Crane Earnings 2020-12-31
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
|
Assets, Equity
|
Rev, G Profit, Net Income
|
Ops, Inv, Fin
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended: December 31 , 2020
For the transition period from ________ to _________ .
Commission file number 1-1657
(Exact name of Registrant as specified in its charter)
| State of or other jurisdiction of incorporation or organization: | (I.R.S. Employer identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code: (203 ) 363-7300
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act
Yes ☐ No ☒
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer,”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act).:
| (check one): | ||||||||||||||||||||
| ☒ | 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. ☐ | ||||||||||||||||||||
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Based on the closing stock price of $59.46 on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common equity held by nonaffiliates of the registrant was 2,904,172,315
The number of shares outstanding of the registrant’s common stock, par value $1.00, was 58,164,560 at January 31, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Index
| Page | ||||||||||||||
| Part I | ||||||||||||||
| Item 1. | Page 2 | |||||||||||||
| Item 1A. | Page 7 | |||||||||||||
| Item 1B. | Page 14 | |||||||||||||
| Item 2. | Page 15 | |||||||||||||
| Item 3. | Page 16 | |||||||||||||
| Item 4. | Page 16 | |||||||||||||
| Part II | ||||||||||||||
| Item 5. | Page 17 | |||||||||||||
| Item 6. | Page 18 | |||||||||||||
| Item 7. | Page 19 | |||||||||||||
| Item 7A. | Page 36 | |||||||||||||
| Item 8. | Page 37 | |||||||||||||
| Item 9. | Page 89 | |||||||||||||
| Item 9A. | Page 89 | |||||||||||||
| Item 9B. | Page 91 | |||||||||||||
| Part III | ||||||||||||||
| Item 10. | Page 91 | |||||||||||||
| Item 11. | Page 91 | |||||||||||||
| Item 12. | Page 91 | |||||||||||||
| Item 13. | Page 91 | |||||||||||||
| Item 14. | Page 91 | |||||||||||||
| Part IV | ||||||||||||||
| Item 15. | Page 92 | |||||||||||||
| Item 16. | Form 10-K Summary | Page 93 | ||||||||||||
Page 94 | ||||||||||||||
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains information about Crane Co., some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as: “believes,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms.
We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:
•The impact of the COVID-19 pandemic which is expected to continue to have an adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve;
•The effect of changes in economic conditions in the markets in which we operate, including financial market conditions, end markets for our products, fluctuations in raw material prices and the financial condition of our customers and suppliers;
•Economic, social and political instability, currency fluctuation and other risks of doing business outside of the United States;
•Competitive pressures, including the need for technology improvement, successful new product development and introduction and any inability to pass increased costs of raw materials to customers;
•Our ability to successfully integrate acquisitions and to realize synergies and opportunities for growth and innovation;
•Our ability to successfully value acquisitions;
•Our ongoing need to attract and retain highly qualified personnel and key management;
•The ability of the U.S. government to terminate our government contracts;
•Our ability to predict the timing and award of substantial contracts in our banknote business;
•The impact of commercial air traffic levels which are affected by a different array of factors including general economic conditions and global corporate travel spending, terrorism or pandemic health concerns;
•A reduction in congressional appropriations that affect defense spending;
•The outcomes of legal proceedings, claims and contract disputes;
•Adverse effects on our business and results of operations, as a whole, as a result of increases in asbestos claims or the cost of defending and settling such claims;
•Adverse effects as a result of further increases in environmental remediation activities, costs and related claims;
•Investment performance of our pension plan assets and fluctuations in interest rates, which may affect the amount and timing of future pension plan contributions; and
•Adverse effects of changes in tax, environmental and other laws and regulations in the United States and other countries in which we operate.
1
Part I
Reference herein to “Crane,” “we,” “us” and “our” refer to Crane Co. and our subsidiaries unless the context specifically states or implies otherwise. Amounts in the following discussion are presented in millions, except employee, square feet, number of properties, share and per share data, or unless otherwise stated.
Item 1. Business
General
We are a diversified manufacturer of highly engineered industrial products comprised of four segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Our primary end markets include process industries (chemical production, oil & gas, power, and general industrial), non-residential and municipal construction, payment automation solutions, banknote design and production, aerospace, defense and space, along with a wide range of general industrial and certain consumer related end markets.
We have been committed to the highest standards of business conduct since inception in 1855 when our founder, R.T. Crane, resolved “to conduct my business in the strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees; and to put my whole mind upon the business.”
Our strategy is to grow earnings and cash flow by focusing on the manufacturing of highly engineered industrial products for specific markets where our scale is a relative advantage, and where we can compete based on our proprietary and differentiated technology, our deep vertical expertise, and our responsiveness to unique and diverse customer needs. We continuously evaluate our portfolio, pursue acquisitions that complement our existing businesses and selectively divest businesses where appropriate. We strive to foster a performance-based culture focused on productivity and continuous improvement, to attract and retain a committed management team whose interests are directly aligned with those of our shareholders, and to maintain a focused, efficient corporate structure.
We operate a comprehensive set of business processes, philosophies and operational excellence tools to drive continuous improvement throughout our businesses (collectively, the Crane Business System). Beginning with a core value of integrity, we incorporate “Voice of the Customer” teachings (specific processes designed to capture our customers’ requirements) and a broad range of tools into a disciplined strategy deployment process to continuously improve safety, quality, delivery, cost and growth. An embedded intellectual capital development process helps ensure that we attract, develop, promote and retain talent to drive continuity and repeatable results.
Reportable Segments
For additional information on recent business developments and other information about us and our business, you should refer to the information set forth under the captions, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7 of this report, as well as in Part II, Item 8 under Note 3, “Segment Information,” in the Notes to Consolidated Financial Statements for sales, operating profit and assets employed by each segment.
Fluid Handling
The Fluid Handling 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 in the chemical, oil & gas, power and general industrial end markets globally. Products are sold under the trade names Crane, Saunders, Jenkins, Pacific, Xomox, Krombach, DEPA, ELRO, REVO, Flowseal, Centerline, Resistoflex, Duochek, Barksdale, Dynalco, Westlock, WTA, HOKE and DOPAK. Manufacturing locations, along with sales and service centers, are located across the North America, Europe, the Middle East, Asia and Australia.
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. The primary geographies served by the manufacturing operations are the United Kingdom, the Middle East and continental Europe, and the PVF distribution business is focused exclusively on Canada. Brands include Stockham, Wask, Viking Johnson, IAT, Hattersley, NABIC, Sperryn, Wade, and Crane Supply. Manufacturing facilities are located in the United Kingdom and China, with additional sales offices in continental Europe and the Middle East; distribution facilities are located throughout Canada.
2
Pumps and Systems manufactures pumps and related products for water and wastewater applications in the industrial, municipal, commercial and military markets, primarily in the United States. Products are sold under the trade names Deming, Weinman, Burks and Barnes. Facilities are located in the United States and Canada.
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. I&S designs, engineers and manufactures a broad range of critical fluid control instrumentation and sampling solutions used in severe service environments. Facilities are located in the United States and the Netherlands. I&S has been integrated into our Process Valves and Related Products business.
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. Facilities are located in the United States, the United Kingdom, Mexico, Japan, Switzerland, Germany and the Ukraine, with additional sales offices across the world.
In the third quarter of 2020, we completed an internal merger to consolidate the Crane Merchandising Systems (“CMS”) business into the vending vertical within the CPI business. This internal merger will enable improved coordination and collaboration while delivering increasingly integrated connectivity solutions to our customers.
Crane Currency is a supplier of banknotes and highly engineered banknote security features. 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. Crane Currency offers uniquely designed banknotes, substrate (paper) and printing capabilities for over 50 central banks around the world, with facilities located in the United States, Sweden and Malta.
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. The commercial market and military market accounted for 49% and 51%, respectively, of total segment sales in 2020. Sales to original equipment manufacturers ("OEM") and aftermarket customers were 75% and 25%, respectively, in 2020.
Crane Aerospace & Electronics has strong brands which have been supplying products to these end markets for several decades. Brands include Hydro-Aire, ELDEC, Lear Romec, P.L. Porter, Keltec, Interpoint, Signal Technology, Merrimac Industries, and Polyflon.
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.
Our products are sold directly to aircraft manufacturers, commercial Tier 1 integrators (companies which make products specifically for an aircraft manufacturer), defense and space prime contractors, airlines, government agencies including the U.S. Department of Defense, foreign allied defense organizations, aircraft seat manufacturers, and aircraft maintenance, repair and overhaul organizations.
Facilities are located in the United States, Taiwan, and France.
Engineered Materials
The Engineered Materials segment manufactures fiberglass-reinforced plastic ("FRP") 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. Manufacturing facilities are located in the United States.
Other Matters Relating to Our Business as a Whole
Competitive Conditions
Our businesses participate in markets that are highly competitive. Because of the diversity of products manufactured and sold, our businesses typically have a different set of competitors in each geographic area and end market in which they participate. Accordingly, it is not possible to estimate the number of competitors, or precise market share; however, we
3
believe that we are a principal competitor in most of our markets. Our primary basis of competition is providing high quality products, with technological differentiation, at competitive prices, with superior customer service and timely delivery.
Our products are sold into primary end markets which include process industries (chemical production, oil & gas, power, and general industrial), non-residential and municipal construction, payment automation solutions, banknote design and production, aerospace, defense and space, along with a wide range of general industrial and certain consumer related end markets. As such, our revenues depend on numerous unpredictable factors, including changes in market demand, general economic conditions, customer capital spending, timing and amount of contract awards and credit availability. Since our products are sold in such a wide variety of markets, we do not believe that we can reliably quantify or predict the potential effects of changes in any of the aforementioned factors.
Our engineering and product development activities are focused on improving existing products, customizing existing products for particular customer requirements, as well as the development of new products. We own numerous patents, trademarks, copyrights, trade secrets and licenses to intellectual property, no one of which is of such importance that termination would materially affect our business. From time to time, however, we do engage in litigation to protect our intellectual property.
Raw Materials
Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics, cotton, flax and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world. Although market forces have at times caused increases in the costs of steel, copper and petroleum-based products, there have been no raw materials shortages that have had a material adverse impact on our business, and we believe that we will generally be able to obtain adequate supplies of major raw material requirements or reasonable substitutes at acceptable costs. For a further discussion of risks related to raw materials; please refer to Item 1A. “Risk Factors.”
Seasonal Nature of Business
In aggregate, our business does not experience significant seasonality.
Government Contracts
We have agreements relating to the sale of products to government entities, primarily involving products in our Aerospace & Electronics and Payment & Merchandising Technologies segments and, to a lesser extent, our Fluid Handling segment. As a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws and regulations governing government contracts differ from those governing private contracts. For example, some government contracts require disclosure of cost and pricing data and impose certain sourcing conditions that are not applicable to private contracts. Our failure to comply with these laws could result in suspension of these contracts, criminal or civil sanctions, administrative penalties and fines or suspension or debarment from government contracting or subcontracting for a period of time. For a further discussion of risks related to compliance with government contracting requirements; please refer to Item 1A. “Risk Factors.”
Environmental Compliance and Climate Change
We are regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts that would be considered hazardous waste or otherwise harmful to the environment if not properly handled or maintained. Accordingly, continued compliance with these existing laws has not had a material impact on our capital expenditures or earnings.
However, we occasionally engage in environmental remediation activities as required by federal and state laws. In addition, we may be exposed to other environmental costs including participation in the characterization and remediation of federal Superfund sites, or analogous state sites. When it is reasonably probable we will pay remediation costs at a site, and those costs can be reasonably estimated, we accrue a liability for such future costs with a related charge against our earnings. For further discussion of environmental related risks; please refer to Item 1A. “Risk Factors.” For further discussion of our environmental matters; please refer to Part II, Item 8 under Note 12, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements.
Human Capital Resources
To remain a leading manufacturer of highly engineered industrial products, it is important that we continue to attract, develop, and retain exceptional talent across our global enterprise.
4
At December 31, 2020, we employed approximately 11,000 persons worldwide, of which substantially all were full time employees. In the United States, we employed approximately 5,800 people across 97 locations. At December 31, 2020, approximately 4% of our U.S. employees were represented by a union under a collective bargaining agreement. Employees based in some foreign countries may, from time to time, be represented by works councils or unions or subject to collective bargaining agreements. We consider our relations with our employees to be good.
To be an employer of choice and maintain the strength of our workforce, we consistently assess the current business environment and labor market to refine our compensation and benefits programs and other resources available to our associates. We are committed to an inclusive and high-performance culture at all levels of the organization, based on trust and respect. The Company has a diverse global workforce located in 32 countries, spanning six continents.
We are further committed to developing our associates personally and professionally by leveraging a structured and disciplined Intellectual Capital (IC) process. This regular IC cadence includes constructive reviews and various talent and leadership development initiatives conducted by the executive management team and provided throughout an associate’s career.
The manufacture and production of our products requires the use of a variety of tools, equipment, materials, and supplies. At Crane, we are strongly committed to the health and safety of our associates and strive to continuously adhere to global regulatory safety requirements and to reduce the incidence and severity of job-related injuries. We utilize strict compliance protocols, training programs, effective risk management practices, and sound science in our operations to minimize risk to our associates.
During 2020, in response to the COVID-19 pandemic, we implemented additional health and safety protocols and new procedures across all of our global offices, manufacturing and distribution facilities to ensure the safety and well-being of our associates. These protocols included proper hygiene, social distancing, mask use and temperature screenings and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.
For a discussion of risks related to employee relations, please refer to Item 1A. “Risk Factors.”
Available Information
We file annual, quarterly and current reports and amendments to these reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. The address of the SEC’s website is www.sec.gov.
We also make our filings available free of charge through our Internet website, as soon as reasonably practicable after filing such material electronically with, or furnishing such material, to the SEC. Also posted on our website are our Corporate Governance Guidelines, Standards for Director Independence, Crane Co. Code of Ethics and the charters and a brief description of each of the Audit Committee, the Management Organization and Compensation Committee and the Nominating and Governance Committee. These items are available in the “Investors – Corporate Governance” section of our website at www.craneco.com. The content of our website is not part of this report.
5
Executive Officers of the Registrant
| Name | Position | Business Experience | Age | Executive Officer Since | ||||||||||||||||||||||
| Max H. Mitchell | President and Chief Executive Officer | President, Chief Executive Officer and Director since 2014. President and Chief Operating Officer from 2013 through 2014. Executive Vice President and Chief Operating Officer from 2011 to 2013. | 57 | 2004 | ||||||||||||||||||||||
| Alejandro Alcala | Senior Vice President | Senior Vice President Fluid Handling and operations in China, India and the Middle East & Africa since March 2020. President, Crane ChemPharma & Energy from 2014 to March 2020. President, Crane Pumps & Systems from 2013 to 2014. | 46 | 2020 | ||||||||||||||||||||||
| Christina Cristiano | Vice President, Controller and Principal Accounting Officer | Vice President, Controller and Principal Accounting Officer since May 2019. Vice President, Controller of Global Accounting and Statutory Reporting of Thomson Reuters from 2011 to May 2019. | 48 | 2019 | ||||||||||||||||||||||
| Anthony M. D'Iorio | Senior Vice President, General Counsel and Secretary | Senior Vice President since February 2021. Vice President, General Counsel and Secretary since February 2018. Deputy General Counsel from 2013 through February 2018. Assistant General Counsel from 2005 through 2013. | 57 | 2018 | ||||||||||||||||||||||
| Kurt Gallo | Senior Vice President | Senior Vice President, Payment & Merchandising Technologies and Engineered Materials since April 2019. President, Crane Payment Solutions since 2012 and its successor, Crane Payment Innovation since 2014. | 56 | 2019 | ||||||||||||||||||||||
| James A. Lavish | Vice President, People & Performance | Vice President, People and Performance since February 2020. Vice President, CBS, People & Performance from January 2016 through January 2020. Vice President, Crane Business System from 2013 through January 2016. President, Crane Pumps & Systems from 2008 to 2013. | 54 | 2016 | ||||||||||||||||||||||
| Richard A. Maue | Senior Vice President and Chief Financial Officer | Senior Vice President since January 2019. Chief Financial Officer since 2013. Principal Accounting Officer from 2007 through May 2019. Vice President - Finance from 2013 through January 2019. | 50 | 2007 | ||||||||||||||||||||||
| Kristian R. Salovaara | Vice President of Business Development and Strategy | Vice President of Business Development and Strategy since 2014. Vice President, Business Development from 2011 to 2014. | 60 | 2011 | ||||||||||||||||||||||
| Edward S. Switter | Vice President, Treasurer and Tax | Vice President, Treasurer and Tax since September 2016. Vice President, Tax from 2011 through September 2016. | 46 | 2011 | ||||||||||||||||||||||
6
Item 1A. Risk Factors
Our business, financial condition, results of operations and cash flows may be affected by a number of factors including, but not limited to those set forth below. This discussion should be considered in conjunction with the discussion under the caption “Forward-Looking Information” preceding Part I, the information set forth under Item 1, “Business” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks comprise the material risks of which we are aware. If any of the events or developments described below or elsewhere in this Annual Report on Form 10-K, or in any documents that we subsequently file publicly were to occur, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Relating to COVID-19
Our financial condition and results of operations are expected to continue to be adversely affected by the coronavirus pandemic.
The novel strain of the coronavirus (“COVID-19”) pandemic is expected to continue to have an adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve. It is very difficult to predict the extent of the impact which the pandemic will have on our business operations, financial performance, results of operations, and financial position. We believe our operations and financial performance will continue to be negatively impacted by the COVID-19 pandemic which has caused a global slowdown of economic activity (including a decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and disruption of financial markets. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences remain uncertain and rapidly changing, it is difficult to predict the extent of the pandemic’s impact on our operations and financial performance. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited to, governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including shutdown orders, border closings, restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; commodity prices such as oil and gas, and the pace of recovery when the COVID-19 pandemic subsides. We continue to expect lower demand and volume for products and services, supply chain disruptions, delays of deliveries and other factors related directly and indirectly to the COVID-19 pandemic. To the extent global vaccination programs do not achieve intended results and a longer period of economic and global supply chain and related disruption continues, the more adverse the impact will be on our business operations, financial performance and results of operations. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A prolonged or worsening worldwide disruption could materially affect our future access to our sources of liquidity, particularly our cash flows from operations and access to credit markets, which could impact our financial condition, capitalization, and capital investments. Additionally, a prolonged period of generating lower cash flows from operations could adversely affect our financial condition and the achievement of our strategic objectives. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding, which could adversely affect our business, financial position and results of operations.
Risks Relating to Our Business
Macroeconomic fluctuations may harm our business, results of operations and stock price.
Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks, including credit market conditions, trade policies, levels of consumer and business confidence, commodity prices, exchange rates, levels of government spending and deficits, political conditions, and other challenges that could affect the global economy. These economic and geopolitical conditions could affect businesses such as ours in a number of ways. Such conditions could have an adverse impact on our flexibility to react to changing economic and business conditions and on our ability to fund our operations or refinance maturing debt balances at economically favorable interest rates. In addition, restrictions on credit availability could adversely affect the ability of our customers to obtain financing for significant purchases and could result in decreases in or cancellation of orders for our products and services as well as impact the ability of our customers to make payments. Similarly, credit restrictions may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. See “Specific Risks Related to Our Business Segments.”
7
We are subject to numerous lawsuits for asbestos-related personal injury, and costs associated with these lawsuits may adversely affect our financial condition, results of operations and cash flows.
We are subject to numerous lawsuits for asbestos-related personal injury. Estimation of our ultimate exposure for asbestos-related claims is subject to significant uncertainties, as there are multiple variables that can affect the timing, severity and quantity of claims. Our estimate of the future expense of these claims is derived from assumptions with respect to future claims, settlement and defense costs which are based on experience during the last few years and which may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would substantial adverse verdicts at trial or on appeal. A legislative solution or a structured settlement transaction could also change the estimated liability. These uncertainties may result in our incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if the number of claims and settlements and defense costs escalates or if legislation or another alternative solution is implemented; however, we are currently unable to predict such future events. The resolution of these claims may take many years, and the effect our financial condition, results of operations and cash flows in any given period from a revision to these estimates could be material.
As of December 31, 2020, we were one of a number of defendants in cases involving 29,138 pending claims filed in various state and federal courts that allege injury or death as a result of exposure to asbestos. See Part II, Item 8 under Note 12, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for additional information on:
•Our pending claims;
•Our historical settlement and defense costs for asbestos claims;
•The liability we have recorded in our financial statements for pending and reasonably anticipated asbestos claims through 2059;
•The asset we have recorded in our financial statements related to our estimated insurance coverage for asbestos claims; and
•Uncertainties related to our net asbestos liability.
In the fourth quarter of 2019, we updated the estimate of our asbestos liability and recorded a pre-tax charge of $229 million, net of insurance recoveries ($181 million after tax). Our updated liability estimate is for pending and reasonably anticipated asbestos claims through the generally accepted end point of such claims in 2059. Due to uncertainties in the tort system, as well as uncertainties inherent in the estimation process, future reviews may result in adjustments to our total asbestos-related liability. The aggregate liability was $670 million as of December 31, 2020.
Information systems and technology networks failures and breaches in data security, personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of our privacy and security policies with respect to such information, could adversely affect us.
We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and, in the normal course of our business, we collect and retain certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving and companies that collect and retain such information are under increasing attack by cyber-criminals around the world. A theft, loss, fraudulent use or misuse of customer, stockholder, employee or our proprietary data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in costs, fines, litigation or regulatory action against us. Security breaches can create system disruptions and shutdowns that could result in disruptions to our operations. We cannot be certain that advances in criminal capabilities, new vulnerabilities or other developments will not compromise or breach the security solutions protecting our information technology, networks and systems. A failure of or cyber-attack on our information systems technology or those of our partners, vendors, supplier could adversely affect our ability to process orders, maintain proper levels of inventory, collect accounts receivable and pay expenses; all of which could have an adverse effect on our results of operations, financial condition and cash flows. Failure to effectively prevent, detect and recover from security breaches, including attacks on information technology and infrastructure by hackers; viruses; breaches due to employee error or actions; or other disruptions could seriously harm our operations as well as the operations of our customers and suppliers. Such serious harm can involve, among other things, misuse of our assets, business disruptions, loss of data, unauthorized access to trade secrets and confidential business information, unauthorized access to personal information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, reputational harm, loss of sales,
8
remediation and increased insurance costs, and interference with regulatory compliance. We have experienced and expect to continue to experience some of these types of cybersecurity threats and incidents, which could be material in the future.
Demand for our products is variable and subject to factors beyond our control, which could result in unanticipated events significantly impacting our results of operations.
A substantial portion of our sales is concentrated in industries that are cyclical in nature or subject to market conditions which may cause customer demand for our products to be volatile. Reductions in demand by these industries would reduce the sales and profitability of the affected business segments.
•Our Fluid Handling segment is dependent on global economic conditions, customer capital spending and commodity prices. Deterioration in any of these economic factors could result in sales and profits falling below our current outlook.
•Our Payment & Merchandising Technologies segment could be affected by sustained weakness in certain geographic markets or certain end markets such as gaming, retail or banking, as well as low employment levels, office occupancy rates and factors affecting vending operator profitability such as higher fuel, food and equipment financing costs; results could also be impacted by unforeseen advances in payment processing technologies. In addition, our results in this segment are subject to significant variability due to the timing and size of contract awards by central banks for banknote production and actual order rates, particularly with the U.S. government.
•In our Aerospace & Electronics segment, a significant decline in demand for air travel, or a decline in airline profitability generally, could result in reduced orders for aircraft and could also cause airlines to reduce their purchases of repair parts from our businesses. In addition, our Aerospace & Electronics segment could also be impacted to the extent that our major aircraft manufacturing customers encounter problems which impact their production rates and, correspondingly, reduce purchases of our products (for example, the grounding of the 737 MAX and associated suspension of 737 MAX production announced by Boeing in December 2019 reduced our sales and operating profit in 2020), or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices and/or extend payment terms; in addition, demand for military and defense products is dependent upon government spending in certain areas which can vary year to year.
•In our Engineered Materials segment, sales and profits could be affected by declines in demand for RVs, building materials or truck trailers; results could also be impacted by unforeseen changes in capacity or price increases related to certain raw materials, in particular, resin.
Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations, cash flows and reputation.
Our operations are subject to extensive environmental and health and safety laws and regulations in the jurisdictions in which they operate, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of solid and hazardous wastes. We must also comply with various health and safety regulations in the U.S. and abroad in connection with our operations. The costs of compliance with these regulations results in ongoing costs that may increase over time. Failure to comply with any of these laws could result in civil and criminal liability, substantial monetary and non-monetary penalties and damage to our reputation. In addition, we cannot provide assurance that our costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices will not exceed our estimates or adversely affect our financial condition, results of operations and cash flows. For example, during the fourth quarter of 2019, we received conceptual agreement from the Environmental Protection Agency on an alternative remediation strategy which is expected to further reduce the contaminant plume at the former manufacturing site in Goodyear, Arizona. Accordingly, we recorded a pre-tax charge of $18.9 million, net of reimbursements, to extend our forecast period through 2027 and reflect our revised workplan. The total estimated gross liability was $39.8 million as of December 31, 2020.
Our businesses are subject to extensive governmental regulation; failure to comply with those regulations could adversely affect our financial condition, results of operations, cash flows and reputation.
We are required to comply with various import and export control laws, which may affect our transactions with certain customers, particularly in our Aerospace & Electronics, Fluid Handling and Payment & Merchandising Technology segments, as discussed more fully under “Specific Risks Relating to Our Business Segments.” In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. A failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting. For example, compliance with regulations related to the sourcing of conflict-free minerals mined from the democratic Republic of Congo and adjoining countries could limit the pool of suppliers who can provide conflict-free minerals
9
to us, and as a result, may cause us to incur additional expenses and may create challenges for us to obtain conflict-free minerals at competitive prices. In addition, we are subject to the Foreign Corrupt Practices Act, which prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business, or securing any improper advantage. We are also subject to the anti-bribery laws of other jurisdictions. Failure to comply with any of these and similar regulations could result in civil and criminal liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.
We conduct a substantial portion of our business outside the U.S. and face risks inherent in non-domestic operations.
Net sales and assets related to our operations outside the U.S. were 37% of our consolidated amounts in 2020. We expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future. These operations and transactions are subject to the risks associated with conducting business internationally, including, but not limited to:
•changes in the U.S. government's approach to trade policy, including in some cases renegotiating and terminating certain existing bilateral or multi-lateral trade agreements. The U.S. government has also initiated tariffs on certain foreign goods from a variety of countries and regions, most notably China, and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of goods in other countries. In response, many of these foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S. Changes in U.S. trade policy have and may continue to result in one or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products from those countries. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows;
•the risks of fluctuations in foreign currency exchange rates, primarily the euro, the British pound, the Canadian dollar and the Japanese yen, could adversely affect our reported results, primarily in our Fluid Handling and Payment & Merchandising Technologies segments, as amounts earned in other countries are translated into U.S. dollars for reporting purposes; and
•economic and political instability in the countries and regions in which we operate. This includes, for example, the uncertainty surrounding the United Kingdom’s exit from the European Union (Brexit) on January 31, 2020, including the effects of the Trade and Cooperation Agreement between the European Union, the European Atomic Energy Community and the United Kingdom signed on December 30, 2020. The political and economic instability created by Brexit has caused and may continue to cause volatility in global stock markets, currency exchange rate fluctuations and global economic uncertainty, which could adversely affect customer demand, our relationships with customers and suppliers, our business and financial statements.
Our ability to source parts and raw materials from our suppliers could be disrupted or delayed in our supply chain which could adversely affect our results of operations.
Our operations require significant amounts of necessary parts and raw materials. We deploy a continuous, company-wide process to source our parts and raw materials from fewer suppliers, and to obtain parts from suppliers in low-cost countries where possible. If we are unable to source these parts or raw materials, our operations may be disrupted, or we could experience a delay or halt in certain of our manufacturing operations. We believe that our supply management and production practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices. Nonetheless, reduced availability or interruption in supplies, whether resulting from more stringent regulatory requirements; supplier financial condition; increases in duties and tariff costs; disruptions in transportation; an outbreak of a severe public health pandemic, such as the COVID-19 pandemic; severe weather; the occurrence or threat of wars or other conflicts, could have an adverse effect on our financial condition, results of operations and cash flows.
We may be unable to identify or to complete acquisitions, or to successfully integrate the businesses we acquire.
We have evaluated, and expect to continue to evaluate, a wide array of potential acquisition transactions. Our acquisition program attempts to address the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities, systems of internal control and potential profitability of acquisition candidates, as well as other challenges such as retaining the employees and integrating the operations of the businesses we acquire. Integrating acquired operations, such as our 2020 acquisition of I&S or 2019 acquisition of Cummins-Allison, involves significant risks and uncertainties, including:
•Maintenance of uniform standards, controls, policies and procedures;
10
•Unplanned expenses associated with the integration efforts;
•Inability to achieve planned facility repositioning savings or related efficiencies from recent and ongoing investments; and
•Unidentified issues not discovered in the due diligence process, including legal contingencies.
There can be no assurance that suitable acquisition opportunities will be available in the future, that we will continue to acquire businesses or that any business acquired will be integrated successfully or prove profitable, which could adversely impact our growth rate. Our ability to achieve our growth goals depends in part upon our ability to identify and successfully acquire and integrate companies and businesses at appropriate prices and realize anticipated cost savings.
Our future results of operations and financial condition could be adversely impacted by intangible asset impairment charges.
As of December 31, 2020, we had goodwill and other intangible assets, net of accumulated amortization, of $2,129 million, which represented approximately 46% of our total assets. Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Any excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill) are generally amortized over the useful life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired assets. We may subsequently experience unforeseen issues with such business that adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have an adverse effect on our financial condition and results of operations.
Our business could be harmed if we are unable to protect our intellectual property.
We rely on a combination of trade secrets, patents, trademarks, copyrights and confidentiality procedures to protect our products and technology. Existing trade secret, patent, trademark and copyright laws offer only limited protection. Our patents could be invalidated or circumvented. In addition, others may develop substantially equivalent, or superseding proprietary technology, or competitors may offer equivalent non-infringing products in competition with our products, thereby substantially reducing the value of our proprietary rights. The laws of some foreign countries in which our products are or may be manufactured or sold may not protect our products or intellectual property rights to the same extent as do the laws of the U.S. We cannot assure that the steps we take to protect our intellectual property will be adequate to prevent misappropriation of our technology. We could incur significant and/or unexpected costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters. Our inability to protect our intellectual property could have an adverse effect on our financial condition, results of operations and cash flows.
The prices of our raw materials could fluctuate dramatically, which may adversely affect our profitability.
The costs of certain raw materials that are critical to our profitability can be volatile which can have a significant impact on our profitability. The costs in our business segments are affected by fluctuations in the price of metals such as steel and copper as well as other raw materials such as resin, cotton, and flax. While we have taken actions aimed at securing an adequate supply of raw materials at prices which are favorable to us, if the prices of critical raw materials increase, our operating costs could be adversely affected.
We compete with other manufacturing businesses for key human resources in the countries in which we operate, and we may not be able to retain our key personnel or hire and retain additional personnel needed for us to sustain and grow our business as planned.
Certain of our business segments and corporate offices are dependent upon highly qualified personnel, and we generally are dependent upon the continued efforts of key management employees. While we believe we have a robust intellectual capital process, we may have difficulty retaining such personnel or locating and hiring additional qualified personnel. The loss of the services of any of our key personnel or our failure to attract and retain other qualified and experienced personnel on acceptable terms could impair our ability to successfully sustain and grow our business, which could have an adverse effect on our results of operations and financial condition.
11
We may be unable to improve productivity, reduce costs and align manufacturing capacity with customer demand.
We are committed to continuous productivity improvement, and we continue to evaluate opportunities to reduce costs, simplify or improve global processes, and increase the reliability of order fulfillment and satisfaction of customer needs. In order to operate more efficiently and control costs, from time to time we execute restructuring activities, which include workforce reductions and facility consolidations. For example, we recorded pre-tax restructuring charges of $32.1 million for the 2020 repositioning program related to actions to reduce our global workforce in response to the adverse economic impact of COVID-19 and integration actions related to the Cummins-Allison acquisition. We expect to achieve annualized savings of approximately $100 million. While these are proactive actions to increase our productivity and operating effectiveness, our failure to respond to potential declines in global demand for our products and services and properly align our cost base could have an adverse effect on our financial condition, results of operations and cash flows.
We could face potential product liability or warranty claims, we may not accurately estimate costs related to such claims, and we may not have sufficient insurance coverage available to cover such claims.
Our products are used in a wide variety of commercial applications and certain residential applications. We face an inherent business risk of exposure to product liability or other claims in the event our products are alleged to be defective or that the use of our products is alleged to have resulted in harm to others or to property. We may in the future incur liability if product liability lawsuits against us are successful. Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales to decline.
In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs of warranty or breach of contract claims if our products have defects in manufacture or design or they do not meet contractual specifications. We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them.
While we maintain insurance coverage with respect to certain liability claims, that insurance coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liabilities not covered by insurance or that exceed our established reserves could have an adverse effect on our financial condition, results of operations and cash flows.
We may be unable to successfully develop and introduce new products, which would limit our ability to grow and maintain our competitive position and adversely affect our financial condition, results of operations and cash flow.
Our growth depends, in part, on continued sales of existing products, as well as the successful development and introduction of new products or technologies, which face the uncertainty of customer acceptance and reaction from competitors. Any delay in the development or launch of a new product could result in our not being the first to market, which could compromise our competitive position. Further, the development and introduction of new products may require us to make investments in specialized personnel and capital equipment, increase marketing efforts and reallocate resources away from other uses. We also may need to modify our systems and strategy in light of new products that we develop. If we are unable to develop and introduce new products in a cost-effective manner or otherwise manage effectively the operations related to new products, our financial condition, results of operations and cash flows could be adversely impacted.
We face significant competition which may adversely impact our financial condition, results of operations, and cash flows in the future.
While we are a principal competitor in most of our markets, all of our markets are highly competitive. The competitors in many of our business segments can be expected in the future to improve technologies, reduce costs and develop and introduce new products. The ability of our business segments to achieve similar advances will be important to our competitive positions. Competitive pressures, including those discussed above, could cause one or more of our business segments to lose market share or could result in significant price erosion, either of which could have an adverse effect on our financial condition, results of operations and cash flows.
Net periodic pension (benefit) cost and pension contributions associated with our retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions and future market performance of plan assets.
Total net periodic pension benefit and pension contributions were $6.8 million and $26.1 million, respectively in 2020. The costs of our defined benefit pension plans are dependent upon various factors, including rates of return on investment assets, discount rates for future payment obligations, and expected mortality, among other things. In addition, funding requirements for benefit obligations of our pension plans are subject to legislative and other government regulatory actions. Variances in related estimates could have an adverse effect on our financial condition, results of operations and cash flows.
12
Additional tax expense or exposures could affect our financial condition, results of operations and cash flows.
We are subject to income taxes in the U.S. and various international jurisdictions. Our financial condition, results of operations and cash flow could be affected by changes to any or all of the following: tax laws, regulations, accounting principles and judicial rulings, the geographic mix of our earnings, the valuation of our deferred tax assets and liabilities, and the results of audits and examinations of previously filed tax returns.
If our internal controls are found to be ineffective, our financial results or our stock price may be adversely affected.
We believe that we currently have adequate internal control procedures in place for future periods, including processes related to newly acquired businesses; however, increased risk of internal control breakdowns generally exists in any business environment that is decentralized such as ours. In addition, if our internal control over financial reporting is found to be ineffective, investors may lose confidence in the reliability of our financial statements, which may adversely affect our stock price.
Specific Risks Relating to Our Reportable Segments
Fluid Handling
Our Fluid Handling segment competes in markets that are fragmented and highly competitive. The business competes against large, well established global companies, as well as smaller regional and local companies. We compete based on our products’ quality, reliability and safety, our brand reputation, value-added technical expertise and customer support and consistent on-time delivery. However, pricing can be highly competitive, particularly in regions and end markets with weakening levels of demand, or in markets where our value proposition - quality, reliability, and safety - is not valued as highly. Additionally, our results in this segment could be adversely impacted if our recently acquired I&S business is not integrated successfully.
Demand for our Fluid Handling products is heavily dependent on our customers’ level of new capital investment and planned maintenance expenditures. Customer spending typically depends on general economic conditions, availability of credit, and expectations of future demand. Slowing global economic growth, volatility in commodity prices, including continued weakness in oil prices could all contribute to lower levels of customer spending, and project delays or cancellations.
A portion of this segment’s business is subject to government contracting rules and regulations. Failure to comply with these requirements could result in suspension or debarment from government contracting or subcontracting, civil and criminal liability, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to export products and services, or damage to our reputation. At our foreign operations, results could also be adversely impacted by a weakening of local currencies against the U.S. dollar. Our Fluid Handling business has the greatest exposure to the euro, British pound and Canadian dollar, and lesser exposure to several other currencies.
Payment & Merchandising Technologies
Our Payment & Merchandising Technologies segment sales are dependent on capital spending in a variety of end markets and across numerous geographies. The level of capital expenditures by our customers depends on general economic conditions, availability of credit, and expectations of future demand. In addition, our results in this segment are subject to significant variability due to the timing and size of contract awards by central banks for banknote production and actual order rates, particularly with the U.S. government. Our results in this segment could also be adversely impacted if our recently acquired Cummins-Allison business is not integrated successfully, including achieving expected synergies.
This business regularly develops and markets new products. Delays in the product development process, or the inability of new products to meet targeted performance measures, could hurt future sales. This business is also directly and indirectly exposed to changes in government regulations; for example, changes in gaming regulations could influence the spending patterns of our casino operator customers, or changes in anti-money laundering regulations could result in additional technical requirements for our products. We are also subject to investigation and audit for compliance with the requirements governing government contracts, including requirements related to procurement integrity, manufacturing practices and quality procedures, export control, employment practices, the accuracy of records and the recording of costs and information security requirements. A failure to comply with these requirements could result in suspension of these contracts, and suspension or debarment from government contracting or subcontracting. Failure to comply with any of these regulations could result in civil and criminal liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.
At our foreign operations, results could also be adversely impacted by a weakening of local currencies against the U.S. dollar; this business has the greatest exposure to the euro, British pound, the Japanese yen, the Mexican peso, and the Canadian dollar, although there is lesser exposure to several other currencies. In addition, our facility in Mexico operates under the
13
Mexican Maquiladora program. This program provides for reduced tariffs and eased import regulations; we could be adversely affected by changes in such program, or by our failure to comply with its requirements.
Aerospace & Electronics
Our Aerospace & Electronics segment sales are primarily affected by conditions in the commercial aerospace industry which is cyclical in nature, and by changes in defense spending by the U.S. government.
Commercial aircraft are procured primarily by airlines, and airline capital spending can be affected by a number of factors including credit availability, current and expected fuel prices, and current and forecast air traffic demand levels. Air traffic levels are affected by a different array of factors including general economic conditions and global corporate travel spending, although other non-economic events can also adversely impact airline traffic, including terrorism or pandemic health concerns, such as the COVID-19 pandemic. Our commercial business is also affected by the market for business jets where demand is typically tied to corporate profitability levels, and the freight markets which are most heavily influenced by general economic conditions. Demand for our commercial aftermarket business is closely tied to total aircraft flight hours. Any decrease in demand for new aircraft or equipment, or use of existing aircraft and equipment, would likely result in decreased sales of our products and services. In addition, our commercial business could also be impacted to the extent that our major aircraft manufacturing customers encounter problems which impact their production rates and, correspondingly, reduce purchases of our products (for example, the grounding of the 737 MAX and associated suspension of 737 MAX production announced by Boeing in December 2019 reduced our sales and operating profit in 2020), or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices and/or extend payment terms.
The defense portion of the segment’s business is dependent primarily on U.S. government spending, and to a lesser extent, foreign government spending, on the specific military platforms and programs where our business participates. Any reduction in appropriations for these platforms or programs could impact the performance of our business. Our sales to defense customers are also affected by the level of activity in military flight operations.
We are required to comply with various export control laws, which may affect our transactions with certain customers. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. We are also subject to investigation and audit for compliance with the requirements governing government contracts, including requirements related to procurement integrity, manufacturing practices and quality procedures, export control, employment practices, the accuracy of records and the recording of costs and information security requirements. A failure to comply with these requirements could result in suspension of these contracts, and suspension or debarment from government contracting or subcontracting. Failure to comply with any of these regulations could result in civil and criminal liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.
Due to the lengthy research and development cycle involved in bringing commercial and military products to market, we cannot accurately predict the demand levels that will exist once a given new product is ready for market. In addition, if we are unable to develop and introduce new products in a cost-effective manner or otherwise effectively manage the introduction of new products and/or programs, our results of operations and financial condition could be adversely impacted. Demand for our products could also be adversely impacted by industry consolidation that could result in greater acceptance of competitors' products.
Engineered Materials
Our Engineered Materials segment manufactures and sells FRP panels and coils, primarily for use in the manufacturing of RVs, trucks, and trailers, with additional applications in commercial and industrial building construction. Demand in these end markets is dependent on general economic conditions, credit availability, and consumer and corporate spending levels. A decline in demand in any of these end markets, including a significant change in RV industry capacity, including, the recent overproduction by RV OEMs that occurred mostly in 2017 which has unfavorably impacted our results of operations and cash flows in 2018 and 2019; a loss of market share; or customer pricing pressure would result in lower sales and profits for this business. Profitability could also be adversely affected by an increase in the price of resin or fiberglass if we are unable to pass the incremental costs on to our customers. Additional risks include the loss of a principal supplier, and potential loss of market share to competing materials, such as wood or aluminum.
Item 1B. Unresolved Staff Comments
None
14
Item 2. Properties
The following is a summary of our principal facilities as of December 31, 2020:
| Facilities - Owned | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Location | Fluid Handling | Payment & Merchandising Technologies | Aerospace & Electronics | Engineered Materials | Corporate | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Manufacturing: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | 7 | 798,509 | 7 | 1,346,404 | 6 | 724,240 | 4 | 644,333 | — | — | 24 | 3,513,486 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe | 6 | 921,233 | 3 | 732,713 | — | — | — | — | — | — | 9 | 1,653,946 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other international | 4 | 415,689 | 2 | 294,666 | — | — | — | — | — | — | 6 | 710,355 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 17 | 2,135,431 | 12 | 2,373,783 | 6 | 724,240 | 4 | 644,333 | — | — | 39 | 5,877,787 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Manufacturing: | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | 2 | 98,510 | 7 | 286,973 | — | — | — | — | — | — | 9 | 385,483 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 6 | 143,634 | — | — | — | — | — | — | — | — | 6 | 143,634 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe | 2 | 73,780 | 1 | 11,000 | — | — | — | — | — | — | 3 | 84,780 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other international | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10 | 315,924 | 8 | 297,973 | — | — | — | — | — | — | 18 | 613,897 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Facilities - Leased | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Location | Fluid Handling | Payment & Merchandising Technologies | Aerospace & Electronics | Engineered Materials | Corporate | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | Number | Area (sq. ft.) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Manufacturing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | 2 | 97,220 | 1 | 141,049 | — | — | — | — | — | — | 3 | 238,269 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 1 | 20,572 | — | — | — | — | — | — | — | — | 1 | 20,572 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe | 3 | 517,890 | 2 | 35,771 | — | — | — | — | — | — | 5 | 553,661 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other international | 2 | 410,615 | — | — | 1 | 63,653 | — | — | — | — | 3 | 474,268 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8 | 1,046,297 | 3 | 176,820 | 1 | 63,653 | — | — | — | — | 12 | 1,286,770 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Manufacturing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | 6 | 186,765 | 52 | 268,635 | 3 | 12,718 | 3 | 78,950 | 3 | 39,875 | 67 | 586,943 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 22 | 472,846 | 5 | 15,028 | — | — | — | — | — | — | 27 | 487,874 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe | 6 | 49,173 | 6 | 317,617 | 2 | 21,218 | — | — | — | — | 14 | 388,008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other international | 20 | 159,599 | 4 | 17,627 | — | — | — | — | — | — | 24 | 177,226 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 54 | 868,383 | 67 | 618,907 | 5 | 33,936 | 3 | 78,950 | 3 | 39,875 | 132 | 1,640,051 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In our opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes.
15
Item 3. Legal Proceedings.
Discussion of legal matters is incorporated by reference to Part II, Item 8 under Note 12, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements.
Item 4. Mine Safety Disclosures.
Not applicable.
16
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Crane Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol "CR". As of December 31, 2020, there were 1,771 holders of record of Crane Co. common stock.
Stock Performance Graph
The following chart compares the total stockholder returns (stock price increase plus reinvested dividends) on our common stock from December 31, 2015 through December 31, 2020 with the total stockholder returns for the S&P 500 Index and the S&P MidCap Capital Goods Index. The graph assumes that the value of the investment in the common stock and each index was $100 on December 31, 2015 and that all dividends were reinvested.
17
Purchases of Equity Securities
We did not make any open-market share repurchases of our common stock during the three months ended December 31, 2020. We routinely receive shares of our common stock as payment for stock option exercises and the withholding taxes due on stock option exercises and the vesting of restricted share units from stock-based compensation program participants.
Equity Compensation Plans
For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.
Item 6. Selected Financial Data
Not Applicable
18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.
We are a diversified manufacturer of highly engineered industrial products. Our business consists of four segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Our primary end markets include process industries (chemical production, oil & gas, power, and general industrial), non-residential and municipal construction, payment automation solutions, banknote design and production, aerospace, defense and space, along with a wide range of general industrial and certain consumer related end markets.
Our strategy is to grow earnings and cash flow by focusing on the manufacturing of highly engineered industrial products for specific markets where our scale is a relative advantage, and where we can compete based on our proprietary and differentiated technology, our deep vertical expertise, and our responsiveness to unique and diverse customer needs. We continuously evaluate our portfolio, pursue acquisitions that complement our existing businesses and are accretive to our growth profile, selectively divest businesses where appropriate, and pursue internal mergers to improve efficiency. We strive to foster a performance-based culture focused on productivity and continuous improvement, to attract and retain a committed management team whose interests are directly aligned with those of our shareholders, and to maintain a focused, efficient corporate structure.
We will continue to execute this strategy while remaining committed to the values of our founder, R.T. Crane, who resolved to conduct business "in the strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees; and to put my whole mind upon the business."
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.
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.
19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations — For the Years Ended December 31, 2020, 2019 and 2018
| For the year ended December 31, | 2020 vs 2019 Favorable / (Unfavorable) Change | 2019 vs 2018 Favorable / (Unfavorable) Change | ||||||||||||||||||||||||||||||||||||||||||
| (in millions, except %) | 2020 | 2019 | 2018 | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||||||||||||||
| Fluid Handling | $ | 1,005.8 | $ | 1,117.4 | $ | 1,101.8 | $ | (111.6) | (10.0) | % | $ | 15.6 | 1.4 | % | ||||||||||||||||||||||||||||||
| Payment & Merchandising Technologies | 1,104.8 | 1,158.3 | 1,257.0 | (53.5) | (4.6) | % | (98.7) | (7.9) | % | |||||||||||||||||||||||||||||||||||
| Aerospace & Electronics | 650.7 | 798.8 | 743.5 | (148.1) | (18.5) | % | 55.3 | 7.4 | % | |||||||||||||||||||||||||||||||||||
| Engineered Materials | 175.6 | 208.6 | 243.2 | (33.0) | (15.8) | % | (34.6) | (14.2) | % | |||||||||||||||||||||||||||||||||||
| Total net sales | $ | 2,936.9 | $ | 3,283.1 | $ | 3,345.5 | $ | (346.2) | (10.5) | % | $ | (62.4) | (1.9) | % | ||||||||||||||||||||||||||||||
| Sales growth: | ||||||||||||||||||||||||||||||||||||||||||||
| Core business | $ | (565.1) | (17.2) | % | $ | (13.1) | (0.4) | % | ||||||||||||||||||||||||||||||||||||
| Foreign exchange | 7.2 | 0.2 | % | (52.8) | (1.6) | % | ||||||||||||||||||||||||||||||||||||||
| Acquisitions/dispositions | 211.7 | 6.4 | % | 3.5 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||
| Total sales growth | $ | (346.2) | (10.5) | % | $ | (62.4) | (1.9) | % | ||||||||||||||||||||||||||||||||||||
| Operating profit (loss): | ||||||||||||||||||||||||||||||||||||||||||||
| Fluid Handling | $ | 97.7 | $ | 131.7 | $ | 118.8 | $ | (34.0) | (25.8) | % | $ | 12.9 | 10.9 | % | ||||||||||||||||||||||||||||||
| Payment & Merchandising Technologies | 100.6 | 177.3 | 186.0 | (76.7) | (43.3) | % | (8.7) | (4.7) | % | |||||||||||||||||||||||||||||||||||
| Aerospace & Electronics | 100.7 | 189.4 | 164.2 | (88.7) | (46.8) | % | 25.2 | 15.3 | % | |||||||||||||||||||||||||||||||||||
| Engineered Materials | 22.7 | 26.8 | 37.8 | (4.1) | (15.3) | % | (11.0) | (29.1) | % | |||||||||||||||||||||||||||||||||||
| Corporate expense | (58.8) | (66.9) | (65.5) | 8.1 | 12.1 | % | (1.4) | (2.1) | % | |||||||||||||||||||||||||||||||||||
| Corporate - Asbestos provision, net | — | (229.0) | — | 229.0 | NM | (229.0) | NM | |||||||||||||||||||||||||||||||||||||
| Corporate - Environmental provision, net | — | (18.9) | — | 18.9 | NM | (18.9) | NM | |||||||||||||||||||||||||||||||||||||
| Total operating profit | $ | 262.9 | $ | 210.4 | $ | 441.3 | $ | 52.5 | 25.0 | % | $ | (230.9) | (52.3) | % | ||||||||||||||||||||||||||||||
| Operating margin: | ||||||||||||||||||||||||||||||||||||||||||||
| Fluid Handling | 9.7 | % | 11.8 | % | 10.8 | % | ||||||||||||||||||||||||||||||||||||||
| Payment & Merchandising Technologies | 9.1 | % | 15.3 | % | 14.8 | % | ||||||||||||||||||||||||||||||||||||||
| Aerospace & Electronics | 15.5 | % | 23.7 | % | 22.1 | % | ||||||||||||||||||||||||||||||||||||||
| Engineered Materials | 12.9 | % | 12.9 | % | 15.5 | % | ||||||||||||||||||||||||||||||||||||||
| Total operating margin | 9.0 | % | 6.4 | % | 13.2 | % | ||||||||||||||||||||||||||||||||||||||
Acquisition-related and integration charges (a) | $ | 12.9 | $ | 5.2 | $ | 28.9 | ||||||||||||||||||||||||||||||||||||||
Restructuring and related charges, net (a) | $ | 37.4 | $ | 29.1 | $ | 14.7 | ||||||||||||||||||||||||||||||||||||||
| (a) | Acquisition-related and integration charges and restructuring and related charges, net are included in operating profit and operating margin. | ||||
20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Items Affecting Comparability of Reported Results
The comparability of our results from operations for the years ended December 31, 2020 and 2019 is affected by the following significant items:
Restructuring and Related Charges, net
In 2020, we recorded total pre-tax restructuring and related charges, net of $37.4 million primarily in response to the adverse economic impact of COVID-19 and integration actions related to the Cummins-Allison acquisition. In 2019, we recorded total pre-tax restructuring and related charges, net of $29.1 million; $9.9 million was related to the repositioning actions initiated in December 2019 in our Fluid Handling segment, $5.9 million was related to the acquisition of Crane Currency, and $13.3 million was related to the 2017 repositioning actions. We expect annualized pre-tax savings subsequent to initiating all actions for all programs to approximate $175 million. Please refer to the individual segment discussion and analysis that follows, as well as Part II, Item 8 under Note 15, "Restructuring" in the Notes to Consolidated Financial Statements for further discussion.
Acquisition-Related and Integration Charges
During 2020 and 2019, we recorded pre-tax acquisition-related and integration charges of $12.9 million and $5.2 million, respectively. Please refer to Part II, Item 8 under Note 2, "Acquisitions" in the Notes to Consolidated Financial Statements for further discussion.
Asbestos Provision, net
In 2019, we recorded a pre-tax provision, net of insurance recoveries of $229.0 million associated with updating our estimated asbestos liability through the generally accepted end point in 2059. Please refer to Part II, Item 8 under Note 12, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further discussion.
Environmental Provision, net
In 2019, we recorded a pre-tax provision, net of reimbursements of $18.9 million to extend accrued costs through 2027 at the former manufacturing site in Goodyear, Arizona (the "Goodyear Site"). Please refer to Note 12, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further discussion.
OVERALL
Sales decreased by $346.2 million, or 10.5%, to $2,936.9 million in 2020. Net sales related to operations outside the United States for the years ended December 31, 2020 and 2019 was 37% and 36% of total net sales, respectively. The year-over-year lower sales included:
•a decrease in core sales of $565.1 million, or 17.2%, partially offset by
•an increase in sales related to acquisitions of $211.7 million, or 6.4%; and
•favorable foreign currency translation of $7.2 million, or 0.2%.
Operating profit increased by $52.5 million, or 25.0%, to $262.9 million in 2020. The increase in operating profit reflected the absence of the $229.0 million asbestos provision, net and the $18.9 million environmental provision, net, together with lower corporate costs. These increases were largely offset by lower operating profit in each of our segments. Operating profit in 2020 included restructuring and related charges, net of $37.4 million and acquisition-related and integration charges of $12.9 million. Operating profit in 2019 also included restructuring and related charges, net of $29.1 million and acquisition-related and integration charges of $5.2 million.
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comprehensive income
| (in millions) For the year ended December 31, | 2020 | 2019 | 2018 | |||||||||||||||||
| Net income before allocation to noncontrolling interests | $ | 181.1 | $ | 133.6 | $ | 335.5 | ||||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||||||
| Currency translation adjustment | 70.4 | 11.5 | (41.6) | |||||||||||||||||
| Changes in pension and postretirement plan assets and benefit obligation, net of tax | (53.6) | (47.7) | (26.2) | |||||||||||||||||
| Other comprehensive income (loss), net of tax | 16.8 | (36.2) | (67.8) | |||||||||||||||||
| Comprehensive income before allocation to noncontrolling interests | 197.9 | 97.4 | 267.7 | |||||||||||||||||
| Less: Noncontrolling interests in comprehensive income | (0.5) | (0.1) | (0.3) | |||||||||||||||||
| Comprehensive income attributable to common shareholders | $ | 198.4 | $ | 97.5 | $ | 268.0 | ||||||||||||||
For the year ended December 31, 2020, comprehensive income before allocation to noncontrolling interests was $197.9 million compared to $97.4 million in 2019. The $100.5 million increase was primarily driven by a $58.9 million favorable impact of foreign currency translation adjustments year-over-year including fluctuations in the British pound, Canadian dollar, euro and Japanese yen; and $47.5 million of higher net income before allocation to noncontrolling interests. These increases were partially offset by a $5.9 million decrease due to changes in pension and postretirement plan assets and benefit obligations.
22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FLUID HANDLING
| (in millions, except %) For the year ended December 31, | 2020 | 2019 | 2018 | |||||||||||||||||
| Net sales by product line: | ||||||||||||||||||||
| Process Valves and Related Products | $ | 631.6 | $ | 685.1 | $ | 685.4 | ||||||||||||||
| Commercial Valves | 286.3 | 332.1 | 325.4 | |||||||||||||||||
| Pumps and Systems | 87.9 | 100.2 | 91.0 | |||||||||||||||||
| Total net sales | $ | 1,005.8 | $ | 1,117.4 | $ | 1,101.8 | ||||||||||||||
| Operating profit | $ | 97.7 | $ | 131.7 | $ | 118.8 | ||||||||||||||
Acquisition-related and integration charges (a) | $ | 6.3 | $ | 0.6 | $ | — | ||||||||||||||
Restructuring and related charges, net (a) | $ | 10.5 | $ | 19.2 | $ | 10.0 | ||||||||||||||
| Assets | $ | 1,106.1 | $ | 941.6 | $ | 878.2 | ||||||||||||||
| Backlog | $ | 313.4 | $ | 267.0 | $ | 279.6 | ||||||||||||||
| Operating margin | 9.7 | % | 11.8 | % | 10.8 | % | ||||||||||||||
| (a) | Acquisition-related and integration charges and restructuring and related charges, net are included in operating profit and operating margin. | ||||
Fluid Handling sales decreased by $111.6 million, or 10.0%, to $1,005.8 million, driven by lower core sales of $165.6 million, or 14.9%, partially offset by a benefit from the acquisition of I&S of $53.2 million, or 4.8%, and favorable foreign currency translation of $0.8 million, or 0.1%.
•Sales of Process Valves and Related Products decreased by $53.5 million, or 7.8%, to $631.6 million in 2020. The decrease reflected lower core sales of $108.5 million, or 15.9%, partially offset by a benefit from the acquisition of I&S of $53.2 million, or 7.8%, and favorable foreign currency translation of $1.8 million, or 0.3%, as the euro strengthened against the U.S. dollar. The core sales decline reflected a broad-based decline in demand related largely to impacts from COVID-19.
•Sales of Commercial Valves decreased by $45.8 million, or 13.8%, to $286.3 million in 2020, primarily driven by a core sales decline of $44.9 million, or 13.5%, and unfavorable foreign currency translation of $0.9 million, or 0.3%, as the Canadian dollar weakened against the U.S. dollar. The core sales decline reflected a broad-based decline in demand related to COVID-19 across all geographies.
•Sales of Pumps and Systems decreased by $12.3 million, or 12.3%, to $87.9 million in 2020. The decrease primarily reflected lower sales to military, industrial, and non-residential construction markets, partially offset by a slight increase in municipal sales.
Fluid Handling operating profit decreased by $34.0 million, or 25.8%, to $97.7 million in 2020. The decrease primarily reflected the impact from lower sales volume, partially offset by productivity, COVID-19 related cost reduction actions and repositioning savings.
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAYMENT & MERCHANDISING TECHNOLOGIES
| (in millions, except %) For the year ended December 31, | 2020 | 2019 | 2018 | |||||||||||||||||
| Net sales by product line: | ||||||||||||||||||||