# Crane NXT, Co.: Form 10-Q for the period ended Sep 30, 2020

- Company: [Crane NXT, Co.](/companies/cxt.md) (CIK 25445)
- Form: 10-Q
- Filed: 2020-10-28
- Accepted by EDGAR: Oct 28, 2020, 17:15 ET
- Period: 2020-09-30
- Accession: 0001628280-20-015004
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/25445/000162828020015004/cr-20200930q32020.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/25445/000162828020015004/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-07-01 to 2020-09-30 | $734.8m | us-gaap:Revenues |
| Revenue | 9 months, 2020-01-01 to 2020-09-30 | $2.21bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2020-07-01 to 2020-09-30 | $478.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2020-01-01 to 2020-09-30 | $1.44bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2020-07-01 to 2020-09-30 | $168.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2020-01-01 to 2020-09-30 | $532.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-07-01 to 2020-09-30 | $84.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-01-01 to 2020-09-30 | $204.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-07-01 to 2020-09-30 | $14.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2020-01-01 to 2020-09-30 | $41.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-07-01 to 2020-09-30 | $18.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-01-01 to 2020-09-30 | $40.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-07-01 to 2020-09-30 | $56.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-01-01 to 2020-09-30 | $134.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-07-01 to 2020-09-30 | $0.97 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-01-01 to 2020-09-30 | $2.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-07-01 to 2020-09-30 | $0.97 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-01-01 to 2020-09-30 | $2.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-07-01 to 2020-09-30 | 58,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-01-01 to 2020-09-30 | 58,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-01-01 to 2020-09-30 | $208.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2020-01-01 to 2020-09-30 | $75.4m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2020-01-01 to 2020-09-30 | $70.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-09-30 | $544.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-09-30 | $1.62bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-09-30 | $4.62bn | us-gaap:Assets |
| Current liabilities | at 2020-09-30 | $1.14bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-09-30 | $3.11bn | us-gaap:Liabilities |
| Long-term debt | at 2020-09-30 | $842.7m | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2020-09-30 | $481.4m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2020-09-30 | $1.51bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2020-09-30 | 58,108,046 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 40,669 characters.

This Quarterly Report on Form 10-Q 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,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms.

Reference herein to “Crane,” “the Company,” “we,” “us” and “our” refer to Crane Co. and its subsidiaries unless the context specifically states or implies otherwise. References to “core business” or “core sales” in this report include sales from acquired businesses starting from and after the first anniversary of the acquisition, but exclude currency effects. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated.

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. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. There are a number of other factors, including risks and uncertainties related to the ongoing COVID-19 pandemic, that could cause actual results or outcomes to differ materially from those expressed or implied in the forward-looking statements. Such factors also include, among others: uncertainties regarding the extent and duration of the impact of the COVID-19 pandemic on many aspects of our business, operations and financial performance, as detailed in Part II, Item 1A of this Quarterly Report on Form 10-Q; changes in economic, financial and end-market conditions in the markets in which we operate; fluctuations in raw material prices; 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 value and successfully integrate acquisitions and to realize synergies and opportunities for growth and innovation, and to attract and retain highly qualified personnel and key management; a reduction in congressional appropriations that affect defense spending and our ability to predict the timing and award of substantial contracts in our banknote business; 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 environmental remediation activities, costs, liabilities 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 other risks noted in reports that we file with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and subsequent reports filed with the Securities and Exchange Commission. We do not undertake any obligation to update or revise any forward-looking statements.

### OUTLOOK

In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and it

continues to spread throughout the United States and other countries across the world. The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely continue to adversely affect our business. Significant uncertainty continues to exist concerning the magnitude of the ultimate impact and duration of the COVID-19 pandemic. While all our facilities are operating as essential businesses, some of our facilities have reduced operating levels and shifts, and further reductions may occur as the impacts from COVID-19 and related responses continue to develop.

Factors deriving from the COVID-19 response that have or may negatively impact sales and operating profit in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to conduct their business and purchase our products and services; and limitations on the ability of our customers to pay us on a timely basis.

Given the dynamic nature of these circumstances, while we have realized a significant unfavorable impact, the full extent of the COVID-19 pandemic on our ongoing business, results of operations and overall financial performance is very difficult to forecast. For 2020, we expect sales to decline significantly driven by the impacts of the COVID-19 pandemic, partially offset by benefits from the I&S and Cummins-Allison acquisitions. At this time, we expect sales to be approximately $2.9 billion to $2.95 billion, including a core sales decline of 17% to 19%. While operating profit in 2020 will benefit from the absence of the 2019 asbestos and environmental provisions which totaled $247.9 million, as well as benefits from incremental cost reduction actions of approximately $100 million, it will be substantially offset by the impact from lower sales volumes related to COVID-19.

### Fluid Handling

In 2020, we expect Fluid Handling sales to decline significantly compared to 2019, driven by lower demand and supply chain disruptions related to COVID-19, which will only be partially offset by benefits from the I&S acquisition. These factors will result in lower sales at Process Valves and Related Products, Commercial Valves, and at Pumps and Systems.

For the segment, we expect a corresponding decline in operating profit and operating margin compared to 2019, with the impact from lower sales volumes more than offsetting productivity, cost reduction actions and restructuring and related savings, net.

### Payment & Merchandising Technologies

In 2020, we expect Payment & Merchandising Technologies sales to decline modestly compared to 2019, driven by signficantly lower demand for payment and vending equipment related to the COVID-19 pandemic, largely offset by benefits from the Cummins-Allison acquisition and sales growth at Crane Currency.

We expect the segment’s operating profit to decline compared to 2019, driven by lower sales volume and acquisition-related charges, partially offset by productivity, cost reduction actions and restructuring and related savings, net.

### Aerospace & Electronics

In 2020, we expect Aerospace & Electronics sales to decline significantly compared to 2019. We expect declines from our commercial original equipment manufacturer (“OEM”) customers in response to COVID-19 related factors, as well as the temporary impact of Boeing halting production of the 737 MAX during 2020. We also expect a significant decline in our commercial aftermarket business driven by substantially reduced airline flight schedules related to COVID-19. We expect growth in our defense OEM and aftermarket businesses driven by continued government investment in military applications. We expect a corresponding decline in segment operating profit and operating margin compared to 2019 driven by the impact of the lower volumes, partially offset by productivity and cost reduction actions.

### Engineered Materials

In 2020, we expect Engineered Materials sales to decline significantly compared to 2019, driven primarily by lower sales across all product lines as a result of COVID-19; as a result, inclusive of cost reduction actions, segment operating profit and operating margin will decline compared to 2019.

### Results from Operations – Three Month Periods Ended September 30

The following information should be read in conjunction with our condensed consolidated financial statements and related notes. All comparisons below refer to the third quarter 2020 versus the third quarter 2019, unless otherwise specified.

*(dollars in millions)*

|  | Third Quarter 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $734.8 | $772.3 | $(37.5) | (4.9)% |
| Operating profit | 84.9 | 109.3 | (24.4) | (22.3)% |
| Acquisition-related and integration charges \* | 2.7 | 0.2 | 2.5 | NM |
| Restructuring and related charges \* | 1.4 | 4.2 | (2.8) | (66.7)% |
| Operating margin | 11.6% | 14.2% |  |  |
| Other income (expense): |  |  |  |  |
| Interest income | 0.6 | 0.6 | — | — |
| Interest expense | (14.4) | (11.7) | (2.7) | (23.1)% |
| Miscellaneous income (expense), net | 4.3 | (4.5) | 8.8 | NM |
|  | (9.5) | (15.6) | 6.1 | 39.1% |
| Income before income taxes | 75.4 | 93.7 | (18.3) | (19.5)% |
| Provision for income taxes | 18.8 | 21.1 | (2.3) | (10.9)% |
| Net income before allocation to noncontrolling interests | 56.6 | 72.6 | (16.0) | (22.0)% |
| Less: Noncontrolling interest in subsidiaries’ earnings | — | 0.1 | (0.1) | NM |
| Net income attributable to common shareholders | $56.6 | $72.5 | $(15.9) | (21.9)% |
| \* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Sales decreased by $37.5 million, or 4.9%, to $734.8 million in 2020. Net sales related to operations outside the United States were 36.5% and 35.7% of total net sales for the quarters ended September 30, 2020 and 2019, respectively. The year-over-year change in sales included:

- a decrease in core sales of $103.8 million, or 13.4%, driven by lower demand related to COVID-19;
- an increase in sales related to a benefit from acquisitions of $56.5 million, or 7.3%; and
- favorable foreign currency translation of $9.8 million, or 1.2%.

Operating profit decreased by $24.4 million, or 22.3%, to $84.9 million in 2020. The decrease in operating profit reflected lower operating profit in our Aerospace & Electronics and Fluid Handling segments, partially offset by higher operating profit in our Payment & Merchandising Technologies and Engineered Materials segments. Operating profit in the third quarter of 2020 included acquisition-related and integration costs of $2.7 million related to the I&S and Cummins-Allison acquisitions and restructuring and related charges of $1.4 million. Operating profit in the third quarter of 2019 included restructuring and related charges of $4.2 million; and acquisition-related and integration charges of $0.2 million.

Other expense decreased $6.1 million, or 39.1%, primarily reflecting lower pension expense resulting from non-service pension cost adjustments related to an increase in expected pension returns. This decrease was partially offset by higher interest expense resulting from the 364-day credit facility entered into on April 2020.

Our effective tax rate is affected by a number of items, both recurring and discrete, including the amount of income we earn in different jurisdictions and their respective statutory tax rates, acquisitions and dispositions, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, the continued reinvestment of our overseas earnings, and examinations initiated by tax authorities around the world.

Our tax rate for the three months ended September 30, 2020 is higher than the prior year’s comparable period primarily due to a larger accrual of income and withholding tax due upon the ultimate repatriation of taxes to the U.S., partially offset by lower income taxes attributable to non-U.S. jurisdictions.

Our tax rate for the three months ended September 30, 2020 is higher than the statutory U.S. federal tax rate of 21% primarily due to earnings in jurisdictions with statutory tax rates higher than in the United States and certain expenses that are statutorily non-deductible for income tax purposes, partially offset by the U.S. federal tax credit.

### Comprehensive Income

*(in millions)*

|  | Three Months Ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Net income before allocation to noncontrolling interests | $56.6 | $72.6 |
| Components of other comprehensive income (loss), net of tax |  |  |
| Currency translation adjustment | 41.0 | (33.7) |
| Changes in pension and postretirement plan assets and benefit obligation, net of tax | 3.4 | 3.0 |
| Other comprehensive income (loss), net of tax | 44.4 | (30.7) |
| Comprehensive income before allocation to noncontrolling interests | 101.0 | 41.9 |
| Less: Noncontrolling interests in comprehensive income | 0.1 | — |
| Comprehensive income attributable to common shareholders | $100.9 | $41.9 |

For the three months ended September 30, 2020, comprehensive income before allocations to noncontrolling interests was $101.0 million compared to $41.9 million in the same period of 2019. The $59.1 million increase was driven by a $74.7 million year over year favorable impact of foreign currency translation adjustments, primarily related to the euro and British pound, partially offset by lower net income before allocation to noncontrolling interests of $16.0 million.

### Segment Results of Operations - Three Month Periods Ended September 30

### Fluid Handling

*(dollars in millions)*

| Net sales by product line: | Third Quarter 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Process Valves and Related Products | $153.9 | $163.3 | $(9.4) | (5.7)% |
| Commercial Valves | 76.1 | 88.8 | (12.7) | (14.3)% |
| Pumps and Systems | 22.3 | 24.0 | (1.7) | (7.1)% |
| Total net sales | $252.3 | $276.1 | $(23.8) | (8.6)% |
| Operating profit | $25.9 | $35.4 | $(9.5) | (26.8)% |
| Acquisition-related and integration charges \* | $1.7 | $— | $1.7 | NM |
| Restructuring and related charges \* | $1.2 | $2.6 | $(1.4) | (53.8)% |
| Operating margin | 10.3% | 12.8% |  |  |
| \* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Fluid Handling sales decreased by $23.8 million, or 8.6%, to $252.3 million in 2020, driven by lower core sales of $42.2 million, or 15.3%, partially offset by a benefit from the January 2020 acquisition of I&S of $14.8 million, or 5.4%, and favorable foreign currency translation of $3.6 million, or 1.3%.

- Sales of Process Valves and Related Products decreased by $9.4 million, or 5.7%, to $153.9 million in 2020. The decrease reflected lower core sales of $26.6 million, or 16.3%, partially offset by a benefit from the acquisition of I&S of $14.8 million, or 9.1%, and favorable foreign currency translation of $2.4 million, or 1.5%, primarily due to the euro strengthening against the U.S. dollar. The core sales decline primarily reflected a broad-based decline in demand related to impacts from COVID-19, including sharply lower oil and gas prices.
- Sales of Commercial Valves decreased by $12.7 million, or 14.3%, to $76.1 million in 2020, primarily driven by a core sales decline of $13.9 million, or 15.7%, partially offset by favorable foreign currency translation of $1.2 million, or 1.4%, as the British pound strengthened 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 & Systems decreased by $1.7 million, or 7.1%, to $22.3 million in 2020. The decrease primarily reflected a broad-based decline across end markets related to COVID-19.

Fluid Handling operating profit decreased by $9.5 million, or 26.8%, to $25.9 million in 2020. The decrease primarily reflected the impact from lower sales volume, partially offset by productivity, COVID-related cost reduction actions and repositioning savings.

The Fluid Handling segment backlog was $304.8 million as of September 30, 2020, compared with $267.0 million as of December 31, 2019 and $272.1 million as of September 30, 2019.

### Payment & Merchandising Technologies

*(dollars in millions)*

| Net sales by product line: | Third Quarter 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Payment Acceptance and Dispensing Products 1 | $161.6 | $197.0 | $(35.4) | (18.0)% |
| Banknotes and Security Products | 115.6 | 51.9 | 63.7 | 122.7% |
| Total net sales | $277.2 | $248.9 | $28.3 | 11.4% |
| Operating profit | $40.5 | $35.1 | $5.4 | 15.4% |
| Acquisition-related and integration charges \* | $1.0 | $0.1 | $0.9 | NM |
| Restructuring and related charges \* | $0.2 | $0.9 | $(0.7) | NM |
| Operating margin | 14.6% | 14.1% |  |  |
| 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. |  |  |  |  |
| \* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Payment & Merchandising Technologies sales increased $28.3 million, or 11.4%, to $277.2 million in 2020, reflecting a benefit from the December 2019 acquisition of Cummins-Allison of $41.7 million, or 16.8%, and favorable foreign currency translation of $6.0 million, or 2.4%, partially offset by lower core sales of $19.4 million, or 7.8%.

- Sales of Payment Acceptance and Dispensing Products decreased $35.4 million, or 18.0%, to $161.6 million in 2020. The decrease reflected lower core sales of $79.1 million, or 40.3%. The decrease was partially offset by the benefit of the acquisition of Cummins-Allison of $41.7 million, or 21.2%, and favorable foreign currency translation of $2.0 million, or 1.1%, as the British pound strengthened against the U.S. dollar. The core sales decrease reflected lower sales to all vertical markets driven by COVID-19 related demand impacts.
- Sales of Banknotes and Security Products increased $63.7 million, or 122.7%, to $115.6 million. The increase reflected higher core sales of $59.7 million, or 115.0%, and favorable foreign currency translation of $4.0 million, or 7.7%, as the euro strengthened against the U.S. dollar. The core sales increase reflected substantially higher sales to both international customers and the U.S. Government.

Payment & Merchandising Technologies operating profit increased by $5.4 million, or 15.4%, to $40.5 million in 2020. The increase was driven primarily by productivity, COVID-related cost reduction actions, repositioning savings and contributions from the Cummins-Allison acquisition, partially offset by the impact from lower sales volume.

The Payment & Merchandising Technologies segment backlog was $270.1 million as of September 30, 2020, compared with $311.4 million as of December 31, 2019 and $291.8 million as of September 30, 2019.

### Aerospace & Electronics

*(dollars in millions)*

| Net sales by product line: | Third Quarter 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Commercial Original Equipment | $47.5 | $85.9 | $(38.4) | (44.7)% |
| Military Original Equipment | 70.9 | 55.4 | 15.5 | 28.0% |
| Commercial Aftermarket Products | 20.2 | 41.8 | (21.6) | (51.7)% |
| Military Aftermarket Products | 18.4 | 14.1 | 4.3 | 30.5% |
| Total net sales | $157.0 | $197.2 | $(40.2) | (20.4)% |
| Operating profit | $24.5 | $47.2 | $(22.7) | (48.1)% |
| Restructuring and related charges\* | $— | $0.7 | $(0.7) | NM |
| Operating margin | 15.6% | 23.9% |  |  |
| \* Restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Aerospace & Electronics sales decreased $40.2 million, or 20.4%, to $157.0 million in 2020.

- Sales of Commercial Original Equipment decreased by $38.4 million, or 44.7%, to $47.5 million in 2020, primarily reflecting lower aircraft build rates as a result of COVID-19.
- Sales of Military Original Equipment increased by $15.5 million, or 28.0%, to $70.9 million in 2020, reflecting broad-based military demand strength across solutions.
- Sales of Commercial Aftermarket Products decreased by $21.6 million, or 51.7%, to $20.2 million in 2020, reflecting lower sales of commercial spares as airlines reduced flight schedules in response to COVID-19.
- Sales of Military Aftermarket Products increased by $4.3 million, or 30.5%, to $18.4 million in 2020, primarily reflecting broad-based military demand strength across solutions.

Aerospace & Electronics operating profit decreased by $22.7 million, or 48.1%, to $24.5 million in 2020, primarily as a result of the impact from lower sales volume, partially offset by productivity, COVID-related cost reduction actions and repositioning savings.

The Aerospace & Electronics segment backlog was $498.1 million as of September 30, 2020, compared with $567.4 million as of December 31, 2019 and $564.3 million as of September 30, 2019.

### Engineered Materials

*(dollars in millions)*

| Net sales by product line: | Third Quarter 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| FRP- Recreational Vehicles | $21.9 | $19.7 | $2.2 | 11.2% |
| FRP- Building Products | 20.2 | 22.8 | (2.6) | (11.4)% |
| FRP- Transportation | 6.2 | 7.6 | (1.4) | (18.4)% |
| Total net sales | $48.3 | $50.1 | $(1.8) | (3.6)% |
| Operating profit | $9.0 | $5.9 | $3.1 | 52.5% |
| Operating margin | 18.6% | 11.8% |  |  |
| \* Restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Engineered Materials sales decreased by $1.8 million, or 3.6%, to $48.3 million in 2020. The decline reflected lower sales to transportation and building products customers primarily due to COVID-19 related factors, partially offset by higher sales to recreational vehicle manufacturers. Engineered Materials operating profit increased by $3.1 million, or 52.5%, to $9.0 million in 2020, primarily reflecting productivity, COVID-related cost reduction actions and lower material costs.

The Engineered Materials segment backlog was $11.1 million as of September 30, 2020, compared with $9.4 million as of December 31, 2019 and $10.1 million as of September 30, 2019.

### Results from Operations – Nine Month Periods Ended September 30

The following information should be read in conjunction with our condensed consolidated financial statements and related notes. All comparisons below refer to the first nine months of 2020 versus the first nine months of 2019, unless otherwise specified.

*(dollars in millions)*

|  | Year-to-Date 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $2,210.5 | $2,445.6 | $(235.1) | (9.6)% |
| Operating profit | 204.0 | 345.8 | (141.8) | (41.0)% |
| Acquisition-related and integration charges \* | 10.3 | 3.7 | 6.6 | 178.4% |
| Restructuring and related charges, net \* | 26.5 | 15.4 | 11.1 | 72.1% |
| Operating margin | 9.2% | 14.1% |  |  |
| Other income (expense): |  |  |  |  |
| Interest income | 1.3 | 1.9 | (0.6) | (31.6)% |
| Interest expense | (41.3) | (35.0) | (6.3) | (18.0)% |
| Miscellaneous income (expense), net | 10.6 | 3.9 | 6.7 | 171.8% |
|  | (29.4) | (29.2) | (0.2) | (0.7)% |
| Income before income taxes | 174.6 | 316.6 | (142.0) | (44.9)% |
| Provision for income taxes | 40.4 | 70.5 | (30.1) | (42.7)% |
| Net income before allocation to noncontrolling interests | 134.2 | 246.1 | (111.9) | (45.5)% |
| Less: Noncontrolling interest in subsidiaries’ earnings | — | 0.2 | (0.2) | NM |
| Net income attributable to common shareholders | $134.2 | $245.9 | $(111.7) | (45.4)% |
| \* Acquisition-related and integration charges and restructuring and related charges, net are included in operating profit and operating margin. |  |  |  |  |

Sales decreased by $235.1 million, or 9.6%, to $2,210.5 million in 2020. Net sales related to operations outside the United States were 36.4% and 35.4% of total net sales for the nine months ended September 30, 2020 and 2019, respectively. The year-over-year change in sales included:

- a decrease in core sales of $387.2 million, or 15.8%, primarily due to lower demand related to COVID-19;
- unfavorable foreign currency translation of $4.9 million, or 0.2%; and
- an increase in sales related to a benefit from acquisitions of $157.0 million, or 6.4%.

Operating profit decreased by $141.8 million, or 41.0%, to $204.0 million in 2020. The decline in operating profit reflects the lower operating profit in each of our segments, partially offset by lower corporate costs. Operating profit in the first nine months of 2020 included restructuring and related charges, net of $26.5 million, primarily relating to workforce reductions initiated in response to COVID-19 and integration actions related to the Cummins-Allison acquisition. We also recorded acquisition-related and integration charges of $10.3 million related to the Cummins-Allison and I&S acquisitions. Operating profit in the first nine months of 2019 included restructuring and related charges of $15.4 million and acquisition-related and integration charges of $3.7 million.

Our effective tax rate is affected by a number of items, both recurring and discrete, including the amount of income we earn in different jurisdictions and their respective statutory tax rates, acquisitions and dispositions, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, the continued reinvestment of our overseas earnings, and examinations initiated by tax authorities around the world.

Our tax rate for the nine months ended September 30, 2020 is higher than the prior year’s comparable period primarily due to a larger accrual of income and withholding tax due upon the ultimate repatriation of taxes to the U.S., partially offset by lower income taxes attributable to non-U.S. jurisdictions.

Our tax rate for the nine months ended September 30, 2020 is higher than the statutory U.S. federal tax rate of 21% primarily due to earnings in jurisdictions with statutory tax rates higher than the U.S. and certain expenses that are statutorily non-deductible for income tax purposes, partially offset by excess share-based compensation benefits and the U.S. federal tax credit.

### Comprehensive Income

*(in millions)*

|  | Nine Months Ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Net income before allocation to noncontrolling interests | $134.2 | $246.1 |
| Components of other comprehensive income (loss), net of tax |  |  |
| Currency translation adjustment | 13.2 | (29.8) |
| Changes in pension and postretirement plan assets and benefit obligation, net of tax | 10.4 | 7.8 |
| Other comprehensive income (loss), net of tax | 23.6 | (22.0) |
| Comprehensive income before allocation to noncontrolling interests | 157.8 | 224.1 |
| Less: Noncontrolling interests in comprehensive income | — | (0.1) |
| Comprehensive income attributable to common shareholders | $157.8 | $224.2 |

For the nine months ended September 30, 2020, comprehensive income before allocations to noncontrolling interests was $157.8 million compared to $224.1 million in the same period of 2019. The $66.3 million decrease was primarily driven by lower net income before allocation to noncontrolling interests of $111.9 million and a $43.0 million favorable impact of foreign currency translation adjustments primarily related to the euro and British pound.

### Segment Results of Operations - Nine Month Periods Ended September 30

### Fluid Handling

*(dollars in millions)*

| Net sales by product line: | Year-to-Date 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Process Valves and Related Products | $471.7 | $513.7 | $(42.0) | (8.2)% |
| Commercial Valves | 210.3 | 253.2 | (42.9) | (16.9)% |
| Pumps and Systems | 66.2 | 73.5 | (7.3) | (9.9)% |
| Total net sales | $748.2 | $840.4 | $(92.2) | (11.0)% |
| Operating profit | $74.1 | $106.8 | $(32.7) | (30.6)% |
| Acquisition-related and integration charges \* | $5.0 | $— | $5.0 | NM |
| Restructuring and related charges \* | $7.7 | $7.3 | $0.4 | 5.5% |
| Operating margin | 9.9% | 12.7% |  |  |
| \* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Fluid Handling sales decreased by $92.2 million, or 11.0%, to $748.2 million, driven by lower core sales of $127.5 million, or 15.2%, and unfavorable foreign currency translation of $4.0 million, or 0.5%, partially offset by a benefit from the acquisition of I&S $39.3 million, or 4.7%.

- Sales of Process Valves and Related Products decreased by $42.0 million, or 8.2%, to $471.7 million in 2020. The decrease reflected lower core sales of $79.3 million, or 15.5%, and unfavorable foreign currency translation of $2.0 million, or 0.4%, partially offset by a benefit from the acquisition of I&S of $39.3 million, or 7.7%. The core sales decline reflected a broad-based decline in demand related largely to impacts from COVID-19.
- Sales of Commercial Valves decreased by $42.9 million, or 16.9%, to $210.3 million in 2020, primarily driven by a core sales decline of $41.0 million, or 16.1%, and unfavorable foreign currency translation of $1.9 million, or 0.8%, 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 $7.3 million, or 9.9%, to $66.2 million in 2020. The decrease primarily reflected lower sales to military and industrial customers.

Fluid Handling operating profit decreased by $32.7 million, or 30.6%, to $74.1 million in 2020. The decrease primarily reflected the impact from lower sales volume, partially offset by productivity, COVID-related cost reduction actions and repositioning savings.

### Payment & Merchandising Technologies

*(dollars in millions)*

| Net sales by product line: | Year-to-Date 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Payment Acceptance and Dispensing Products 1 | $505.7 | $604.7 | $(99.0) | (16.4)% |
| Banknotes and Security Products | 316.4 | 239.0 | 77.4 | 32.4% |
| Total net sales | $822.1 | $843.7 | $(21.6) | (2.6)% |
| Operating profit | $68.9 | $124.8 | $(55.9) | (44.8)% |
| Acquisition-related and integration charges \* | $5.1 | $1.6 | $3.5 | 218.8% |
| Restructuring and related charges, net \* | $13.5 | $5.7 | $7.8 | 136.8% |
| Operating margin | 8.4% | 14.8% |  |  |
| 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. |  |  |  |  |
| \* Acquisition-related and integration charges and restructuring and related charges, net are included in operating profit and operating margin. |  |  |  |  |

Payment & Merchandising Technologies sales decreased $21.6 million, or 2.6%, to $822.1 million in 2020, reflecting lower core sales of $138.3 million, or 16.5%, and unfavorable foreign currency translation of $1.0 million, or 0.1%, partially offset by a benefit from the acquisition of Cummins-Allison of $117.7 million, or 14.0%.

- Sales of Payment Acceptance and Dispensing Products decreased $99.0 million, or 16.4%, to $505.7 million in 2020. The decrease reflected lower core sales of $216.8 million, or 35.9%, partially offset by a benefit from the acquisition of Cummins-Allison of $117.7 million, or 19.5%, and favorable foreign currency translation of $0.1 million. The core sales decrease reflected lower sales to all vertical markets driven largely by COVID-19 related demand impacts.
- Sales of Banknotes and Security Products increased $77.4 million, or 32.4%, to $316.4 million. The increase reflected higher core sales of $78.5 million, or 32.8%, partially offset by unfavorable foreign currency translation of $1.1 million, or 0.4%, as the euro weakened against the U.S. dollar. The core sales increase primarily reflected higher sales to international customers.

Payment & Merchandising Technologies operating profit decreased by $55.9 million, or 44.8%, to $68.9 million in 2020. The decrease was driven primarily by the impact from lower sales volume and, to a lesser extent, unfavorable mix, partially offset by productivity, COVID-related cost reduction actions, repositioning savings and contributions from the Cummins-Allison acquisition.

### Aerospace & Electronics

*(dollars in millions)*

| Net sales by product line: | Year-to-Date 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Commercial Original Equipment | $180.0 | $267.6 | $(87.6) | (32.7)% |
| Military Original Equipment | 196.8 | 162.3 | 34.5 | 21.3% |
| Commercial Aftermarket Products | 74.4 | 121.4 | (47.0) | (38.7)% |
| Military Aftermarket Products | 56.1 | 45.0 | 11.1 | 24.7% |
| Total net sales | $507.3 | $596.3 | $(89.0) | (14.9)% |
| Operating profit | $87.8 | $141.4 | $(53.6) | (37.9)% |
| Restructuring and related charges\* | $4.7 | $2.4 | $2.3 | 95.8% |
| Operating margin | 17.3% | 23.7% |  |  |
| \* Restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Aerospace & Electronics sales decreased $89.0 million, or 14.9%, to $507.3 million in 2020.

- Sales of Commercial Original Equipment decreased by $87.6 million, or 32.7%, to $180.0 million in 2020, primarily reflecting lower aircraft build rates as a result of COVID-19, and to a lesser extent, the impact of Boeing’s 737 MAX production pause.
- Sales of Military Original Equipment increased by $34.5 million, or 21.3%, to $196.8 million in 2020, primarily reflecting broad-based military demand strength across solutions.
- Sales of Commercial Aftermarket Products decreased by $47.0 million, or 38.7%, to $74.4 million in 2020, reflecting lower sales of commercial spares as airlines reduced flight schedules in response to COVID-19.
- Sales of Military Aftermarket Products increased by $11.1 million, or 24.7%, to $56.1 million in 2020, primarily reflecting broad-based military demand strength across solutions.

Aerospace & Electronics operating profit decreased by $53.6 million, or 37.9%, to $87.8 million in 2020, primarily as a result the impact from of lower sales volume, partially offset by productivity, COVID-related cost reduction actions and repositioning savings.

### Engineered Materials

*(dollars in millions)*

| Net sales by product line: | Year-to-Date 2020 | 2019 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| FRP- Recreational Vehicles | $50.6 | $68.4 | $(17.8) | (26.0)% |
| FRP- Building Products | 64.4 | 70.5 | (6.1) | (8.7)% |
| FRP- Transportation | 17.9 | 26.3 | (8.4) | (31.9)% |
| Total net sales | $132.9 | $165.2 | $(32.3) | (19.6)% |
| Operating profit | $17.7 | $22.8 | $(5.1) | (22.4)% |
| Restructuring and related charges\* | $0.6 | $— | $0.6 | NM |
| Operating margin | 13.3% | 13.8% |  |  |
| \* Restructuring and related charges are included in operating profit and operating margin. |  |  |  |  |

Engineered Materials sales decreased by $32.3 million, or 19.6%, to $132.9 million in 2020. The decline reflected lower sales to recreational vehicle, transportation and building products customers primarily due to COVID-19 related factors. Engineered Materials operating profit decreased by $5.1 million, or 22.4%, to $17.7 million in 2020, primarily reflecting the impact from lower sales volume.

### Liquidity and Capital Resources

*(in millions)*

| Net cash provided by (used for): | Nine Months Ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Operating activities | $208.1 | $171.0 |
| Investing activities | (245.9) | (48.7) |
| Financing activities | 187.3 | (69.0) |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 1.2 | (7.9) |
| Increase in cash and cash equivalents | $150.7 | $45.4 |

Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will strengthen and complement our portfolio, by divesting businesses that are no longer strategic and by paying dividends and/or repurchasing shares.

On April 16, 2020, to enhance financial flexibility and maintain maximum liquidity in response to the uncertainty in the global markets resulting from the COVID-19 pandemic, we entered into a senior unsecured 364-day credit facility (the “364-Day Credit Agreement”). We borrowed term loans denominated in dollars in an aggregate principal amount equal to $300 million, and term loans denominated in euros in an aggregate principal amount equal to €40 million under the 364-Day Credit Agreement. Our current cash balance, together with cash we expect to generate from future operations (inclusive of actions we are taking to reduce costs and spending across our organization in response to the COVID-19 pandemic) along with our commercial paper program or borrowings available under our revolving credit facility and 364-Day Credit Agreement, is expected to be sufficient to finance our short- and long-term capital requirements, as well as to fund payments associated with our asbestos and environmental liabilities and expected pension contributions. In addition, we believe our investment grade credit ratings afford us adequate access to public and private debt markets.

#### Operating Activities

Cash provided by operating activities was $208.1 million in the first nine months of 2020, compared to $171.0 million during the same period last year. The increase in cash provided by operating activities was primarily driven by lower working capital levels, partially offset by lower net income. Net asbestos-related payments in the first nine months of 2020 and 2019 were $23.7 million and $29.0 million, respectively. In 2020, we expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $50 million.

#### Investing Activities

Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures. Cash used for investing activities was $245.9 million in the first nine months of 2020, compared to $48.7 million in the comparable period of 2019. The increase in cash used for investing activities was driven by cash paid for the acquisition of I&S of $169.2 million and cash used to purchase marketable securities of $60.0 million, partially offset by lower capital expenditures compared to the same period last year. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. As it relates to COVID-19, we are deferring certain capital expenditures and expect to spend $40 million in 2020 from the previously disclosed projected amount of approximately $75 million.

#### Financing Activities

Financing cash flows consist primarily of dividend payments to shareholders, share repurchases, repayments of indebtedness, proceeds from the issuance of long-term debt and commercial paper and proceeds from the issuance of common stock. Cash provided by financing activities was $187.3 million during the first nine months of 2020, compared to cash used for financing activities of $69.0 million in the comparable period of 2019. The increase in cash provided by financing activities was driven by $343.9 million of borrowings under the 364-day credit facility, partially offset by $70.0 million of cash used for the repurchase of shares in the first quarter of 2020 and $14.1 million of net repayments of commercial paper.

#### Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 1 to our Condensed Consolidated Financial Statements.

## Market risk

As filed, 171 characters.

There have been no material changes in the information called for by this item since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2019.

## Controls and procedures

As filed, 1,404 characters.

***Disclosure Controls and Procedures.*** The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that the information is accumulated and communicated to the Company’s Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls are effective as of the end of the period covered by this quarterly report.

***Changes in Internal Control over Financial Reporting.*** During the fiscal quarter ended September 30, 2020, there have been no changes in the Company’s internal control over financial reporting, identified in connection with our evaluation thereof, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

## Risk factors

As filed, 3,646 characters.

The following represents a material change in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

***Our financial condition and results of operations are expected to continue to be adversely affected by the recent 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 to which the pandemic and related impacts will have on our business operations, financial performance, results of operations, and financial position.

We believe our operations and financial performance will be negatively impacted by the COVID-19 pandemic which has caused and will continue to cause 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, customer requests for payment deferrals and other contract modifications including price concessions, supply chain disruptions, delays of deliveries and other factors related directly and indirectly to the COVID-19 pandemic. We expect that the longer the period of economic and global supply chain and 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 continued 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. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. 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.

Filed Oct 28, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-015004. Last ingested by Listed: Nov 4, 2026, 17:36 ET. No prices; not investment advice.