Crane Co. 2022 Form 10-K Summary
Business context and reporting period
Crane Company filed its first Form 10-K for the year ended December 31, 2022. The registrant was newly formed for the planned separation from Crane Holdings, Co. and had no material standalone operating history. Accordingly, the filing presents supplemental combined, carve-out financial statements for the businesses expected to comprise Crane Company: Aerospace & Electronics, Process Flow Technologies, and Engineered Materials. Historical results may not reflect future standalone performance because they include allocated corporate costs, centralized cash management, and parent-company financing arrangements.
The planned tax-free spin-off was expected to be completed in April 2023, with one Crane Company share distributed for each Crane Holdings, Co. share held on March 23, 2023. Payment & Merchandising Technologies remained with Crane Holdings, Co., which was to be renamed Crane NXT, Co.
Key financial metrics
| Crane Company supplemental combined results | 2022 | 2021 |
|---|---|---|
| Net sales | $2,035.0 million | $2,062.9 million |
| Operating profit | $68.2 million | $250.6 million |
| Operating margin | 3.4% | 12.1% |
| Net income | $199.8 million | $234.4 million |
| Income before taxes | $314.6 million | $277.3 million |
| Effective tax rate | 36.5% | 15.5% |
| Cash provided by investing activities | $285.3 million | $18.3 million |
| Cash used for operating activities | Approximately $458–461 million | $209.6 million provided |
| Cash and cash equivalents | $426.9 million | $377.3 million |
| Total debt | $399.6 million | None reported |
| Net debt | $(27.3) million | $(377.3) million |
The filing contains a small discrepancy in Crane Company’s reported 2022 operating cash flow: the supplemental MD&A presents $(458.4) million, while the supplemental cash flow statement presents $(460.8) million. The consolidated Crane Holdings, Co. cash flow statement reports $(151.6) million, reflecting the broader company.
- Aerospace & Electronics: Sales of $667.3 million, up 4.5%; operating profit of $120.3 million, up 9.4%; operating margin of 18.0%.
- Process Flow Technologies: Sales of $1,109.4 million, down 7.3%; operating profit of $168.2 million, down 7.8%; operating margin of 15.2%.
- Engineered Materials: Sales of $258.3 million, up 13.3%; operating profit of $32.6 million, up 21.2%; operating margin of 12.6%.
Crane Company backlog was $998.1 million at December 31, 2022; management expected to recognize approximately 86% in 2023 and the remainder by 2024. Capital expenditures were $37.1 million, research and development expense was $49.2 million, and pension and postretirement obligations were $90.8 million net funded status deficit. Goodwill and net intangible assets totaled $762.6 million, or approximately one-third of total assets.
Material changes versus the prior comparable period
- Sales declined 1.4%, although core sales increased 7.7%. The decrease reflected unfavorable foreign currency translation of $48.3 million and $139.1 million of lost sales from the divestiture of Crane Supply.
- Operating profit declined $182.4 million, primarily because of the $162.4 million loss associated with transferring asbestos-related assets and liabilities to Redco Buyer and the loss of $20.2 million of operating profit from the divested Crane Supply business.
- Underlying segment performance was generally resilient. Pricing and productivity more than offset higher material, labor, and manufacturing costs.
- Aerospace & Electronics benefited from recovering commercial aircraft production and aftermarket demand, while military sales were affected by order timing and material constraints.
- Process Flow Technologies experienced strong core growth in process valves and pumps, but reported sales and profit were reduced by the Crane Supply divestiture and currency effects.
- Engineered Materials increased sales and profit through pricing and productivity, despite lower volumes, particularly in recreational vehicles.
- Net income decreased 14.8% to $199.8 million, while the effective tax rate increased materially, partly because the asbestos-divestiture loss was nondeductible and because of other discrete tax items.
Outlook, commentary, risks, contingencies, and unusual items
Management did not provide a formal 2023 revenue or earnings guidance range in the supplied filing. Management stated that pricing actions were expected to continue offsetting inflation and that growth would be supported by aerospace recovery, defense and space demand, process-industry investment, water and wastewater infrastructure, and technology-differentiated products.
On March 17, 2023, Crane Company entered into a new senior unsecured credit agreement consisting of a $500 million five-year revolving facility and a $300 million three-year term loan. The agreement requires a total net leverage ratio no higher than 3.50 to 1.00, subject to a permitted temporary increase to 4.00 to 1.00 after qualifying acquisitions, and minimum interest coverage of 3.00 to 1.00.
- The $550 million cash contribution related to the asbestos-liability divestiture drove the 2022 operating cash outflow and was funded partly with short-term borrowings.
- Crane Company no longer reported asbestos liabilities after the Redco sale, but retained indemnification obligations for certain historical environmental liabilities. The Redco agreement generally caps representation and warranty indemnities at $83 million, while certain covenant and indemnified-liability obligations are generally uncapped.
- Environmental liabilities included a $24.8 million gross estimated Goodyear Site remediation obligation at year-end 2022, with uncertainty regarding costs beyond current accruals through 2027. The company also faces unresolved potential liabilities at the Roseland and Crab Orchard sites; the total Crab Orchard obligation could not be reasonably estimated.
- Supply-chain disruptions, raw-material and labor inflation, foreign exchange, commercial aerospace cyclicality, defense spending, customer capital spending, RV demand, cybersecurity, regulatory compliance, environmental matters, pensions, and acquisition execution were identified as material risks.
- The carve-out statements include $90.4 million of allocated corporate expenses in 2022. Actual standalone corporate costs could differ materially after the spin-off.
- Approximately $88 million of Crane Company revenue was recognized over time using cost-to-cost estimates for contracts in progress, creating exposure to changes in estimated costs and margins.
Most important facts for investors to verify
- Reconcile the 2022 Crane Company operating cash flow discrepancy of $(458.4) million versus $(460.8) million.
- Confirm the final post-spin capital structure, including borrowings under the $300 million term facility, the dividend funded by that borrowing, and available revolving capacity.
- Assess normalized operating profit and cash flow excluding the $162.4 million asbestos-divestiture loss, $232.5 million Crane Supply sale gain, separation costs, and restructuring items.
- Evaluate sustainable standalone corporate costs after transition services and allocated parent-company functions end.
- Review the separation, tax matters, employee matters, and indemnification agreements for uncapped or potentially material obligations.
- Monitor backlog conversion, pricing versus inflation, supply-chain constraints, currency exposure, and demand trends in aerospace, process industries, and recreational vehicles.
- Assess environmental remediation exposure, particularly the Goodyear, Roseland, and Crab Orchard sites, for liabilities beyond recorded accruals.