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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One:
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to             
Commission File Number: 1-1657 
CRANE CO.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
13-1952290
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
100 First Stamford Place
Stamford
CT
06902
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: 203-363-7300
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $1.00
 CR
New York Stock Exchange

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(check one):
 
 
 
 
 
 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of shares outstanding of the issuer’s classes of common stock, as of September 30, 2020
Common stock, $1.00 Par Value – 58,108,046 shares



Crane Co.
Table of Contents
Form 10-Q
 
 
 
 
 
 
 
 
  
Page
 
Part I - Financial Information
 
  
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
  
 
  
 
  
 
 
Part II - Other Information
  
 
 
  
 
  
 
  
 
  
 
  
 
  
 
 
  




PART I: FINANCIAL INFORMATION


ITEM 1: FINANCIAL STATEMENTS
CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2020
 
2019
 
2020
 
2019
Net sales
$
734.8

 
$
772.3

 
$
2,210.5

 
$
2,445.6

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
478.5

 
494.4

 
1,441.1

 
1,557.4

Selling, general and administrative
168.7

 
166.8

 
532.5

 
532.6

Acquisition-related and integration charges
2.7

 
0.2

 
10.3

 
3.7

Restructuring charges, net

 
1.6

 
22.6

 
6.1

Operating profit
84.9

 
109.3

 
204.0

 
345.8

Other income (expense):
 
 
 
 

 
 
Interest income
0.6

 
0.6

 
1.3

 
1.9

Interest expense
(14.4
)
 
(11.7
)
 
(41.3
)
 
(35.0
)
Miscellaneous income (expense), net
4.3

 
(4.5
)
 
10.6

 
3.9


(9.5
)
 
(15.6
)
 
(29.4
)
 
(29.2
)
Income before income taxes
75.4

 
93.7

 
174.6

 
316.6

Provision for income taxes
18.8

 
21.1

 
40.4

 
70.5

Net income before allocation to noncontrolling interests
56.6

 
72.6

 
134.2

 
246.1

Less: Noncontrolling interest in subsidiaries’ earnings

 
0.1

 

 
0.2

Net income attributable to common shareholders
$
56.6

 
$
72.5

 
$
134.2

 
$
245.9

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.97

 
$
1.21

 
$
2.30

 
$
4.11

Diluted
$
0.97

 
$
1.19

 
$
2.28

 
$
4.05

Average shares outstanding:
 
 
 
 
 
 
 
Basic
58.1

 
60.0

 
58.4

 
59.9

Diluted
58.5

 
60.8

 
58.9

 
60.8

 
 
 
 
 
 
 
 
Dividends per share
$
0.43

 
$
0.39

 
$
1.29

 
$
1.17

 
See Notes to Condensed Consolidated Financial Statements.

Page 1


CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
(UNAUDITED)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2020
 
2019
 
2020
 
2019
Net income before allocation to noncontrolling interests
$
56.6

 
$
72.6

 
$
134.2

 
$
246.1

Components of other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Currency translation adjustment
41.0

 
(33.7
)
 
13.2

 
(29.8
)
Changes in pension and postretirement plan assets and benefit obligation, net of tax
3.4

 
3.0

 
10.4

 
7.8

Other comprehensive income (loss), net of tax
44.4

 
(30.7
)
 
23.6

 
(22.0
)
Comprehensive income before allocation to noncontrolling interests
101.0

 
41.9

 
157.8

 
224.1

Less: Noncontrolling interests in comprehensive income
0.1

 

 

 
(0.1
)
Comprehensive income attributable to common shareholders
$
100.9

 
$
41.9

 
$
157.8

 
$
224.2

See Notes to Condensed Consolidated Financial Statements.

Page 2


CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED
 
September 30,
2020
 
December 31,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
544.6

 
$
393.9

Accounts receivable, net
439.5

 
555.1

Current insurance receivable - asbestos
14.1

 
14.1

Inventories, net:
 
 
 
Finished goods
134.1

 
130.6

Finished parts and subassemblies
62.2

 
66.1

Work in process
45.1

 
47.7

Raw materials
214.6

 
212.9

Inventories, net
456.0

 
457.3

Other current assets
167.9

 
79.5

Total current assets
1,622.1

 
1,499.9

Property, plant and equipment:
 
 
 
Cost
1,266.2

 
1,256.9

Less: accumulated depreciation
670.6

 
640.6

Property, plant and equipment, net
595.6

 
616.3

Long-term insurance receivable - asbestos
74.5

 
83.6

Long-term deferred tax assets
7.0

 
35.1

Other assets
207.1

 
211.3

Intangible assets, net
526.9

 
505.1

Goodwill
1,589.8

 
1,472.4

Total assets
$
4,623.0

 
$
4,423.7

See Notes to Condensed Consolidated Financial Statements.

Page 3


CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
 
 
September 30,
2020
 
December 31,
2019
Liabilities and equity
 
 
 
Current liabilities:

 
 
Short-term borrowings
$
481.4

 
$
149.4

Accounts payable
225.8

 
311.1

Current asbestos liability
65.0

 
65.0

Accrued liabilities
361.7

 
378.2

U.S. and foreign taxes on income
9.2

 
13.0

Total current liabilities
1,143.1

 
916.7

Long-term debt
842.7

 
842.0

Accrued pension and postretirement benefits
283.1

 
298.4

Long-term deferred tax liability
54.4

 
55.8

Long-term asbestos liability
614.2

 
646.6

Other liabilities
176.4

 
187.9

Total liabilities
3,113.9

 
2,947.4

Commitments and contingencies (Note 11)

 

Equity:

 
 
Preferred shares, par value $0.01; 5,000,000 shares authorized

 

Common shares, par value $1.00; 200,000,000 shares authorized, 72,426,139 shares issued
72.4

 
72.4

Capital surplus
324.5

 
315.6

Retained earnings
2,171.1

 
2,112.2

Accumulated other comprehensive loss
(460.1
)
 
(483.7
)
Treasury stock
(601.4
)
 
(542.8
)
Total shareholders’ equity
1,506.5

 
1,473.7

Noncontrolling interests
2.6

 
2.6

Total equity
1,509.1

 
1,476.3

Total liabilities and equity
$
4,623.0

 
$
4,423.7

Share data:
 
 
 
Common shares issued
72,426,139

 
72,426,139

Less: Common shares held in treasury
14,318,093

 
13,423,934

Common shares outstanding
58,108,046

 
59,002,205

See Notes to Condensed Consolidated Financial Statements.

Page 4


CRANE CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
 
Nine Months Ended
 
September 30,
 
2020
 
2019
Operating activities:
 
 
 
Net income attributable to common shareholders
$
134.2

 
$
245.9

Noncontrolling interests in subsidiaries’ earnings

 
0.2

Net income before allocation to noncontrolling interests
134.2

 
246.1

Loss on deconsolidation of joint venture

 
1.2

Realized gain on marketable securities

 
(1.1
)
Depreciation and amortization
95.3

 
84.2

Stock-based compensation expense
16.2

 
16.8

Defined benefit plans and postretirement credit
(4.5
)
 
(0.4
)
Deferred income taxes
7.5

 
18.8

Cash used for operating working capital
(8.2
)
 
(157.1
)
Defined benefit plans and postretirement contributions
(3.1
)
 
(6.0
)
Environmental payments, net of reimbursements
(2.9
)
 
(6.5
)
Asbestos related payments, net of insurance recoveries
(23.7
)
 
(29.0
)
Other
(2.7
)
 
4.0

Total provided by operating activities
208.1

 
171.0

Investing activities:
 
 
 
Payment for acquisition - net of cash acquired
(169.2
)
 

Purchase of marketable securities
(60.0
)
 
(8.8
)
Proceeds from sale of marketable securities

 
9.9

Proceeds from disposition of capital assets
3.9

 
1.3

Capital expenditures
(20.6
)
 
(50.9
)
Impact of deconsolidation of joint venture

 
(0.2
)
Total used for investing activities
(245.9
)
 
(48.7
)
Financing activities:
 
 
 
Dividends paid
(75.4
)
 
(70.1
)
Reacquisition of shares on open market
(70.0
)
 

Stock options exercised - net of shares reacquired
4.2

 
2.6

Debt issuance costs
(1.3
)
 

Proceeds received from issuance of long-term debt

 
3.0

Repayment of long-term debt

 
(4.5
)
Proceeds from issuance of commercial paper with maturities greater than 90 days
251.3

 

Repayments of commercial paper with maturities greater than 90 days
(188.6
)
 

Net repayments of commercial paper with maturities of 90 days or less
(76.8
)
 

Proceeds from revolving credit facility
77.2

 

Repayments from revolving credit facility
(77.2
)
 

Proceeds from term loan
343.9

 

Total provided by (used for) financing activities
187.3

 
(69.0
)
Effect of exchange rates on cash and cash equivalents
1.2

 
(7.9
)
Increase in cash and cash equivalents
150.7

 
45.4

Cash and cash equivalents at beginning of period
393.9

 
343.4

Cash and cash equivalents at end of period
$
544.6

 
$
388.8

Detail of cash used for operating working capital:
 
 
 
Accounts receivable
$
123.6

 
$
(24.1
)
Inventories
6.7

 
(48.9
)
Other current assets
(18.8
)
 
3.7

Accounts payable
(90.9
)
 
(69.2
)
Accrued liabilities
(19.7
)
 
(38.5
)
U.S. and foreign taxes on income
(9.1
)
 
19.9

Total
$
(8.2
)
 
$
(157.1
)
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
35.2

 
$
31.7

Income taxes paid
$
42.0

 
$
32.7

See Notes to Condensed Consolidated Financial Statements.

Page 5


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and, therefore, reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These interim condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide, and percentages may not precisely reflect the absolute figures.

Certain amounts in the prior periods’ condensed consolidated financial statements have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements - Not Yet Adopted
Simplifying the Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued amended guidance to simplify the accounting for income taxes. The guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. Certain amendments should be applied prospectively, while other amendments should be applied retrospectively to all periods presented. We are currently evaluating the timing and impact of the amended guidance on our consolidated financial statements.
Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued amended guidance to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amended guidance removes the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the entity; and the effects of a one-percentage point change in assumed health care cost trend rates. The amended guidance requires disclosure of an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The amended guidance is required to be applied on a retrospective basis to all periods presented. We do not expect that the amended guidance will have a material effect on our disclosures when we adopt this standard effective December 31, 2020.
Recent Accounting Pronouncements - Adopted
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued amended guidance that changes the impairment model for most financial assets and certain other instruments. For trade receivables, contract assets and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a current expected credit loss ("CECL") model that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. The CECL model is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability.
On January 1, 2020, we adopted the new CECL standard and developed an expected impairment model based on our historical loss experience. We believe that our previous methodology to calculate credit losses is generally consistent with the new expected credit loss model and did not result in a material adjustment upon adoption. The allowance for doubtful accounts was $15.3 million and $7.2 million as of September 30, 2020 and December 31, 2019, respectively.
Note 2 - Acquisitions
Acquisitions are accounted for in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). Accordingly, we make an initial allocation of the purchase price at the date of acquisition based upon our understanding of the fair value of the acquired assets and assumed liabilities. We obtain this information during due diligence and through other sources. In the months after closing, as we obtain additional information about these assets and liabilities, including through tangible and intangible asset appraisals, we are able to refine estimates of fair value and more accurately allocate the purchase price. Only

Page 6


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


items identified as of the acquisition date are considered for subsequent adjustment to the purchase price allocation. We will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
In order to allocate the consideration transferred for our acquisitions, the fair values of all identifiable assets and liabilities must be established. For accounting and financial reporting purposes, fair value is defined under ASC Topic 820, “Fair Value Measurement and Disclosure” as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results.
Cummins-Allison Acquisition
On December 31, 2019, we completed the acquisition of Cummins-Allison Corp. (“Cummins-Allison”). The base purchase price of the acquisition was $160 million on a cash-free, debt-free basis, subject to a later adjustment reflecting Cummins-Allison’s net working capital, cash, and Cummins-Allison’s transaction expenses. The amount paid, net of cash acquired, was $156.2 million. We funded the acquisition through short-term borrowings consisting of $150 million of commercial paper, and cash on hand.
Cummins-Allison is a leading provider of high speed cash and coin counting and sorting machines and retail cash office solutions which are primarily used in back-office applications. Cummins-Allison also has a nationwide service network to support these hardware sales. Cummins-Allison is being integrated into the Payment & Merchandising Technologies segment. The amount allocated to goodwill reflects the expected synergies related to material costs, supply chain manufacturing productivity and research and development. Goodwill from this acquisition is not deductible for tax purposes.
Allocation of Consideration Transferred to Net Assets Acquired
The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of Cummins-Allison. The final determination of the fair value of certain assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The changes to the preliminary purchase price allocation primarily relate to the valuation of inventory. We have not yet completed our evaluation and determination of certain assets acquired and liabilities assumed, primarily related to the final assessment and valuation of certain tax amounts. Therefore, the final fair values of the assets acquired and liabilities assumed may vary from our preliminary estimates presented below:
Net assets acquired (in millions)
 
 
Total current assets
 
$
87.4

Property, plant and equipment
 
26.4

Other assets
 
12.0

Intangible assets
 
66.0

Goodwill
 
58.7

Total assets acquired
 
$
250.5

 
 
 
Total current liabilities
 
$
66.9

Other liabilities
 
27.4

Total assumed liabilities
 
$
94.3

Net assets acquired
 
$
156.2



Page 7


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period in which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:
Intangible Assets (dollars in millions)
Intangible Fair Value
 
Weighted Average Life
Trademarks/trade names
$
3.0

 
7
Customer relationships
54.5

 
18
Product technology
8.5

 
10
Total acquired intangible assets
$
66.0

 
 

The fair values of the trademark and trade name intangible assets were determined by using an income approach, specifically the relief-from-royalty approach, which is a commonly accepted valuation approach. This approach is based on the assumption that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset. Therefore, a portion of Cummins-Allison’s earnings, equal to the after-tax royalty that would have been paid for the use of the asset, can be attributed to our ownership. The trade name Cummins Allison is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of seven years.
The fair values of the customer relationships intangible assets were determined by using an income approach which is a commonly accepted valuation approach. Under this approach, the net earnings attributable to the asset or liability being measured are isolated using the discounted projected net cash flows. These projected cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant net cash flows considered historical and projected pricing, operational performance including market participant synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows were adjusted to reflect the potential attrition of existing customers in the future, as existing customers are expected to decline over time. The attrition-adjusted future cash flows are then discounted to present value using an appropriate discount rate. The customer relationship asset is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 18 years.
The fair values of the product technology intangible assets were also determined by the relief-from-royalty approach. Similarly, this approach is based on the assumption that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of the technology. Therefore, a portion of Cummins-Allison’s earnings, equal to the after-tax royalty that would have been paid for the use of the technology, can be attributed to the firm’s ownership of the technology. The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 10 years.
Supplemental Pro Forma Data
The following unaudited pro forma combined information assumes that the acquisition was completed on January 1, 2019. The unaudited pro forma consolidated net sales for the three and nine months ended September 30, 2019 would have been $821.9 million and $2,590.9 million, respectively. The unaudited pro forma consolidated net sales are provided for illustrative purposes only and are not indicative of our actual consolidated results of operations or consolidated financial position. Consolidated pro forma net income attributable to common shareholders has not been presented since the impact is not material to our financial results.
Instrumentation & Sampling Business Acquisition
On January 31, 2020, we completed the acquisition of CIRCOR International, Inc.’s Instrumentation & Sampling Business (“I&S”) for $172.3 million on a cash-free and debt-free basis, subject to a later adjustment reflecting I&S' net working capital, cash, the assumption of certain debt-like items, and I&S' transaction expenses. We funded the acquisition through short-term borrowings consisting of $100 million of commercial paper and $67 million from our revolving credit facility, and cash on hand. In August 2020, we received $3.1 million related to the final working capital adjustment which resulted in net cash paid of $169.2 million.

I&S designs, engineers and manufactures a broad range of critical fluid control instrumentation and sampling solutions used in severe service environments which complements our existing portfolio of chemical, refining, petrochemical and upstream oil and gas applications. I&S is being integrated into the Fluid Handling segment. The amount allocated to goodwill reflects the expected sales synergies, manufacturing efficiency and procurement savings. Goodwill from this acquisition is not deductible for tax purposes.

Page 8


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Allocation of Consideration Transferred to Net Assets Acquired
The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of I&S. The final determination of the fair value of certain assets and liabilities will be completed within the one-year measurement period as required by ASC 805. We have not yet completed our evaluation and determination of certain assets acquired and liabilities assumed, primarily related to the final assessment and valuation of certain tax amounts. Any potential adjustments made could be material in relation to the preliminary values presented below:
Net assets acquired (in millions)
 
 
Total current assets
 
$
21.0

Property, plant and equipment
 
11.7

Other assets
 
5.9

Intangible assets
 
52.5

Goodwill
 
105.5

Total assets acquired
 
$
196.6

 
 
 
Total current liabilities
 
$
8.1

Other liabilities
 
19.3

Total assumed liabilities
 
$
27.4

Net assets acquired
 
$
169.2


The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period in which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:
Intangible Assets (dollars in millions)
Intangible Fair Value
 
Weighted Average Life
Trademarks/trade names
$
2.6

 
13
Customer relationships
49.0

 
14
Backlog
0.9

 
1
Total acquired intangible assets
$
52.5

 
 

The fair values of the trademark and trade name intangible assets were determined by using an income approach, specifically the relief-from-royalty approach, which is a commonly accepted valuation approach. This approach is based on the assumption that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset. Therefore, a portion of I&S’ earnings, equal to the after-tax royalty that would have been paid for the use of the asset, can be attributed to our ownership. The trade names are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 13 years.
The fair values of the customer relationships and backlog intangible assets were determined by using an income approach which is a commonly accepted valuation approach. Under this approach, the net earnings attributable to the asset or liability being measured are isolated using the discounted projected net cash flows. These projected cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant net cash flows considered historical and projected pricing, operational performance including market participant synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows were adjusted to reflect the potential attrition of existing customers in the future, as existing customers are expected to decline over time. The attrition-adjusted future cash flows are then discounted to present value using an appropriate discount rate. The customer relationship asset is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 14 years.
Supplemental Pro Forma Data
I&S’ results of operations have been included in our financial statements for the period subsequent to the completion of the acquisition on January 31, 2020. Consolidated pro forma revenue and net income attributable to common shareholders has not been presented since the impact is not material to our financial results for either period.

Page 9


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Acquisition-Related Costs
Acquisition-related costs are expensed as incurred. For the three months ended September 30, 2020 and 2019, we recorded $2.7 million and $0.2 million, respectively, of integration and transaction costs in our Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2020 and 2019, we recorded $10.3 million and $3.7 million, respectively, of integration and transaction costs in our Condensed Consolidated Statements of Operations.
Note 3 - Segment Results
Our segments are reported on the same basis used internally for evaluating performance and for allocating resources. We have four reportable segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Assets of the reportable segments exclude general corporate assets, which principally consist of cash, deferred tax assets, insurance receivables, certain property, plant and equipment, and certain other assets. Corporate consists of corporate office expenses including compensation and benefits for corporate employees, occupancy, depreciation, and other administrative costs.
A brief description of each of our segments are as follows:
Fluid Handling
The Fluid Handling segment is a provider of highly engineered fluid handling equipment for critical performance applications that require high reliability. The segment is comprised of Process Valves and Related Products, Commercial Valves, and Pumps and Systems. Process Valves and Related Products include on/off valves and related products for critical and demanding applications in the chemical, oil & gas, power, and general industrial end markets globally. Commercial Valves includes the manufacturing and distribution of valves and related products for the non-residential construction, general industrial, and to a lesser extent, municipal markets. Pumps and Systems include pumps and related products primarily for water and wastewater applications in the industrial, municipal, commercial and military markets. The acquisition of I&S is being integrated into Process Valves and Related Products business. See discussion in Note 2, “Acquisitions” for further details.
Payment & Merchandising Technologies
The Payment & Merchandising Technologies segment consists of CPI and Crane Currency.  CPI provides high technology payment acceptance and dispensing products to original equipment manufacturers, and for certain vertical markets, it also provides currency handling and processing systems, complete cash and cashless payment and merchandising solutions, equipment service solutions, and fully connected managed service solutions. Crane Currency is a supplier of banknotes and highly engineered banknote security features.
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 Crane Payment Innovations (“CPI”) business. This internal merger will enable improved coordination and collaboration while delivering increasingly integrated connectivity solutions to our customers.
The acquisition of Cummins-Allison is being integrated into our CPI business. See discussion in Note 2, “Acquisitions” for further details.
Aerospace & Electronics
The Aerospace & Electronics segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace and military aerospace and defense markets. 
Engineered Materials
The Engineered Materials segment manufactures fiberglass-reinforced plastic panels and coils, primarily for use in the manufacturing of recreational vehicles, truck bodies and trailers (Transportation), with additional applications in commercial and industrial buildings (Building Products).

Page 10


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For the three and nine months ended September 30, 2020 and 2019, operating profit includes acquisition-related and integration charges and restructuring charges, net. See Note 2, “Acquisitions” for discussion of the acquisition-related costs. See Note 14, “Restructuring” for discussion of the restructuring charges, net.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in millions)
2020
 
2019
 
2020
 
2019
Net sales
 
 
 
 
 
 
 
Fluid Handling
$
252.3

 
$
276.1

 
$
748.2

 
$
840.4

Payment & Merchandising Technologies
277.2

 
248.9

 
822.1

 
843.7

Aerospace & Electronics
157.0

 
197.2

 
507.3

 
596.3

Engineered Materials
48.3

 
50.1

 
132.9

 
165.2

Total
$
734.8

 
$
772.3

 
$
2,210.5

 
$
2,445.6

Operating profit (loss)
 
 
 
 
 
 
 
Fluid Handling
$
25.9

 
$
35.4

 
$
74.1

 
$
106.8

Payment & Merchandising Technologies
40.5

 
35.1

 
68.9

 
124.8

Aerospace & Electronics
24.5

 
47.2

 
87.8

 
141.4

Engineered Materials
9.0

 
5.9

 
17.7

 
22.8

Corporate
(15.0
)
 
(14.3
)
 
(44.5
)
 
(50.0
)
Total
84.9

 
109.3

 
204.0

 
345.8

Interest income
0.6

 
0.6

 
1.3

 
1.9

Interest expense
(14.4
)
 
(11.7
)
 
(41.3
)
 
(35.0
)
Miscellaneous income (expense), net
4.3

 
(4.5
)
 
10.6

 
3.9

Income before income taxes
$
75.4

 
$
93.7

 
$
174.6

 
$
316.6


(in millions)
September 30, 2020
 
December 31, 2019
Assets
 
 
 
Fluid Handling
$
1,131.3

 
$
941.6

Payment & Merchandising Technologies
2,206.3

 
2,303.4

Aerospace & Electronics
614.5

 
638.1

Engineered Materials
222.4

 
219.6

Corporate
448.5

 
321.0

Total
$
4,623.0

 
$
4,423.7


 
(in millions)
September 30, 2020
 
December 31, 2019
Goodwill
 
 
 
Fluid Handling
$
352.4

 
$
240.9

Payment & Merchandising Technologies
863.7

 
857.8

Aerospace & Electronics
202.4

 
202.4

Engineered Materials
171.3

 
171.3

Total
$
1,589.8

 
$
1,472.4



Page 11


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 4 - Revenue
Disaggregation of Revenues
The following table presents net sales disaggregated by product line for each segment:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(in millions)
 
2020
 
2019
 
2020
 
2019
Fluid Handling
 
 
 
 
 
 
 
 
Process Valves and Related Products
 
$
153.9

 
$
163.3

 
$
471.7

 
$
513.7

Commercial Valves
 
76.1

 
88.8

 
210.3

 
253.2

Pumps and Systems
 
22.3

 
24.0

 
66.2

 
73.5

Total Fluid Handling
 
$
252.3

 
$
276.1

 
$
748.2

 
$
840.4

 
 
 
 
 
 
 
 
 
Payment & Merchandising Technologies
 
 
 
 
 
 
 
 
Payment Acceptance and Dispensing Products 1
 
$
161.6

 
$
197.0

 
$
505.7

 
$
604.7

Banknotes and Security Products
 
115.6

 
51.9

 
316.4

 
239.0

Total Payment & Merchandising Technologies
 
$
277.2

 
$
248.9

 
$
822.1

 
$
843.7

 
 
 
 
 
 
 
 
 
Aerospace & Electronics
 
 
 
 
 
 
 
 
Commercial Original Equipment
 
$
47.5

 
$
85.9

 
$
180.0

 
$
267.6

Military and Other Original Equipment
 
70.9

 
55.4

 
196.8

 
162.3

Commercial Aftermarket Products
 
20.2

 
41.8

 
74.4

 
121.4

Military Aftermarket Products
 
18.4

 
14.1

 
56.1

 
45.0

Total Aerospace & Electronics
 
$
157.0

 
$
197.2

 
$
507.3

 
$
596.3

 
 
 
 
 
 
 
 
 
Engineered Materials
 
 
 
 
 
 
 
 
FRP - Recreational Vehicles
 
$
21.9

 
$
19.7

 
$
50.6

 
$
68.4

FRP - Building Products
 
20.2

 
22.8

 
64.4

 
70.5

FRP - Transportation
 
6.2

 
7.6

 
17.9

 
26.3

Total Engineered Materials
 
$
48.3

 
$
50.1

 
$
132.9

 
$
165.2

 
 
 
 
 
 
 
 
 
Total net sales
 
$
734.8

 
$
772.3

 
$
2,210.5

 
$
2,445.6


1 As a result of an internal merger of the CMS business into the vending vertical of the CPI business, Payment Acceptance and Dispensing Products now includes Merchandising Equipment (See Note 3). Prior periods have been reclassified to conform to the current period presentation.
Remaining Performance Obligations
The transaction price allocated to remaining performance obligations represents the transaction price of firm orders which have not yet been fulfilled, which we also refer to as total backlog. As of September 30, 2020, backlog was $1,084.1 million. We expect to recognize approximately 44.3% of our remaining performance obligations as revenue in 2020, an additional 47.7% in 2021 and the balance thereafter.
Contract Assets and Contract Liabilities
Contract assets represent unbilled amounts that typically arise from contracts for customized products or contracts for products sold directly to the U.S. government or indirectly to the U.S. government through subcontracts, where revenue recognized using the cost-to-cost method exceeds the amount billed to the customer. Contract assets are assessed for impairment and recorded at their net realizable value. Contract liabilities represent advance payments from customers. Revenue related to contract liabilities is recognized when control is transferred to the customer. We report contract assets, which are included within “Other current assets” in our Condensed Consolidated Balance Sheets, and contract liabilities, which are included within “Accrued liabilities” on our Condensed Consolidated Balance Sheets, on a contract-by-contract net basis at the end of each reporting period. Net contract assets and contract liabilities consisted of the following:



Page 12


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(in millions)
September 30, 2020
 
December 31, 2019
Contract assets
$
74.5

 
$
55.8

Contract liabilities
$
79.0

 
$
88.4


We recognized revenue of $15.9 million and $72.2 million during the three- and nine-month periods ended September 30, 2020, respectively, related to contract liabilities as of December 31, 2019.
Note 5 - Earnings Per Share
Our basic earnings per share calculations are based on the weighted average number of common shares outstanding during the period. Potentially dilutive securities include outstanding stock options, restricted share units, deferred stock units and performance-based restricted share units. The effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method. Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during the period.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in millions, except per share data)
2020
 
2019
 
2020
 
2019
Net income attributable to common shareholders
$
56.6

 
$
72.5

 
$
134.2

 
$
245.9

 
 
 
 
 
 
 
 
Average basic shares outstanding
58.1

 
60.0

 
58.4

 
59.9

Effect of dilutive share-based awards
0.4

 
0.8

 
0.5

 
0.9

Average diluted shares outstanding
58.5

 
60.8

 
58.9

 
60.8

 
 
 
 
 
 
 
 
Earnings per basic share
$
0.97

 
$
1.21

 
$
2.30

 
$
4.11

Earnings per diluted share
$
0.97

 
$
1.19

 
$
2.28

 
$
4.05



The computation of diluted earnings per share excludes the effect of the potential exercise of stock options when the average market price of the common stock is lower than the exercise price of the related stock options. For the three-month periods ended September 30, 2020 and 2019, the number of stock options excluded from the computation was 2.6 million and 1.2 million, respectively. For the nine-month periods ended September 30, 2020 and 2019, the number of stock options excluded from the computation was 2.0 million and 1.2 million, respectively.


Page 13


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 6 - Changes in Equity and Accumulated Other Comprehensive Loss
A summary of changes in equity for the year-to-date interim periods ended September 30, 2020 and 2019 is provided below:
(in millions, except share data)
Common
Shares
Issued at
Par Value
 
Capital
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Shareholders’
Equity
 
Noncontrolling
Interest
 
Total
Equity
BALANCE DECEMBER 31, 2018
72.4

 
$
303.5

 
$
2,072.1

 
$
(447.6
)
 
$
(476.2
)
 
$
1,524.2

 
$
2.9

 
$
1,527.1

Net income