Item 1. Business
Item 1.
Business
General
In March 2022, the board of directors of Crane Holdings, Co.
authorized management to pursue a plan to separate spin-off its Aerospace & Electronics, Process Flow Technologies and Engineered Materials segments to Crane Holdings, Co.s stockholders (the spin-off). On February 7, 2023, the
SEC declared effective the registrants Registration Statement on Form 10, filed on December 15, 2022, as amended by Amendment No. 1 to the Registration Statement on Form 10, filed on January 24, 2023. Crane Company, a Delaware corporation and
a direct, wholly owned subsidiary of Crane Holdings, Co., was newly formed for the purpose of separation and has not engaged in any activities except in preparation for the distribution. The registrant expects the spin-off to be consummated on April
3, 2023.
Crane Company
We are a diversified manufacturer of highly engineered
industrial products. Our operations are currently comprised of three segments: Aerospace & Electronics (A&E), Process Flow Technologies (PFT) and Engineered Materials (EM). Our primary end markets
include aerospace, defense and space, process industries, non-residential and municipal construction, along with a wide range of general industrial and certain consumer related end markets.
We have been committed to the highest standards of business conduct since inception in 1855 when our founder, R.T. Crane, resolved to conduct my business in the
strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees; and to put my whole mind upon the business. Our strategy is to grow earnings and
cash flow by focusing on the manufacturing of highly engineered industrial products for specific markets where our scale is a relative advantage, and where we can compete based on our proprietary and
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differentiated technology, our deep vertical expertise, and our responsiveness to unique and diverse customer needs. We continuously evaluate our portfolio, pursue acquisitions that complement
our existing businesses and selectively divest businesses where appropriate. We strive to foster a performance-based culture focused on productivity and continuous improvement, to attract and retain a committed management team whose interests are
directly aligned with those of our shareholders, and to maintain a focused, efficient corporate structure.
We operate a comprehensive set of business processes,
philosophies and operational excellence tools to drive continuous improvement throughout our businesses (collectively, the Crane Business System). Beginning with a core value of integrity, we incorporate Voice of the Customer teachings
(specific processes designed to capture our customers requirements) and a broad range of tools into a disciplined strategy deployment process to continuously improve safety, quality, delivery, cost and growth. An embedded intellectual capital
development process helps ensure that we attract, develop, promote and retain talent to drive continuity and repeatable results.
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Recent Transactions
Pending Separation
On March 30, 2022, Crane Holdings, Co. announced that
its Board of Directors unanimously approved a plan to pursue a separation into two independent, publicly-traded companies (the Separation), Crane Company and Crane NXT, Co. Upon completion of the pending Separation, Crane Holdings, Co.
will be renamed Crane NXT, Co. and will continue to operate Crane Holdings, Co.s Payment & Merchandising Technologies segment. The new company distributed to the stockholders of Crane Holdings, Co. in the Separation, Crane
Company, will hold Crane Holdings, Co.s Aerospace & Electronics and Process Flow Technologies global growth platforms, as well as Crane Holdings, Co.s Engineered Materials segment. The Separation is expected to occur through a
tax-free distribution of all of the outstanding shares of Crane Company common stock to holders of Crane Holdings, Co. common stock and is expected to be completed in April, 2023, subject to the satisfaction of customary conditions and final
approval by Crane Holdings, Co.s Board of Directors. On February 7, 2023, the SEC declared effective our registration statement on Form 10. Each Crane Holdings, Co. stockholder will receive one share of Crane Company common stock for
every one share of Crane Holdings, Co. common stock held on March 23, 2023, the record date for the distribution.
For additional information regarding the
Separation, including risk factors, see the Information Statement of Crane Company, filed as Exhibit 99.1 to the registration statement on Form 10 filed by Crane Company with the SEC on December 15, 2022, as amended by Amendment No. 1 filed with the
SEC on January 24, 2023.
Crane Company Credit Facilities
On March 17,
2023, Crane Company entered into a new senior unsecured credit agreement (the Credit Agreement), which provides for (i) a $500 million, 5-year Revolving Credit Facility (the Revolving Facility) and (ii) a $300 million, 3-year
term loan facility (the Term Facility), funding under each of which will become available substantially concurrently with the spin-off, subject to the satisfaction of customary conditions of facilities of this type. The Revolving
Facility allows us to borrow, repay and re-borrow funds from time to time prior to maturity of the Revolving Facility without any penalty or premium, subject to customary borrowing conditions for facilities of this type and the reimbursement of
breakage costs. Borrowings under the Term Facility are prepayable without premium or penalty, subject to customary reimbursement of breakage costs. Interest on loans advanced under the Credit Agreement accrues, at our option, at a rate per annum
equal to (1) adjusted term SOFR for the applicable interest period plus a margin ranging from 1.50% to 2.25% or (2) a base rate plus a margin ranging from 0.50% to 1.25%, in each case, with such margin determined based on our total net leverage
ratio. We are required to pay a fee on undrawn commitments under the Revolving Facility at a rate per annum that ranges from 0.20% to 0.35%, depending on our total net leverage ratio. The Credit Agreement contains customary affirmative and negative
covenants for credit facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of all or substantially all assets, transactions with
affiliates and hedging arrangements. As of the last day of each quarter, we must also maintain a total net leverage ratio not to exceed 3.50 to 1.00 (which, at the Crane Companys election, such maximum ratio may be increased to 4.00 to 1.00
for specified periods following our consummation of certain material acquisitions) and a minimum interest coverage ratio must be at least 3.00 to 1.00. The Credit Agreement also includes for customary events of default, including failure to pay
principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by us or any of our material subsidiaries being false in any material respect, default under certain other material indebtedness, certain
insolvency or receivership events affecting us and our material subsidiaries, certain ERISA events, material judgments and a change in control, in each case, subject to cure periods and thresholds where customary.
Reportable Segments
For additional information on recent business
developments and other information about us and our business, please refer to the information set forth under the captions, Managements Discussion and Analysis of Financial Condition and Results of Operations, in Part II,
Item 7 of this report, as well as in Part II, Item 8 under Note 4, Segment Information, in the Notes to Combined Financial Statements for sales, operating profit and assets employed by each segment.
Aerospace & Electronics
The Aerospace & Electronics
segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace, and the military aerospace, defense and space markets. The commercial market and military market
accounted for 57% and 43%, respectively, of total segment sales in 2022. Sales to original equipment manufacturers (OEMs) and aftermarket customers were 72% and 28%, respectively, in 2022.
We provide mission critical systems that require high reliability and high accuracy, such as pressure sensors for aircraft engine control, aircraft braking systems for
fighter jets, power conversion solutions for spacecraft and lubrication systems for the harshest and most hazardous environmental conditions. Crane has differentiated proprietary technology and know-how supporting many of the fundamental
technologies that are supporting solutions where we are often sole source in the areas where we compete, with a track record for performance, reliability and continued innovation. A&Es integrated capabilities include the following:
Power Solutions: Provides enabling technology to accelerate electrification of air, land, space and sea vehicles and
systems.
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Sensing Systems: Provides components and systems for condition and position sensing, and pressure and flow
measurement, with high-accuracy, reliability and engineering to excel in rugged aerospace environments.
Fluid & Thermal Management: Designs and manufactures positive displacement pumps, centrifugal pumps and
true mass flowmeters for aerospace and defense applications.
Landing Systems: Provides hydraulic and electric brake control systems with antiskid and autobrake functionality, as
well as electronic and hydraulic subsystems for landing gear control.
Microwave Solutions: Designs and manufactures high-performance RF and IF components and millimeter-wave systems and
subsystems for defense, space and commercial end-use customers.
A&E has a solid long term growth profile driven by positions on market
leading platforms, recent new program wins and continued investment in technology readiness. The segment is also positioned to benefit from underlying market growth driven by increasing new commercial aircraft deliveries, air passenger travel
growth, defense investment, ongoing maintenance, repair and overhaul organizations (MRO) requirements and emerging applications in the space market, as well as a strong trend driving greater electrification for aerospace and defense
applications. Our unique position to drive sustained growth is driven by differentiated technology investment focused on high-growth market segments, including Low Earth Orbit satellite constellations, next-generation aircraft engines, advanced
ground and sea-based radar systems, as well as high-power and bi-directional power conversion for numerous emerging commercial and military applications, including more-electric and hybrid-electric ground vehicles and hybrid-electric and pure
electric-propulsion aircraft.
Facilities are located in the United States, Taiwan, and France.
Process Flow Technologies
The Process Flow Technologies segment is a
provider of highly engineered fluid handling equipment for mission critical applications that require high reliability. The segment is comprised of Process Valves and Related Products, Pumps and Systems and Commercial Valves.
Process Valves and Related Products: Manufactures a wide range of on/off isolation valves, including check valves,
sleeved plug valves, lined valves, process ball valves, high performance butterfly valves, bellows sealed globe valves, aseptic and industrial diaphragm valves and multi / quarter-turn valves actuation. Other related products include lined pipe,
fittings and hoses, air operated diaphragm and peristaltic pumps, instrumentation and sampling systems, valve positioning and control systems, valve diagnostic and calibration systems. Across the portfolio, the primary focus is on chemical,
pharmaceutical and general industrial end markets. Manufacturing facilities, along with sales and service centers, are located across North America, Europe, the Middle East, Asia and Australia.
Pumps and Systems: Manufactures pumps products for water and wastewater applications, primarily in the United States
municipal and industrial markets.
Commercial Valves: Manufactures valves and related products for the non-residential construction, gas utility and
municipal markets. The primary geographies served by the manufacturing operations are the United Kingdom, the Middle East and continental Europe.
Our portfolio strategically targets the higher growth and less cyclical chemical, general industrial, water and wastewater and pharmaceutical industries. We expect
these industries to be outsized growth segments of the market, driven by investment in sustainability and clean energy, aging infrastructure, tightening wastewater regulations and an aging population with a growing demand for healthcare.
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Crane has a strong track record of innovation and being a pioneer in the industry, writing the book on the
flow of fluids with Technical Paper 410, which is still used as a definitive authority on the topic for engineers, professionals and other practitioners. By focusing on accelerating the rate of innovation through R&D investment, we have driven
incremental market capture and significantly improved new product sales vitality to support long term profitable growth.
Engineered Materials
The Engineered Materials segment manufactures fiberglass-reinforced plastic (FRP) panels and coils, primarily for use in the manufacturing of recreational
vehicles (RVs), and in commercial and industrial buildings applications, with some additional applications including trailers and other transportation-related products. Engineered Materials sells the majority of its products directly to
RV, trailer, and truck manufacturers, and it uses distributors and retailers to serve the commercial and industrial construction markets. Manufacturing facilities are located in the United States.
Other Matters Relating to Our Business as a Whole
Competitive
Conditions
Our businesses participate in markets that are highly competitive. Because of the diversity of products manufactured and sold, our businesses
typically have a different set of competitors in each geographic area and end market in which they participate. Accordingly, it is not possible to estimate the number of competitors, or precise market share; however, we believe that we are a
principal competitor in most of our markets. Our primary basis of competition is providing high quality products, with technological differentiation, at competitive prices, with superior customer service and timely delivery.
Our products are sold into primary end markets which include aerospace, defense and space, process industries, non-residential and municipal construction, along with a
wide range of general industrial and certain consumer related end markets. As such, our revenues depend on numerous unpredictable factors, including changes in market demand, general economic conditions, customer capital spending, timing and amount
of contract awards and credit availability. Since our products are sold in such a wide variety of markets, we do not believe that we can reliably quantify or predict the potential effects of changes in any of the aforementioned factors. Our
engineering and product development activities are focused on improving existing products, customizing existing products for particular customer requirements, as well as the development of new products. We own numerous patents, trademarks,
copyrights, trade secrets and licenses to intellectual property, no one of which is of such importance that termination would materially affect our business. From time to time, however, we do engage in litigation to protect our intellectual
property.
Raw Materials
Our manufacturing operations employ a wide
variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics, and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world. Although market
forces have at times, including in 2022, caused increases in the costs of key raw materials, there have been no raw materials shortages that have had a material adverse impact on our business. We believe that we will generally be able to obtain
adequate supplies of major raw material requirements or reasonable substitutes at acceptable costs. For a further discussion of risks related to raw materials, please refer to Item 1A. Risk Factors.
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Government Contracts
We
have agreements relating to the sale of products to government entities, primarily involving products in our Aerospace & Electronics and, to a lesser extent, our Process Flow Technologies segment. As a result, we are subject to various
statutes and regulations that apply to companies doing business with the government. The laws and regulations governing government contracts differ from those governing private contracts. For example, some government contracts require disclosure of
cost and pricing data and impose certain sourcing conditions that are not applicable to private contracts. Our failure to comply with these laws could result in suspension of these contracts, criminal or civil sanctions, administrative penalties and
fines or suspension or debarment from government contracting or subcontracting for a period of time. For a further discussion of risks related to compliance with government contracting requirements, please refer to Item 1A. Risk
Factors.
Environmental Compliance and Climate Change
We are
regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts
that would be considered hazardous waste or otherwise harmful to the environment if not properly handled or maintained. Accordingly, continued compliance with these existing laws has not had a material impact on our capital expenditures or earnings.
However, we occasionally engage in environmental remediation activities as required by federal and state laws. In addition, we may be exposed to other
environmental costs including participation in the characterization and remediation of federal Superfund sites, or analogous state sites. When it is reasonably probable we will pay remediation costs at a site, and those costs can be reasonably
estimated, we accrue a liability for such future costs with a related charge against our earnings. For further discussion of environmental related risks, please refer to Item 1A. Risk Factors. For further discussion of our
environmental matters, please refer to Part II, Item 8 under Note 13, Commitments and Contingencies, in the Notes to Combined Financial Statements.
Human Capital Resources
To remain a leading manufacturer of highly
engineered industrial products, it is important that we continue to attract, develop, and retain exceptional talent across our global enterprise.
The Company has a
diverse global workforce located in 20 countries, spanning six continents. At December 31, 2022, we employed approximately 7,000 persons worldwide, of which substantially all were full time employees. In the United States, we employed
approximately 4,000 people across 35 locations. At December 31, 2022, approximately 5% of our U.S. employees were represented by a union under a collective bargaining agreement. Employees based in some foreign countries may, from time to time,
be represented by works councils or unions or subject to collective bargaining agreements. We consider our relations with our employees to be good.
To be an
employer of choice and maintain the strength of our workforce, we consistently assess the current business environment and labor market to refine our compensation and benefits programs and other resources available to our associates. We are
committed to developing our associates personally and professionally by leveraging a structured and disciplined Intellectual Capital (IC) process. Our regular IC cadence includes constructive reviews and various talent and leadership
development initiatives conducted by the executive management team and provided throughout an associates career. We are also committed to an inclusive and high-performance culture at all levels of the organization, based on trust and respect.
The manufacture and production of our products requires the use of a variety of tools, equipment, materials, and supplies. At Crane, we are strongly committed to
the health and safety of our associates and strive to continuously adhere to global regulatory safety requirements and to reduce the incidence and severity of job-related injuries. We utilize strict compliance protocols, training programs, effective
risk management practices, and sound science in our operations to minimize risk to our associates.
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Beginning in 2020, in response to the COVID-19 pandemic, we implemented flexible remote work options and health and
safety protocols and procedures across all of our global offices, manufacturing and distribution facilities to ensure the safety and well-being of our associates. These protocols included proper hygiene, social distancing, mask use and temperature
screenings and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention in the U.S., and other similar public health
authorities in our international locations. Today, we continue to deploy various work options and protocols in response to the significantly reduced health risks compared to the initial and early period of the pandemic.
For a discussion of risks related to employee relations, please refer to Item 1A. Risk Factors.
Available Information
We, and our sole shareholder, Crane Holdings, Co.,
each file annual, quarterly, and current reports and amendments to these reports, proxy statements and other information with the U.S. Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains reports,
proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. The address of the SECs website is www.sec.gov.
We, and Crane Holdings, Co., each also make our filings available free of charge through our Internet website, as soon as reasonably practicable after filing such
material electronically with, or furnishing such material, to the SEC. Also posted on our website are Crane Holdings, Co.s Corporate Governance Guidelines, Standards for Director Independence, Crane Holdings, Co. Code of Ethics and the
charters and a brief description of each of Crane Holdings, Co.s Audit Committee, Management Organization and Compensation Committee and Nominating and Governance Committee. These items are available in the Investors Corporate
Governance section of Crane Holdings, Co.s website at www.craneco.com. The content of this website is not part of this report.
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