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, 2019~~March 31, 2020



☐	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, 2019~~March 31, 2020

Common stock, $1.00 Par Value – ~~59,978,886~~57,978,486 shares

Crane Co.

Table of Contents

Form 10-Q




		Page

Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations	Page 1
	Condensed Consolidated Statements of Comprehensive Income	Page 2
	Condensed Consolidated Balance Sheets	Page 3
	Condensed Consolidated Statements of Cash Flows	Page 5
	Notes to Condensed Consolidated Financial Statements	Page 6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 3129
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 4437
Item 4.	Controls and Procedures	Page 4437
	Part II - Other Information
Item 1.	Legal Proceedings	Page 4538
Item 1A.	Risk Factors	Page 4538
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 4538
Item 4.	Mine Safety Disclosures	Page 4539
Item 5.	Other Information	Page 4539
Item 6.	Exhibits	Page 4640
	Signatures	Page 4741

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						Three Months Ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
Net sales	$	772.3		$	855.8		$	2,445.6		$	2,505.8		$	797.9		$	831.7
Operating costs and expenses:
Cost of sales	494.4			544.8			1,557.4			1,611.6			510.8			526.6
Selling, general and administrative	166.8			179.8			532.6			546.3			194.5			187.4
Acquisition-related and integration charges	0.2			2.1			3.7			11.3			5.2			1.1
Restructuring charges	1.6			5.2			6.1			5.4
Restructuring (gain) charges, net													(1.2		)	2.9
Operating profit	109.3			123.9			345.8			331.2			88.6			113.7
Other income (expense):
Interest income	0.6			0.5			1.9			1.7			0.4			0.6
Interest expense	(11.7		)	(12.3		)	(35.0		)	(39.8		)	(12.5		)	(11.9		)
Miscellaneous (expense) income, net	(4.5		)	5.7			3.9			13.9
Miscellaneous income, net													3.8			2.0
	(15.6		)	(6.1		)	(29.2		)	(24.2		)	(8.3		)	(9.3		)
Income before income taxes	93.7			117.8			316.6			307.0			80.3			104.4
Provision for income taxes	21.1			20.7			70.5			60.6			17.5			21.9
Net income before allocation to noncontrolling interests	72.6			97.1			246.1			246.4			62.8			82.5
Less: Noncontrolling interest in subsidiaries’ earnings	0.1			0.1			0.2			—			—			0.1
Net income attributable to common shareholders	$	72.5		$	97.0		$	245.9		$	246.4		$	62.8		$	82.4
Earnings per share:
Basic	$	1.21		$	1.62		$	4.11		$	4.13		$	1.07		$	1.38
Diluted	$	1.19		$	1.59		$	4.05		$	4.04		$	1.05		$	1.36
Average shares outstanding:
Basic	60.0			59.7			59.9			59.7			58.8			59.8
Diluted	60.8			61.1			60.8			61.1			59.6			60.7

Dividends per share	$	0.39		$	0.35		$	1.17		$	1.05		$	0.43		$	0.39

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN MILLIONS)

(UNAUDITED)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
Net income before allocation to noncontrolling interests	$	72.6		$	97.1		$	246.1		$	246.4		$	62.8		$	82.5
Components of other comprehensive income (loss), net of tax
Components of other comprehensive (loss) income, net of tax
Currency translation adjustment	(33.7		)	(8.2		)	(29.8		)	(29.7		)	(45.2		)	(0.8		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	3.0			2.7			7.8			16.8			3.6			2.9
Other comprehensive loss, net of tax	(30.7		)	(5.5		)	(22.0		)	(12.9		)
Other comprehensive (loss) income, net of tax													(41.6		)	2.1
Comprehensive income before allocation to noncontrolling interests	41.9			91.6			224.1			233.5			21.2			84.6
Less: Noncontrolling interests in comprehensive income	—			—			(0.1		)	(0.2		)	(0.3		)	(0.6		)
Comprehensive income attributable to common shareholders	$	41.9		$	91.6		$	224.2		$	233.7		$	21.5		$	85.2

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

(UNAUDITED)


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	388.8	$	343.4	$	302.8	$	393.9
Accounts receivable, net	534.2		515.8		543.5		555.1
Current insurance receivable - asbestos	16.0		16.0		14.1		14.1
Inventories, net:
Finished goods	130.3		116.2		145.7		130.6
Finished parts and subassemblies	42.6		45.9		79.0		66.1
Work in process	58.1		55.4		53.6		47.7
Raw materials	214.5		194.0		211.2		212.9
Inventories, net	445.5		411.5		489.5		457.3
Other current assets	72.4		76.2		96.3		79.5
Total current assets	1,456.9		1,362.9		1,446.2		1,499.9
Property, plant and equipment:
Cost	1,205.0		1,185.6		1,241.5		1,256.9
Less: accumulated depreciation	623.2		586.5		634.4		640.6
Property, plant and equipment, net	581.8		599.1		607.1		616.3
Long-term insurance receivable - asbestos	60.9		75.0		80.1		83.6
Long-term deferred tax assets	3.4		18.8		13.3		35.1
Other assets	204.6		101.4		207.3		211.3
Intangible assets, net	445.4		481.8		545.4		505.1
Goodwill	1,405.5		1,403.7		1,565.2		1,472.4
Total assets	$	4,158.5	$	4,042.7	$	4,464.6	$	4,423.7

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Liabilities and equity
Current liabilities:
Current maturities of long-term debt	$	7.4		$	6.9
Short-term borrowings							$	378.7		$	149.4
Accounts payable	257.0			329.2			250.2			311.1
Current asbestos liability	66.0			66.0			65.0			65.0
Accrued liabilities	307.6			337.1			350.2			378.2
U.S. and foreign taxes on income	11.0			1.0			13.5			13.0
Total current liabilities	649.0			740.2			1,057.6			916.7
Long-term debt	934.9			942.3			842.2			842.0
Accrued pension and postretirement benefits	232.0			244.0			289.7			298.4
Long-term deferred tax liability	69.7			53.2			53.3			55.8
Long-term asbestos liability	408.2			451.3			631.3			646.6
Other liabilities	164.7			84.6			183.0			187.9
Total liabilities	2,458.5			2,515.6			3,057.1			2,947.4
Commitments and contingencies (Note 12)
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			72.4			72.4
Capital surplus	310.1			303.5			315.4			315.6
Retained earnings	2,247.9			2,072.1			2,149.5			2,112.2
Accumulated other comprehensive loss	(469.6		)	(447.6		)	(525.3		)	(483.7		)
Treasury stock	(463.3		)	(476.2		)	(606.8		)	(542.8		)
Total shareholders’ equity	1,697.5			1,524.2			1,405.2			1,473.7
Noncontrolling interests	2.5			2.9			2.3			2.6
Total equity	1,700.0			1,527.1			1,407.5			1,476.3
Total liabilities and equity	$	4,158.5		$	4,042.7		$	4,464.6		$	4,423.7
Share data:
Common shares issued	72,426,139			72,426,139			72,426,139			72,426,139
Less: Common shares held in treasury	(12,447,253		)	(12,917,713		)	14,447,653			13,423,934
Common shares outstanding	59,978,886			59,508,426			57,978,486			59,002,205

See Notes to Condensed Consolidated Financial Statements.

CRANE CO. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

(UNAUDITED)


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2019			2018			2020			2019
Operating activities:
Net income attributable to common shareholders	$	245.9		$	246.4		$	62.8		$	82.4
Noncontrolling interests in subsidiaries’ earnings	0.2			—			—			0.1
Net income before allocation to noncontrolling interests	246.1			246.4			62.8			82.5
Loss on deconsolidation of joint venture	1.2			—			—			1.2
Realized gain on marketable securities	(1.1		)	—
Depreciation and amortization	84.2			84.1			29.9			27.7
Stock-based compensation expense	16.8			16.1			5.8			5.5
Defined benefit plans and postretirement credit	(0.4		)	(11.6		)	(1.8		)	(2.0		)
Deferred income taxes	18.8			24.5			6.1			5.4
Cash used for operating working capital	(157.1		)	(41.3		)	(123.7		)	(203.4		)
Defined benefit plans and postretirement contributions	(6.0		)	(55.8		)	(1.5		)	(4.3		)
Environmental payments, net of reimbursements	(6.5		)	(5.4		)	(2.7		)	(1.6		)
Asbestos related payments, net of insurance recoveries	(29.0		)	(46.4		)	(11.7		)	(9.7		)
Other	4.0			11.8			1.3			(1.7		)
Total provided by operating activities	171.0			222.4
Total used for operating activities							(35.5		)	(100.4		)
Investing activities:
Payment for acquisition - net of cash acquired							(172.0		)	—
Proceeds from disposition of capital assets							2.4			—
Capital expenditures	(50.9		)	(75.6		)	(7.8		)	(19.8		)
Proceeds from disposition of capital assets	1.3			1.3
Impact of deconsolidation of joint venture	(0.2		)	—			—			(0.2		)
Purchase of marketable securities	(8.8		)	—
Proceeds from sale of marketable securities	9.9			—
Payments for acquisitions, net of cash acquired	—			(648.0		)
Total used for investing activities	(48.7		)	(722.3		)	(177.4		)	(20.0		)
Financing activities:
Dividends paid	(70.1		)	(62.7		)	(25.5		)	(23.4		)
Reacquisition of shares on open market	—			(25.0		)	(70.0		)	—
Stock options exercised - net of shares reacquired	2.6			12.5			0.1			(0.4		)
Debt issuance costs	—			(5.4		)
Proceeds received from issuance of long-term debt	3.0			554.1			—			3.0
Proceeds received from issuance of short-term debt	—			100.0
Repayment of long-term debt	(4.5		)	(450.8		)	—			(1.4		)
Repayment of short-term debt	—			(100.0		)
Proceeds received from issuance of commercial paper, net	—			106.3
Total (used for) provided by financing activities	(69.0		)	129.0
Proceeds from issuance of commercial paper with maturities greater than 90 days							170.0			55.5
Net proceeds from issuance of commercial paper with maturities of 90 days or less							14.5			—
Net borrowings under revolving credit facility							45.2			—
Total provided by financing activities							134.3			33.3
Effect of exchange rates on cash and cash equivalents	(7.9		)	(11.7		)	(12.5		)	0.5
Increase (decrease) in cash and cash equivalents	45.4			(382.6		)
Decrease in cash and cash equivalents							(91.1		)	(86.6		)
Cash and cash equivalents at beginning of period	343.4			706.2			393.9			343.4
Cash and cash equivalents at end of period	$	388.8		$	323.6		$	302.8		$	256.8
Detail of cash used for operating working capital:
Accounts receivable	$	(24.1	)	$	(39.1	)	$	12.0		$	(65.4	)
Inventories	(48.9		)	(31.2		)	(31.1		)	(29.9		)
Other current assets	3.7			(12.4		)	(17.1		)	(7.6		)
Accounts payable	(69.2		)	(29.2		)	(61.1		)	(65.9		)
Accrued liabilities	(38.5		)	70.8			(26.5		)	(45.6		)
U.S. and foreign taxes on income	19.9			(0.2		)	0.1			11.0
Total	$	(157.1	)	$	(41.3	)	$	(123.7	)	$	(203.4	)
Supplemental disclosure of cash flow information:
Interest paid	$	31.7		$	32.7		$	8.0		$	9.1
Income taxes paid	$	32.7		$	36.3		$	11.3		$	5.5

See Notes to Condensed Consolidated Financial Statements.

NOTES TO 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, ~~2018.~~2019.

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 Financial Accounting Standards Board (“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 are currently evaluating this guidance to determine the impact on our disclosures.

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 ~~will be~~are required to use a ~~new forward-looking “expected loss”~~current expected credit loss ("CECL") model that will ~~replace today’s “incurred loss” model and generally will result~~immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the ~~earlier recognition~~scope of ~~allowances for losses.~~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. ~~This amended guidance~~The CECL model is ~~effective for fiscal years beginning after December 15, 2019,~~based on relevant information about past events, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. We do not expecthistorical experience, current conditions and reasonable and supportable forecasts that ~~the amended guidance will have a material effect on our consolidated financial statements and related disclosures when we adopt this standard effective January 1, 2020.~~

~~Recent Accounting Pronouncements - Adopted~~

~~Codification Updates to SEC Sections~~

In July 2019, we adopted the FASB issued guidance related to codification updates to SEC sections. The amended guidance clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. While most of the amendments in this update eliminate outdated or duplicative disclosure requirements, the final rule amends the interim financial statement requirements to include a reconciliation of changes in stockholders’ equity in the notes to the financial statements or as a separate statement for each period for which an income statement is required to be filed. We have provided this required supplemental information in Note 6, “Changes in Equity and Accumulated Other Comprehensive Loss.”

~~Leases~~

In February 2016, the FASB issued amended guidance on accounting for leases. The amended guidance requires the recognition of a right-of-use asset and a lease liability for all leases by lessees with the exception of leases with an initial term of twelve months or less and amends disclosure requirements associated with leasing arrangements.affect collectability.

On January 1, ~~2019,~~2020, we adopted ~~Accounting Standards Codification (“ASC”) 842, “Leases” (“~~the new ~~standard” or “ASC 842”) using the modified retrospective method. Under this method, we elected~~CECL standard and developed an expected impairment model based on our historical loss experience. We believe that our previous methodology to ~~apply~~calculate credit losses is generally consistent with the new standard as of the application date. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts continue to be reported under ASC 840, “Leases” (“ASC 840”). We elected to apply the package of practical expedients permitted within the new standard, which among other things, allows us to carryforward the historical lease classification. No other transition practical expedients were elected. We implemented a new system, processes,expected credit loss model and ~~controls to enable the preparation of financial information upon adoption.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The adoption of the new standard primarily impacted our accounting for operating leases which resulted in the recognition of right-of-use assets and corresponding lease liabilities. The accounting for finance leases did not substantially change under the new standard, and we do not have significant finance leases. Upon adoption, we established a right-of-use asset of $109.1 million (included in Other assets) and a lease liability of $110.4 million (included in Accrued liabilities and Other liabilities) at January 1, 2019. Our prospective adoption of this new standard did not result in a ~~cumulative-effect~~material adjustment ~~to retained earnings.~~during the three months ended March 31, 2020. The ~~new standard did not impact our consolidated statements~~allowance for doubtful accounts was $9.5 million and $7.2 million as of ~~operations or consolidated statements of cash flows.~~March 31, 2020 and December 31, 2019, respectively.

Note 2 ~~- Segment Results~~

Our segments are reported on the same basis used internally for evaluating performance and for allocating resources. We have 4 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 Other Products. 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. Other Products include pumps and related products primarily for water and wastewater applications in the industrial, municipal, commercial and military markets.

~~Payment & Merchandising Technologies~~

The Payment & Merchandising Technologies segment consists of Crane Payment Innovations ("CPI"), Crane Merchandising Systems ("CMS") and Crane Currency. CPI provides high technology payment acceptance and dispensing products to original equipment manufacturers, including coin accepters and dispensers, coin hoppers, coin recyclers, bill validators and bill recyclers. CMS provides merchandising equipment, including include food, snack and beverage vending machines and vending machine software and online solutions. Crane Currency is a supplier of banknotes and highly engineered banknote security features.

~~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 ("FRP") 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).

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

For the three and nine months ended September 30, 2019, operating profit includes acquisition-related and integration charges and restructuring charges. For the three and nine months ended September 30, 2018, operating profit includes acquisition-related and integration charges, acquisition-related inventory and backlog amortization and restructuring charges. See Note 4, “Acquisitions” for discussion of the acquisition-related costs. See Note 15, “Restructuring” for discussion of the restructuring charges.

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2019 2018 2019 2018
Net sales
Fluid Handling $ 276.1
$ 278.7
$ 840.4
$ 822.1
Payment & Merchandising Technologies 248.9
327.4
843.7
944.2
Aerospace & Electronics 197.2
189.5
596.3
547.0
Engineered Materials 50.1
60.2
165.2
192.5
Total $ 772.3
$ 855.8
$ 2,445.6
$ 2,505.8
Operating profit (loss)
Fluid Handling $ 35.4
$ 30.4
$ 106.8
$ 88.0
Payment & Merchandising Technologies 35.1
57.3
124.8
139.8
Aerospace & Electronics 47.2
42.5
141.4
120.0
Engineered Materials 5.9
8.7
22.8
32.4
Corporate (14.3 ) (15.0 ) (50.0 ) (49.0 )
Total 109.3
123.9
345.8
331.2
Interest income 0.6
0.5
1.9
1.7
Interest expense (11.7 ) (12.3 ) (35.0 ) (39.8 )
Miscellaneous (expense) income, net (4.5 ) 5.7
3.9
13.9
Income before income taxes $ 93.7
$ 117.8
$ 316.6
$ 307.0

(in millions) September 30, 2019
December 31,
2018
Assets
Fluid Handling $ 925.7
$ 878.2
Payment & Merchandising Technologies 2,059.6
2,074.4
Aerospace & Electronics 634.5
603.9
Engineered Materials 226.3
222.1
Corporate 312.4
264.1
Total $ 4,158.5
$ 4,042.7

(in millions)
September 30,
2019

December 31,
2018
Goodwill
Fluid Handling $ 237.1
$ 240.8
Payment & Merchandising Technologies 794.8
789.2
Aerospace & Electronics 202.3
202.4
Engineered Materials 171.3
171.3
Total $ 1,405.5
$ 1,403.7

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 3 - 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) 2019 2018 2019 2018
Fluid Handling
Process Valves and Related Products $ 163.3
$ 168.7
$ 513.7
$ 509.0
Commercial Valves 88.8
86.2
253.2
245.9
Other Products 24.0
23.8
73.5
67.2
Total Fluid Handling $ 276.1
$ 278.7
$ 840.4
$ 822.1

Payment & Merchandising Technologies
Payment Acceptance and Dispensing Products $ 144.3
$ 144.9
$ 457.0
$ 445.7
Banknotes and Security Products 51.9
126.7
239.0
348.1
Merchandising Equipment 52.7
55.8
147.7
150.4
Total Payment & Merchandising Technologies $ 248.9
$ 327.4
$ 843.7
$ 944.2

Aerospace & Electronics
Commercial Original Equipment $ 85.9
$ 85.2
$ 267.6
$ 256.0
Military and Other Original Equipment 55.4
51.5
162.3
142.2
Commercial Aftermarket Products 41.8
38.8
121.4
109.0
Military Aftermarket Products 14.1
14.0
45.0
39.8
Total Aerospace & Electronics $ 197.2
$ 189.5
$ 596.3
$ 547.0

Engineered Materials
FRP - Recreational Vehicles $ 19.7
$ 28.4
$ 68.4
$ 96.9
FRP - Building Products 22.8
23.5
70.5
70.7
FRP - Transportation 7.6
8.3
26.3
24.9
Total Engineered Materials $ 50.1
$ 60.2
$ 165.2
$ 192.5

Total net sales $ 772.3
$ 855.8
$ 2,445.6
$ 2,505.8

~~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, 2019, backlog was $1,138.3 million. We expect to recognize approximately 45% of our remaining performance obligations as revenue in 2019, an additional 41% by 2020 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:

(in millions) September 30, 2019 December 31, 2018
Contract assets $ 49.8
$ 54.9
Contract liabilities $ 42.1
$ 50.8

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~We recognized revenue of $3.8 million and $40.9 million during the three- and nine-month periods ended September 30, 2019, respectively, related to contract liabilities as of December 31, 2018.~~

~~Note 4~~ - 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 items identified as of the acquisition date are considered for subsequent ~~adjustment.~~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.

~~Crane Currency Acquisition~~

On January 10, 2018, we completed the acquisition of Crane & Co., Inc. (“Crane Currency”). The base purchase price of the acquisition was $800 million on a cash-free, debt-free basis, subject to a later adjustment reflecting Crane Currency’s net working capital, cash, the assumption of certain debt-like items, and Crane Currency’s transaction expenses. The amount paid, net of cash acquired, was $672.3 million. In July 2018, we received $24.3 million related to the final working capital adjustment of the Crane Currency acquisition, resulting in net cash paid of $648.0 million. To finance the acquisition, we issued commercial paper under our commercial paper program and utilized proceeds from term loans that we issued at the closing of the acquisition, as well as available cash on hand. At the closing, the transitory subsidiary of Crane Co. merged with and into Crane Currency, with Crane Currency surviving as a wholly owned subsidiary of Crane Co.

Crane Currency is a supplier of banknotes and highly engineered banknote security features which complement the existing portfolio of currency and payment products within the Payment & Merchandising Technologies segment. As such, Crane Currency was integrated into our Payment & Merchandising Technologies segment. The amount allocated to goodwill reflects the benefits we expect to realize from the acquisition, as the acquisition is expected to strengthen and broaden our product offering within the currency and payment markets. Goodwill from this acquisition is not deductible for tax purposes.

Crane Currency’s results of operations have been included in our condensed consolidated financial statements for the periods subsequent to the completion of the acquisition on January 10, 2018. The pro forma impact for the stub period (January 1, 2018 through January 9, 2018) is not material.

~~Allocation of Consideration Transferred to Net Assets Acquired~~

The following amounts represent the determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of Crane Currency. The fair value of certain assets and liabilities has been completed as required by ASC 805.

Net assets acquired (in millions)

Total current assets $ 199.6
Property, plant and equipment 298.0
Other assets 5.3
Intangible assets 252.8
Goodwill 217.1
Total assets acquired $ 972.8

Total current liabilities $ 107.2
Long-term debt 97.3
Other liabilities 120.3
Total assumed liabilities $ 324.8
Net assets acquired $ 648.0

~~NOTES TO 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 $ 42.0
indefinite
Customer relationships 135.8
23.1
Product technology 74.0
8.4
Backlog 1.0
1.0
Total acquired intangible assets $ 252.8

In order to allocate the consideration transferred for ~~Crane Currency,~~our acquisitions, the fair values of all identifiable assets and liabilities ~~were~~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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 was 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. 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	$	92.6
Property, plant and equipment	26.6
Other assets	9.1
Intangible assets	66.0
Goodwill	51.6
Total assets acquired	$	245.9

Total current liabilities	$	67.3
Other liabilities	22.4
Total assumed liabilities	$	89.7
Net assets acquired	$	156.2



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 ~~Crane Currency’s~~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 ~~the firm’s~~our ownership. The ~~trademark~~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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ~~trade names, Crane Currency~~the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant net cash flows considered historical and ~~Crane~~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 ~~assigned~~a “wasting” asset and are expected to decline over time. The attrition-adjusted future cash flows are then discounted to present value using an ~~indefinite~~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 ~~and, therefore, will not be amortized.~~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 ~~Crane Currency’s~~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 710 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 months ended March 31, 2019 would have been $880.1 million. 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 11common 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 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.

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 was 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.

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 1) the final valuation of intangible assets related to trademarks/trade names and customer relationships; 2) the final assessment and valuation of certain other assets acquired and liabilities assumed, including accounts receivable, accrued expenses and other liabilities; and 3) the final assessment and valuation of certain tax amounts. Any potential adjustments made could be material in relation to the preliminary values presented below:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Net assets acquired (in millions)
Total current assets	$	21.4
Property, plant and equipment	11.7
Other assets	5.9
Intangible assets	52.5
Goodwill	108.1
Total assets acquired	$	199.6

Total current liabilities	$	8.1
Other liabilities	19.5
Total assumed liabilities	$	27.6
Net assets acquired	$	172.0



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’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 a “wasting” asset and 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 1814 years.

Supplemental Pro Forma Data

I&S’s results of operations have been included in our financial statements for the period subsequent to ~~24 years.~~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.

Acquisition-Related Costs

Acquisition-related costs are expensed as incurred. For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we recorded ~~$0.2~~$5.2 million and ~~$2.1~~$1.1 million, respectively, of integration and transaction costs in our Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2019 and 2018, the Company recorded $3.7 million and $11.3 million, respectively, of integration and transaction costs in the Condensed Consolidated Statements of Operations. For the three and nine months ended September 30, 2018, we also recorded $0.3 million and $8.8 million of inventory step-up and backlog amortization within “Cost of sales” in our Condensed Consolidated Statements of Operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Segment Results

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 recent acquisition of I&S will be 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 Crane Payment Innovations (“CPI”), Crane Merchandising Systems (“CMS”) and Crane Currency. CPI provides high technology payment acceptance and dispensing products to original equipment manufacturers, including coin accepters and dispensers, coin hoppers, coin recyclers, bill validators and bill recyclers. Crane Currency is a supplier of banknotes and highly engineered banknote security feature. CMS provides merchandising equipment, including include food, snack and beverage vending machines and vending machine software and online solutions. The recent acquisition of Cummins-Allison will be integrated into our CPI business. See discussion in Note 2, “Acquisitions” for further details.

Aerospace & Electronics

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

Engineered Materials segment manufactures fiberglass-reinforced plastic (“FRP”) panels and coils, primarily for use in the manufacturing of recreational vehicles (“RVs”), truck bodies and trailers (Transportation), with additional applications in commercial and industrial buildings (Building Products).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended March 31, 2020 and 2019, operating profit includes acquisition-related and integration charges and restructuring charges. See Note 2, “Acquisitions” for discussion of the acquisition-related costs. See Note 14, “Restructuring” for discussion of the restructuring charges.



	Three Months Ended
	March 31,
(in millions)	2020			2019
Net sales
Fluid Handling	$	256.7		$	273.7
Payment & Merchandising Technologies	297.4			303.8
Aerospace & Electronics	192.9			194.6
Engineered Materials	50.9			59.6
Total	$	797.9		$	831.7
Operating profit (loss)
Fluid Handling	$	28.0		$	34.1
Payment & Merchandising Technologies	26.4			43.2
Aerospace & Electronics	43.8			44.8
Engineered Materials	6.9			9.4
Corporate	(16.5		)	(17.8		)
Total	88.6			113.7
Interest income	0.4			0.6
Interest expense	(12.5		)	(11.9		)
Miscellaneous income, net	3.8			2.0
Income before income taxes	$	80.3		$	104.4



(in millions)	March 31, 2020		December 31, 2019
Assets
Fluid Handling	$	1,111.4	$	941.6
Payment & Merchandising Technologies	2,224.8		2,303.4
Aerospace & Electronics	657.5		638.1
Engineered Materials	225.4		219.6
Corporate	245.5		321.0
Total	$	4,464.6	$	4,423.7



(in millions)	March 31, 2020		December 31, 2019
Goodwill
Fluid Handling	$	345.9	$	240.9
Payment & Merchandising Technologies	845.7		857.8
Aerospace & Electronics	202.3		202.4
Engineered Materials	171.3		171.3
Total	$	1,565.2	$	1,472.4

NOTES TO 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
	March 31,
(in millions)	2020		2019
Fluid Handling
Process Valves and Related Products	$	157.2	$	168.0
Commercial Valves	75.9		80.8
Pumps and Systems	23.6		24.9
Total Fluid Handling	$	256.7	$	273.7

Payment & Merchandising Technologies
Payment Acceptance and Dispensing Products	$	166.7	$	158.8
Banknotes and Security Products	94.2		98.6
Merchandising Equipment	36.5		46.4
Total Payment & Merchandising Technologies	$	297.4	$	303.8

Aerospace & Electronics
Commercial Original Equipment	$	80.6	$	90.3
Military and Other Original Equipment	60.4		51.5
Commercial Aftermarket Products	33.9		38.2
Military Aftermarket Products	18.0		14.6
Total Aerospace & Electronics	$	192.9	$	194.6

Engineered Materials
FRP - Recreational Vehicles	$	18.8	$	26.6
FRP - Building Products	24.9		23.6
FRP - Transportation	7.2		9.4
Total Engineered Materials	$	50.9	$	59.6

Total net sales	$	797.9	$	831.7

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 March 31, 2020, backlog was $1,178.0 million. We expect to recognize approximately 79% of our remaining performance obligations as revenue in 2020, an additional 11% in 2021 and the balance thereafter.

Contract Assets and Contract Liabilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(in millions)	March 31, 2020		December 31, 2019
Contract assets	$	66.2	$	55.8
Contract liabilities	$	96.4	$	88.4

We recognized revenue of $35.4 million during the three-month period ended March 31, 2020 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				Three Months Ended
	September 30,				September 30,				March 31,
(in millions, except per share data)	2019		2018		2019		2018		2020		2019
Net income attributable to common shareholders	$	72.5	$	97.0	$	245.9	$	246.4	$	62.8	$	82.4

Average basic shares outstanding	60.0		59.7		59.9		59.7		58.8		59.8
Effect of dilutive stock options	0.8		1.4		0.9		1.4
Effect of dilutive share-based awards									0.8		0.9
Average diluted shares outstanding	60.8		61.1		60.8		61.1		59.6		60.7

Earnings per basic share	$	1.21	$	1.62	$	4.11	$	4.13	$	1.07	$	1.38
Earnings per diluted share	$	1.19	$	1.59	$	4.05	$	4.04	$	1.05	$	1.36

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,~~March 31, 2020 and 2019, ~~and 2018,~~ the number of stock options excluded from the computation was 1.4 million and 1.2 million, ~~and 0.4 million,~~ respectively. ~~For the nine-month periods ended September 30, 2019 and 2018, the number of stock options excluded from the computation was 1.2 million and 0.4 million, respectively.~~

NOTES TO 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,~~March 31, 2020 and 2019 ~~and 2018~~ 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, 2017 72.4
$ 291.7
$ 1,813.3
$ (380.1 ) $ (452.1 ) $ 1,345.2
$ 3.3
$ 1,348.5
Net income —
—
68.7
—
—
68.7
—
68.7
Cash dividends ($0.35 per share) —
—
(20.9 ) —
—
(20.9 ) —
(20.9 )
Cumulative effect of adoption ASC 606 —
—
6.7
—
—
6.7
—
6.7
Impact from settlement of share-based awards, net of shares acquired —
(9.7 ) —
—
14.2
4.5
—
4.5
Stock-based compensation expense —
5.6
—
—
—
5.6
—
5.6
Changes in pension and postretirement plan assets and benefit obligation, net of tax —
—
—
9.6
—
9.6
—
9.6
Currency translation adjustment —
—
—
25.4
—
25.4
—
25.4
BALANCE MARCH 31, 2018 72.4
$ 287.6
$ 1,867.8
$ (345.1 ) $ (437.9 ) $ 1,444.8
$ 3.3
$ 1,448.1
Net income —
—
80.7
—
—
80.7
—
80.7
Cash dividends ($0.35 per share) —
—
(20.9 ) —
—
(20.9 ) —
(20.9 )
Reacquisition of shares on open market —
—
—
—
(25.0 ) (25.0 ) (25.0 )
Impact from settlement of share-based awards, net of shares acquired —
—
—
—
0.5
0.5
—
0.5
Stock-based compensation expense —
5.6
—
—
—
5.6
—
5.6
Changes in pension and postretirement plan assets and benefit obligation, net of tax —
—
—
4.5
—
4.5
—
4.5
Currency translation adjustment —
—
—
(46.7 ) —
(46.7 ) (0.2 ) (46.9 )
BALANCE JUNE 30, 2018 72.4
$ 293.2
$ 1,927.6
$ (387.3 ) $ (462.4 ) $ 1,443.5
$ 3.1
$ 1,446.6
Net income —
—
97.0
—
—
97.0
0.1
97.1
Cash dividends ($0.35 per share) —
—
(20.9 ) —
—
(20.9 ) —
(20.9 )
Impact from settlement of share-based awards, net of shares acquired —
—
—
—
7.6
7.6
—
7.6
Stock-based compensation expense —
4.9
—
—
—
4.9
—
4.9
Changes in pension and postretirement plan assets and benefit obligation, net of tax —
—
—
2.7
—
2.7
—
2.7
Currency translation adjustment —
—
—
(8.4 ) —
(8.4 ) (0.1 ) (8.5 )
BALANCE SEPTEMBER 30, 2018 72.4
$ 298.1
$ 2,003.7
$ (393.0 ) $ (454.8 ) $ 1,526.4
$ 3.1
$ 1,529.5

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

(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 —
—
82.4
—
—
82.4
0.1
82.5
Cash dividends ($0.39 per share) —
—
(23.4 ) —
—
(23.4 ) —
(23.4 )
Impact from settlement of share-based awards, net of shares acquired —
(9.8 ) —
—
9.6
(0.2 ) —
(0.2 )
Stock-based compensation expense —
5.5
—
—
—
5.5
—
5.5
Deconsolidation of a joint venture —
—
—
—
—
—
(0.5 ) (0.5 )
Changes in pension and postretirement plan assets and benefit obligation, net of tax —
—
—
2.9
—
2.9
—
2.9
Currency translation adjustment —
—
—
(0.8 ) —
(0.8 ) (0.1 ) (0.9 )
BALANCE MARCH 31, 2019 72.4
$ 299.2
$ 2,131.1
$ (445.5 ) $ (466.6 ) $ 1,590.6
$ 2.4
$ 1,593.0
Net income —
—
91.0
—
—
91.0
—
91.0
Cash dividends ($0.39 per share) —
—
(23.3 ) —
—
(23.3 ) —
(23.3 )
Impact from settlement of share-based awards, net of shares acquired —
(0.7 ) —
—
2.2
1.5
—
1.5
Stock-based compensation expense —
5.6
—
—
—
5.6
—
5.6
Changes in pension and postretirement plan assets and benefit obligation, net of tax —
—
—
1.9
—
1.9
—
1.9
Currency translation adjustment —
—
—
4.7
—
4.7
—
4.7
BALANCE JUNE 30, 2019 72.4
$ 304.1
$ 2,198.8
$ (438.9 ) $ (464.4 ) $ 1,672.0
$ 2.4
$ 1,674.4
Net income —
—
72.5
—
—
72.5
0.1
72.6
Cash dividends ($0.39 per share) —
—
(23.4 ) —
—
(23.4 ) —
(23.4 )
Impact from settlement of share-based awards, net of shares acquired —
0.3
—
—
1.1
1.4
—
1.4
Stock-based compensation expense —
5.7
—
—
—
5.7
—
5.7
Changes in pension and postretirement plan assets and benefit obligation, net of tax —
—
—
3.0
—
3.0
—
3.0
Currency translation adjustment —
—
—
(33.7 ) —
(33.7 ) —
(33.7 )
BALANCE SEPTEMBER 30, 2019 72.4
$ 310.1
$ 2,247.9
$ (469.6 ) $ (463.3 ) $ 1,697.5
$ 2.5
$ 1,700.0



(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	—	—			82.4			—			—			82.4			0.1			82.5
Cash dividends ($0.39 per share)	—	—			(23.4		)	—			—			(23.4		)	—			(23.4		)
Impact from settlement of share-based awards, net of shares acquired	—	(9.8		)	—			—			9.6			(0.2		)				(0.2		)
Stock-based compensation expense	—	5.5			—			—			—			5.5			—			5.5
Deconsolidation of a joint venture	—	—			—			—			—			—			(0.5		)	(0.5		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	—	—			—			2.9			—			2.9			—			2.9
Currency translation adjustment	—	—			—			(0.8		)	—			(0.8		)	(0.1		)	(0.9		)
BALANCE MARCH 31, 2019	72.4	$	299.2		$	2,131.1		$	(445.5	)	$	(466.6	)	$	1,590.6		$	2.4		$	1,593.0

BALANCE DECEMBER 31, 2019	72.4	$	315.6		$	2,112.2		$	(483.7	)	$	(542.8	)	$	1,473.7		$	2.6		$	1,476.3
Net income	—	—			62.8			—			—			62.8			—			62.8
Cash dividends ($0.43 per share)	—	—			(25.5		)	—			—			(25.5		)	—			(25.5		)
Reacquisition on open market of 1,221,233 shares	—	—			—			—			(70.0		)	(70.0		)	—			(70.0		)
Impact from settlement of share-based awards, net of shares acquired	—	(6.0		)	—			—			6.0			—						—
Stock-based compensation expense	—	5.8			—			—			—			5.8			—			5.8
Changes in pension and postretirement plan assets and benefit obligation, net of tax	—	—			—			3.6			—			3.6			—			3.6
Currency translation adjustment	—	—			—			(45.2		)	—			(45.2		)	(0.3		)	(45.5		)
BALANCE MARCH 31, 2020	72.4	$	315.4		$	2,149.5		$	(525.3	)	$	(606.8	)	$	1,405.2		$	2.3		$	1,407.5

The table below provides the accumulated balances for each classification of accumulated other comprehensive loss, as reflected on our Condensed Consolidated Balance Sheets.


(in millions)	(in millions)	Defined Benefit Pension and Postretirement Items*			Currency Translation Adjustment			Total			(in millions)	Defined Benefit Pension and Postretirement Items*			Currency Translation Adjustment			Total
Balance as of December 31, 2018		$	(318.3	)	$	(129.3	)	$	(447.6	)
Balance as of December 31, 2019											Balance as of December 31, 2019	$	(366.0	)	$	(117.7	)	$	(483.7	)
	Other comprehensive income (loss) before reclassifications	—			(29.8		)	(29.8		)	Other comprehensive income (loss) before reclassifications	0.2			(45.2		)	(45.0		)
	Amounts reclassified from accumulated other comprehensive loss	7.8			—			7.8			Amounts reclassified from accumulated other comprehensive loss	3.4			—			3.4
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	7.8			(29.8		)	(22.0		)	Net current-period other comprehensive income (loss)	3.6			(45.2		)	(41.6		)
Balance as of September 30, 2019		$	(310.5	)	$	(159.1	)	$	(469.6	)
Balance as of March 31, 2020											Balance as of March 31, 2020	$	(362.4	)	$	(162.9	)	$	(525.3	)

* Net of tax benefit of ~~$119.8~~$136.4 million and ~~$122.2~~$135.4 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below illustrates the amounts reclassified out of each component of accumulated other comprehensive loss for the ~~three- and nine-month~~three-month periods ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. Amortization of pension and postretirement components have been recorded within “Miscellaneous ~~(expense)~~ income, net” on our Condensed Consolidated Statements of Operations.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2019			2018			2019			2018			2020			2019
Amortization of pension items:
Prior-service costs	$	0.1		$	(0.1	)	$	(0.3	)	$	(0.4	)	$	(0.1	)	$	(0.2	)
Net loss	4.8			3.6			11.5			10.7			4.8			3.3
Amortization of postretirement items:
Prior-service costs	(0.8		)	—			(0.8		)	—			(0.3		)	—
Net gain	(0.2		)	(0.3		)	(0.2		)	(0.9		)	—			(0.1		)
Total before tax	$	3.9		$	3.2		$	10.2		$	9.4		$	4.4		$	3.0
Tax impact	0.9			0.6			2.4			2.0			1.0			0.8
Total reclassifications for the period	$	3.0		$	2.6		$	7.8		$	7.4		$	3.4		$	2.2

Note 7 - Defined Benefit and Postretirement Benefits

For all plans, the components of net periodic ~~(benefit) cost~~benefit for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ are as follows:



	Pension						Postretirement
(in millions)	2020			2019			2020			2019
Service cost	$	1.6		$	1.3		$	0.1		$	—
Interest cost	6.6			7.7			0.2			0.1
Expected return on plan assets	(14.7		)	(14.1		)	—			—
Amortization of prior service cost	(0.1		)	(0.2		)	(0.3		)	—
Amortization of net loss (gain)	4.8			3.3			—			(0.1		)
Net periodic benefit	$	(1.8	)	$	(2.0	)	$	—		$	—

Pension Postretirement SERP
(in millions) 2019 2018 2019 2018 2019 2018
Service cost $ 1.4
$ 1.5
$ 0.2
$ 0.1
$ —
$ —
Interest cost 9.1
7.5
0.8
0.2
—
0.1
Expected return on plan assets (11.6 ) (16.4 ) —
—
—
—
Amortization of prior service cost 0.1
(0.1 ) (0.8 ) —
—
—
Amortization of net loss (gain) 4.8
3.6
(0.2 ) (0.3 ) —
—
Net periodic cost (benefit) $ 3.8
$ (3.9 ) $ —
$ —
$ —
$ 0.1

~~For all plans, the~~The components of net periodic ~~(benefit) cost for the nine months ended September 30, 2019 and 2018 are as follows:~~

Pension Postretirement SERP
(in millions) 2019 2018 2019 2018 2019 2018
Service cost $ 4.1
$ 4.5
$ 0.2
$ 0.2
$ —
$ —
Interest cost 24.5
22.5
0.8
0.8
0.1
0.1
Expected return on plan assets (40.2 ) (49.1 ) —
—
—
—
Amortization of prior service cost (0.3 ) (0.4 ) (0.8 ) —
—
—
Amortization of net loss (gain) 11.5
10.7
(0.2 ) (0.9 ) (0.1 ) —
Net periodic (benefit) cost $ (0.4 ) $ (11.8 ) $ —
$ 0.1
$ —
$ 0.1

~~Effective January 1, 2018, the components of net periodic (benefit) cost~~benefit other than the service cost component are included in “~~Miscellaneous (expense)~~“Miscellaneous income, ~~net~~”net” in our Condensed Consolidated Statements of Operations. Service cost is recorded within “Cost of sales” and “Selling, general and administrative” in our Condensed Consolidated Statements of Operations.

~~We expect, based~~Based on current actuarial calculations, we expected to contribute $21.4 million to our pension plans. As permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, we have chosen to defer pension contributions of $18.2 million until January 1, 2021. We now expect to contribute the following to our pension ~~plans,~~and postretirement ~~plans and Supplemental Executive Retirement Plan (“SERP”):~~plans:

(in millions) Pension Postretirement SERP
Expected contributions in 2019 $ 3.1
$ 2.5
$ 2.2
Amounts contributed during the nine months ended September 30, 2019 $ 2.4
$ 1.4
$ 2.2



(in millions)	Pension		Postretirement
Expected contributions in 2020	$	3.2	$	2.5
Amounts contributed during the three months ended March 31, 2020	$	0.5	$	1.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Income Taxes

Effective Tax Rates

Our quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented.

Our effective tax rates are as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Effective Tax Rate 22.5% 17.6% 22.3% 19.7%



	Three Months Ended March 31,
	2020	2019
Effective Tax Rate	21.8%	21.0%

Our tax rate for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2019 are~~March 31, 2020 is higher than the prior year’s comparable periods primarily due to lower share-based compensation benefits, partially offset by a ~~balance sheet tax account adjustment recorded in 2018 after we finalized certain calculations~~higher statutory U.S. deduction related to ~~U.S. tax reform enacted December 2017.~~our non-U.S. subsidiaries’ income.

Our tax rate for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2019 are~~March 31, 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 U.S. state taxes, partially offset by excess share-based compensation benefits and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income.

Unrecognized Tax Benefits

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, our gross unrecognized tax benefits, excluding interest and penalties, decreased by ~~$1.9~~$1.3 million, ~~and $0.2 million, respectively,~~ primarily as a result of reductions resulting from the expiration of statutes of limitations and tax positions taken in prior periods, partially offset by increases in tax positions taken in ~~both~~ the current ~~year and prior periods.~~year. During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, the total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate decreased by ~~$2.2 million and increased by $0.3 million, respectively.~~$1.1 million. The difference between these amounts relates to (1) offsetting tax effects from other tax jurisdictions, and (2) interest expense, net of deferred taxes.

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, we recognized ~~$(0.6)~~$0.3 million ~~and $0.7 million, respectively,~~ of interest and penalty ~~(income)/~~expense related to unrecognized tax benefits in our Condensed Consolidated Statement of Operations. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in our Condensed Consolidated Balance Sheets was ~~$7.9~~$8.3 million and ~~$7.2~~$8.0 million, respectively.

During the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by ~~$6.6~~$10.3 million due to expiration of statutes of limitations and settlements with tax authorities. However, if the ultimate resolution of income tax examinations results in amounts that differ from this estimate, we will record additional income tax expense or benefit in the period in which such matters are effectively settled.

~~Note 9 - Leases~~

Arrangements that explicitly or implicitly relate to property, plant and equipment are assessed at inception to determine if the arrangement is or contains a lease. Generally, we enter into operating leases as the lessee and recognize right-of-use assets and lease liabilities based on the present value of future lease payments over the lease term.

We lease certain vehicles, equipment, manufacturing facilities, and non-manufacturing facilities. We have leases with both lease components and non-lease components, such as common area maintenance, utilities, or other repairs and maintenance. For all asset classes, we applied the practical expedient to account for each separate lease component and its associated non-lease component(s) as a single lease component.

We identify variable lease payments, such as maintenance payments based on actual activities performed or costs incurred, at lease commencement by assessing the nature of the payment provisions, including whether the payments are subject to a minimum.

Certain leases include options to renew for an additional term or company-controlled options to terminate. As renewal options are typically priced at fair market value, we generally determine it is not reasonably certain to assume the exercise of renewal options because there is no economic incentive to renew. As termination options often include penalties, we generally determine it is reasonably certain that termination options will not be exercised because there is an economic incentive not to terminate. Therefore, these options generally do not impact the lease term or the determination or classification of the right-of-use asset and lease liability.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In the third quarter of 2017, we entered into a seven-year lease for a used airplane which includes a maximum residual value guarantee of $11.1 million if the fair value of the airplane is less than $14.4 million at the end of the lease term. We do not believe it is probable that any amount will be owed under this guarantee. Therefore, no amount related to the residual value guarantee is included in the lease payments used to measure the right-of-use asset and lease liability. We have not entered into any other leases where a residual value guarantee is provided to the lessor.

We do not enter into arrangements where restrictions or covenants are imposed by the lessor that, for example, relate to incurring additional financial obligations. Furthermore, we also have not entered into any significant sublease arrangements.

We use our collateralized incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. The rate implicit in the lease is generally unknown, as we generally operate in the capacity of the lessee.

~~Our Condensed Consolidated Balance Sheet includes the following related to leases:~~

(in millions) Classification September 30, 2019
Assets
Operating right-of-use assets Other assets $ 104.9
Liabilities
Current lease liabilities Accrued liabilities $ 18.9
Long-term lease liabilities Other liabilities 88.5
Total lease liabilities
$ 107.4

~~The components of lease cost were as follows:~~

(in millions) Three Months
Ended
September 30, 2019 Nine Months
Ended
September 30, 2019
Operating lease cost $ 7.5
$ 21.8
Variable lease cost $ 1.6
$ 4.8

~~The weighted average remaining lease terms and discount rates for our operating leases were as follows as of September 30, 2019:~~



~~Weighted-average remaining lease term - operating leases~~	~~10.1~~
~~Weighted-average discount rate - operating leases~~	~~4.0~~	%

~~Supplemental cash flow information related to our operating leases was as follows for the nine-month period ended September 30, 2019:~~

(in millions)
Cash paid for amounts included in measurement of operating lease liabilities - operating cash flows $ 18.4
Right-of-use assets obtained in exchange for new operating lease liabilities $ 14.1

~~Future minimum operating lease payments were as follows:~~

(in millions) September 30, 2019
Remainder of 2019 $ 5.5
2020 22.3
2021 19.3
2022 16.5
2023 14.1
2024 11.6
Thereafter 52.8
Total future minimum operating lease payments $ 142.1
Imputed interest 34.7
Present value of lease liabilities reported $ 107.4

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Future minimum operating lease payments for leases with initial or remaining terms of one year or more consisted of the following as of December 31, 2018 under ASC 840, the predecessor to ASC 842.~~

(in millions) December 31, 2018
2019 $ 23.4
2020 19.6
2021 17.0
2022 14.2
2023 12.4
Thereafter 60.7
Total minimum lease payments $ 147.3

Note 109 - Goodwill and Intangible Assets

Our business acquisitions have typically resulted in the recognition of goodwill and other intangible assets. We follow the provisions under ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in our condensed consolidated financial statements. These provisions require that we, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if an impairment has occurred. We perform our annual impairment testing during the fourth quarter. Impairment testing takes place more often than annually if events or circumstances indicate a change in status that would indicate a potential impairment. We believe that there have been no events or circumstances which would more likely than not reduce the fair value for our reporting units below its carrying value. A reporting unit is an operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the reporting unit. As of ~~September 30, 2019,~~March 31, 2020, we had 8 reporting units.

~~When performing~~

In March of 2020, we observed a significant decline in the market valuation of our ~~annual impairment assessment,~~common shares as a result of the COVID-19 pandemic. As such, we ~~compare~~performed sensitivity analyses based on more recent assumptions, including entity-specific and macroeconomic factors resulting from the COVID-19 pandemic. We concluded that it was not more likely than not that the fair value of each of our reporting units to its respective carrying value. Goodwill is considered to be potentially impaired when the net book value of the reporting unit exceeds its estimated fair value. Fair values are established primarily by discounting estimated future cash flows at an estimated cost of capital which varies for each reporting unit and which, as of our most recent annual impairment assessment, ranged between 10.0% and 13.0% (a weighted average of 10.9%), reflecting the respective inherent business risk of each of the reporting units tested. This methodology for valuing our reporting units (commonly referred to as the Income Method) has not changed since the adoption of the provisions under ASC 350. The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent best estimates based on current and forecasted market conditions. Profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management judgment is necessary in applying them to the analysis of goodwill impairment. In addition to the foregoing, for each reporting unit, market multiples are used to corroborate its discounted cash flow results where fair value is estimated based on earnings multiples determined by available public information of comparable businesses.were below their carrying values. While we believe we have made reasonable estimates and assumptions, ~~to calculate the fair value of our reporting units,~~ it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill ~~and other intangible assets~~ may then be determined to be overstated and a charge would need to be taken against net earnings. Furthermore, in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test performed during the fourth quarter of 2018, we applied a hypothetical, reasonably possible 10% decrease to the fair values of each reporting unit. The effects of this hypothetical 10% decrease would still result in the fair value calculation exceeding the carrying value for each reporting unit.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes to goodwill are as follows:



(in millions)	Fluid Handling			Payment & Merchandising Technologies			Aerospace & Electronics			Engineered Materials		Total
Balance as of December 31, 2018	$	240.8		$	789.2		$	202.4		$	171.3	$	1,403.7
Additions	—			63.4			—			—		63.4
Currency translation	0.1			5.2			—			—		5.3
Balance as of December 31, 2019	$	240.9		$	857.8		$	202.4		$	171.3	$	1,472.4
Additions	108.1			—			—			—		108.1
Adjustments to purchase price allocations	—			(3.1		)	—			—		(3.1		)
Currency translation	(3.1		)	(9.0		)	(0.1		)	—		(12.2		)
Balance at March 31, 2020	$	345.9		$	845.7		$	202.3		$	171.3	$	1,565.2

(in millions) Fluid Handling Payment & Merchandising Technologies Aerospace & Electronics Engineered Materials Total
Balance as of December 31, 2017 $ 245.4
$ 587.7
$ 202.4
$ 171.4
$ 1,206.9
Additions —
208.4
—
—
208.4
Currency translation (4.6 ) (6.9 ) —
(0.1 ) (11.6 )
Balance at December 31, 2018 $ 240.8
$ 789.2
$ 202.4
$ 171.3
$ 1,403.7
Additions —
8.7
—
—
8.7
Currency translation (3.7 ) (3.1 ) (0.1 ) —
(6.9 )
Balance at September 30, 2019 $ 237.1
$ 794.8
$ 202.3
$ 171.3
$ 1,405.5

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, additions to goodwill represent the preliminary purchase price allocation related to the January 2020 acquisition of I&S and an adjustment to the purchase price allocation for the December 2019 ~~and for~~acquisition of Cummins-Allison. For the year ended December 31, ~~2018,~~2019, additions to goodwill represent the preliminary purchase price allocation related to the acquisition of Cummins-Allison and the finalization of the purchase price allocation of the January 2018 acquisition of Crane Currency. See discussion in Note 4,2, “Acquisitions” for further details.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$445.4~~$545.4 million of net intangible assets, of which $69.4 million were intangibles with indefinite useful lives, consisting of trade names. As of December 31, 2019, we had $505.1 million of net intangible assets, of which $69.9 million were intangibles with indefinite useful lives, consisting of trade names. Intangibles with indefinite useful lives are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment. If the carrying amount of an indefinite lived intangible asset exceeds its fair value, the intangible asset is written down to its fair value. Fair value is calculated using relief from royalty method. We amortize the cost of definite-lived intangibles over their estimated useful lives.

~~In addition to annual testing for impairment of indefinite-lived intangible assets, we~~ We also review all of our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. ~~Examples~~

In March of ~~events or changes~~2020, we observed a significant decline in ~~circumstances~~the market valuation of our common shares as a result of the COVID-19 pandemic. As such, we performed sensitivity analyses based on more recent assumptions, including entity-specific and macroeconomic factors resulting from the COVID-19 pandemic. We concluded that it was not more likely than not that the fair values of our indefinite-lived intangible assets were below their carrying values. While we believe we have made reasonable estimates and assumptions, it is possible a material change could ~~include, but~~occur. If actual results are not ~~limited~~consistent with management’s estimates and assumptions, indefinite-lived intangible assets may then be determined to a prolonged economic downturn, current period operating or cash flow losses combined with a history of losses or a forecast of continuing losses associated with the use of an asset or asset group, or a current expectation that an asset or asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the definite-lived intangible asset (or asset group), as well as specific appraisal in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other long-lived assets or asset groups and include estimated future revenues, gross profit margins, operating profit margins and capital expenditures which are based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent our best estimates based on current and forecasted market conditions, and the profit margin assumptions are based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis. If the future undiscounted cash flows are less than the carrying value, then the definite-lived intangible asset is considered impairedoverstated and a charge would need to be taken against net earnings based on the amount by which the carrying amount exceeds the estimated fair value. Judgments that we make which impact these assessments relate to the expected useful lives of definite-lived assets and our ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets, and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Since judgment is involved in determining the recoverable amount of definite-lived intangible assets, there is risk that the carrying value of our definite-lived intangible assets may require adjustment in future periods. Historical results to date have generally approximated expected cash flows for the identifiable cash flow generating level. We believe there have been no events or circumstances which would more likely than not reduce the fair value of our indefinite-lived or definite-lived intangible assets below their carrying value.earnings.

Changes to intangible assets are as follows:


(in millions)	Nine Months Ended September 30, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2020			Year Ended December 31, 2019
Balance at beginning of period, net of accumulated amortization	$	481.8		$	276.8		$	505.1		$	481.8
Additions	—			252.8			52.5			66.0
Amortization expense	(30.6		)	(44.5		)	(11.0		)	(40.0		)
Currency translation	(5.8		)	(3.3		)	(1.2		)	(2.7		)
Balance at end of period, net of accumulated amortization	$	445.4		$	481.8		$	545.4		$	505.1

For the ~~year~~three months ended ~~December~~March 31, ~~2018,~~2020, additions to intangible assets represent the preliminary purchase price allocation related to the January ~~2018~~2020 acquisition of ~~Crane Currency.~~I&S. For the year ended December 31, 2019, additions to intangible assets represent the preliminary purchase price allocation related to the acquisition of Cummins-Allison. See discussion in Note 4,2, “Acquisitions” for further details.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of intangible assets follows:


	Weighted Average Amortization Period of Finite Lived Assets (in years)	September 30, 2019						December 31, 2018							March 31, 2020						December 31, 2019
(in millions)		Gross Asset		Accumulated Amortization		Net		Gross Asset		Accumulated Amortization		Net		Weighted Average Amortization Period of Finite Lived Assets (in years)	Gross Asset		Accumulated Amortization		Net		Gross Asset		Accumulated Amortization		Net
Intellectual property rights	17.2	$	129.9	$	55.8	$	74.1	$	130.7	$	55.6	$	75.1	15.7	$	135.3	$	56.0	$	79.3	$	134.2	$	56.8	$	77.4
Customer relationships and backlog	18.7	545.7		231.3		314.4		546.8		210.7		336.1		18.4	649.1		245.8		403.3		603.1		241.3		361.8
Drawings	37.9	11.1		10.5		0.6		11.1		10.5		0.6		40.0	11.1		10.5		0.6		11.1		10.5		0.6
Other	10.3	129.3		73.0		56.3		135.0		65.0		70.0		11.7	140.3		78.1		62.2		141.6		76.3		65.3
Total	18.0	$	816.0	$	370.6	$	445.4	$	823.6	$	341.8	$	481.8	17.9	$	935.8	$	390.4	$	545.4	$	890.0	$	384.9	$	505.1

Future amortization expense associated with intangible assets is expected to be:


(in millions)
Remainder of 2019	$	9.7
2020	36.8
Remainder of 2020			$	34.2
2021	34.5		42.7
2022	34.3		42.3
2023 and thereafter	260.7
2023			42.1
2024 and after			314.7

Note 1110 - Accrued Liabilities

Accrued liabilities consist of:


(in millions)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Employee related expenses	$	111.4	$	124.7	$	90.3	$	120.6
Warranty	11.9		18.2		10.8		11.0
Current lease liabilities					24.1		24.0
Contract liabilities	42.1		50.8		96.4		88.4
Other	142.2		143.4		128.6		134.2
Total	$	307.6	$	337.1	$	350.2	$	378.2

We accrue warranty liabilities when it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Warranty provision is included within “Cost of sales” in our Condensed Consolidated Statements of Operations.

A summary of ~~the~~ warranty liabilities is as follows:


(in millions)	Nine Months Ended September 30, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2020			Year Ended December 31, 2019
Balance at beginning of period	$	18.2		$	14.6		$	11.0		$	18.2
Expense	6.1			14.6			2.6			8.9
Changes due to acquisitions	—			1.1			0.3			—
Payments / deductions	(12.1		)	(12.0		)	(3.0		)	(16.0		)
Currency translation	(0.3		)	(0.1		)	(0.1		)	(0.1		)
Balance at end of period	$	11.9		$	18.2		$	10.8		$	11.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1211 - Commitments and Contingencies

Asbestos Liability

Information Regarding Claims and Costs in the Tort System

As of ~~September 30, 2019,~~March 31, 2020, we were a defendant in cases filed in numerous state and federal courts alleging injury or death as a result of exposure to asbestos. Activity related to asbestos claims during the periods indicated was as follows:


	Three Months Ended				Nine Months Ended				Year Ended		Three Months Ended				Year Ended
	September 30,				September 30,				December 31,		March 31,				December 31,
	2019		2018		2019		2018		2018		2020		2019		2019
Beginning claims	28,851		29,920		29,089		32,234		32,234		29,056		29,089		29,089
New claims	746		574		2,190		1,802		2,434		681		675		2,848
Settlements	(177	)	(174	)	(763	)	(779	)	(1,011	)	(165	)	(408	)	(983	)
Dismissals	(591	)	(997	)	(1,687	)	(3,934	)	(4,568	)	(410	)	(858	)	(1,898	)
Ending claims	28,829		29,323		28,829		29,323		29,089		29,162		28,498		29,056

Of the ~~28,829~~29,162 pending claims as of ~~September 30, 2019,~~March 31, 2020, approximately 18,000 claims were pending in New York, approximately 100 claims were pending in Texas, approximately 300 claims were pending in Mississippi, and approximately 200 claims were pending in Ohio, all jurisdictions in which legislation or judicial orders restrict the types of claims that can proceed to trial on the merits.

We have tried several cases resulting in defense verdicts by the jury or directed verdicts for the defense by the court. We further have pursued appeals of certain adverse jury verdicts that have resulted in reversals in favor of the defense. We have also tried several other cases resulting in plaintiff verdicts which we paid or settled after unsuccessful appeals, the most recent of which are described below.

On March 23, 2010, a Philadelphia, Pennsylvania, state court jury found us responsible for a 1/11th share of a $14.5 million verdict in the James Nelson claim. On February 23, 2011, the court entered judgment on the verdict in the amount of $4.0 million, jointly, against us and two other defendants, with additional interest in the amount of $0.01 million being assessed against us, only. All defendants, including us, and the plaintiffs took timely appeals of certain aspects of those judgments. On September 5, 2013, a panel of the Pennsylvania Superior Court, in a 2-1 decision, vacated the Nelson verdict against all defendants, reversing and remanding for a new trial. Plaintiffs requested a rehearing in the Superior Court and by order dated November 18, 2013, the Superior Court vacated the panel opinion, and granted en banc reargument. On December 23, 2014, the Superior Court issued a second opinion reversing the jury verdict. Plaintiffs sought leave to appeal to the Pennsylvania Supreme Court, which defendants opposed. By order dated June 21, 2017, the Supreme Court of Pennsylvania denied plaintiffs’ petition for leave to appeal. The case was set for a new trial in April 2018. We settled the matter. The settlement was reflected in the second quarter 2018 indemnity amount.

On ~~February 25, 2013, a Philadelphia, Pennsylvania, state court jury found us responsible for a 1/10th share of a $2.5 million verdict in the~~ ~~Thomas Amato~~ ~~claim and a 1/5th share of a $2.3 million verdict in the~~ ~~Frank Vinciguerra~~ claim, which were consolidated for trial. We filed post-trial motions requesting judgments in our favor notwithstanding the jury’s verdicts or new trials, and also requesting that settlement offsets be applied to reduce the judgment in accordance with Pennsylvania law. These motions were denied. We appealed, and on April 17, 2015, a panel of the Superior Court of Pennsylvania affirmed the trial court’s ruling. The Supreme Court of Pennsylvania accepted our petition for review and heard oral arguments on September 13, 2016. On November 22, 2016, the Court dismissed our appeal as improvidently granted. We paid the ~~Vinciguerra~~ ~~judgment in the amount of $0.6 million in the fourth quarter 2016. We paid the~~ ~~Amato~~ ~~judgment, with interest, in the amount of $0.3 million in the second quarter of 2017.~~

~~On March 1, 2013, a New York City state court jury entered a $35 million verdict against us in the~~ ~~Ivo Peraica~~ claim. We filed post-trial motions seeking to overturn the verdict, to grant a new trial, or to reduce the damages, which we argue was excessive under New York appellate case law governing awards for non-economic losses and further were subject to settlement offsets. After the trial court remitted the verdict to $18 million, but otherwise denied our post-trial motion, judgment was entered against us in the amount of $10.6 million (including interest). We appealed. We took a separate appeal of the trial court’s denial of our summary judgment motion. The Court consolidated the appeals, which were heard in the fourth quarter of 2014. In July 2016, we supplemented our briefing based on the New York Court of Appeals ~~Dummitt/Suttner~~ decision. On October 6, 2016, a panel of the Appellate Division, First Department, affirmed the rulings of the trial court on liability issues but further reduced the damages award to $4.25 million, which after settlement offsets was calculated to be $1.94 million. Plaintiff had the option of accepting the reduced amount or having a new trial on damages. We filed a motion with the Appellate Division requesting a rehearing on liability issues. The motion was denied. The New York Court of Appeals also denied review. We paid the ~~Peraica~~ ~~judgment in the amount of $2.7 million in the first quarter of 2017.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

On September 17, 2013, a Fort Lauderdale, Florida state court jury in the Richard DeLisle claim found us responsible for 16% of an $8 million verdict. The trial court denied all parties’ post-trial motions, and entered judgment against us in the amount of $1.3 million. We appealed and oral argument on the appeal took place on February 16, 2016. On September 14, 2016, a panel of the Florida Court of Appeals reversed and entered judgment in favor of us. Plaintiff filed with the Court of Appeals a motion for rehearing and/or certification of an appeal to the Florida Supreme Court, which the Court denied on November 9, 2016. Plaintiffs subsequently requested review by the Supreme Court of Florida. Plaintiffs' motion was granted on July 11, 2017. Oral argument took place on March 6, 2018. On October 15, 2018, the Supreme Court of Florida reversed and remanded with instructions to reinstate the trial court’s judgment. We paid the judgment on December 28, 2018. That payment is reflected in the fourth quarter 2018 indemnity amount.

On ~~June 16, 2014, a New York City state court jury entered a $15 million verdict against us in the~~ ~~Ivan Sweberg~~ ~~claim and a $10 million verdict against us in the~~ ~~Selwyn Hackshaw~~ claim. The two claims were consolidated for trial. We filed post-trial motions seeking to overturn the verdicts, to grant new trials, or to reduce the damages, which were denied, except that the Court reduced the ~~Sweberg~~ ~~award to $10 million, and reduced the~~ ~~Hackshaw~~ ~~award to $6 million. Judgments were entered in the amount of $5.3 million in~~ ~~Sweberg~~ ~~and $3.1 million in~~ ~~Hackshaw. We appealed. Oral argument on~~ ~~Sweberg~~ ~~took place on February 16, 2016, and oral argument on~~ ~~Hackshaw~~ ~~took place on March 9, 2016. On October 6, 2016, two panels of the Appellate Division, First Department, affirmed the rulings of the trial court on liability issues but further reduced the~~ ~~Sweberg~~ ~~damages award to $9.5 million and further reduced the~~ ~~Hackshaw~~ ~~damages award to $3 million, which after settlement offsets are calculated to be $4.73 million in~~ ~~Sweberg~~ ~~and $0 in~~ ~~Hackshaw. Plaintiffs were given the option of accepting the reduced awards or having new trials on damages. Plaintiffs subsequently brought an appeal in~~ ~~Hackshaw~~ ~~before the New York Court of Appeals, which the Court denied. We filed a motion with the Appellate Division requesting a rehearing on liability issues in~~ ~~Sweberg. That motion was denied. The New York Court of Appeals also denied review. We paid in the first quarter of 2017 the~~ ~~Sweberg~~ ~~plaintiffs $5.7 million, which was the amount owed under this judgment. No damages were owed in~~ ~~Hackshaw~~.

On July 2, 2015, a St. Louis, Missouri state court jury in the James Poage claim entered a $1.5 million verdict for compensatory damages against us. The jury also awarded exemplary damages against us in the amount of $10 million. We filed a motion seeking to reduce the verdict to account for the verdict set-offs. That motion was denied, and judgment was entered against us in the amount of $10.8 million. We initiated an appeal. Oral argument was held on December 13, 2016. In an opinion dated May 2, 2017, a Missouri Court of Appeals panel affirmed the judgment in all respects. The Court of Appeals denied our motion to transfer the case to the Supreme Court of Missouri. We sought leave to appeal before the Supreme Court of Missouri, which denied that request. The Supreme Court of the United States denied further review on March 26, 2018. We settled the matter. The settlement was reflected in the second quarter 2018 indemnity amount.

~~On February 9, 2016, a Philadelphia, Pennsylvania, federal court jury found us responsible for a 30% share of a $1.085 million verdict in the~~ ~~Valent Rabovsky~~ claim. The court ordered briefing on the amount of the judgment. We argued, among other things, that settlement offsets reduce the award to plaintiff under Pennsylvania law. A further hearing was held April 26, 2016, after which the court denied our request and entered judgment in the amount of $0.4 million. We filed post-trial motions, which were denied in two decisions issued on August 26, 2016 and September 28, 2016. We pursued an appeal to the Third Circuit Court of Appeals, which was argued on June 12, 2017. On September 27, 2017, the Court entered an order asking the Supreme Court of Pennsylvania to decide one of the issues raised in our appeal. The Supreme Court of Pennsylvania accepted the request, and we settled the matter. The settlement was reflected in the fourth quarter 2017 indemnity amount.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On April 22, 2016, a Phoenix, Arizona federal court jury found us responsible for a 20% share of a $9 million verdict in the George Coulbourn claim, and further awarded exemplary damages against us in the amount of $5 million. The jury also awarded compensatory and exemplary damages against the other defendant present at trial. The court entered judgment against us in the amount of $6.8 million. We filed post-trial motions, which were denied on September 20, 2016. We pursued an appeal to the Ninth Circuit Court of Appeals which affirmed the judgment on March 29, 2018. We settled the matter. The settlement was reflected in the second quarter 2018 indemnity amount.

~~On June 30, 2017, a New York City state court jury entered a $20 million verdict against us in the~~ ~~Geoffrey Anisansel~~ ~~claim. We settled the matter in August 2017. The settlement was reflected in the third quarter 2017 indemnity amount.~~

Such judgment amounts were not included in our incurred costs until all available appeals are exhausted and the final payment amount is determined.

The gross settlement and defense costs incurred (before insurance recoveries and tax effects) by us for the ~~nine-month periods~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ totaled ~~$54.2~~$12.6 million and ~~$69.7~~$26.5 million, respectively. In contrast to the recognition of settlement and defense costs, which reflect the current level of activity in the tort system, cash payments and receipts generally lag the tort system activity by several months or more, and may show some fluctuation from period to period. Cash payments of settlement amounts are not made until all releases and other required documentation are received by us, and reimbursements

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

of both settlement amounts and defense costs by insurers may be uneven due to insurer payment practices, transitions from one insurance layer to the next excess layer and the payment terms of certain reimbursement agreements. Our total pre-tax payments for settlement and defense costs, net of funds received from insurers, for the ~~nine-month periods~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ totaled ~~$28.9~~$11.7 million and ~~$46.4~~$9.7 million, respectively. Detailed below are the comparable amounts for the periods indicated.


	Three Months Ended						Nine Months Ended						Year Ended			Three Months Ended						Year Ended
(in millions)	September 30,						September 30,						December 31,			March 31,						December 31,
	2019			2018			2019			2018			2018			2020			2019			2019
Settlement / indemnity costs incurred ⁽¹⁾	$	8.8		$	7.6		$	38.8		$	49.6		$	63.0		$	8.2		$	21.4		$	45.5
Defense costs incurred ⁽¹⁾	5.1			6.2			15.4			20.1			25.8			4.4			5.1			20.7
Total costs incurred	$	13.9		$	13.8		$	54.2		$	69.7		$	88.8		$	12.6		$	26.5		$	66.2

Settlement / indemnity payments	$	12.0		$	12.0		$	27.6		$	46.0		$	61.5		$	11.0		$	8.8		$	38.9
Defense payments	5.2			5.9			15.4			17.7			26.5			4.3			4.0			21.4
Insurance receipts	(6.2		)	(6.3		)	(14.1		)	(17.3		)	(24.1		)	(3.6		)	(3.1		)	(18.8		)
Pre-tax cash payments	$	11.0		$	11.6		$	28.9		$	46.4		$	63.9		$	11.7		$	9.7		$	41.5

⁽¹⁾Before insurance recoveries and tax effects.

The amounts shown for settlement and defense costs incurred, and cash payments, are not necessarily indicative of future period amounts, which may be higher or lower than those reported.

Cumulatively through ~~September 30, 2019,~~March 31, 2020, we have resolved (by settlement or dismissal) approximately ~~138,000~~139,000 claims. The related settlement cost incurred by us and our insurance carriers is approximately ~~$640~~$650 million, for an average settlement cost per resolved claim of approximately ~~$4,600.~~$4,700. The average settlement cost per claim resolved during the years ended December 31, 2019, 2018 and 2017 was $15,800, $11,300, and ~~2016 was $11,300,~~ $7,800, ~~and $3,900,~~ respectively. Because claims are sometimes dismissed in large groups, the average cost per resolved claim, as well as the number of open claims, can fluctuate significantly from period to period. In addition to large group dismissals, the nature of the disease and corresponding settlement amounts for each claim resolved will also drive changes from period to period in the average settlement cost per claim. Accordingly, the average cost per resolved claim is not considered in our periodic review of our estimated asbestos liability. For a discussion regarding the four most significant factors affecting the liability estimate, see “Effects on the Condensed Consolidated Financial ~~Statements”.~~Statements.”

Effects on the Condensed Consolidated Financial Statements

We have retained an independent actuarial firm to assist management in estimating our asbestos liability in the tort system. The actuarial consultants review information provided by us concerning claims filed, settled and dismissed, amounts paid in settlements and relevant claim information such as the nature of the asbestos-related disease asserted by the claimant, the jurisdiction where filed and the time lag from filing to disposition of the claim. The methodology used by the actuarial consultants to project future asbestos costs is based on our recent historical experience for claims filed, settled and dismissed during a base reference period. Our experience is then compared to estimates of the number of individuals likely to develop asbestos-related diseases determined based on widely used previously conducted epidemiological studies augmented with current data inputs. Those studies were undertaken in connection with national analyses of the population of workers believed to have been exposed to asbestos. Using that information, the actuarial consultants estimate the number of future claims that

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

would be filed against us and estimates the aggregate settlement or indemnity costs that would be incurred to resolve both pending and future claims based upon the average settlement costs by disease during the reference period. This methodology has been accepted by numerous courts. After discussions with us, the actuarial consultants augment our liability estimate for the costs of defending asbestos claims in the tort system using a forecast from us which is based upon discussions with our defense counsel. Based on this information, the actuarial consultants compile an estimate of our asbestos liability for pending and future claims using a range of reference periods based on claim experience and covering claims expected to be filed through the indicated forecast period. The most significant factors affecting the liability estimate are (1) the number of new mesothelioma claims filed against us, (2) the average settlement costs for mesothelioma claims, (3) the percentage of mesothelioma claims dismissed against us and (4) the aggregate defense costs incurred by us. These factors are interdependent, and no one factor predominates in determining the liability estimate.

In our view, the forecast period used to provide the best estimate for asbestos claims and related liabilities and costs is a judgment based upon a number of trend factors, including the number and type of claims being filed each year; the jurisdictions where such claims are filed, and the effect of any legislation or judicial orders in such jurisdictions restricting the types of claims that can proceed to trial on the merits; and the likelihood of any comprehensive asbestos legislation at the federal level.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In addition, the dynamics of asbestos litigation in the tort system have been significantly affected by the substantial number of companies that have filed for bankruptcy protection, thereby staying any asbestos claims against them until the conclusion of such proceedings, and the establishment of a number of post-bankruptcy trusts for asbestos claimants, which have been estimated to provide $36 billion for payments to current and future claimants. These trend factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and the related best estimate of our asbestos liability, and these effects do not move in a linear fashion but rather change over multi-year periods. Accordingly, management continues to monitor these trend factors over time and periodically assesses whether an alternative forecast period is appropriate.

Each quarter, the actuarial consultants compile an update based upon our experience in claims filed, settled and dismissed as well as average settlement costs by disease category (mesothelioma, lung cancer, other cancer, and non-malignant conditions including asbestosis). In addition to this claims experience, we also consider additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. As part of this process, we also ~~take into account~~consider trends in the tort system such as those enumerated above. Management considers all these factors in conjunction with the liability estimate of the actuarial consultants and determines whether a change in the estimate is warranted.

Liability Estimate. ~~Effective~~In June 2016, the New York State Court of Appeals issued its opinion in Dummitt v. Crane Co., affirming a 2012 verdict for $4.9 million against us. In that opinion, the court ruled that in certain circumstances we are legally responsible for asbestos-containing materials made and sold by third parties that others attached post-sale to our equipment. This decision provided clarity regarding the nature of claims that may proceed to trial in New York and greater predictability regarding future claim activity. We also reflected the impact of the Dummitt decision on our expected settlement values. Accordingly, on December 31, 2016 we updated and extended our asbestos liability estimate through 2059, the generally accepted end point.

Following our experience in the tort system post the Dummitt decision, we entered into several, increasingly similar, group settlements with various plaintiff firms, the most recent of which was in the fourth quarter of 2019. We expect this new trend of these types of group settlements to continue, and accordingly, effective as of December 31, ~~2016,~~2019, we ~~extended~~updated our estimate of the asbestos liability, including ~~the~~revised costs of settlement or indemnity payments and defense costs relating to currently pending claims and future claims projected to be filed against us through the ~~generally accepted~~same expected end point of ~~such claims in~~ 2059. ~~Our previous estimate was for asbestos claims filed or projected to be filed through 2021.~~ Our estimate of the asbestos liability for pending and future claims through 2059 is based on the projected future asbestos costs resulting from our experience using a range of reference periods for claims filed, settled and dismissed. Based on this estimate, we recorded an additional liability of ~~$227~~$255 million as of December 31, 2016. This action was based on several factors which contribute to our ability to reasonably estimate this liability through 2059. First, the number of mesothelioma claims (which, although constituting approximately 10% of our total pending asbestos claims, have consistently accounted for approximately 90% of our aggregate settlement and defense costs) being filed against us and associated settlement costs have stabilized. Second, there have been generally favorable developments in the trend of case law, which has been a contributing factor in stabilizing the asbestos claims activity and related settlement costs. Third, there have been significant actions taken by certain state legislatures and courts that have reduced the number and types of claims that can proceed to trial, which has been a significant factor in stabilizing the asbestos claims activity. Fourth, recent court decisions in certain jurisdictions have provided additional clarity regarding the nature of claims that may proceed to trial in those jurisdictions and greater predictability regarding future claim activity. Fifth, we have coverage-in-place agreements with almost all of our excess insurers, which enables us to project a stable relationship between settlement and defense costs paid by us and reimbursements from our insurers. Sixth, annual settlements with respect to groups of cases with certain plaintiff firms have helped to stabilize indemnity payments and defense costs. Taking these factors into account, we believe that we can reasonably estimate the asbestos liability for pending claims and future claims to be filed through 2059.2019.

Management has made its best estimate of the costs through 2059. Through September 30, 2019, our actual experience during the updated reference period for mesothelioma claims filed and dismissed generally approximated the assumptions in our liability estimate. In addition to this claims experience, we considered additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. Based on this evaluation, we determined that no change in the estimate was warranted for the period ended September 30, 2019.

AAn aggregate liability of ~~$696~~$712 million ~~was~~is recorded as of December 31, ~~2016~~2019 to cover the estimated cost of asbestos claims now pending or subsequently asserted through 2059, of which approximately ~~80%~~85% is attributable to settlement and defense costs for future claims projected to be filed through 2059. The liability is reduced when cash payments are made in respect of settled claims and defense costs. The liability was ~~$474~~$696 million as of ~~September 30, 2019.~~March 31, 2020. It is not possible to forecast when cash payments related to the asbestos liability will be fully expended; however, it is expected such cash payments will continue for a number of years past 2059, due to the significant proportion of future claims included in the estimated asbestos liability and the lag time between the date a claim is filed and when it is resolved. None of these estimated costs have been discounted to present value due to the inability to reliably forecast the timing of payments. The current portion of the total estimated liability at ~~September 30,~~December 31, 2019 ~~was $66~~and March 31, 2020 is $65 million and represents our best estimate of total asbestos costs expected to be paid during the twelve-month period. Such amount is based upon the actuarial model together with our prior year payment experience for both settlement and defense costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have made our best estimate of the costs through 2059. Through March 31, 2020, our actual experience during the updated reference period for mesothelioma claims filed and dismissed generally approximated the assumptions in our liability estimate. In addition to this claims experience, we considered additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. Based on this evaluation, we determined that no change in the estimate was warranted for the period ended March 31, 2020.

Insurance Coverage and Receivables. Prior to 2005, a significant portion of our settlement and defense costs were paid by our primary insurers. With the exhaustion of that primary coverage, we began negotiations with our excess insurers to reimburse us for a portion of our settlement and/or defense costs as incurred. To date, we have entered into agreements providing for such

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

reimbursements, known as ~~“coverage-in-place”,~~“coverage-in-place,” with eleven of our excess insurer groups. Under such coverage-in-place agreements, an insurer’s policies remain in force and the insurer undertakes to provide coverage for our present and future asbestos claims on specified terms and conditions that address, among other things, the share of asbestos claims costs to be paid by the insurer, payment terms, claims handling procedures and the expiration of the insurer’s obligations. Similarly, under a variant of coverage-in-place, we have entered into an agreement with a group of insurers confirming the aggregate amount of available coverage under the subject policies and setting forth a schedule for future reimbursement payments to us based on aggregate indemnity and defense payments made. In addition, with 10ten of our excess insurer groups, we entered into agreements settling all asbestos and other coverage obligations for an agreed sum, totaling $82.5 million in aggregate. Reimbursements from insurers for past and ongoing settlement and defense costs allocable to their policies have been made in accordance with these coverage-in-place and other agreements. All of these agreements include provisions for mutual releases, indemnification of the insurer and, for coverage-in-place, claims handling procedures. With the agreements referenced above, we have concluded settlements with all but ~~one~~two of our solvent excess insurers ~~whose~~with policies ~~are~~ expected to respond to the aggregate costs included in the liability estimate. ~~That~~The first such insurer, which issued a single applicable policy, has been paying for many years the shares of defense and indemnity costs we have allocated to it, subject to a reservation of rights. The second insurer issued a single applicable policy in a layer of coverage that we do not anticipate reaching until many years from now, and, prior to the policy being reached, we anticipate opening a dialogue with that insurer about the execution of a suitable agreement. There are no pending legal proceedings between us and any insurer contesting our asbestos claims under our insurance policies.

In conjunction with developing the aggregate updated liability estimate referenced above, we also developed an updated estimate of probable insurance recoveries for our asbestos liabilities. In developing this estimate, we considered our coverage-in-place and other settlement agreements described above, as well as ~~a number of~~several additional factors. These additional factors include the financial viability of the insurance companies, the method by which losses will be allocated to the various insurance policies and the years covered by those policies, how settlement and defense costs will be covered by the insurance policies and interpretation of the effect on coverage of various policy terms and ~~limits and their interrelationships.~~limits. In addition, the timing and amount of reimbursements will vary because our insurance coverage for asbestos claims involves multiple insurers, with different policy terms and certain gaps in coverage. In addition to consulting with legal counsel on these insurance matters, we retained insurance consultants to assist management in the estimation of probable insurance recoveries based upon the aggregate liability estimate described above and assuming the continued viability of all solvent insurance carriers. Based upon the analysis of policy terms and other factors noted above by our legal counsel, and incorporating risk mitigation judgments by us where policy terms or other factors were not certain, our insurance consultants compiled a model indicating how our historical insurance policies would respond to varying levels of asbestos settlement and defense costs and the allocation of such costs between such insurers and us. Using the estimated liability as of December 31, ~~2016~~2019 (for claims filed or expected to be filed through 2059), the insurance consultant’s model forecasted that approximately ~~21%~~14% of the liability would be reimbursed by our insurers. While there are overall limits on the aggregate amount of insurance available to us with respect to asbestos claims, ~~those overall~~certain limits were not reached by the total estimated liability currently recorded by us, and such overall limits did not influence ~~us in~~ our determination of the asset amount to record. ~~The proportion of the asbestos liability that is allocated to certain insurance coverage years, however, exceeds the limits of available insurance in those years.~~ We allocate to ourselves the amount of the asbestos liability (for claims filed or expected to be filed through 2059) that is in excess of available insurance coverage allocated to such years. An asset of ~~$143~~$98 million was recorded as of December 31, ~~2016~~2019 representing the probable insurance reimbursement for ~~such~~ claims expected through 2059. The asset is reduced as reimbursements and other payments from insurers are received. The asset was ~~$77~~$94 million as of ~~September 30, 2019.~~March 31, 2020.

We review the ~~aforementioned~~ estimated reimbursement rate with our insurance consultants on a periodic basis in order to confirm overall consistency with our established reserves. The reviews encompass consideration of the performance of the insurers under coverage-in-place agreements and the effect of any additional lump-sum payments under other insurer agreements. Actual insurance reimbursements vary from period to period, and will decline over time, for the reasons cited above.

Uncertainties. Estimation of our ultimate exposure for asbestos-related claims is subject to significant uncertainties, as there are multiple variables that can affect the timing, severity and quantity of claims and the manner of their resolution. We caution that our estimated liability is based on assumptions with respect to future claims, settlement and defense costs based on past

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

experience that may not prove reliable as predictors; the assumptions are interdependent and no single factor predominates in determining the liability estimate. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would substantial adverse verdicts at trial that withstand appeal. A legislative solution, structured settlement transaction, or significant change in relevant case law could also change the estimated liability.

The same factors that affect developing estimates of probable settlement and defense costs for asbestos-related liabilities also affect estimates of the probable insurance reimbursements, as do a number of additional factors. These additional factors include the financial viability of the insurance companies, the method by which losses will be allocated to the various insurance

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

policies and the years covered by those policies, how settlement and defense costs will be covered by the insurance policies and interpretation of the effect on coverage of various policy terms and limits and their interrelationships. In addition, due to the uncertainties inherent in litigation matters, no assurances can be given regarding the outcome of any litigation, if necessary, to enforce our rights under our insurance policies or settlement agreements.

Many uncertainties exist surrounding asbestos litigation, and we will continue to evaluate our estimated asbestos-related liability and corresponding estimated insurance reimbursement as well as the underlying assumptions and process used to derive these amounts. These uncertainties may result in our incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if the number of claims and settlement and defense costs change significantly, or if there are significant developments in the trend of case law or court procedures, or if legislation or another alternative solution is implemented. Although the resolution of these claims will likely take many years, the effect on the results of operations, financial position and cash flow in any given period from a revision to these estimates could be material.

Other Contingencies

Environmental Matters

For environmental matters, we record a liability for estimated remediation costs when it is probable that we will be responsible for such costs and they can be reasonably estimated. Generally, third party specialists assist in the estimation of remediation costs. The environmental remediation liability as of ~~September 30, 2019~~March 31, 2020 is substantially related to the former manufacturing site in Goodyear, Arizona (the “Goodyear Site”) discussed below.

Goodyear Site

The Goodyear Site was operated by Unidynamics/Phoenix, Inc. (“UPI”), which became an indirect subsidiary in 1985 when we acquired UPI’s parent company, Unidynamics Corporation. UPI manufactured explosive and pyrotechnic compounds, including components for critical military programs, for the U.S. government at the Goodyear Site from 1962 to 1993, under contracts with the Department of Defense and other government agencies and certain of their prime contractors. In 1990, the U.S. Environmental Protection Agency (“EPA”) issued administrative orders requiring UPI to design and carry out certain remedial actions, which UPI has done. Groundwater extraction and treatment systems have been in operation at the Goodyear Site since 1994. On July 26, 2006, we entered into a consent decree with the EPA with respect to the Goodyear Site providing for, among other things, a work plan for further investigation and remediation activities (inclusive of a supplemental remediation investigation and feasibility study). During the third quarter of 2014, the EPA issued a Record of Decision (“ROD”) amendment permitting, among other things, additional source area remediation resulting in us recording a charge of $49.0 million, extending the accrued costs through 2022. Following the 2014 ROD amendment, we continued our remediation activities and explored an alternative strategy to accelerate remediation of the site. During the fourth quarter of 2019, we received conceptual agreement from the EPA on our alternative remediation strategy which is expected to further reduce the contaminant plume. Accordingly, we recorded a pre-tax charge of $18.9 million, net of reimbursements, to extend our forecast period through 2027 and reflect our revised workplan. The total estimated gross liability was ~~$26.0~~$44.2 million as of ~~September 30, 2019,~~March 31, 2020, and as described below, a portion is reimbursable by the U.S. Government. The current portion of the total estimated liability was $10.9 million as of ~~September 30, 2019~~March 31, 2020 and represents our best estimate, in consultation with our technical advisors, of total remediation costs expected to be paid during the twelve-month period.

It is not possible at this point to reasonably estimate the amount of any obligation in excess of our current accruals through the ~~2022~~2027 forecast period because of the aforementioned uncertainties, in particular, the continued significant changes in the Goodyear Site conditions and additional expectations of remediation activities experienced in recent years.

On July 31, 2006, we entered into a consent decree with the U.S. Department of Justice on behalf of the Department of Defense and the Department of Energy pursuant to which, among other things, the U.S. Government reimburses us for 21% of qualifying costs of investigation and remediation activities at the Goodyear Site. As of ~~September 30, 2019,~~March 31, 2020, we ~~have~~ recorded a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

receivable of ~~$6.0~~$9.7 million for the expected reimbursements from the U.S. Government in respect of the aggregate liability as at that date. The receivable is reduced as reimbursements and other payments from the U.S. Government are received.

Other Environmental Matters

We have been identified as a potentially responsible party (“PRP”) with respect to environmental contamination at the Crab Orchard National Wildlife Refuge Superfund Site (the “Crab Orchard Site”). The Crab Orchard Site is located near Marion, Illinois, and consists of approximately 55,000 acres. Beginning in 1941, the United States used the Crab Orchard Site for the production of ordnance and other related products for use in World War II. In 1947, about half of the Crab Orchard Site was leased to a variety of industrial tenants whose activities (which continue to this day) included manufacturing ordnance and explosives. A predecessor of us formerly leased portions of the Crab Orchard Site and conducted manufacturing operations at the Crab Orchard Site from 1952 until 1964. General Dynamics Ordnance and Tactical Systems, Inc. (“GD-OTS”) is in the process of conducting a remedial investigation and feasibility study for a portion of the Crab Orchard Site (referred to as the “AUS-OU”), which includes an area where we maintained operations, pursuant to an Administrative Order on Consent. A

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

remedial investigation report was approved in February 2015, and work on the feasibility study is underway. It is unclear when the final feasibility study will be completed, or when a final Record of Decision may be issued.

GD-OTS has asked us to participate in a voluntary, multi-party mediation exercise with respect to response costs it has incurred or will incur with respect to the AUS-OU. We and other PRPs executed a non-binding mediation agreement on March 16, 2015, and the U.S. government executed the mediation agreement on August 6, 2015. The first phase of the mediation, involving certain former munitions or ordnance storage areas, began in November 2017, but did not result in a multi-party settlement agreement. Subsequently, ~~the Company~~we entered into discussions directly with GD-OTS and reached an agreement-in-principle with GD-OTS to contribute toward GD-OTS’s past RI-FS costs associated with the first-phase areas for a non-material amount. We have also agreed to pay a modest percentage of future RI-FS costs and the United States’ claimed past response costs relative to the first-phase areas, a sum that we expect in the aggregate to be immaterial. We ~~are awaiting receipt of a draft partial settlement agreement from GD-OTS to memorialize this interim agreement. We~~ understand that GD-OTS has also reached an agreement-in-principle with the U.S. Government and certain other PRPs related to the first-phase areas of concern, and that GD-OTS is negotiating with other PRPs. ~~Following completion~~Negotiations are underway with respect to resolution of ~~negotiations over~~ the ~~first-phase~~remaining areas ~~we expect that discussions will commence regarding~~of the site, including those portions of the Crab Orchard Site where our predecessor conducted manufacturing and research activities. We ~~understand that a final agreement will not be consummated until mediation has been completed as to all parties and all of the areas of concern at the Crab Orchard Site. We~~ at present cannot predict whether ~~the~~these further ~~discussions with GD-OTS,~~negotiations will result in ~~such a final~~an agreement, or when any determination of the ultimate allocable shares of the various PRPs, including the U.S. Government, is likely to be completed. It is not possible at this time to reasonably estimate the total amount of any obligation for remediation of the Crab Orchard Site as a whole because the allocation among PRPs, selection of remediation alternatives, and concurrence of regulatory authorities have not yet advanced to the stage where a reasonable estimate can be made. We notified our insurers of this potential liability and have obtained defense and indemnity coverage, subject to reservations of rights, under certain of our insurance policies.

Other Proceedings

We regularly review the status of lawsuits, claims and proceedings that have been or may be asserted against us relating to the conduct of our business, including those pertaining to product liability, patent infringement, commercial, employment, employee benefits, environmental and stockholder matters. We record a provision for a liability for such matters when it is considered probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions, if any, are reviewed quarterly and adjusted as additional information becomes available. If either or both of the criteria are not met, we assess whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss or additional loss may have been incurred for such matters, we disclose the estimate of the amount of loss or range of loss, disclose that the amount is immaterial, or disclose that an estimate of loss cannot be made, as applicable. We believe that as of ~~September 30, 2019,~~March 31, 2020, there was no reasonable possibility that a material loss, or any additional material losses, may have been incurred for such matters, and that adequate provision has been made in our financial statements for the potential impact of all such matters.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1312 - Financing

~~The following table summarizes current maturities~~Our debt consisted of ~~long-term debt as of September 30, 2019 and December 31, 2018:~~

the following:

(in millions) September 30,
2019 December 31,
2018
Syndicated loan facility $ 5.9
$ 5.3
Building loan facility 1.5
1.6
Total current maturities of long-term debt $ 7.4
$ 6.9



(in millions)	March 31, 2020			December 31, 2019

Commercial paper	$	333.5		$	149.4
Revolving credit agreement borrowings	45.2			—
Total short-term borrowings	$	378.7		$	149.4

4.45% notes due December 2023	$	298.9		$	298.9
6.55% notes due November 2036	198.3			198.3
4.20% notes due March 2048	346.1			346.1
Other deferred financing costs associated with credit facilities	(1.1		)	(1.3		)
Total long-term debt	$	842.2		$	842.0
_{Debt discounts and debt issuance costs totaled $6.7 as of each of March 31, 2020 and December 31, 2019, and have been netted against the aggregate principal amounts of the related debt in the components of the debt table above.}

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were 0$333.5 million and $149.4 million, respectively, of outstanding borrowings under the commercial paper program. We issued $100 million and $150 million of commercial paper to fund the acquisitions of I&S and Cummins-Allison, respectively. See discussion in Note 2, “Acquisitions” for further details. Amounts available under the commercial paper program may be borrowed, repaid and re-borrowed from time to time, with the aggregate principal amount of the notes outstanding under the commercial paper program at any time not to exceed $550 million.

~~The Company has~~We also have a revolving credit agreement permitting borrowings of up to $550 million which expires in December 2022. ~~As of September 30, 2019 and December 31, 2018, there were 0 borrowings under this revolving credit agreement.~~ The undrawn portion of this revolving credit agreement is also available to serve as a backstop facility for the issuance of commercial paper.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table summarizes our long-term debt as~~ As of ~~September 30, 2019 and~~March 31, 2020, there was $45.2 million outstanding related to borrowings of $67 million used to fund the I&S acquisition in January 2020. See discussion in Note 2, “Acquisitions” for further details. As of December 31, ~~2018:~~

(in millions) September 30,
2019 December 31,
2018
4.45% notes due December 2023 $ 298.8
$ 298.6
6.55% notes due November 2036 198.3
198.2
4.20% notes due March 2048 346.0
345.9
Syndicated loan facility 67.6
76.1
Building loan facility 25.6
25.1
Other deferred financing costs associated with credit facilities (1.4 ) (1.6 )
Total long-term debt ^(a)
$ 934.9
$ 942.3
(a) Debt discounts and debt issuance costs totaled $7.8 and $6.7 as of September 30, 2019 and December 31, 2018, respectively, and have been netted against the aggregate principal amounts of the related debt in the components of the debt table above.

2019, there were 0 outstanding borrowings.

Note 1413 - Fair Value Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. The standards also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standards describe three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical or similar assets and liabilities.

Level 2: Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities. Level 2 assets and liabilities include over-the-counter derivatives, principally forward foreign exchange contracts, whose value is determined using pricing models with inputs that are generally based on published foreign exchange rates and exchange traded prices, adjusted for other specific inputs that are primarily observable in the market or can be derived principally from or corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Valuation Technique

The carrying value of our financial assets and liabilities, including cash and cash equivalents, accounts receivable and accounts payable approximate fair value, without being discounted, due to the short periods during which these amounts are outstanding.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are exposed to certain risks related to our ongoing business operations, including market risks related to fluctuation in currency exchange. We use foreign exchange contracts to manage the risk of certain cross-currency business relationships to minimize the impact of currency exchange fluctuations on our earnings and cash flows. We do not hold or issue derivative financial instruments for trading or speculative purposes. Foreign exchange contracts not designated as hedging instruments had a notional value of ~~$41.1~~$41.5 million and ~~$2.1~~$56.6 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Our derivative assets and liabilities include foreign exchange contract derivatives that are measured at fair value using internal models based on observable market inputs such as forward rates and interest rates. Based on these inputs, the derivatives are classified within Level 2 of the valuation hierarchy. Such derivative receivable amounts are recorded within “Other current assets” on our Condensed Consolidated Balance Sheets and were ~~$0.5~~$1.7 million and $0.1 million as of ~~September 30, 2019~~March 31, 2020 and ~~less than $0.1 million at~~ December 31, ~~2018.~~2019, respectively. Such derivative liability amounts are recorded within “Accrued liabilities” on our Condensed Consolidated Balance Sheets and were $0.1 million and less than $0.1 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

The available-for-sale securities, which are included in “Other assets” on our Condensed Consolidated Balance Sheets, consist of two rabbi trusts that hold marketable securities for the benefit of participants in the SERP. Available-for-sale securities are measured at fair value using quoted market prices in an active market, and are therefore classified within Level 1 of the valuation hierarchy. The fair value of available-for-sale securities was ~~$1.3~~$1.2 million and ~~$3.4~~$1.4 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Long-term debt rates currently available to us for debt with similar terms and remaining maturities are used to estimate the fair value for debt issues that are not quoted on an exchange. The estimated fair value of total debt is measured using Level 2 inputs ~~and~~ was ~~$1,033.9~~$914.7 million and ~~$977.6~~$922.3 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Note 1514 - Restructuring

In ~~2018,~~the first quarter of 2020, we recorded a net restructuring ~~charges~~gain of ~~$7.2~~$1.2 million, primarily related to ~~the acquisition of Crane Currency and~~ the 2017 repositioning actions described below.

2019 Repositioning

In the ~~three- and nine-month periods ended September 30,~~fourth quarter of 2019, we initiated actions to consolidate two manufacturing operations within our Fluid Handling segment. These actions include workforce reductions of approximately 180 employees, or less than 1% of our global workforce. Restructuring charges included $9.9 million of severance costs related to such actions, all of which are cash costs. During the three months ended March 31, 2020, there were no additional expenses recorded or payments made. We expect to incur additional restructuring and related charges of ~~$1.6~~$4.8 million in 2020 and ~~$6.1~~$4.2 million ~~respectively, related~~in 2021 to complete these actions.

Acquisition-Related Restructuring

In 2018, we initiated actions within our Payment & Merchandising Technologies segment related to the closure of Crane Currency’s printing operations in Sweden, which ~~will be~~have been transitioned to a new print facility in Malta. ~~We expect these~~These actions ~~to result in~~include workforce reductions of approximately 170 employees, or less than 2% of our global workforce.

Restructuring charges included severance and other costs related to such actions, all of which are cash costs. ~~The following table summarizes the restructuring charges in~~Cumulatively, through December 31, 2019, we incurred $6.9 million related to this program, of which $3.3 million were severance costs and ~~cumulatively through September 30, 2019:~~

Severance Other Total
(in millions) 2019 Cumulative 2019 Cumulative 2019 Cumulative
Payment & Merchandising Technologies $ 0.9
$ 2.5
$ 2.8
$ 2.8
$ 3.7
$ 5.3

$3.6 million were other costs. In 2019, we also recorded $0.6 million of additional costs associated with facility move costs. There is no remaining liability associated with these actions as of ~~September 30, 2019.~~

WeDecember 31, 2019, and we do not expect to incur additional restructuring ~~and~~charges related ~~charges of $0.3 million in 2019~~ to ~~complete~~ these actions. ~~We expect recurring pre-tax savings subsequent to initiating all actions to approximate $23 million annually.~~

2017 Repositioning

During the fourth quarter of 2017, we initiated broad-based repositioning actions designed to improve profitability. These actions include headcount reductions of approximately 300 employees, or about 3% of our global workforce, and select facility consolidations in North America and Europe.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring charges included severance and other costs related to the consolidation of certain manufacturing operations, all of which are cash costs. The following table summarizes the restructuring charges by business segment in ~~2019~~2020 and cumulatively through ~~September 30, 2019:~~March 31, 2020:

Severance Other Total
(in millions) 2019 Cumulative 2019 Cumulative 2019 Cumulative
Fluid Handling $ 0.8
$ 17.5
$ —
$ —
$ 0.8
$ 17.5
Payment & Merchandising Technologies 0.3
12.6
1.4
1.8
1.7
14.4
Aerospace & Electronics —
1.3
(0.1 ) (1.1 ) (0.1 ) 0.2
$ 1.1
$ 31.4
$ 1.3
$ 0.7
$ 2.4
$ 32.1

~~Additionally,~~



	Severance				Other						Total
(in millions)	2020		Cumulative		2020			Cumulative			2020			Cumulative
Fluid Handling	$	—	$	17.3	$	—		$	—		$	—		$	17.3
Payment & Merchandising Technologies	—		12.6		(1.5		)	0.7			(1.5		)	13.3
Aerospace & Electronics	—		1.3		—			(1.4		)	—			(0.1		)
	$	—	$	31.2	$	(1.5	)	$	(0.7	)	$	(1.5	)	$	30.5

Related to the repositioning actions, we recorded ~~$7.5~~a pre-tax gain in the first quarter of 2020 of $1.5 million related to the sale of a facility in the Payment & Merchandising Technologies segment. We also recorded $1.3 million and $2.1 million of ~~non-restructuring~~additional costs associated with ~~the~~ facility consolidations in

~~2018. In~~ the ~~three-~~three months ended March 31, 2020 and ~~nine-month periods ended September 30,~~ 2019, ~~we recorded non-restructuring charges of $2.6 million and $9.1 million,~~ respectively, related to ~~these~~the 2017 repositioning actions.

To complete these actions, we expect to incur an additional ~~$3.6~~$0.9 million of ~~restructuring and~~ facility consolidation related charges in ~~2019 and~~ 2020 in ~~each of the segments as follows:~~

(in millions) 2019 2020 Total
Fluid Handling $ 1.0
$ 1.6
$ 2.6
Payment & Merchandising Technologies 0.3
—
0.3
Aerospace & Electronics 0.7
—
0.7
$ 2.0
$ 1.6
$ 3.6

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table summarizes the expected costs by nature of costs and year:~~

(in millions) 2019 2020 Total
Restructuring $ 1.0
$ —
$ 1.0
Facility consolidation 1.0
1.6
2.6
$ 2.0
$ 1.6
$ 3.6

~~We expect recurring pre-tax savings subsequent to initiating all actions to approximate $30 million annually.~~our Fluid Handling segment.

The following table summarizes the accrual balances related to these restructuring charges:


(in millions)	Balance at December 31, 2018		Expense (Gain) ⁽¹⁾			Utilization			Balance at September 30, 2019		Balance at December 31, 2019		Expense (Gain) ^*			Utilization			Balance at March 31, 2020
Fluid Handling
Severance	$	12.9	$	0.8		$	(2.8	)	$	10.9	$	10.3	$	—		$	(1.1	)	$	9.2
Other	—		—			—			—		—		—			—			—
Total Fluid Handling	$	12.9	$	0.8		$	(2.8	)	$	10.9	$	10.3	$	—		$	(1.1	)	$	9.2

Payment & Merchandising Technologies
Severance	$	9.4	$	0.3		$	(7.7	)	$	2.0	$	1.6	$	—		$	—		$	1.6
Other	—		1.4			(1.4		)	—		—		(1.5		)	1.5			—
Total Payment & Merchandising Technologies	$	9.4	$	1.7		$	(9.1	)	$	2.0	$	1.6	$	(1.5	)	$	1.5		$	1.6

Aerospace & Electronics
Severance	$	0.9	$	—		$	(0.1	)	$	0.8	$	0.6	$	—		$	(0.1	)	$	0.5
Other	—		(0.1		)	0.3			0.2		0.2		—			(0.2		)	—
Total Aerospace & Electronics	$	0.9	$	(0.1	)	$	0.2		$	1.0	$	0.8	$	—		$	(0.3	)	$	0.5
Total Restructuring	$	23.2	$	2.4		$	(11.7	)	$	13.9	$	12.7	$	(1.5	)	$	0.1		$	11.3

~~(1)~~* Reflected in ~~our Condensed~~the Consolidated Statements of Operations as “Restructuring ~~charges”~~(gain) charges, net”

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - Subsequent Event

On April 16, 2020, we entered into a new senior unsecured 364-day credit facility (the “364-Day Credit Agreement”). We borrowed term loans denominated in dollars (the “Dollar Term Loans”) in an aggregate principal amount equal to $300 million, and term loans denominated in euros (the “Euro Term Loans”) in an aggregate principal amount equal to €40 million under the 364-Day Credit Agreement. Interest on the Dollar Term Loans accrues at a rate per annum equal to (a) a base rate (determined in a customary manner), plus a margin dependent upon ratings of our senior unsecured long-term debt (the “Index Debt Rating”) or (2) an adjusted LIBO rate (determined in a customary manner) for an interest period to be selected by us, plus a margin dependent upon the Index Debt Rating. Interest on the Euro Term Loans accrues at an adjusted LIBO rate (determined in a customary manner) for an interest period to be selected by us, plus a margin. The 364-Day Credit Agreement contains customary affirmative and negative covenants and customary events of default and acceleration for credit facilities of this type.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. ~~The~~Such factors ~~that we currently believe to be material are~~include, among others: uncertainties regarding the extent and duration of the impact of COVID-19 on many aspects of our business, as detailed in Part II, Item 1A of this Quarterly Report on Form ~~10-Q~~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, ~~2018 filed with the Securities and Exchange Commission and are~~2019, which is incorporated by reference herein.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUTLOOK

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

~~Our~~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 adversely affect our business. Significant uncertainty exists concerning the magnitude of the 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 ~~depend heavily~~and operating profit in the future include, but are not limited to: limitations on ~~industries that are cyclical in nature~~the ability of our suppliers to manufacture, or ~~are subject~~procure from manufacturers, the products we sell, or to ~~market conditions which may cause customer demand for~~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 expect 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 at this time. For 2020, we now expect sales to decline significantly driven by the economic 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 ~~volatile~~$2.8 billion to $3.0 billion, reflecting a core sales decline of 17% to 22%. While operating profit in 2020 will benefit from the absence of the 2019 asbestos and ~~unpredictable. Demand in these industries is affected by fluctuations in domestic and international economic conditions,~~environmental provisions which totaled $247.9 million, as well as ~~currency fluctuations, commodity costs, and a variety of other factors.~~

~~For 2019, we expect a total year-over-year sales decline~~benefits from incremental cost reduction actions of approximately 2%$100 million, it will be substantially offset by the impact from lower sales volumes related to 3%, driven by a slight core sales decline and unfavorable foreign exchange. We expect an improvement in operating profit, driven primarily by improved productivity and benefits from repositioning actions, and lower acquisition-related and integration charges and restructuring related costs.COVID-19.

Fluid Handling

In ~~2019,~~2020, we expect Fluid Handling sales to ~~increase in the low single-digit range~~decline significantly compared to ~~2018,~~2019, driven by ~~mid single-digit core sales growth, largely~~lower demand and supply chain disruptions related to COVID-19, which will only be partially offset by ~~unfavorable foreign currency translation.~~

~~We expect~~benefits from the I&S acquisition. These factors will result in lower sales at Process Valves and Related Products, sales to increase in the low single-digit range compared to 2018, driven by a low single-digit core sales increase, partially offset by unfavorable foreign exchange. Excluding foreign exchange, we expect order rates in 2019 to be similar to order rates in 2018 reflecting sluggish end market activity.

~~We expect~~ Commercial Valves, ~~sales to be approximately flat compared to 2018, driven by a mid single-digit core growth roughly offset by unfavorable foreign exchange.~~

~~We expect Other Products sales to increase in the mid to high single-digit range compared to 2018 driven by growth in the U.S. military, municipal~~ and ~~non-residential construction markets.~~at Pumps and Systems.

For the segment, we expect ~~an improvement~~a corresponding decline in ~~both~~ operating profit and operating margin compared to ~~2018, driven by benefits~~2019, with the impact from ~~core~~lower sales ~~growth, strong~~volumes more than offsetting productivity, ~~restructuring savings~~cost reduction actions and ~~lower~~ restructuring and related ~~costs.~~savings, net.

Payment & Merchandising Technologies

In ~~2019,~~2020, we expect Payment & Merchandising Technologies sales to ~~decline in the high single-digit range~~be almost flat compared to ~~2018,~~2019, driven by ~~a mid~~benefits from the Cummins-Allison acquisition almost offset by lower demand and supply chain disruptions related to ~~high single-digit decline in core sales, and a low single-digit impact from unfavorable foreign exchange.~~the COVID-19 pandemic.

AtIn 2020, we expect both Crane Payment Innovations ~~we expect core sales growth to be positive despite very challenging comparisons in the gaming~~ and ~~retail vertical markets. At~~ Crane Merchandising Systems ~~we expect a modest~~core sales will decline ~~in core sales.~~significantly compared to 2019 due to COVID-19 related factors. At Crane Currency, we expect core sales to ~~decline~~increase compared to 2019 driven primarily by ~~the absence of~~growth in sales to ~~Venezuela in 2018.~~ international customers, partially offset by lower sales to the U.S. Government.

We expect the segment’s operating profit to ~~decrease slightly~~decline compared to ~~2018,~~2019, driven by ~~the impact of~~ lower sales volume ~~particularly at Crane Currency,~~and acquisition-related charges, partially offset by ~~substantially lower acquisition~~productivity, cost reduction actions and restructuring ~~costs, along with benefits from repositioning actions~~ and productivity. We expect the segment’s operating margin to increase slightly driven by substantially lower acquisition and restructuring costs, along with benefits from repositioning actions and productivity and a favorable deleverage rate on the decline in sales related ~~to foreign exchange, partially offset by the impact of lower volumes.~~savings, net.

Aerospace & Electronics

In ~~2019,~~2020, we expect Aerospace & Electronics ~~core~~ sales to ~~increase in the mid to high single-digit range~~decline significantly compared to ~~2018.~~2019. We expect ~~that commercial market conditions will remain generally positive, and we expect continued sales growth~~declines from our commercial ~~original equipment manufacturer (“OEM”) business.~~OEM customers in response to COVID-19 related factors, as well as the temporary impact of Boeing halting production of the 737 MAX for a portion of 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 ~~a decline~~growth in our defense OEM ~~business because of challenging comparisons from a large ground-based radar program~~and aftermarket businesses driven by continued government investment in ~~2018.~~military applications. We expect ~~aftermarket sales to increase compared to last year. We expect~~a corresponding decline in segment operating profit and operating margin ~~in 2019 to increase~~ compared to ~~2018~~2019 driven ~~primarily~~ by the impact of the ~~higher volume, improved~~lower volumes, partially offset by productivity and ~~benefits from repositioning~~cost reduction actions.

Engineered Materials

In ~~2019,~~2020, we expect ~~the~~ Engineered Materials ~~segment~~ sales to decline significantly compared to ~~2018. We expect a decline in sales primarily related to~~2019, driven by lower recreational vehicle industry build ~~rates. Segment~~rates resulting from COVID-19 related factors; as a result, inclusive of cost reduction actions, segment operating profit and operating margin ~~are expected to~~will decline compared to ~~2018.~~2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results from Operations – Three Month Periods Ended ~~September 30~~March 31

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 2019~~first three months of 2020 versus the ~~third quarter 2018,~~first three months of 2019, unless otherwise specified.

Third Quarter Change
(dollars in millions) 2019 2018 $ %
Net sales $ 772.3
$ 855.8
$ (83.5 ) (9.8 )%
Operating profit 109.3
123.9
(14.6 ) (11.8 )%
Acquisition-related and integration charges * 0.2
2.1
(1.9 ) (90.5 )%
Restructuring and related charges * 4.2
6.6
(2.4 ) (36.4 )%
Operating margin 14.2 % 14.5 %

Other income (expense):

Interest income 0.6
0.5
0.1
20.0 %
Interest expense (11.7 ) (12.3 ) 0.6
4.9 %
Miscellaneous (expense) income (4.5 ) 5.7
(10.2 ) (178.9 )%
(15.6 ) (6.1 ) (9.5 ) (155.7 )%
Income before income taxes 93.7
117.8
(24.1 ) (20.5 )%
Provision for income taxes 21.1
20.7
0.4
1.9 %
Net income before allocation to noncontrolling interests 72.6
97.1
(24.5 ) (25.2 )%
Less: Noncontrolling interest in subsidiaries’ earnings 0.1
0.1
—
NM
Net income attributable to common shareholders $ 72.5
$ 97.0
$ (24.5 ) (25.3 )%
* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.



	First Quarter						Change
(dollars in millions)	2020			2019			$			%
Net sales	$	797.9		$	831.7		$	(33.8	)	(4.1	)%
Operating profit	88.6			113.7			(25.1		)	(22.1	)%
Acquisition-related and integration charges *	5.2			1.1			4.1			372.7	%
Restructuring and related charges, net *	0.1			5.0			(4.9		)	(98.0	)%
Operating margin	11.1		%	13.7		%
Other income (expense):
Interest income	0.4			0.6			(0.2		)	(33.3	)%
Interest expense	(12.5		)	(11.9		)	(0.6		)	(5.0	)%
Miscellaneous income, net	3.8			2.0			1.8			90.0	%
	(8.3		)	(9.3		)	1.0			10.8	%
Income before income taxes	80.3			104.4			(24.1		)	(23.1	)%
Provision for income taxes	17.5			21.9			(4.4		)	(20.1	)%
Net income before allocation to noncontrolling interests	62.8			82.5			(19.7		)	(23.9	)%
Less: Noncontrolling interest in subsidiaries’ earnings	—			0.1			(0.1		)	NM
Net income attributable to common shareholders	$	62.8		$	82.4		$	(19.6	)	(23.8	)%
* Acquisition-related and integration charges and restructuring and related charges, net are included in operating profit and operating margin.

Sales decreased by ~~$83.5~~$33.8 million, or ~~9.8%~~4.1%, to ~~$772.3~~$797.9 million in ~~2019.~~2020. Net sales related to operations outside the United States were ~~35.7%~~35.9% and ~~37.0%~~35.0% of total net sales for the ~~quarters~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The year-over-year change in sales included:

a decrease in core sales of ~~$69.3~~$80.3 million, or ~~8.2%;~~9.7%, partially due to lower demand and supply chain disruptions related to COVID-19, combined with the expected decline in Crane Currency sales to the U.S. Government;

unfavorable foreign currency translation of ~~$12.3~~$7.1 million, or ~~1.4%~~0.8%; and

~~a decrease~~an increase in sales related to ~~an impact~~a benefit from ~~divestitures~~acquisitions of ~~$1.9~~$53.6 million, or ~~0.2%~~6.4%.

Operating profit decreased by ~~$14.6~~$25.1 million, or ~~11.8%~~22.1%, to ~~$109.3~~$88.6 million in ~~2019.~~2020. The decrease in operating profit reflected the lower operating profit in each of our ~~Payment & Merchandising Technologies and Engineered Materials~~ segments, partially offset by ~~higher operating profit in our Fluid Handling and Aerospace & Electronics segments and~~ lower Corporate costs. Operating profit in the ~~third~~first quarter of ~~2019 included 1) restructuring and related charges of $4.2 million; and 2) acquisition-related and integration charges of $0.2 million. Operating profit in the third quarter of 2018~~2020 included 1) acquisition-related and integration charges of ~~$2.1~~$5.2 million and 2) restructuring and related charges, net of $0.1 million. Operating profit in the first quarter of 2019 included 1) acquisition-related and integration charges of $1.1 million in connection with the acquisition of Crane ~~Currency;~~Currency and 2) ~~acquisition-related inventory and backlog amortization of $0.3 million associated with the acquisition of Crane Currency; and 3)~~ restructuring and related charges of ~~$6.6~~$5.0 million.

Other expense increased $9.5 million, or 155.7% primarily reflecting a higher net periodic pension expense. The increase in pension expense resulted from a non-service pension cost adjustment related to a reduction in expected pension returns.

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, 2019~~March 31, 2020 is higher than the prior year’s comparable ~~period~~periods primarily due to ~~a balance sheet tax account adjustment recorded in 2018 after we finalized certain calculations related to U.S. tax reform enacted December 2017.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our tax rate for the three months ended September 30, 2019 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 U.S. state taxes,lower share-based compensation benefits, partially offset by ~~excess share-based compensation benefits and the~~a higher statutory U.S. deduction related to our non-U.S. subsidiaries’ income.

~~Comprehensive Income~~

Three Months Ended
September 30,
(in millions) 2019 2018
Net income before allocation to noncontrolling interests $ 72.6
$ 97.1
Components of other comprehensive income (loss), net of tax
Currency translation adjustment (33.7 ) (8.2 )
Changes in pension and postretirement plan assets and benefit obligation, net of tax 3.0
2.7
Other comprehensive loss, net of tax (30.7 ) (5.5 )
Comprehensive income before allocation to noncontrolling interests 41.9
91.6
Less: Noncontrolling interests in comprehensive income —
—
Comprehensive income attributable to common shareholders $ 41.9
$ 91.6

For the three months ended September 30, 2019, comprehensive income before allocations to noncontrolling interests was $41.9 million compared to $91.6 million in the same period of 2018. The $49.7 million decrease was driven by a $25.5 million year over year unfavorable impact of foreign currency translation adjustments primarily reflecting fluctuations in the British pound, euro and Canadian dollar and lower net income before allocation to noncontrolling interests of $24.5 million.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

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

~~Fluid Handling~~

Third Quarter Change
(dollars in millions) 2019 2018 $ %
Net sales by product line:

Process Valves and Related Products $ 163.3
$ 168.7
$ (5.4 ) (3.2 )%
Commercial Valves 88.8
86.2
2.6
3.0 %
Other Products 24.0
23.8
0.2
0.8 %
Total net sales $ 276.1
$ 278.7
$ (2.6 ) (0.9 )%
Operating profit $ 35.4
$ 30.4
$ 5.0
16.4 %
Restructuring and related charges * $ 2.6
$ 5.5
$ (2.9 ) (52.7 )%
Operating margin 12.8 % 10.9 %
* Restructuring and related charges are included in operating profit and operating margin.

Fluid Handling sales decreased by $2.6 million, or 0.9%, to $276.1 million in 2019, driven by unfavorable foreign currency translation of $6.7 million, or 2.4%, and loss of sales related to a divestiture of $0.1 million, partially offset by an increase in core sales of $4.2 million, or 1.5%.

Sales of Process Valves and Related Products decreased by $5.4 million, or 3.2%, to $163.3 million in 2019. The decrease reflected unfavorable foreign currency translation of $3.5 million, or 2.1%, as the euro weakened against the U.S. dollar and lower core sales of $1.9 million, or 1.1%. The core sales decrease primarily reflected weaker sales to the power vertical market.

Sales of Commercial Valves increased by $2.6 million, or 3.0%, to $88.8 million in 2019, primarily driven by a core sales increase of $5.9 million, or 6.7%, partially offset by unfavorable foreign currency translation of $3.2 million, or 3.7%, as the British pound and Canadian dollar weakened against the U.S. dollar and the loss of sales related to a divestiture of $0.1 million. The core sales increase primarily reflected higher sales to the Canadian non-residential construction markets.

~~Sales of Other Products increased by $0.2 million, or 0.8%, to $24.0 million in 2019.~~

Fluid Handling operating profit increased by $5.0 million, or 16.4%, to $35.4 million in 2019. The increase primarily reflected productivity savings, repositioning benefits and $2.9 of lower restructuring and related charges, partially offset by the impact from lower sales volume and unfavorable sales mix.

~~The Fluid Handling segment backlog was $272.1 million as of September 30, 2019, compared with $279.6 million as of December 31, 2018 and $297.7 million as of September 30, 2018.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Payment & Merchandising Technologies~~

Third Quarter Change
(dollars in millions) 2019 2018 $ %
Net sales by product line:
Payment Acceptance and Dispensing Products $ 144.3
$ 144.9
$ (0.6 ) (0.4 )%
Banknotes and Security Products 51.9
126.7
(74.8 ) (59.0 )%
Merchandising Equipment 52.7
55.8
(3.1 ) (5.6 )%
Total net sales $ 248.9
$ 327.4
$ (78.5 ) (24.0 )%
Operating profit $ 35.1
$ 57.3
$ (22.2 ) (38.7 )%
Acquisition-related and integration charges * $ 0.1
$ 2.1
$ (2.0 ) (95.2 )%
Restructuring and related charges * $ 0.9
$ 0.9
$ —
— %
Operating margin 14.1 % 17.5 %
* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.

Payment & Merchandising Technologies sales decreased $78.5 million, or 24.0%, to $248.9 million in 2019, reflecting lower core sales of $71.4 million, or 21.9%, unfavorable foreign currency translation of $5.4 million, or 1.6%, and a loss of sales related to a small divestiture of $1.7 million, or 0.5%.

Sales of Payment Acceptance and Dispensing Products decreased $0.6 million, or 0.4%, to $144.3 million in 2019. The decrease reflected unfavorable foreign currency translation of $2.5 million, or 1.7%, as the British pound weakened against the U.S. dollar and a loss of sales related to a small divestiture of $1.7 million, or 1.2%, partially offset by higher core sales of $3.6 million, or 2.5%. The core sales increase primarily reflected higher sales to the retail vertical market.

Sales of Banknotes and Security Products decreased $74.8 million, or 59.0%, to $51.9 million. The decrease primarily reflected lower core sales of $72.5 million, or 57.2%, and to a lesser extent unfavorable foreign currency translation of $2.3 million, or 1.8%, as the euro weakened against the U.S. dollar. The core sales decline primarily reflected the absence of sales to Venezuela in the third quarter of 2018, and lower sales to the U.S. Government.

~~Sales of Merchandising Equipment decreased $3.1 million, or 5.6%, to $52.7 million in 2019, reflecting lower sales of cold drink machines.~~

Payment & Merchandising Technologies operating profit decreased by $22.2 million, or 38.7%, to $35.1 million in 2019. The decrease reflected the impact of lower sales volumes, partially offset by repositioning benefits, productivity savings and lower acquisition-related and integration charges.

The Payment & Merchandising Technologies segment backlog was $291.8 million as of September 30, 2019, compared with $331.5 million as of December 31, 2018 and $359.0 million as of September 30, 2018.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Aerospace & Electronics~~

Third Quarter Change
(dollars in millions) 2019 2018 $ %
Net sales by product line:

Commercial Original Equipment $ 85.9
$ 85.2
$ 0.7
0.8 %
Military Original Equipment 55.4
51.5
3.9
7.6 %
Commercial Aftermarket Products 41.8
38.8
3.0
7.7 %
Military Aftermarket Products 14.1
14.0
0.1
0.7 %
Total net sales $ 197.2
$ 189.5
$ 7.7
4.1 %
Operating profit $ 47.2
$ 42.5
$ 4.7
11.1 %
Restructuring and related charges* $ 0.7
$ 0.2
$ 0.5
250.0 %
Operating margin 23.9 % 22.4 %
* Restructuring and related charges are included in operating profit and operating margin.

~~Aerospace & Electronics sales increased $7.7 million, or 4.1%, to $197.2 million in 2019.~~

~~Sales of Commercial Original Equipment increased by $0.7 million, or 0.8%, to $85.9 million in 2019.~~

Sales of Military Original Equipment increased by $3.9 million, or 7.6%, to $55.4 million in 2019, primarily reflecting higher sales related to certain military aircraft platforms and communications systems.


•	~~Sales of Commercial Aftermarket Products increased by $3.0 million, or 7.7%, to $41.8 million in 2019, primarily reflecting higher sales of commercial spares.~~

~~Sales of Military Aftermarket Products increased by $0.1 million, or 0.7%, to $14.1 million in 2019.~~

~~Aerospace & Electronics operating profit increased by $4.7 million, or 11.1%, to $47.2 million in 2019, driven primarily by productivity savings and the impact from higher sales volumes.~~

~~The Aerospace & Electronics segment backlog was $564.3 million as of September 30, 2019, compared with $446.6 million as of December 31, 2018 and $445.1 million as of September 30, 2018.~~

~~Engineered Materials~~

Third Quarter Change
(dollars in millions) 2019 2018 $ %
Net sales by product line:
FRP- Recreational Vehicles $ 19.7
$ 28.4
$ (8.7 ) (30.6 )%
FRP- Building Products 22.8
23.5
(0.7 ) (3.0 )%
FRP- Transportation 7.6
8.3
(0.7 ) (8.4 )%
Total net sales $ 50.1
$ 60.2
$ (10.1 ) (16.8 )%
Operating profit $ 5.9
$ 8.7
$ (2.8 ) (32.2 )%
Operating margin 11.8 %
14.5 %

Engineered Materials sales decreased by $10.1 million, or 16.8%, to $50.1 million in 2019, primarily reflecting lower sales to recreational vehicle customers. Engineered Materials operating profit decreased by $2.8 million, or 32.2%, to $5.9 million in 2019, primarily reflecting the impact from lower sales volumes.

~~The Engineered Materials segment backlog was $10.1 million as of September 30, 2019, compared with $14.9 million as of December 31, 2018 and $10.3 million as of September 30, 2018.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~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 2019 versus the first nine months of 2018, unless otherwise specified.

Year-to-Date Change
(dollars in millions) 2019 2018 $ %
Net sales $ 2,445.6
$ 2,505.8
$ (60.2 ) (2.4 )%
Operating profit 345.8
331.2
14.6
4.4 %
Acquisition-related and integration charges * 3.7
11.3
(7.6 ) (67.3 )%
Restructuring and related charges * 15.4
9.1
6.3
69.2 %
Operating margin 14.1 % 13.2 %

Other income (expense):

Interest income 1.9
1.7
0.2
11.8 %
Interest expense (35.0 ) (39.8 ) 4.8
12.1 %
Miscellaneous income 3.9
13.9
(10.0 ) (71.9 )%
(29.2 ) (24.2 ) (5.0 ) (20.7 )%
Income before income taxes 316.6
307.0
9.6
3.1 %
Provision for income taxes 70.5
60.6
9.9
16.3 %
Net income before allocation to noncontrolling interests 246.1
246.4
(0.3 ) (0.1 )%
Less: Noncontrolling interest in subsidiaries’ earnings 0.2
—
0.2
NM
Net income attributable to common shareholders $ 245.9
$ 246.4
$ (0.5 ) (0.2 )%
* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.

Sales decreased by $60.2 million, or 2.4%, to $2,445.6 million in 2019. Net sales related to operations outside the United States were 35.4% and 37.4% of total net sales for the nine months ended September 30, 2019 and 2018, respectively. The year-over-year change in sales included:

~~unfavorable foreign currency translation of $48.5 million, or 1.9%;~~

~~a decrease in core sales of $15.4 million, or 0.6%; and~~

~~an increase in sales related to a benefit from acquisitions, net of $3.7 million, or 0.1%.~~

Operating profit increased by $14.6 million, or 4.4%, to $345.8 million in 2019. The increase in operating profit reflected the higher operating profit in our Aerospace & Electronics and Fluid Handling segments, partially offset by lower operating profit in our Payment & Merchandising Technologies and Engineered Materials segments and higher Corporate costs. Operating profit in the first nine months of 2019 included 1) restructuring and related charges of $15.4 million and 2) acquisition-related and integration charges of $3.7 million. Operating profit in the first nine months of 2018 included 1) acquisition-related and integration charges of $11.3 million in connection with the acquisition of Crane Currency; 2) acquisition-related inventory and backlog amortization of $8.8 million, primarily associated with the acquisition of Crane Currency; and 3) restructuring and related charges of $9.1 million associated with previously announced repositioning actions.

Other expense increased $5.0 million, or 20.7%. The increase was primarily related to lower interest expense and lower net periodic pension benefit related to our defined benefit plans, partially offset by a realized gain recognized on marketable securities. The lower pension net periodic benefit primarily reflected a non-service pension cost adjustment related to a reduction in expected pension returns.

Our tax rate for the ~~nine~~three months ended September 30, 2019 is higher than the prior year’s comparable period primarily due to a balance sheet tax account adjustment recorded in 2018 after we finalized certain calculations related to U.S. tax reform enacted December 2017.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Our tax rate for the nine months ended September 30, 2019~~March 31, 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 U.S. state taxes, partially offset by excess share-based compensation benefits and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comprehensive Income


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
(in millions)	2019			2018			2020			2019
Net income before allocation to noncontrolling interests	$	246.1		$	246.4		$	62.8		$	82.5
Components of other comprehensive income (loss), net of tax
Components of other comprehensive (loss) income, net of tax
Currency translation adjustment	(29.8		)	(29.7		)	(45.2		)	(0.8		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	7.8			16.8			3.6			2.9
Other comprehensive loss, net of tax	(22.0		)	(12.9		)
Other comprehensive (loss) income, net of tax							(41.6		)	2.1
Comprehensive income before allocation to noncontrolling interests	224.1			233.5			21.2			84.6
Less: Noncontrolling interests in comprehensive income	(0.1		)	(0.2		)	(0.3		)	(0.6		)
Comprehensive income attributable to common shareholders	$	224.2		$	233.7		$	21.5		$	85.2

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, comprehensive income before allocations to noncontrolling interests was ~~$224.1~~$21.2 million compared to ~~$233.5~~$84.6 million in the same period of ~~2018.~~2019. The ~~$9.4~~$63.4 million decrease was primarily driven by a ~~$9.0~~$44.4 million unfavorable impact of ~~changes~~foreign currency translation adjustments year-over-year including fluctuations in ~~pension~~the British pound, Canadian dollar, euro and ~~postretirement plan assets~~Japanese yen and ~~benefit obligations,~~a lower net income before allocation to noncontrolling interests of ~~tax.~~$19.7 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Segment Results of Operations - ~~Nine~~Three Month Periods Ended ~~September 30~~March 31

Fluid Handling


	Year-to-Date						Change				First Quarter						Change
(dollars in millions)	2019			2018			$		%		2020			2019			$			%
Net sales by product line:
Process Valves and Related Products	$	513.7		$	509.0		$	4.7	0.9	%	$	157.2		$	168.0		$	(10.8	)	(6.4	)%
Commercial Valves	253.2			245.9			7.3		3.0	%	75.9			80.8			(4.9		)	(6.1	)%
Other Products	73.5			67.2			6.3		9.4	%
Pumps and Systems											23.6			24.9			(1.3		)	(5.2	)%
Total net sales	$	840.4		$	822.1		$	18.3	2.2	%	$	256.7		$	273.7		$	(17.0	)	(6.2	)%
Operating profit	$	106.8		$	88.0		$	18.8	21.4	%	$	28.0		$	34.1		$	(6.1	)	(17.9	)%
Acquisition-related and integration charges											$	2.0		$	—		$	2.0		NM
Restructuring and related charges *	$	7.3		$	6.6		$	0.7	10.6	%	$	1.3		$	2.1		$	(0.8	)	(38.1	)%
Operating margin	12.7		%	10.7		%					10.9		%	12.5		%
* Restructuring and related charges are included in operating profit and operating margin.

Fluid Handling sales ~~increased~~decreased by ~~$18.3~~$17.0 million, or ~~2.2%~~6.2%, to ~~$840.4~~$256.7 million, driven by ~~higher~~lower core sales of ~~$44.1~~$23.4 million, or ~~5.3%~~8.5%, ~~partially offset by~~and unfavorable foreign currency translation of ~~$25.5~~$3.0 million, or ~~3.1%~~1.1%, ~~and loss~~partially offset by a benefit from acquisitions of ~~sales related to a divestiture of $0.3 million.~~$9.4 million, or 3.4%.

Sales of Process Valves and Related Products ~~increased~~decreased by ~~$4.7~~$10.8 million, or ~~0.9%~~6.4%, to ~~$513.7~~$157.2 million in ~~2019.~~2020. The ~~increase~~decrease reflected ~~higher~~lower core sales of ~~$18.4~~$18.1 million, or ~~3.6%~~10.8%, ~~partially offset by~~and unfavorable foreign currency translation of ~~$13.7~~$2.1 million, or ~~2.7%~~1.2%, primarily due to the euro weakening against the U.S. ~~dollar.~~dollar, partially offset by a benefit from the acquisition of I&S of $9.4 million, or 5.6%. The core sales ~~increase primarily~~decline reflected ~~higher sales~~a broad-based decline in demand related largely to impacts from COVID-19, including sharply lower oil and gas prices, as well as the ~~chemical vertical market.~~impact of supply chain disruptions related to COVID-19.

Sales of Commercial Valves ~~increased~~decreased by ~~$7.3~~$4.9 million, or ~~3.0%~~6.1%, to ~~$253.2~~$75.9 million in ~~2019,~~2020, primarily driven by a core sales ~~increase~~decrease of ~~$19.2~~$4.0 million, or ~~7.7%~~5.0%, ~~partially offset by~~and unfavorable foreign currency translation of ~~$11.6~~$0.9 million, or ~~4.7%~~1.1%, as the British pound and Canadian dollar weakened against the U.S. ~~dollar and the unfavorable impact from a divestiture of $0.3 million.~~dollar. The core sales ~~increase~~decrease primarily reflected lower sales to United Kingdom non-residential construction markets, partially offset by higher sales to the Canadian ~~and United~~ non-residential construction markets.

Sales of ~~Other Products increased~~Pumps and Systems decreased by ~~$6.3~~$1.3 million, or ~~9.4%~~5.2%, to ~~$73.5~~$23.6 million in ~~2019.~~2020. The ~~increase~~decrease primarily reflected ~~higher~~lower sales to military customers.

Fluid Handling operating profit ~~increased~~decreased by ~~$18.8~~$6.1 million, or ~~21.4%~~17.9%, to ~~$106.8~~$28.0 million in ~~2019.~~2020. The ~~increase~~decrease primarily reflected ~~productivity savings, repositioning benefits~~lower volumes and higher acquisition-related and integration charges related to the ~~impact from higher sales volumes,~~January 2020 acquisition of I&S, partially offset by ~~unfavorable sales mix~~productivity and ~~higher restructuring and related charges.~~repositioning benefits.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Payment & Merchandising Technologies


	Year-to-Date						Change					First Quarter						Change
(dollars in millions)	2019			2018			$			%		2020			2019			$			%
Net sales by product line:
Payment Acceptance and Dispensing Products	$	457.0		$	445.7		$	11.3		2.5	%	$	166.7		$	158.8		$	7.9		5.0	%
Banknotes and Security Products	239.0			348.1			(109.1		)	(31.3	)%	94.2			98.6			(4.4		)	(4.5	)%
Merchandising Equipment	147.7			150.4			(2.7		)	(1.8	)%	36.5			46.4			(9.9		)	(21.3	)%
Total net sales	$	843.7		$	944.2		$	(100.5	)	(10.6	)%	$	297.4		$	303.8		$	(6.4	)	(2.1	)%
Operating profit	$	124.8		$	139.8		$	(15.0	)	(10.7	)%	$	26.4		$	43.2		$	(16.8	)	(38.9	)%
Acquisition-related and integration charges *	$	1.6		$	11.3		$	(9.7	)	(85.8	)%	$	3.1		$	1.1		$	2.0		181.8	%
Restructuring and related charges *	$	5.7		$	2.0		$	3.7		185.0	%
Restructuring and related (gain) charges, net *												$	(1.2	)	$	2.6		$	(3.8	)	(146.2	)%
Operating margin	14.8		%	14.8		%						8.9		%	14.2		%
* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.
* Acquisition-related and integration charges and restructuring and related (gain) charges, net are included in operating profit and operating margin.												* Acquisition-related and integration charges and restructuring and related (gain) charges, net are included in operating profit and operating margin.

Payment & Merchandising Technologies sales decreased ~~$100.5~~$6.4 million, or ~~10.6%~~2.1%, to ~~$843.7~~$297.4 million in ~~2019,~~2020, reflecting lower core sales of ~~$81.9~~$46.5 million, or ~~8.6%~~15.3%, and unfavorable foreign currency translation of ~~$22.6~~$4.1 million, or ~~2.4%~~1.3%, partially offset by a benefit from acquisitions, ~~net,~~ of ~~$4.0~~$44.2 million, or ~~0.4%~~14.5%.

Sales of Payment Acceptance and Dispensing Products increased ~~$11.3~~$7.9 million, or ~~2.5%~~5.0%, to ~~$457.0~~$166.7 million in ~~2019.~~2020. The increase reflected ~~higher~~the benefit of the December 2019 acquisition of Cummins-Allison of $44.2 million, or 27.8%, partially offset by lower core sales of ~~$26.1~~$35.4 million, or ~~5.7%~~22.2%, ~~partially offset by~~and unfavorable foreign currency translation of ~~$10.8~~$0.9 million, or ~~2.3%~~0.6%, as the British pound weakened against the U.S. ~~dollar and a loss of sales related to a small divestiture of $4.0 million, or 0.9%.~~dollar. The core sales ~~increase primarily~~decrease reflected ~~higher~~lower sales to ~~the retail~~all vertical ~~market.~~markets driven largely by COVID-19 related demand impacts and supply chain disruptions.

Sales of Banknotes and Security Products decreased ~~$109.1~~$4.4 million, or ~~31.3%~~4.5%, to ~~$239.0~~$94.2 million. The decrease reflected ~~lower core sales of $107.1 million, or 30.8%, and~~ unfavorable foreign currency translation of ~~$10.0~~$3.1 million, or ~~2.9%~~3.2%, as the euro weakened against the U.S. dollar ~~partially offset by a benefit~~and lower core sales of ~~$8.0~~$1.3 million, or ~~2.4%, due to the acquisition of Crane Currency on January 10, 2018.~~1.3%. The core sales decline primarily reflected ~~the absence of~~lower sales to ~~Venezuela in~~ the ~~first nine months of 2018.~~U.S. Government, largely offset by higher sales to international customers.

Sales of Merchandising Equipment decreased ~~$2.7~~$9.9 million, or ~~1.8%~~21.3%, to ~~$147.7~~$36.5 million in ~~2019,~~2020, reflecting lower sales largely related to demand impacts of ~~cold drink machines.~~COVID-19.

Payment & Merchandising Technologies operating profit decreased by ~~$15.0~~$16.8 million, or ~~10.7%~~38.9%, to ~~$124.8~~$26.4 million in ~~2019.~~2020. The decrease was driven primarily by ~~the impact from~~ lower ~~sales volume, a $3.7 million decrease in restructuring and related charges and~~volumes, along with unfavorable mix ~~partially offset by repositioning benefits, $9.7 million of lower~~and higher acquisition-related and integration charges related to the acquisition of Cummins-Allison, partially offset by strong productivity and ~~the absence of $8.4 million of inventory step-up and backlog amortization recorded in 2018.~~repositioning benefits.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Aerospace & Electronics


	Year-to-Date						Change				First Quarter						Change
(dollars in millions)	2019			2018			$		%		2020			2019			$			%
Net sales by product line:
Commercial Original Equipment	$	267.6		$	256.0		$	11.6	4.5	%	$	80.6		$	90.3		$	(9.7	)	(10.7	)%
Military Original Equipment	162.3			142.2			20.1		14.1	%	60.4			51.5			8.9			17.3	%
Commercial Aftermarket	121.4			109.0			12.4		11.4	%	33.9			38.2			(4.3		)	(11.3	)%
Military Aftermarket	45.0			39.8			5.2		13.1	%	18.0			14.6			3.4			23.3	%
Total net sales	$	596.3		$	547.0		$	49.3	9.0	%	$	192.9		$	194.6		$	(1.7	)	(0.9	)%
Operating profit	$	141.4		$	120.0		$	21.4	17.8	%	$	43.8		$	44.8		$	(1.0	)	(2.2	)%
Restructuring and related charges*	$	2.4		$	0.5		$	1.9	380.0	%	$	—		$	0.3		$	(0.3	)	NM
Operating margin	23.7		%	21.9		%					22.7		%	23.0		%
* Restructuring and related charges are included in operating profit and operating margin.

Aerospace & Electronics sales ~~increased $49.3~~decreased $1.7 million, or ~~9.0%~~0.9%, to ~~$596.3~~$192.9 million in ~~2019.~~2020.

Sales of Commercial Original Equipment ~~increased~~decreased by ~~$11.6~~$9.7 million, or ~~4.5%~~10.7%, to ~~$267.6~~$80.6 million in ~~2019,~~2020, primarily reflecting ~~higher commercial aircraft build rates.~~the impact of Boeing’s 737 MAX production pause.

Sales of Military Original Equipment increased by ~~$20.1~~$8.9 million, or ~~14.1%~~17.3%, to ~~$162.3~~$60.4 million in ~~2019,~~2020, primarily reflecting higher sales of power products.

Sales of Commercial Aftermarket products ~~increased~~decreased by ~~$12.4~~$4.3 million, or ~~11.4%~~11.3%, to ~~$121.4~~$33.9 million in ~~2019,~~2020, reflecting ~~higher~~lower sales of commercial ~~spares.~~spares as airlines reduced flight schedules in response to COVID-19.

Sales of Military Aftermarket increased by ~~$5.2~~$3.4 million, or ~~13.1%~~23.3%, to ~~$45.0~~$18.0 million in ~~2019,~~2020, primarily reflecting higher ~~sales of military spares.~~modernization & upgrade sales.

Aerospace & Electronics operating profit ~~increased~~decreased by ~~$21.4~~$1.0 million, or ~~17.8%~~2.2%, to ~~$141.4~~$43.8 million in ~~2019,~~2020, primarily as a result of ~~the impact from higher sales~~lower volumes, ~~productivity savings and favorable product mix,~~ partially offset by ~~higher material costs and $1.9 million of higher restructuring and related charges.~~productivity.

Engineered Materials


	Year-to-Date						Change					First Quarter						Change
(dollars in millions)	2019			2018			$			%		2020			2019			$			%
Net sales by product line:
FRP- Recreational Vehicles	$	68.4		$	96.9		$	(28.5	)	(29.4	)%	$	18.8		$	26.6		$	(7.8	)	(29.3	)%
FRP- Building Products	70.5			70.7			(0.2		)	(0.3	)%	24.9			23.6			1.3			5.5	%
FRP- Transportation	26.3			24.9			1.4			5.6	%	7.2			9.4			(2.2		)	(23.4	)%
Total net sales	$	165.2		$	192.5		$	(27.3	)	(14.2	)%	$	50.9		$	59.6		$	(8.7	)	(14.6	)%
Operating profit	$	22.8		$	32.4		$	(9.6	)	(29.6	)%	$	6.9		$	9.4		$	(2.5	)	(26.6	)%
Operating margin	13.8		%	16.8		%						13.6		%	15.8		%

Engineered Materials sales decreased by ~~$27.3~~$8.7 million, or ~~14.2%~~14.6%, to ~~$165.2~~$50.9 million in ~~2019~~2020 primarily resulting from lower sales to recreational vehicle ~~customers.~~and transportation customers and to a lesser extent, COVID-19 related factors, partially offset by higher sales of building products. Engineered Materials operating profit decreased by ~~$9.6~~$2.5 million, or ~~29.6%~~26.6%, to ~~$22.8~~$6.9 million in ~~2019,~~2020, primarily reflecting ~~the impact from~~ lower sales ~~volumes.~~volume.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
(in millions)	2019			2018			2020			2019
Net cash provided by (used for):
Operating activities	$	171.0		$	222.4		$	(35.5	)	$	(100.4	)
Investing activities	(48.7		)	(722.3		)	(177.4		)	(20.0		)
Financing activities	(69.0		)	129.0			134.3			33.3
Effect of foreign currency exchange rate changes on cash and cash equivalents	(7.9		)	(11.7		)	(12.5		)	0.5
Increase (decrease) in cash and cash equivalents	$	45.4		$	(382.6	)
Decrease in cash and cash equivalents							$	(91.1	)	$	(86.6	)

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 new 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.

In 2018, we increased the size of our commercial paper program to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed $550 million at any time outstanding. As of September 30, 2019 and December 31, 2018, there were no outstanding borrowings under the commercial paper program.

Operating Activities

Cash ~~provided by~~used for operating activities was ~~$171.0~~$35.5 million in the first ~~nine~~three months of ~~2019,~~2020, compared to ~~$222.4~~$100.4 million during the same period last year. The decrease in cash ~~provided by~~used for operating activities was primarily driven by ~~higher~~lower working capital requirements ~~principally~~ due to ~~significant cash receipts from Venezuela in 2018 that did not repeat in 2019, partially offset by a decrease in pension and post retirement contributions.~~lower sales. Net asbestos-related payments in the first ~~nine~~three months of 2020 and 2019 ~~and 2018~~ were ~~$29.0~~$11.7 million and ~~$46.4~~$9.7 million, respectively. In ~~2019,~~2020, we expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $50 million. We have chosen to defer contributions of $18.2 million until January 1, 2021 as permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020.

Investing Activities

Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures. Cash used for investing activities was ~~$48.7~~$177.4 million in the first ~~nine~~three months of ~~2019,~~2020, compared to ~~$722.3~~$20.0 million in the comparable period of ~~2018.~~2019. The ~~decrease~~increase in cash used for investing activities was driven by ~~the absence of net~~ cash paid ~~in 2018 of $648.0 million~~ for the acquisition of ~~Crane Currency and, to a lesser extent,~~I&S of $172.0 million, partially offset by lower capital expenditures compared to the ~~prior~~same period last year. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. WeAs it relates to COVID-19, we expect to defer certain capital expenditures and now expect to reduce the amount by $30 million to $45 million in 2020 from the previously disclosed amount of approximately $80 million in 2019, reflecting $30 million of capital requirements resulting from Crane Currency, as well as continued investments in new product development initiatives, primarily in our Aerospace & Electronics, Payment & Merchandising Technologies and Fluid Handling segments.$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 ~~used for~~provided by financing activities was ~~$69.0~~$134.3 million during the first ~~nine~~three months of ~~2019,~~2020, compared to ~~cash provided by financing activities of $129.0~~$33.3 million in the comparable period of ~~2018.~~2019. The increase in cash ~~used~~provided by financing activities was driven by ~~lower debt~~ proceeds ~~net~~received from the issuance of ~~repayments of $205.7 million~~commercial paper and ~~$9.9 million of lower proceeds from stock option exercises,~~borrowings under our revolving credit facility, partially offset by ~~the absence of $25.0~~$70.0 million of ~~additional~~ cash used for the repurchase of shares in ~~2018.~~the first quarter of 2020.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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, ~~2018.~~2019.

Item 4. Controls and Procedures

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, 2019,~~March 31, 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.

Part II: Other Information

Item 1. Legal Proceedings

Discussion of legal matters is incorporated by reference from Part 1, Item 1, Note ~~12,~~11, “Commitments and Contingencies”, of this Quarterly Report on Form 10-Q, and should be considered an integral part of Part II, Item 1, “Legal ~~Proceedings”.~~Proceedings.”

Item 1A. Risk Factors

~~Information regarding~~

The following represents a material change in our risk factors ~~appears~~from those disclosed in Part I, Item 1A of ~~Crane Co.’s~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~ 2019.

Our financial condition and results of operations are expected to be adversely affected by the recent coronavirus pandemic.

The novel strain of the coronavirus (“COVID-19”) pandemic is expected 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. We are unable 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 is expected 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 are uncertain, rapidly changing and difficult to predict, we are unable 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 expect lower demand and volume for products and services, customer requests for potential 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

~~We did not make any~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes our share repurchases during the three months ended March 31, 2020:



	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
January 1-31	—	$	—	—	—
February1-29	65,989	67.33		—	—
March 1-31	1,155,244	56.72		—	—
Total January 1 - March 31, 2020	1,221,233	$	57.30	—	—

The table above only includes the open-market ~~share~~ repurchases of our common stock during the ~~quarter~~three months ended ~~September 30, 2019.~~March 31, 2020. We also routinely receive shares of our common stock as payment for stock option exercises and the withholding taxes due on stock option exercises and the vesting of restricted ~~stock awards~~share units from stock-based compensation program participants.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits



Exhibit 31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
Exhibit 31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
Exhibit 32.1**		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or 15d-14(b)
Exhibit 32.2**		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b)
101.INS		XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema (filed herewith)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed with this report

** Furnished with this report

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		CRANE CO.
		REGISTRANT

Date
~~October~~April 29, ~~2019~~2020	By	/s/ Max H. Mitchell
		Max H. Mitchell
		President and Chief Executive Officer

Date	By	/s/ Richard A. Maue
~~October~~April 29, ~~2019~~2020		Richard A. Maue
		Senior Vice President and Chief Financial Officer

Page 4741



	Pension						Postretirement						SERP
(in millions)	2019			2018			2019			2018			2019		2018
Service cost	$	1.4		$	1.5		$	0.2		$	0.1		$	—	$	—
Interest cost	9.1			7.5			0.8			0.2			—		0.1
Expected return on plan assets	(11.6		)	(16.4		)	—			—			—		—
Amortization of prior service cost	0.1			(0.1		)	(0.8		)	—			—		—
Amortization of net loss (gain)	4.8			3.6			(0.2		)	(0.3		)	—		—
Net periodic cost (benefit)	$	3.8		$	(3.9	)	$	—		$	—		$	—	$	0.1



(in millions)	Classification	September 30, 2019
Assets
Operating right-of-use assets	Other assets	$	104.9
Liabilities
Current lease liabilities	Accrued liabilities	$	18.9
Long-term lease liabilities	Other liabilities	88.5
Total lease liabilities		$	107.4



(in millions)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	7.5	$	21.8
Variable lease cost	$	1.6	$	4.8



(in millions)
Cash paid for amounts included in measurement of operating lease liabilities - operating cash flows	$	18.4
Right-of-use assets obtained in exchange for new operating lease liabilities	$	14.1



	Third Quarter						Change
(dollars in millions)	2019			2018			$			%
Net sales	$	772.3		$	855.8		$	(83.5	)	(9.8	)%
Operating profit	109.3			123.9			(14.6		)	(11.8	)%
Acquisition-related and integration charges *	0.2			2.1			(1.9		)	(90.5	)%
Restructuring and related charges *	4.2			6.6			(2.4		)	(36.4	)%
Operating margin	14.2		%	14.5		%
Other income (expense):
Interest income	0.6			0.5			0.1			20.0	%
Interest expense	(11.7		)	(12.3		)	0.6			4.9	%
Miscellaneous (expense) income	(4.5		)	5.7			(10.2		)	(178.9	)%
	(15.6		)	(6.1		)	(9.5		)	(155.7	)%
Income before income taxes	93.7			117.8			(24.1		)	(20.5	)%
Provision for income taxes	21.1			20.7			0.4			1.9	%
Net income before allocation to noncontrolling interests	72.6			97.1			(24.5		)	(25.2	)%
Less: Noncontrolling interest in subsidiaries’ earnings	0.1			0.1			—			NM
Net income attributable to common shareholders	$	72.5		$	97.0		$	(24.5	)	(25.3	)%
* Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.