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ITEM 1: FINANCIAL STATEMENTS

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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.

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

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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:

Copy History

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

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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:

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Copy History

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.

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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).

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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.

Copy History

		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

Copy History

(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

 

Copy History

(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

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Note 4 - Revenue

Disaggregation of Revenues

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

Copy History

		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:

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Copy History

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

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.

Copy History

		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

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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:

Copy History

(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.

Copy History

(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<