Crane Co. 2020 Form 10-K Summary
Business context and reporting period
This filing is Crane Co.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed February 23, 2021. The source filing identifies the registrant as Crane Co.; it does not identify the company as Crane NXT. Crane operated four segments: Fluid Handling; Payment & Merchandising Technologies; Aerospace & Electronics; and Engineered Materials. Approximately 11,000 employees operated across 32 countries, and non-U.S. sales represented 37% of consolidated sales.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $2,936.9 million | $3,283.1 million | (10.5%) |
| Operating profit | $262.9 million | $210.4 million | 25.0% |
| Operating margin | 9.0% | 6.4% | +260 bps |
| Income before taxes | $224.5 million | $170.7 million | 35.5% |
| Net income attributable to common shareholders | $181.0 million | $133.3 million | 35.8% |
| Diluted EPS | $3.08 | $2.20 | 39.9% |
| Cash flow from operations | $309.5 million | $393.9 million | (21.4%) |
| Capital expenditures | $34.1 million | $68.8 million | (50.4%) |
| Cash and cash equivalents | $551.0 million | $393.9 million | 39.9% |
| Total debt | $1,218.6 million | $991.4 million | 22.9% |
Net debt was $667.6 million, equal to 43.6% of equity and 30.4% of net capitalization. Total debt to total capitalization was 44.4%. Available liquidity exceeded $1.1 billion at year-end. The company paid $100.4 million of dividends and repurchased $70.0 million of common stock during 2020.
Segment performance and material changes
- Fluid Handling: Sales declined 10.0% to $1,005.8 million and operating profit declined 25.8% to $97.7 million. The January 2020 acquisition of CIRCOR’s Instrumentation & Sampling Business contributed $53.2 million of sales.
- Payment & Merchandising Technologies: Sales declined 4.6% to $1,104.8 million and operating profit declined 43.3% to $100.6 million. Lower payment acceptance and dispensing demand was partly offset by higher banknote and security product sales and the contribution from the 2019 Cummins-Allison acquisition.
- Aerospace & Electronics: Sales declined 18.5% to $650.7 million and operating profit declined 46.8% to $100.7 million. Commercial original equipment and aftermarket sales were materially affected by COVID-19, reduced aircraft production and the Boeing 737 MAX production pause, while military sales increased.
- Engineered Materials: Sales declined 15.8% to $175.6 million and operating profit declined 15.3% to $22.7 million, reflecting lower RV, building products and transportation demand.
Consolidated sales decreased primarily because of a $565.1 million, or 17.2%, decline in core sales. This was partly offset by $211.7 million of acquisition-related sales and $7.2 million of favorable foreign exchange translation. Operating profit benefited significantly from the absence of the $229.0 million net asbestos provision and $18.9 million net environmental provision recorded in 2019, although segment profitability declined.
Cash flow, debt and liquidity
Operating cash flow declined as a result of lower operating results, partly offset by lower working capital requirements. Investing cash outflows were $229.1 million, including $169.5 million for acquisitions and $34.1 million of capital expenditures. Financing cash flow was positive $55.1 million, principally because of borrowings under a new 364-day credit facility.
In April 2020, Crane borrowed $300 million in dollar term loans and €40 million in euro term loans under the 364-Day Credit Agreement, entered into to preserve financial flexibility during the pandemic. The company expected to repay the facility at maturity in April 2021 using cash on hand and commercial paper. Long-term debt included $299.1 million of 4.45% notes due 2023, $198.4 million of 6.55% notes due 2036 and $346.2 million of 4.20% notes due 2048.
Guidance, outlook and management commentary
Management expected 2021 sales to increase approximately 4%, consisting of low-single-digit core growth, a 1% to 2% foreign-exchange benefit and a slight acquisition benefit. Operating profit was expected to improve by more than 50%, supported by the non-repeat of 2020 restructuring and acquisition-related charges, operating leverage, productivity and repositioning savings.
- Fluid Handling sales were expected to grow low to mid-single digits.
- Payment & Merchandising Technologies sales were expected to grow in the high-single-digit range, with substantial operating profit improvement.
- Aerospace & Electronics sales were expected to decline in the high-single-digit range because of continued commercial aerospace weakness and difficult defense comparisons.
- Engineered Materials sales were expected to increase approximately 20%, driven by stronger RV and trailer production, recovery in building products and share-gain initiatives.
Risks, contingencies and unusual items
- COVID-19: Continued risks included lower demand, supply-chain disruption, delivery delays, workforce pressures and reduced customer and supplier liquidity.
- Asbestos: The company had 29,138 pending claims at December 31, 2020 and recorded an aggregate asbestos liability of $670 million, including $603.6 million long-term, partly offset by an $87 million insurance receivable. Management’s estimate covers claims projected through 2059 and is subject to significant uncertainty.
- Environmental remediation: The estimated gross Goodyear, Arizona liability was $39.8 million, with a $7.8 million receivable for expected U.S. government reimbursements. Additional obligations at other sites could not be reasonably estimated.
- Restructuring: The company recorded $32.3 million of restructuring charges, principally related to COVID-19 actions and acquisition integration. The 2020 repositioning included approximately 1,200 workforce reductions, or about 11% of global employees. Management expected annualized savings of approximately $100 million from the program and approximately $175 million from all repositioning programs.
- Goodwill and intangible assets: Goodwill was $1,609.0 million and net intangible assets were $520.3 million. No impairment charges were recorded in 2020, but valuation depends on forecast cash flows, discount rates and market conditions.
- Pensions: Pension and postretirement obligations exceeded plan assets, and employer contributions were $26.1 million in 2020. The company expected approximately $20.7 million of pension contributions in 2021.
- Audit and controls: Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. The asbestos liability was identified as the critical audit matter.
Most important facts for investors to verify
- Confirm the registrant identity: the filing is for Crane Co., while the request metadata names Crane NXT, Co.
- Reconcile 2020 earnings growth with the absence of the $247.9 million combined asbestos and environmental provisions recorded in 2019.
- Assess the sustainability of the 2021 guidance, particularly the expected operating-profit increase of more than 50%.
- Monitor repayment or refinancing of the $348.5 million 364-day credit facility and the company’s commercial paper reliance.
- Evaluate commercial aerospace recovery, military demand, banknote contract timing and RV-related demand assumptions.
- Review changes in asbestos claims, settlement activity, insurance recoveries and actuarial assumptions, as revisions could materially affect earnings and cash flow.
- Assess execution of the I&S and Cummins-Allison integrations and whether projected restructuring savings are realized.