Crane pany(US:CR)2023-03-30 16:00Part I Item 1. Business Crane Company, a diversified manufacturer across three segments (A&E, PFT, EM), is undergoing a spin-off from Crane Holdings, Co - Crane Company operates through three primary segments: Aerospace & Electronics (A&E), Process Flow Technologies (PFT), and Engineered Materials (EM), serving markets like aerospace, defense, process industries, and construction34 - A plan was authorized in March 2022 to spin-off the A&E, PFT, and EM segments from Crane Holdings, Co. into the new, publicly-traded Crane Company, with an expected completion date of April 3, 20233338 Aerospace & Electronics 2022 Sales Mix | Market/Customer | Percentage of Sales | | :--- | :--- | | Commercial Market | 57% | | Military Market | 43% | | Original Equipment Manufacturers (OEMs) | 72% | | Aftermarket Customers | 28% | - The Process Flow Technologies segment provides highly engineered fluid handling equipment and is comprised of three main businesses: Process Valves and Related Products, Pumps and Systems, and Commercial Valves4450 - The Engineered Materials segment manufactures fiberglass-reinforced plastic (FRP) panels, primarily for recreational vehicles (RVs), commercial buildings, and industrial applications47 - As of December 31, 2022, the company employed approximately 7,000 people worldwide, with about 4,000 in the United States57 Item 1A. Risk Factors The company faces significant risks including macroeconomic conditions, supply chain disruptions, segment-specific dependencies, and challenges related to the planned spin-off - General business risks include adverse effects from global economic conditions, supply chain disruptions, raw material price volatility, and the cyclical nature of key end markets like aerospace and construction6566345 - The Aerospace & Electronics segment's performance is highly dependent on commercial air traffic levels, airline profitability, and government defense spending, which can be volatile379400401 - The Process Flow Technologies segment's demand is tied to customers' capital investment and maintenance expenditures, influenced by global economic growth and commodity prices403382 - Spin-off risks include not achieving expected benefits, incurring significant one-time costs, and challenges operating as a standalone public company with new requirements404405406 - The company may be subject to contingent liabilities of Crane NXT post-spin-off, and the distribution may not qualify for intended tax-free treatment, leading to significant tax liabilities410412 Item 1B. Unresolved Staff Comments The company reports no unresolved comments from the U.S. Securities and Exchange Commission staff - There are no unresolved staff comments290445 Item 2. Properties The company summarizes its principal owned and leased manufacturing and non-manufacturing facilities globally as of December 31, 2022 Summary of Principal Facilities (Owned) | Segment | United States (sq. ft.) | Europe (sq. ft.) | Other Int'l (sq. ft.) | | :--- | :--- | :--- | :--- | | Manufacturing | | | | | Aerospace & Electronics | 731,575 | - | - | | Process Flow Technologies | 698,573 | 753,616 | 509,925 | | Engineered Materials | 644,333 | - | - | Summary of Principal Facilities (Leased) | Segment | United States (sq. ft.) | Europe (sq. ft.) | Other Int'l (sq. ft.) | | :--- | :--- | :--- | :--- | | Manufacturing | | | | | Aerospace & Electronics | - | 19,418 | 63,653 | | Process Flow Technologies | 97,220 | 822,573 | 111,594 | Item 3. Legal Proceedings Legal proceedings information is incorporated by reference from Note 12, 'Commitments and Contingencies,' in the Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 12 of the Consolidated Financial Statements463 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable448 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Crane Company's common stock began 'when issued' trading on the NYSE under 'CR' in March 2023, with anticipated quarterly dividends subject to Board discretion - The company's common stock is approved for trading on the NYSE under the symbol 'CR', with 'when issued' trading starting March 29, 2023312 - While the company anticipates paying quarterly dividends post-distribution, the timing and amount are at the sole discretion of its Board of Directors and are not guaranteed449 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance and condition, presenting historical consolidated results for Crane Holdings, Co. and supplemental 'carve-out' results for Crane Company MD&A of Crane Holdings, Co. This section analyzes Crane Holdings, Co.'s historical consolidated financial results, noting a 2022 decrease in net sales and operating profit due to asbestos-related divestiture losses Crane Holdings, Co. Consolidated Financial Highlights | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $3,374.9M | $3,408.0M | $2,936.9M | | Operating Profit | $369.5M | $529.2M | $262.9M | | Net Income | $401.1M | $435.4M | $181.0M | | Diluted EPS | $7.01 | $7.36 | $3.08 | - The 2022 operating profit was significantly impacted by a $162.4 million loss on the divestiture of asbestos-related assets and liabilities478498 - The company recognized a gain of $232.5 million in 2022 from the sale of its Crane Supply business479 - As of December 31, 2022, the total debt to total capitalization ratio for Crane Holdings, Co. was 39.5%71585 MD&A of Crane Company (Supplemental) This supplemental section presents Crane Company's 'carve-out' financial results, showing a 2022 decrease in net sales and operating profit, impacted by corporate expense allocations and new credit facilities Crane Company (Supplemental) Financial Highlights | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $2,035.0M | $2,062.9M | $1,833.8M | | Operating Profit | $68.2M | $250.6M | $184.7M | | Net Income | $199.8M | $234.4M | $166.0M | - The financial statements are prepared on a 'carve-out' basis and include corporate expense allocations from Crane Holdings, Co. amounting to $90.4 million in 2022, $62.2 million in 2021, and $37.6 million in 2020109244 - In March 2023, Crane Company entered into a new credit agreement providing for a $500 million revolving credit facility and a $300 million term loan facility to support its operations as a standalone company111188 - On a supplemental basis, Crane Company's total debt to capitalization ratio was 25.9% as of December 31, 2022204225 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company discloses market risk exposure from interest rate and foreign currency fluctuations, with sensitivity analysis showing potential impacts on interest expense and net earnings - A hypothetical 1% increase in prevailing interest rates would increase the company's variable rate interest expense by approximately $4.0 million annually251376 - A 10% change in foreign currency exchange rates would have impacted 2022 net earnings by approximately $15.2 million, with primary exposure to the British pound, euro, and Canadian dollar232 Item 8. Financial Statements and Supplementary Data This section presents complete audited financial statements for Crane Holdings, Co. (Consolidated) and Crane Company (Supplemental Combined), including auditor reports and detailed notes for fiscal years 2020-2022 Crane Holdings, Co. Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,751.9 | $1,543.1 | | Total Assets | $4,390.2 | $4,486.6 | | Total Current Liabilities | $1,488.2 | $789.3 | | Total Liabilities | $2,486.2 | $2,651.5 | | Total Equity | $1,904.0 | $1,835.1 | Crane Company Supplemental Combined Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,130.4 | $1,050.3 | | Total Assets | $2,265.2 | $2,501.2 | | Total Current Liabilities | $845.8 | $511.2 | | Total Liabilities | $1,123.5 | $1,417.7 | | Total Crane Net Investment | $1,141.7 | $1,083.5 | - The independent auditor, Deloitte & Touche LLP, identified revenue recognized over time for U.S. government contracts as a critical audit matter due to the significant judgments required by management to estimate margins258259260 Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting during the year - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year736 - No changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls were identified during the year911 Item 9B. Other Information The company reports no other information to disclose under this item - None917 Part III Item 10. Directors, Executive Officers and Corporate Governance This section outlines the expected executive officers and Board of Directors for Crane Company post-spin-off, detailing its corporate governance structure and committee roles - The executive leadership team for the new Crane Company is identified, with Max H. Mitchell as President & CEO and Richard A. Maue as EVP & CFO12511262 - The post-spin-off Board of Directors will have four standing committees: Audit, Management Organization and Compensation, Nominating and Governance, and Executive1215 - The Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees to promote honest and ethical conduct and compliance with laws1280 Item 11. Executive Compensation This section details the performance-based executive compensation for Named Executive Officers, including base salary, annual cash incentives, and long-term equity awards, with 2022 payouts and future structures outlined - The executive compensation program is designed to be performance-based, with annual incentives tied to EPS and free cash flow, and long-term incentives linked to relative Total Shareholder Return (TSR)12981314 2022 Annual Incentive Bonus Payouts | Named Executive Officer | Target Bonus (% of Salary) | Payout (%) | Bonus Paid ($) | | :--- | :--- | :--- | :--- | | M. H. Mitchell | 120% | 133.3% | 1,919,520 | | R. A. Maue | 80% | 133.3% | 767,644 | | A. M. D'Iorio | 70% | 133.3% | 489,913 | | A. Alcala | 70% | 154.6% | 542,611 | | T. Polmanteer | 70% | 133.3% | 407,578 | - Long-term incentive awards for NEOs in 2022 were allocated among Performance-Based Restricted Share Units (PRSUs), stock options, and Time-Based Restricted Share Units (TRSUs)13291346 - The company maintains stock ownership guidelines for executives, requiring the CEO to hold stock valued at 6 times base salary and the CFO to hold 5 times base salary1378 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses anticipated beneficial ownership of Crane Company's common stock post-spin-off, identifying major institutional holders and the expected ownership of directors and executive officers Anticipated Beneficial Owners of More Than 5% | Owner | Anticipated Ownership (%) | | :--- | :--- | | The Crane Fund | 13.7% | | FMR LLC | 10.5% | | The Vanguard Group | 8.3% | | BlackRock, Inc. | 7.1% | - The directors and executive officers as a group are expected to beneficially own approximately 1.92% of the company's common stock upon distribution1193 Item 13. Certain Relationships and Related Transactions, and Director Independence This section details key agreements governing the post-separation relationship between Crane Company and Crane NXT, including those for asset allocation, transition services, tax matters, employee benefits, and intellectual property - The Separation and Distribution Agreement will govern the transfer of assets and assumption of liabilities, primarily allocating A&E, PFT, and EM businesses to Crane Company14521469 - A Transition Services Agreement will be in place for up to 18 months, under which Crane Company and Crane NXT will provide each other with services such as IT, finance, and HR to ensure an orderly separation12001456 - A Tax Matters Agreement will allocate tax liabilities and benefits, with each company generally responsible for taxes related to its respective business operations12021474 - An Employee Matters Agreement will address the allocation of employee liabilities, benefit plans, and the adjustment of outstanding equity awards to preserve their value post-spin-off12041478 Item 14. Principal Accountant Fees and Services This section discloses fees billed by Deloitte & Touche LLP for 2021 and 2022, noting a significant increase in audit fees in 2022 primarily due to spin-off related carve-out audits Principal Accountant Fees (in thousands) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $10,019 | $5,540 | | Audit-Related Fees | $275 | $224 | | Tax Fees | $596 | $863 | | All Other Fees | $3 | $3 | | Total | $10,893 | $6,630 | - The significant increase in audit fees in 2022 was primarily due to services related to the spin-off, including multi-year carve-out audits of both Crane Company and Crane NXT1226 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key legal documents governing the spin-off and future operations - This section lists all financial statements and exhibits filed with the 10-K, including key legal documents governing the spin-off and future operations14891227 Item 16. Form 10-K Summary This item is not applicable - Not applicable1235