Other current assets	(19.0)		(17.1)
Accounts payable	16.9		(61.1)
Accrued liabilities	(18.7)		(26.5)
U.S. and foreign taxes on income	22.7		0.1
Total	$	(54.8)	$	(123.7)
Supplemental disclosure of cash flow information:
Interest paid	$	9.9	$	8.0
Income taxes paid	$	5.7	$	11.3

See Notes to Condensed Consolidated Financial Statements.

NOTES TO THE CONDENSED 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, 2020.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide, and percentages may not precisely reflect the absolute figures.

Certain amounts in the prior periods’ condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements - 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. Certain amendments are to be applied prospectively, while other amendments are to be applied retrospectively to all periods presented. We have adopted this standard effective January 1, 2021. The adoption of this new standard did not impact our consolidated financial statements.

Disclosure Requirements for Defined Benefit Plans

In August 2018, the 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. Effective December 31, 2020, we adopted the amended guidance and applied the disclosure requirements on a retrospective basis to all periods presented. This amended guidance did not have a material effect on our disclosures.

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 upon adoption. The allowance for doubtful accounts was $9.3 million and $10.9 million as of March 31, 2021 and December 31, 2020, respectively.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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.

Instrumentation & Sampling Business Acquisition

On January 31, 2020, we completed the acquisition of CIRCOR International, Inc.’s Instrumentation & Sampling Business (“I&S”) for $172.3 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. In August 2020, we received $3.1 million related to the final working capital adjustment which resulted in net cash paid of $169.2 million.

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 has been 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 determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of I&S. The fair value of certain assets and liabilities has been completed as required by ASC 805.

Net assets acquired (in millions)
Total current assets	$	21.0
Property, plant and equipment	11.0
Other assets	6.0
Intangible assets	52.5
Goodwill	106.0
Total assets acquired	$	196.5
Total current liabilities	$	8.1
Other liabilities	19.2
Total assumed liabilities	$	27.3
Net assets acquired	$	169.2

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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’ 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 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’ 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.

Acquisition-Related Costs

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

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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Payment & Merchandising Technologies

The Payment & Merchandising Technologies segment consists of Crane Payment Innovations (“CPI”) and Crane Currency.  CPI provides high technology payment acceptance and dispensing products to original equipment manufacturers, and for certain vertical markets, it also provides currency handling and processing systems, complete cash and cashless payment and merchandising solutions, equipment service solutions, and fully connected managed service solutions. Crane Currency is a supplier of banknotes and highly engineered banknote security features.

Aerospace & Electronics

The 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.  Products include a wide range of custom designed, highly engineered products used in landing systems, sensing and utility systems, fluid management, seat actuation, power and microelectronic applications, and microwave systems.

Engineered Materials

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

	Three Months Ended
	March 31,
(in millions)	2021		2020
Net sales:
Fluid Handling	$	288.0	$	256.7
Payment & Merchandising Technologies	337.5		297.4
Aerospace & Electronics	154.1		192.9
Engineered Materials	53.9		50.9
Total	833.5		797.9
Operating profit:
Fluid Handling	49.9		28.0
Payment & Merchandising Technologies	85.9		26.4
Aerospace & Electronics	26.0		43.8
Engineered Materials	6.4		6.9
Corporate	(21.8)		(16.5)
Total	146.4		88.6
Interest income	0.4		0.4
Interest expense	(13.6)		(12.5)
Miscellaneous income, net	3.9		3.8
Income before income taxes	$	137.1	$	80.3

For the three months ended March 31, 2021, operating profit includes a net restructuring gain of $13.1 million. For the three months ended March 31, 2020, operating profit includes acquisition-related and integration charges $5.2 million and a net restructuring gain of $1.2 million. See Note 2, “Acquisitions” and Note 14, “Restructuring” for further discussion.

(in millions)	March 31, 2021		December 31, 2020
Assets:
Fluid Handling	$	1,135.5	$	1,106.1
Payment & Merchandising Technologies	2,146.9		2,215.3
Aerospace & Electronics	612.4		593.9
Engineered Materials	223.2		217.3
Corporate	468.5		456.3
Total	$	4,586.5	$	4,588.9

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions)	March 31, 2021		December 31, 2020
Goodwill:
Fluid Handling	$	355.0	$	360.0
Payment & Merchandising Technologies	866.3		875.2
Aerospace & Electronics	202.5		202.5
Engineered Materials	171.3		171.3
Total	$	1,595.1	$	1,609.0

NOTES TO THE CONDENSED 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)	2021		2020
Fluid Handling
Process Valves and Related Products	$	174.5	$	157.2
Commercial Valves	89.2		75.9
Pumps and Systems	24.3		23.6
Total Fluid Handling	$	288.0	$	256.7
Payment & Merchandising Technologies
Payment Acceptance and Dispensing Products 1	$	185.0	$	203.2
Banknotes and Security Products	152.5		94.2
Total Payment & Merchandising Technologies	$	337.5	$	297.4
Aerospace & Electronics
Commercial Original Equipment	$	54.7	$	80.6
Military and Other Original Equipment	62.8		60.4
Commercial Aftermarket Products	19.5		33.9
Military Aftermarket Products	17.1		18.0
Total Aerospace & Electronics	$	154.1	$	192.9
Engineered Materials
FRP - Recreational Vehicles	$	24.3	$	18.8
FRP - Building Products	21.8		24.9
FRP - Transportation	7.8		7.2
Total Engineered Materials	$	53.9	$	50.9
Net sales	$	833.5	$	797.9

1 As a result of the third quarter 2020 internal merger of the CMS business into the vending vertical of the CPI business, Payment Acceptance and Dispensing Products now includes Merchandising Equipment. The prior period has been reclassified to conform to the current period presentation.

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, 2021, total backlog was $1,161.0 million. We expect to recognize approximately 87% of our remaining performance obligations as revenue in 2021, an additional 10% in 2022 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:

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions)	March 31, 2021		December 31, 2020
Contract assets	$	80.2	$	66.7
Contract liabilities	$	95.5	$	103.0

We recognized revenue of $33.3 million during the three-month period ended March 31, 2021 related to contract liabilities as of December 31, 2020.

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)	2021		2020
Net income attributable to common shareholders	$	108.4	$	62.8
Average basic shares outstanding	58.2		58.8
Effect of dilutive share-based awards	0.7		0.8
Average diluted shares outstanding	58.9		59.6
Earnings per basic share	$	1.86	$	1.07
Earnings per diluted share	$	1.84	$	1.05

The computation of diluted earnings per share excludes the effect of the potentially anti-dilutive securities which was 1.8 million and 1.4 million for the three month periods ending March 31, 2021 and 2020, respectively.

NOTES TO THE CONDENSED 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, 2021 and 2020 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 Share- holders’ Equity		Non-controlling Interest		Total Equity
BALANCE DECEMBER 31, 2020	72.4	$	330.7	$	2,192.8	$	(466.4)	$	(600.6)	$	1,528.9	$	2.2	$	1,531.1
Net income	—	—		108.4		—		—		108.4		—		108.4
Cash dividends ($0.43 per share)	—	—		(25.0)		—		—		(25.0)		—		(25.0)
Impact from settlement of share-based awards, net of shares acquired	—	(2.3)		—		—		9.5		7.2		—		7.2
Stock-based compensation expense	—	6.3		—		—		—		6.3		—		6.3
Changes in pension and postretirement plan assets and benefit obligation, net of tax	—	—		—		4.9		—		4.9		—		4.9
Currency translation adjustment	—	—		—		(35.7)		—		(35.7)		0.8		(34.9)
BALANCE MARCH 31, 2021	72.4	$	334.7	$	2,276.2	$	(497.2)	$	(591.1)	$	1,595.0	$	3.0	$	1,598.0

(in millions, except share data)	Common Shares Issued at Par Value	Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Share- holders’ Equity		Non-controlling Interest		Total Equity
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 income (loss), as reflected on our Condensed Consolidated Balance Sheets.

(in millions)		Defined Benefit Pension and Postretirement Items		Currency Translation Adjustment		Total a
Balance as of December 31, 2020		$	(397.9)	$	(68.5)	$	(466.4)
	Other comprehensive income (loss) before reclassifications	—		(35.7)		(35.7)
	Amounts reclassified from accumulated other comprehensive loss	4.9		—		4.9
Net period other comprehensive income (loss)		4.9		(35.7)		(30.8)
Balance as of March 31, 2021		$	(393.0)	$	(104.2)	$	(497.2)

a  Net of tax benefit of $149.5 million and $148.2 million as of March 31, 2021 and December 31, 2020, respectively.

NOTES TO THE CONDENSED 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, 2021 and 2020. 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)	2021		2020
Amortization of pension items:
Prior-service costs	$	—	$	(0.1)
Net loss	6.5		4.8
Amortization of postretirement items:
Prior-service costs	(0.3)		(0.3)
Total before tax	6.2		4.4
Tax impact	1.3		1.0
Total reclassifications for the period	$	4.9	$	3.4

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7 - Defined Benefit and Postretirement Benefits

For all plans, the components of net periodic benefit for the three months ended March 31, 2021 and 2020 are as follows:

	Pension				Postretirement
(in millions)	2021		2020		2021		2020
Service cost	$	1.5	$	1.6	$	0.1	$	0.1
Interest cost	5.1		6.6		0.2		0.2
Expected return on plan assets	(14.1)		(14.7)		—		—
Recognized curtailment gain	(0.7)		—		—		—
Amortization of prior service cost	—		(0.1)		(0.3)		(0.3)
Amortization of net loss	6.5		4.8		—		—
Net periodic benefit	$	(1.7)	$	(1.8)	$	—	$	—

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.

We expect to contribute the following to our pension and postretirement plans:

(in millions)	Pension		Postretirement
Expected contributions in 2021	$	20.7	$	2.6
Amounts contributed during the three months ended March 31, 2021	$	15.7	$	0.1

NOTES TO THE CONDENSED 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,
	2021	2020
Effective Tax Rate	20.9%	21.8%

Our tax rate for the three months ended March 31, 2021 is lower than the prior year’s comparable period primarily due to higher tax credit utilization, partially offset by a lower statutory U.S. deduction related to our non-U.S. subsidiaries’ income.

Our tax rate for the three months ended March 31, 2021 is approximately equal to the statutory U.S. federal tax rate of 21%.

Unrecognized Tax Benefits

During the three months ended March 31, 2021, our gross unrecognized tax benefits, excluding interest and penalties, decreased by $0.1 million, primarily as a result of decreases due to settlements and expiration of statutes of limitations in the current year, partially offset by increases in tax positions taken in the current and prior periods. During the three months ended March 31, 2021, the total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate decreased by $0.1 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, 2021, we recognized $0.1 million of interest and penalty expense related to unrecognized tax benefits in our Condensed Consolidated Statement of Operations. As of March 31, 2021 and December 31, 2020, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in our Condensed Consolidated Balance Sheets was $7.6 million and $7.5 million, respectively.

During the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by $9.4 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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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” 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, 2021, we had seven reporting units.

Intangibles with indefinite useful lives, consisting of trade names 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.

Changes to goodwill are as follows:

(in millions)	Fluid Handling		Payment & Merchandising Technologies		Aerospace & Electronics		Engineered Materials		Total
Balance as of December 31, 2020	$	360.0	$	875.2	$	202.5	$	171.3	$	1,609.0
Adjustments to purchase price allocations	(0.1)		—		—		—		(0.1)
Currency translation	(4.9)		(8.9)		—		—		(13.8)
Balance at March 31, 2021	$	355.0	$	866.3	$	202.5	$	171.3	$	1,595.1

For the three months ended March 31, 2021, adjustments of $0.1 million represent the finalization of the purchase price allocation for the acquisition of I&S. See a discussion in Note 2, “Acquisitions” for further details.

As of March 31, 2021, we had $503.0 million of net intangible assets, of which $71.0 million were intangibles with indefinite useful lives. As of December 31, 2020, we had $520.3 million of net intangible assets, of which $70.9 million were intangibles with indefinite useful lives.

Changes to intangible assets are as follows:

(in millions)	Three Months Ended March 31, 2021		Year Ended December 31, 2020
Balance at beginning of period, net of accumulated amortization	$	520.3	$	505.1
Additions	—		52.5
Amortization expense	(11.5)		(48.4)
Currency translation	(5.8)		11.1
Balance at end of period, net of accumulated amortization	$	503.0	$	520.3

For the year ended December 31, 2020, additions to intangible assets represent the purchase price allocation related to the January 2020 acquisition of I&S. See discussion in Note 2, “Acquisitions” for further details.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of intangible assets follows:

		March 31, 2021						December 31, 2020
(in millions)	Weighted Average Amortization Period of Finite Lived Assets (in years)	Gross Asset		Accumulated Amortization		Net		Gross Asset		Accumulated Amortization		Net
Intellectual property rights	15.2	$	137.7	$	58.6	$	79.1	$	138.2	$	58.4	$	79.8
Customer relationships and backlog	18.4	656.2		287.8		368.4		663.6		280.6		383.0
Drawings	40	11.1		10.5		0.6		11.1		10.5		0.6
Other	11.7	143.5		88.6		54.9		144.9		88.0		56.9
Total	17.8	$	948.5	$	445.5	$	503.0	$	957.8	$	437.5	$	520.3

Future amortization expense associated with intangible assets is expected to be:

(in millions)
Remainder of 2021	$	33.3
2022	42.9
2023	42.8
2024	42.0
2025 and after	271.0

Note 10 - Accrued Liabilities

Accrued liabilities consist of: 

(in millions)	March 31, 2021		December 31, 2020
Employee related expenses	$	107.3	$	124.3
Warranty	11.5		9.4
Current lease liabilities	23.5		23.4
Contract liabilities	95.5		103.0
Other	136.9		135.8
Total	$	374.7	$	395.9

We accrue warranty liabilities when it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Warranty provision is included within “Cost of sales” in our Condensed Consolidated Statements of Operations.

The following table summarizes warranty activity recorded during the three months ended March 31, 2021 and 2020.

(in millions)	2021		2020
Balance at beginning of period	$	9.4	$	11.0
Expense	3.2		2.6
Changes due to acquisitions	—		0.3
Payments / deductions	(1.0)		(3.0)
Currency translation	(0.1)		(0.1)
Balance at end of period	$	11.5	$	10.8

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Commitments and Contingencies

Asbestos Liability

Information Regarding Claims and Costs in the Tort System

As of March 31, 2021, we were a defendant in cases filed in numerous state and federal courts alleging injury or death as a result of exposure to asbestos. Activity related to asbestos claims during the periods indicated was as follows:

	Three Months Ended		Year Ended
	March 31,		December 31,
	2021	2020	2020
Beginning claims	29,138	29,056	29,056
New claims	733