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Crawford United Corporation

10514 Dupont Avenue

Cleveland, Ohio 44108

June 2, 2022

VIA EDGAR

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549-3628

			Attention:

			Jeanne Baker

			Terence O’Brien

			Re:

			Crawford United Corporation

Form 10-K for the Fiscal Year Ended December 31, 2021

Filed April 13, 2022

File No. 000-00147

Ladies and Gentlemen:

Crawford United Corporation (the “Company” or “we”), is submitting this letter in response to the comment letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated May 10, 2022.

Below are the Company’s responses. For the convenience of the Staff, we have repeated each of the Staff’s comments before its corresponding response.

Form 10-K for the Fiscal Year Ended December 31, 2021

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates, page 18

			1.

			In accordance with Item 303(b)(3) please provide a discussion and analysis of critical accounting estimates or assumptions that:

			●         identifies your critical accounting estimates or assumptions;

			●         supplements, but does not duplicate, the description of accounting policies in the notes to the financial statements; and

			●         provides greater insight into the quality and variability of information regarding financial condition and operating performance.

Response:

In our upcoming Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, we will include the following disclosure, and will provide similar disclosure in subsequent future Form 10-Q and 10-K filings:

Critical Accounting Policies and Estimates

Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions which affect amounts reported in our consolidated financial statements. On an ongoing basis, we evaluate the accounting policies and estimates that are used to prepare financial statements. Management has made their best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe that there is great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Securities and Exchange Commission

June 2, 2022

Page 2

Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below. On a regular basis, critical accounting policies are reviewed with the Audit Committee of the Board of Directors.

Revenue Recognition: We recognize revenue with respect to customer orders when our obligations under the contract terms are satisfied and control of the product transfers to the customer, typically upon shipment. Revenue from certain contracts in the Commercial Air Handling Equipment segment is accounted for over time, when products are manufactured or services are performed, as control transfers under these arrangements. We follow the input method, as we have determined that it allows us to make reasonably reliable estimates of revenue and costs of a contract.

Allowance for Obsolete and Slow-Moving Inventory: Inventories are valued using the first-in, first-out (“FIFO”) method; stated at the lower of cost or net realizable value; and are reduced by an allowance for obsolete and slow-moving inventories. The allowance is estimated based on management’s review of inventories on hand with minimal sales activity, which is compared to estimated future usage and sales. Inventories identified by management as slow-moving or obsolete are reserved for based on estimated selling prices less disposal costs. Though we consider these allowances adequate and proper, changes in economic conditions in specific markets in which we operate could have a material effect on allowances required.

Business Combinations: Business combinations are accounted for using the purchase method of accounting under ASC 805, “Business Combinations.” This method requires the Company to record assets and liabilities of the businesses acquired at their estimated fair values as of the acquisition date. Any excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. Determining the fair value requires management to make estimates and assumptions including discount rates, rates of return on assets, and long-term sales growth rates.

Goodwill and Indefinite Lived Intangible Assets: As referenced by ASC 350 “Intangibles- Goodwill and other” (“ASC 350”), management performs its annual test for goodwill and intangible assets at least annually or more frequently, if impairment indicators arise at the reporting unit level. Our reporting units have been identified at the individual company component level, with each individual subsidiary operating company constituting its own reporting unit. For 2021 and 2020, management performed qualitative and quantitative testing for each individual company with a goodwill balance other than those companies that were newly acquired within one year.

Our goodwill impairment analysis utilizes a qualitative approach comparing carrying amount of the reporting unit to its estimated fair value. To the extent that the qualitative approach indicates that it is more likely than not that the carrying amount is less than its fair value, we apply a quantitative approach as a secondary step. In applying the quantitative approach, we use an income approach to estimate the fair value of the reporting unit. The income approach uses a number of factors, including future business plans and actual and forecasted operating results. The significant assumptions employed under this method include discount rates; revenue growth rates, including assumed terminal growth rates; and operating margins used to project future cash flows for the operating company. The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows of the individual company. Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable. We believe we incorporate reasonable assumptions into our analysis of goodwill impairment testing for a reporting unit, such that actual experience would need to be materially out of the range of expected assumptions in order for an impairment to remain undetected.

Securities and Exchange Commission

June 2, 2022

Page 3

Income Taxes: In accordance with ASC 740, “Income Taxes” (“ASC 740”), we account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates. Specifically, we measure gross deferred tax assets for deductible temporary differences and carryforwards, such as operating losses and tax credits, using the applicable enacted tax rates and apply the more likely than not measurement criterion Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual annual effective income tax rates and related income tax liabilities may differ materially from our interim estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.

			2.

			As disclosed in Note 5, Goodwill and Intangible Assets, we note that the Company performed its annual impairment test for goodwill and intangible assets as of the last day of the fourth quarter. The Company first assessed certain qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount, and whether it is therefore necessary to perform the quantitative impairment test. For CAD Enterprises, the Company performed a quantitative impairment test, including a discounted cash flow model and peer comparison. In presenting your critical accounting estimates, please explain how you have identified your reporting units. Also, quantify the goodwill associated with CAD Enterprises and provide a discussion of the facts and circumstances noted during your qualitative assessment of CAD Enterprises that resulted in the need to perform a quantitative impairment test. Please also disclose whether the estimated fair value of CAD Enterprises substantially exceeded its carrying values, If the estimated fair value was not substantially in excess of its carrying value, please also address the following:

			●

			disclose the percentage by which CAD Enterprises’ estimated fair value exceeded its carrying value at the date of the most recent impairment test;

			●

			provide a more detailed description of the key assumptions used to estimate fair values, including how the key assumptions were determined;

			●

			discuss the degree of uncertainty associated with the key assumptions and provide an analysis of the potential impact of changes in the key assumptions on your impairment analyses; and

			●

			describe the potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.

			Please refer to Item (303)(b)(3) of Regulation S-K.Please provide us with an example of the disclosure you intend to provide and clarify how you intend to provide it.

Response:

We identify our reporting units in accordance with ASC 280 “Segment Reporting”, pursuant to which a reporting unit is (1) an operating segment or (2) one level below the operating segment (component level), as determined by the availability of discrete financial information that is regularly reviewed by operating segment management. Please see our response to comment #1 above under the caption “Goodwill and Indefinite Lived Intangible Assets” for an explanation of how we have identified our reporting units.

We will include the following disclosure in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, and similar disclosure in our subsequent future Form 10-Q and 10-K filings to the extent applicable, in the “Goodwill and Indefinite Lived Intangible Assets” portion of the Critical Accounting Estimates disclosure provided as part of our Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Securities and Exchange Commission

June 2, 2022

Page 4

In conducting our 2021 annual impairment analysis, we determined that the goodwill for CAD Enterprises at December 31, 2021 was $7.3 million. In our qualitative assessment of CAD Enterprises, we noted a decline in revenue from $30.1 million in 2019 to $18.9 million in 2020 and $18.3 million in 2021 and a decline in after-tax income margin from 5.8% in 2019 to -4.6% in 2020 and -0.5% in 2021, and thus determined to conduct a quantitative assessment of CAD Enterprises. The quantitative assessment of CAD Enterprises confirmed that the estimated fair value exceeded carrying value by 9 percent, and thus no impairment existed at December 31, 2021. The key assumptions used to estimate fair value included discount rates; revenue growth rates, including assumed terminal growth rates; and after-tax income margins used to project future cash flows for CAD Enterprises. The discount rate used to estimate fair value was 10% and was based on estimates of capital costs and management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows for CAD Enterprises. Our revenue growth rate for the 9-year period in the discounted cash flow model was 10.5% per year, which reflects management’s assessment of estimated future orders for CAD Enterprises based in part on a Long-Term-Agreement (“LTA”) with the company’s largest customer, our previous revenue history including actual revenues of $30.1 million in 2019 before the onset of the COVID-19 pandemic, and a continued business rebound in the aerospace industry. The assumed terminal growth rate for CAD Enterprises was 3% based on management’s assessment of long-term growth rates for the Aerospace industry. The after-tax income margins used to project future margins for the company were based on the historical margins for CAD Enterprises prior to the COVID-19 pandemic. In 2019, CAD Enterprises earned an after-tax income margin of 5.8%. The discounted cash flow model used to estimate fair value assumes an after-tax income margin of 6.0% in 2026, or year 5 of the forecast period and expanding margins to 6.4% in the terminal year. This is based on management’s assessment of our ability to grow SG&A expenses at a slower rate than revenues as the company achieves more scale. Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable. Potential events and circumstances including global conflicts, materials shortages, inability to increase prices to keep pace with expenses, onset of a global pandemic, departure of key employees and loss of a key customer could negatively affect the key assumptions used for the recent fair value test and are similar to the risk factors noted in Item 1A, Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Liquidity and Capital Resources, page 18

			3.

			Your disclosure indicates that cash flows from operating activities were impacted by cash used in working capital adjustments including an increase in accounts receivable of $5.3 million. In light of the fact that your accounts receivable balance appears to have increased at a higher rate than your revenues, please explain the underlying reason for material changes in trade receivables, the impact such changes have on you cash flows, and any known trends. Discuss financial measures such as days sales outstanding that would be relevant to a reader of your financial statements. Refer to Item 303(b)(1)(i) and 303(c).

Response:

Cash flows from operations were impacted by cash used in working capital adjustments including an increase in accounts receivable of $5.3 million in 2021 compared to 2020, driven primarily by an increase of $2.1 million in the Commercial Air Handling Equipment segment and an increase of $3.2 million in the Industrial and Transportation Products segment. The increase in accounts receivable in the Commercial Air Handling Equipment segment was the result of receiving payments for certain projects in the fourth quarter of 2020 that significantly reduced the accounts receivable balance at December 31, 2020. Days sales outstanding in the Commercial Air Handling Equipment segment were 73 days in 2021 compared to 69 days in 2020 which management will continue to monitor but does not view as a significant change. The increase in accounts receivable in the Industrial and Transportation Products segment was driven by an increa