cr-20220331false2022Q1000002544512/31AcquisitionsAcquisitions 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 Process Flow Technologies segment. The amount allocated to goodwill reflects the expected synergies, manufacturing efficiencies 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 | |
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 was not material to our financial results.
Acquisition-Related Costs
Acquisition-related costs are expensed as incurred. For the three months ended March 31, 2022, we recorded $2.7 million , of integration and transaction costs in our Condensed Consolidated Statements of Operations.172.3100673.1169.2The 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 | |
21.011.06.052.5106.0196.58.119.227.3169.2The 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 | | | |
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One:
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2022
OR
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☐ | 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)
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Delaware | | 13-1952290 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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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:
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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, 2022
Common stock, $1.00 Par Value – 56,055,134 shares
Crane Co.
Table of Contents
Form 10-Q
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Part I - Financial Information |
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| | Part II - Other Information | | |
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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) | 2022 | | 2021 | | | | |
Net sales | $ | 801.1 | | | $ | 779.6 | | | | | |
Operating costs and expenses: | | | | | | | |
Cost of sales | 473.8 | | | 470.5 | | | | | |
Selling, general and administrative | 193.7 | | | 182.2 | | | | | |
| | | | | | | |
Restructuring (gains) charges, net | — | | | (13.1) | | | | | |
Operating profit | 133.6 | | | 140.0 | | | | | |
Other income (expense): | | | | | | | |
Interest income | 0.3 | | | 0.4 | | | | | |
Interest expense | (11.1) | | | (13.6) | | | | | |
Miscellaneous income, net | 3.5 | | | 3.9 | | | | | |
Total other expense | (7.3) | | | (9.3) | | | | | |
Income from continuing operations before income taxes | 126.3 | | | 130.7 | | | | | |
Provision for income taxes | 31.6 | | | 27.3 | | | | | |
| | | | | | | |
| | | | | | | |
Net income from continuing operations attributable to common shareholders | 94.7 | | 103.4 | | | | |
Income from discontinued operations, net of tax (Note 2) | 10.3 | | | 5.0 | | | | |
Net income attributable to common shareholders | $ | 105.0 | | | $ | 108.4 | | | | | |
| | | | | | | |
Earnings per basic share: | | | | | | | |
Earnings per basic share from continuing operations | $ | 1.66 | | | $ | 1.79 | | | | | |
Earnings per basic share from discontinued operations | 0.18 | | | 0.10 | | | | | |
Earnings per basic share | $ | 1.84 | | | $ | 1.89 | | | | | |
| | | | | | | |
Earnings per diluted share: | | | | | | | |
Earnings per diluted share from continuing operations | $ | 1.64 | | | $ | 1.75 | | | | | |
Earnings per diluted share from discontinued operations | 0.17 | | | 0.09 | | | | | |
Earnings per diluted share | $ | 1.81 | | | $ | 1.84 | | | | | |
| | | | | | | |
Average shares outstanding: | | | | | | | |
Basic | 57.1 | | | 58.2 | | | | | |
Diluted | 57.9 | | | 58.9 | | | | | |
| | | | | | | |
Dividends per share | $ | 0.47 | | | $ | 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) | 2022 | | 2021 | | | |
Net income before allocation to noncontrolling interests | $ | 105.0 | | | $ | 108.4 | | | | |
Components of other comprehensive income (loss), net of tax | | | | | | |
Currency translation adjustment | (21.6) | | | (34.9) | | | | |
Changes in pension and postretirement plan assets and benefit obligation, net of tax | 3.3 | | | 4.9 | | | | |
Other comprehensive loss, net of tax | (18.3) | | | (30.0) | | | | |
Comprehensive income before allocation to noncontrolling interests | 86.7 | | | 78.4 | | | | |
Less: Noncontrolling interests in comprehensive income | 0.1 | | | 0.8 | | | | |
Comprehensive income attributable to common shareholders | $ | 86.6 | | | $ | 77.6 | | | | |
See Notes to Condensed Consolidated Financial Statements.
CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | |
(in millions) | March 31, 2022 | December 31, 2021 |
Assets | | |
Current assets: | | |
Cash and cash equivalents | $ | 307.2 | | $ | 478.6 | |
Accounts receivable, net of allowance for doubtful accounts of $9.3 as of March 31, 2022 and $10.4 as of December 31, 2021 | 510.9 | | 472.4 | |
Current insurance receivable - asbestos | 13.7 | | 13.7 | |
Inventories, net: | | |
Finished goods | 156.1 | | 143.8 | |
Finished parts and subassemblies | 68.4 | | 59.5 | |
Work in process | 33.3 | | 36.9 | |
Raw materials | 213.5 | | 200.7 | |
Inventories, net | 471.3 | | 440.9 | |
Other current assets | 115.1 | | 118.1 | |
Current assets held for sale | 234.1 | | 220.5 | |
Total current assets | 1,652.3 | | 1,744.2 | |
Property, plant and equipment: | | |
Cost | 1,176.2 | | 1,179.9 | |
Less: accumulated depreciation | 660.0 | | 652.6 | |
Property, plant and equipment, net | 516.2 | | 527.3 | |
Long-term insurance receivable - asbestos | 55.8 | | 60.0 | |
Long-term deferred tax assets | 19.4 | | 17.7 | |
Other assets | 254.7 | | 259.0 | |
Intangible assets, net | 452.1 | | 465.9 | |
Goodwill | 1,402.7 | | 1,412.5 | |
| | |
Total assets | $ | 4,353.2 | | $ | 4,486.6 | |
See Notes to Condensed Consolidated Financial Statements.
CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | |
(in millions, except per share and share data) | March 31, 2022 | December 31, 2021 |
Liabilities and equity | | |
Current liabilities: | | |
Short-term borrowings | $ | 104.0 | | $ | — | |
Accounts payable | 233.9 | | 246.7 | |
Current asbestos liability | 62.3 | | 62.3 | |
Accrued liabilities | 333.1 | | 430.7 | |
U.S. and foreign taxes on income | 23.0 | | 10.6 | |
Current liabilities held for sale | 41.5 | | 44.9 | |
Total current liabilities | 797.8 | | 795.2 | |
Long-term debt | 842.7 | | 842.4 | |
Accrued pension and postretirement benefits | 223.6 | | 231.9 | |
Long-term deferred tax liability | 69.2 | | 71.1 | |
Long-term asbestos liability | 538.1 | | 549.8 | |
Other liabilities | 155.6 | | 161.1 | |
| | |
Total liabilities | 2,627.0 | | 2,651.5 | |
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 | 364.7 | | 363.9 | |
Retained earnings | 2,605.9 | | 2,527.3 | |
Accumulated other comprehensive loss | (458.6) | | (440.2) | |
Treasury stock | (861.1) | | (691.1) | |
Total shareholders’ equity | 1,723.3 | | 1,832.3 | |
Noncontrolling interests | 2.9 | | 2.8 | |
Total equity | 1,726.2 | | 1,835.1 | |
Total liabilities and equity | $ | 4,353.2 | | $ | 4,486.6 | |
| | |
| | |
| | |
Share data: | | |
Common shares issued | 72,426,139 | | 72,426,139 | |
Less: Common shares held in treasury | 16,120,215 | | 14,590,274 | |
Common shares outstanding | 56,305,924 | | 57,835,865 | |
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) | 2022 | | 2021 |
Operating activities from continuing operations: | | | |
Net income from continuing operations attributable to common shareholders | $ | 94.7 | | | $ | 103.4 | |
Gain on sale of property | — | | | (12.8) | |
Depreciation and amortization | 28.6 | | | 30.6 | |
Stock-based compensation expense | 5.9 | | | 6.2 | |
Defined benefit plans and postretirement credit | (2.7) | | | (1.7) | |
Deferred income taxes | (0.9) | | | 0.3 | |
Cash used for operating working capital | (167.1) | | | (51.5) | |
Defined benefit plans and postretirement contributions | (2.8) | | | (15.8) | |
Environmental payments, net of reimbursements | (1.3) | | | (1.5) | |
Asbestos related payments, net of insurance recoveries | (7.5) | | | (10.8) | |
Other | 3.8 | | | 1.2 |
Total (used for) provided by operating activities from continuing operations | (49.3) | | | 47.6 | |
Investing activities from continuing operations: | | | |
| | | |
Proceeds from disposition of capital assets | — | | | 14.5 | |
Capital expenditures | (12.5) | | | (4.7) | |
Purchase of marketable securities | — | | | (10.0) | |
Proceeds from sale of marketable securities | — | | | 30.0 | |
Total (used for) provided by investing activities from continuing operations | (12.5) | | | 29.8 | |
Financing activities from continuing operations: | | | |
Dividends paid | (26.7) | | (25.0) |
Reacquisition of shares on open market | (175.8) | | — |
Stock options exercised, net of shares reacquired | 0.7 | | 7.3 |
| | | |
| | | |
Repayments of commercial paper with maturities greater than 90 days | — | | (27.1) |
Net borrowings from issuance of commercial paper with maturities of 90 days or less | 104.0 | | — |
| | | |
| | | |
| | | |
| | | |
Total used for financing activities from continuing operations | (97.8) | | | (44.8) |
Discontinued operations: | | | |
Total (used for) provided by operating activities | (6.2) | | | 2.6 | |
Total used for investing activities | (0.5) | | | (0.3) | |
(Decrease) increase in cash and cash equivalents from discontinued operations | (6.7) | | | 2.3 | |
Effect of exchange rates on cash and cash equivalents | (5.1) | | | (7.5) | |
(Decrease) increase in cash and cash equivalents | (171.4) | | | 27.4 | |
Cash and cash equivalents at beginning of period | 478.6 | | | 551.0 | |
Cash and cash equivalents at end of period | $ | 307.2 | | | $ | 578.4 | |
CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2022 | | 2021 |
Detail of cash used for operating working capital from continuing operations: | | | |
Accounts receivable | $ | (41.9) | | | $ | (48.9) | |
Inventories | (32.5) | | | (1.7) | |
Other current assets | (5.6) | | | (18.5) | |
Accounts payable | (11.2) | | | 13.3 | |
Accrued liabilities | (94.7) | | | (18.4) | |
U.S. and foreign taxes on income | 18.8 | | | 22.7 | |
Total | $ | (167.1) | | | $ | (51.5) | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 7.4 | | | $ | 9.9 | |
Income taxes paid | $ | 13.7 | | | $ | 5.7 | |
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, 2021.
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.
Pending Separation
On March 30, 2022, Crane Co. announced that its Board of Directors unanimously approved a plan to pursue a separation into two independent, publicly-traded companies (the “Separation”). The Separation is expected to occur through a tax-free distribution and is expected to be completed within approximately 12 months, subject to the satisfaction of customary conditions and final approval by Crane Co.’s Board of Directors.
Discontinued Operations
On May 16, 2021, we entered into an agreement to sell the Engineered Materials segment to Grupo Verzatec S.A. de C.V. for $360 million on a cash-free and debt-free basis. The sale is subject to customary closing conditions and regulatory approvals. The historical results of Engineered Materials are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity are presented on a continuing operations basis. Please see Note 2, “Discontinued Operations” for additional details.
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.
Note 2 - Discontinued Operations
A business is classified as held for sale when management having the authority to approve the action commits to a plan to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value and certain other criteria are met. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. When the carrying amount of the business exceeds its estimated fair value less cost to sell, a loss is recognized and updated each reporting period as appropriate.
Executing on our strategy to focus our growth investments on our three remaining segments, on May 16, 2021, we entered into an agreement to sell our Engineered Materials segment to Grupo Verzatec S.A. de C.V. for $360 million on a cash-free and debt-free basis. The sale is subject to customary closing conditions and regulatory approvals. In the second quarter of 2021, the assets and liabilities of the segment were classified as held for sale, and the segment’s results were presented as discontinued operations. This change was applied on a retrospective basis. On March 17, 2022, the Department of Justice (DOJ) filed a complaint to enjoin the sale transaction. The parties are responding to the complaint and engaging with the DOJ in the normal course to address the DOJ’s antitrust concerns regarding a minor overlap in a narrow range of material used in certain commercial building applications. We believe that the sale is probable of closing and, as such, continue to present the segment’s results as discontinued operations as of March 31, 2022.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial results from discontinued operations:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
(in millions) | 2022 | | 2021 | | | | |
Net sales | $ | 70.4 | | | $ | 53.9 | | | | | |
Cost of sales | 52.4 | | | 43.1 | | | | | |
Selling, general and administrative | 4.6 | | | 4.4 | | | | | |
| | | | | | | |
Income from discontinued operations | $ | 13.4 | | | $ | 6.4 | | | | | |
Income tax provision | 3.1 | | | 1.4 | | | | | |
Income from discontinued operations, net of tax | $ | 10.3 | | | $ | 5.0 | | | | | |
Major classes of assets and liabilities to be transferred in the transaction:
| | | | | | | | | | | | | | |
(in millions) | | March 31, 2022 | | December 31, 2021 |
Assets: | | | | |
Accounts receivable, net | | $ | 20.7 | | | $ | 10.6 | |
Inventories, net | | 10.9 | | | 8.2 | |
Other current assets | | 0.8 | | | 0.6 | |
Current assets held for sale (a) | | 32.4 | | | 19.4 | |
| | | | |
Property, plant and equipment, net | | 28.8 | | | 28.3 | |
Other assets | | 0.4 | | | 0.3 | |
Intangible assets, net | | 1.2 | | | 1.2 | |
Goodwill | | 171.3 | | | 171.3 | |
Long-term assets held for sale (a) | | 201.7 | | | 201.1 | |
Assets held for sale | | $ | 234.1 | | | $ | 220.5 | |
| | | | |
Liabilities: | | | | |
Accounts payable | | $ | 28.9 | | | $ | 27.0 | |
Accrued liabilities | | 6.7 | | | 12.0 | |
Current liabilities held for sale (a) | | 35.6 | | | 39.0 | |
| | | | |
Long-term deferred tax liability | | 5.8 | | | 5.8 | |
Other liabilities | | 0.1 | | 0.1 |
Long-term liabilities held for sale (a) | | 5.9 | | | 5.9 | |
Liabilities held for sale | | $ | 41.5 | | | $ | 44.9 | |
(a) We reasonably expect to close on this transaction within one year and therefore have presented the assets and liabilities as current as of March 31, 2022. |
NOTES TO THE CONDENSED 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: Aerospace & Electronics, Process Flow Technologies, Payment & Merchandising Technologies 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:
Aerospace & Electronics
The Aerospace & Electronics segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace, and the military aerospace, defense and space 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.
Process Flow Technologies
The Process Flow Technologies segment is a provider of highly engineered fluid handling equipment for mission critical 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 manufactures on/off isolation valves, instrumentation and controls, and related products for critical and demanding applications primarily in the chemical and petrochemical, general industrial, energy- related and pharmaceutical end markets globally. Commercial Valves is engaged primarily in the manufacturing of valves and related products for the non-residential construction, general industrial, and municipal markets, and the distribution of pipe, valves and fittings (PVF) for the non-residential construction market. Pumps and Systems manufactures pumps and related products for water and wastewater applications in the industrial, municipal, commercial and military markets.
On April 8, 2022, the Company entered into an agreement to sell Crane Supply for CAD 380 million on a cash-free and debt-free basis. The sale is subject to customary closing conditions and regulatory approvals and is expected to close in the second quarter of 2022.
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 as well as a provider of security features for product authentication. A pioneer in advanced micro-optics technology, Crane Currency provides a wide range of engaging visual effects in features that increase the level of security and public trust in banknotes and for the product brand authentication market. Crane Currency offers uniquely designed banknotes, substrate (paper) and printing capabilities for over 50 central banks around the world.
Engineered Materials
The Engineered Materials segment manufactures fiberglass-reinforced plastic panels and coils, primarily for use in the manufacturing of recreational vehicles ("RVs"), and in commercial and industrial buildings applications, with some additional applications including trailers and other transportation-related products. Engineered Materials sells the majority of its products directly to RV, trailer, and truck manufacturers, and it uses distributors and retailers to serve the commercial and industrial construction markets. In the second quarter of 2021, the assets and liabilities of the Engineered Materials segment were reclassified as held for sale and results are presented as discontinued operations and, therefore, not included in the tables below. This change was applied on a retrospective basis. Please see Note 2, “Discontinued Operations” for additional details.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
(in millions) | 2022 | | 2021 | | | | |
Net sales: | | | | | | | |
Aerospace & Electronics | $ | 157.2 | | | $ | 154.1 | | | | | |
Process Flow Technologies | 311.3 | | | 288.0 | | | | | |
Payment & Merchandising Technologies | 332.6 | | | 337.5 | | | | | |
Total | $ | 801.1 | | | $ | 779.6 | | | | | |
| | | | | | | |
Operating profit: | | | | | | | |
Aerospace & Electronics | $ | 28.1 | | | $ | 26.0 | | | | | |
Process Flow Technologies | 49.0 | | | 49.9 | | | | | |
Payment & Merchandising Technologies | 84.2 | | | 85.9 | | | | | |
Corporate | (27.7) | | | (21.8) | | | | | |
Total | $ | 133.6 | | | $ | 140.0 | | | | | |
Interest income | 0.3 | | | 0.4 | | | | | |
Interest expense | (11.1) | | | (13.6) | | | | | |
Miscellaneous income, net | 3.5 | | | 3.9 | | | | | |
Income from continuing operations before income taxes | $ | 126.3 | | | $ | 130.7 | | | | | |
| | | | | | | | | | | |
(in millions) | March 31, 2022 | | December 31, 2021 |
Assets: | | | |
Aerospace & Electronics | $ | 625.6 | | | $ | 604.7 | |
Process Flow Technologies | 1,282.5 | | | 1,240.4 | |
Payment & Merchandising Technologies | 2,057.6 | | | 2,096.5 | |
Corporate | 153.4 | | | 324.5 | |
Assets held for sale | 234.1 | | | 220.5 | |
Total | $ | 4,353.2 | | | $ | 4,486.6 | |
| | | | | | | | | | | |
(in millions) | March 31, 2022 | | December 31, 2021 |
Goodwill: | | | |
Aerospace & Electronics | $ | 202.5 | | | $ | 202.5 | |
Process Flow Technologies | 346.1 | | | 349.4 | |
Payment & Merchandising Technologies | 854.1 | | 860.6 |
Total | $ | 1,402.7 | | | $ | 1,412.5 | |
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) | | 2022 | | 2021 | | | | |
Aerospace & Electronics | | | | | | | | |
Commercial Original Equipment | | $ | 58.7 | | | $ | 54.7 | | | | | |
Military and Other Original Equipment | | 57.4 | | | 62.8 | | | | | |
Commercial Aftermarket Products | | 28.6 | | | 19.5 | | | | | |
Military Aftermarket Products | | 12.5 | | | 17.1 | | | | | |
Total Aerospace & Electronics | | $ | 157.2 | | | $ | 154.1 | | | | | |
| | | | | | | | |
Process Flow Technologies | | | | | | | | |
Process Valves and Related Products | | $ | 182.9 | | | $ | 174.5 | | | | | |
Commercial Valves | | 98.2 | | | 89.2 | | | | | |
Pumps and Systems | | 30.2 | | | 24.3 | | | | | |
Total Process Flow Technologies | | $ | 311.3 | | | $ | 288.0 | | | | | |
| | | | | | | | |
Payment & Merchandising Technologies | | | | | | | | |
Payment Acceptance and Dispensing Products | | $ | 211.0 | | | $ | 185.0 | | | | | |
Banknotes and Security Products | | 121.6 | | | 152.5 | | | | | |
Total Payment & Merchandising Technologies | | $ | 332.6 | | | $ | 337.5 | | | | | |
| | | | | | | | |
Net sales | | $ | 801.1 | | | $ | 779.6 | | | | | |
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, 2022, total backlog was $1,309.8 million. We expect to recognize approximately 85% of our remaining performance obligations as revenue in 2022, an additional 13% in 2023 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:
| | | | | | | | | | | | | | | |
(in millions) | March 31, 2022 | | December 31, 2021 | | | | |
Contract assets | $ | 78.0 | | | $ | 73.0 | | | | | |
Contract liabilities | $ | 96.5 | | | $ | 101.1 | | | | | |
We recognized revenue of $32.3 million during the three-month period ended March 31, 2022 related to contract liabilities as of December 31, 2021.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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) | 2022 | | 2021 | | | | |
Net income from continuing operations attributable to common shareholders | $ | 94.7 | | | $ | 103.4 | | | | | |
Income from discontinued operations, net of tax (Note 2) | 10.3 | | | 5.0 | | | | |
Net income attributable to common shareholders | $ | 105.0 | | | $ | 108.4 | | | | | |
| | | | | | | |
Average basic shares outstanding | 57.1 | | | 58.2 | | | | | |
Effect of dilutive share-based awards | 0.8 | | | 0.7 | | | | | |
Average diluted shares outstanding | 57.9 | | | 58.9 | | | | | |
| | | | | | | |
Earnings per basic share: | | | | | | | |
Earnings per basic share from continuing operations | $ | 1.66 | | | $ | 1.79 | | | | | |
Earnings per basic share from discontinued operations | 0.18 | | | 0.10 | | | | | |
Earnings per basic share | $ | 1.84 | | | $ | 1.89 | | | | | |
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Earnings per diluted share: | | | | | | | |
Earnings per diluted share from continuing operations | $ | 1.64 | | | $ | 1.75 | | | | | |
Earnings per diluted share from discontinued operations | 0.17 | | | 0.09 | | | | | |
Earnings per diluted share | $ | 1.81 | | | $ | 1.84 | | | | | |
The computation of diluted earnings per share excludes the effect of the potentially anti-dilutive securities which was 0.3 million and 1.8 million for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021 is provided below:
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(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, 2021 | 72.4 | | | $ | 363.9 | | | $ | 2,527.3 | | | $ | (440.2) | | | $ | (691.1) | | | $ | 1,832.3 | | | $ | 2.8 | | | $ | 1,835.1 | |
Net income | — | | | — | | | 105.0 | | | — | | | — | | | 105.0 | | | — | | | 105.0 | |
Cash dividends ($0.47 per share) | — | | | — | | | (26.4) | | | — | | | — | | | (26.4) | | | — | | | (26.4) | |
Reacquisition on open market of 1,699,949 shares | — | | | — | | | — | | | — | | | (175.8) | | | (175.8) | | | — | | | (175.8) | |
Exercise of stock options, net of shares reacquired of 79,214 shares | — | | | — | | | — | | | — | | | 6.1 | | | 6.1 | | | — | | | 6.1 | |
Impact from settlement of share-based awards, net of shares acquired | — | | | (5.1) | | | — | | | — | | | (0.3) | | | (5.4) | | | — | | | (5.4) | |
Stock-based compensation expense | — | | | 5.9 | | | — | | | — | | | — | | | 5.9 | | | — | | | 5.9 | |
Changes in pension and postretirement plan assets and benefit obligation, net of tax | — | | | — | | | — | | | 3.3 | | | — | | | 3.3 | | | — | | | 3.3 | |
Currency translation adjustment | — | | | — | | | — | | | (21.7) | | | — | | | (21.7) | | | 0.1 | | | (21.6) | |
BALANCE MARCH 31, 2022 | 72.4 | | | $ | 364.7 | | | $ | 2,605.9 | | | $ | (458.6) | | | $ | (861.1) | | | $ | 1,723.3 | | | $ | 2.9 | | | $ | 1,726.2 | |
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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) | |
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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 | |
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The table below provides the accumulated balances for each classification of accumulated other comprehensive income (loss), as reflected on our Condensed Consolidated Balance Sheets.
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(in millions) | Defined Benefit Pension and Postretirement Items | | Currency Translation Adjustment | | Total a |
Balance as of December 31, 2021 | $ | (301.9) | | | $ | (138.3) | | | $ | (440.2) | |
| Other comprehensive income (loss) before reclassifications | — | | | (21.7) | | | (21.7) | |
| Amounts reclassified from accumulated other comprehensive loss | 3.3 | | | — | | | 3.3 | |
Net period other comprehensive income (loss) | 3.3 | | | (21.7) | | | (18.4) | |
Balance as of March 31, 2022 | $ | (298.6) | | | $ | (160.0) | | | $ | (458.6) | |
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a | Net of tax benefit of $119.1 million and $117.9 million as of March 31, 2022 and December 31, 2021, 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, 2022 and 2021. Amortization of pension and postretirement components has been recorded within “Miscellaneous income, net” on our Condensed Consolidated Statements of Operations.
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| | Three Months Ended March 31, | | |
(in millions) | | 2022 | | 2021 | | | | |
Amortization of pension items: | | | | | | | | |
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Net loss | | $ | 4.8 | | | $ | 6.5 | | | | | |
Amortization of postretirement items: | | | | | | | | |
Prior service costs | | (0.3) | | | (0.3) | | | | | |
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Total before tax | | $ | 4.5 | | | $ | 6.2 | | | | | |
Tax impact | | 1.2 | | | 1.3 | | | | | |
Total reclassifications for the period | | $ | 3.3 | | | $ | 4.9 | | | | | |
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, 2022 and 2021 are as follows:
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| Pension | | Postretirement |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | 1.3 | | | $ | 1.5 | | | $ | 0.1 | | | $ | 0.1 | |
Interest cost | 5.2 | | | 5.1 | | | 0.2 | | | 0.2 | |
Expected return on plan assets | (13.9) | | | (14.1) | | | — | | | — | |
Recognized curtailment gain | — | | | (0.7) | | | — | | | — | |
Amortization of prior service cost | — | | | — | | | (0.3) | | | (0.3) | |
Amortization of net loss | 4.8 | | | 6.5 | | | — | | | — | |
Net periodic benefit | $ | (2.6) | | | $ | (1.7) | | | $ | — | | | $ | — | |
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:
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(in millions) | Pension | | Postretirement |
Expected contributions in 2022 | $ | 18.9 | | | $ | 2.6 | |
Amounts contributed during the three months ended March 31, 2022 | $ | 2.8 | | | $ | — | |
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:
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| Three Months Ended March 31, | |
| 2022 | | 2021 | | | |
Effective Tax Rate | 25.0% | | 20.9% | | | |
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Our effective tax rate attributable to continuing operations for the three months ended March 31, 2022 is higher than the prior year’s comparable period primarily due to higher non-U.S. taxes, partially offset by a greater benefit related to share-based compensation.
Our effective tax rate attributable to continuing operations for the three months ended March 31, 2022 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., expenses that are statutorily non-deductible for income tax purposes and U.S. state taxes, partially offset by excess share-based compensation benefits, tax credit utilization, and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income.
Unrecognized Tax Benefits
During the three months ended March 31, 2022, our gross unrecognized tax benefits, excluding interest and penalties, increased by $0.4 million, primarily due to increases in tax positions taken in the current period, partially offset by reductions from expiration of statutes of limitations. During the three months ended March 31, 2022, the total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate increased by $0.6 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, 2022, we recognized $0.3 million of interest expense related to unrecognized tax benefits in our Condensed Consolidated Statement of Operations. As of March 31, 2022, and December 31, 2021, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in our Condensed Consolidated Balance Sheets was $5.2 million and $4.9 million, respectively.
During the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by $6.6 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, 2022, we had seven reporting units. In the second quarter of 2021, the assets and liabilities of our Engineered Materials segment (which was a separate reportable segment and reporting unit) were classified as held for sale. Please see Note 2 for additional details.
Intangibles with indefinite useful lives, consisti