Crane Co 10-Q

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 Company 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 Company and its subsidiaries unless the context specifically states or implies otherwise. References to “core business” or “core sales” in this report include sales from acquired businesses starting from and after the first anniversary of the acquisition but exclude currency effects. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. There are a number of other factors, including risks and uncertainties related to the ongoing effects of the COVID-19 pandemic, that could cause actual results or outcomes to differ materially from those expressed or implied in the forward-looking statements. Such factors also include, among others: changes in global economic conditions (including inflationary pressures and higher interest rates) and geopolitical risks, including macroeconomic fluctuations that may harm our business, results of operations and stock price; information systems and technology networks failures and breaches in data security, personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information; our ability to source components and raw materials from suppliers, including disruptions and delays in our supply chain; demand for our products, which is variable and subject to factors beyond our control; governmental regulations and failure to comply with those regulations; fluctuations in the prices of our components and raw materials; loss of personnel or being able to hire and retain additional personnel needed to sustain and grow our business as planned; risks from environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations, cash flows and reputation; risks associated with conducting a substantial portion of our business outside the United States; being unable to identify or complete acquisitions, or to successfully integrate the businesses we acquire, or complete dispositions; adverse impacts from intangible asset impairment charges; potential product liability or warranty claims; being unable to successfully develop and introduce new products, which would limit our ability to grow and maintain our competitive position and adversely affect our financial condition, results of operations and cash flow; significant competition in our markets; additional tax expenses or exposures that could affect our financial condition, results of operations and cash flows; inadequate or ineffective internal controls; specific risks relating to our reportable segments, including Aerospace & Electronics, Process Flow Technologies, and Engineered Materials; the ability and willingness of Crane Company to meet and/or perform their obligations under any contractual arrangements entered into among the parties in connection with the Separation and any of their obligations to indemnify, defend and hold the other party harmless from and against various claims, litigation and liabilities; our ability to achieve some or all the benefits that we expect to achieve from the Separation; 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, 2022, and subsequent reports and other documents filed by us with the Securities and Exchange Commission, including any registration statement relating to our business separation. We do not undertake any obligation to update or revise any forward-looking statements to reflect any future events or circumstances. 29 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Transactions Separation On April 3, 2023, Crane Holdings, Co., was separated into two independent, publicly-traded companies in a transaction in which Crane Holdings, Co. retained its Payment & Merchandising Technologies segment and spun-off its Aerospace & Electronics, Process Flow Technologies and Engineered Materials segments to Crane Holdings, Co. stockholders. Upon consummation of the Separation, each of our stockholders received one share of Crane Company common stock for every one share of our common stock held on March 23, 2023, the record date for the distribution. 30 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Three Month Periods Ended June 30, The following information should be read in conjunction with our condensed consolidated financial statements and related notes. All comparisons below refer to the second quarter 2023 versus the second quarter 2022, unless otherwise specified. Second Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales $ 509.6 $ 530.3 $ (20.7) (3.9) % Cost of sales 308.5 352.8 44.3 12.6 % as a percentage of sales 60.5 % 66.5 % Selling, general and administrative 138.0 133.8 (4.2) (3.1) % as a percentage of sales 27.1 % 25.2 % Operating profit 63.1 43.7 19.4 44.4 % Operating margin 12.4 % 8.2 % Other income (expense): Interest income 0.8 0.6 0.2 33.3 % Interest expense (5.3) (0.8) (4.5) (562.5) % Gain on sale of business — 228.7 (228.7) NM Miscellaneous (expense) income, net (1.3) 13.0 (14.3) (110.0) % Total other expense (5.8) 241.5 (247.3) (102.4) % Income from continuing operations before income taxes 57.3 285.2 (227.9) (79.9) % Provision for income taxes 14.0 78.6 64.6 82.2 % Net income from continuing operations attributable to common shareholders $ 43.3 $ 206.6 $ (163.3) (79.0) % Sales decreased by $20.7 million, or 3.9%, to $509.6 million in 2023. The year-over-year change in sales included: • an increase in core sales of $24.9 million, or 4.7%, which was driven primarily by higher pricing; • unfavorable foreign currency translation of $1.5 million, or 0.3%; and • a decrease in sales related to the May 2022 divestiture of Crane Supply of $44.0 million, or 8.3%. Cost of sales decreased by $44.3 million, or 12.6%, to $308.5 million in 2023. The decrease is primarily related to the impact of the sale of Crane Supply of $32.3 million, or 9.1%, strong productivity gains of $9.7 million, or 2.8%, the impact of lower volumes of $9.5 million, or 2.7%, partially offset by an increase in material, labor and other manufacturing costs of $5.3 million, or 1.5% and unfavorable mix of $3.7 million, or 1.1%. Selling, general and administrative expenses increased by $4.2 million, or 3.1%, to $138.0 million in 2023 reflecting a $13.9 million, or 10.4%, increase in administrative expenses primarily related to the Separation, partially offset by the impact of the sale of Crane Supply of $6.2 million, or 4.6%, and productivity gains and restructuring savings of $2.8 million, or 2.1%. Operating profit increased by $19.4 million, or 44.4%, to $63.1 million in 2023. The increase primarily reflected higher pricing net of inflation, and productivity, of $29.7 million, or 68.0%, partially offset by the impact of the sale of Crane Supply of $5.5 million, or 12.6% and unfavorable mix of $3.7 million, or 8.5%. Other (expense) income decreased $247.3 million to $(5.8) million, reflecting the gain on the sale of the Crane Supply business of $228.7 million in 2022, not repeating in 2023. Our effective tax rate attributable to continuing operations for the three months ended June 30, 2023 is lower than the prior year’s comparable periods primarily due to the prior year effect of a reversal of a deferred tax asset established that related to the sale of a subsidiary in a prior period, partially offset by earnings in jurisdictions with statutory tax rates higher than the United States in current period. 31 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our effective tax rate attributable to continuing operations for the three months ended June 30, 2023 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 United States, expenses that are statutorily non-deductible for income tax purposes and U.S. state taxes, partially offset by excess share-based compensation benefits, tax credit utilization, and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income. Comprehensive Income Three Months Ended June 30, (in millions) 2023 2022 Net income before allocation to noncontrolling interests $ 45.6 $ 258.2 Components of other comprehensive income (loss), net of tax Currency translation adjustment 0.7 (75.9) Changes in pension and postretirement plan assets and benefit obligation, net of tax 2.6 3.5 Other comprehensive income (loss), net of tax 3.3 (72.4) Comprehensive income before allocation to noncontrolling interests 48.9 185.8 Less: Noncontrolling interests in comprehensive income (0.1) (0.1) Comprehensive income attributable to common shareholders $ 49.0 $ 185.9 For the three months ended June 30, 2023, comprehensive income before allocation to noncontrolling interests was $48.9 million compared to $185.8 million in the same period of 2022. The $136.9 million decrease was primarily driven by the $76.6 million year-over-year favorable impact of foreign currency translation, due to the impact of the British pound and euro against the U.S. dollar, offset by lower net income before allocation to noncontrolling interests of $212.6 million. 32 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Three Month Periods Ended June 30, Aerospace & Electronics Second Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Commercial Original Equipment $ 69.8 $ 60.6 $ 9.2 15.2 % Military Original Equipment 62.8 57.1 5.7 10.0 % Commercial Aftermarket Products 40.8 29.0 11.8 40.7 % Military Aftermarket Products 15.8 14.8 1.0 6.8 % Total net sales $ 189.2 $ 161.5 $ 27.7 17.2 % Cost of sales $ 116.6 $ 101.2 $ (15.4) (15.2) % as a percentage of sales 61.6 % 62.7 % Selling, general and administrative $ 34.3 $ 32.1 $ (2.2) (6.9) % as a percentage of sales 18.1 % 19.9 % Operating profit $ 38.3 $ 28.2 $ 10.1 35.8 % Operating margin 20.2 % 17.5 % Supplemental Data: Backlog $ 675.1 $ 534.4 $ 140.7 26.3 % Sales increased $27.7 million, or 17.2%, to $189.2 million in 2023, primarily due to higher volumes and strong pricing. • Sales of Commercial Original Equipment increased $9.2 million, or 15.2%, to $69.8 million in 2023, reflecting strong demand from aircraft manufacturers as the industry aircraft build rates continue to recover from the COVID-19 related slowdown, partially offset by material availability constraints. • Sales of Military Original Equipment increased $5.7 million, or 10.0%, to $62.8 million in 2023, primarily reflecting strong demand from defense and space customers. • Sales of Commercial Aftermarket Products increased $11.8 million, or 40.7%, to $40.8 million in 2023, reflecting continued strong demand from the airlines due to improving air traffic and inventory restocking. • Sales of Military Aftermarket Products increased $1.0 million, or 6.8%, to $15.8 million in 2023, reflecting stronger demand from military customers. Cost of sales increased by $15.4 million, or 15.2%, to $116.6 million in 2023, primarily reflecting higher material and other manufacturing costs of $10.0 million, or 9.9%, increased volumes of $6.9 million, or 6.9%, unfavorable mix of $1.6 million, or 1.6%, partially offset by productivity gains of $3.2 million, or 3.1%. Selling, general and administrative expenses increased $2.2 million, or 6.9%, to $34.3 million, primarily related to higher engineering and administrative costs of $3.3 million, or 10.2%, partially offset by productivity and restructurings savings of $1.9 million, or 5.8%. Operating profit increased by $10.1 million, or 35.8%, to $38.3 million in 2023. The increase primarily reflected higher volumes and productivity of $9.9 million, or 35.2%. 33 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Process Flow Technologies Second Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Process Valves and Related Products $ 197.4 $ 186.7 $ 10.7 5.7 % Commercial Valves 28.8 77.2 (48.4) (62.7) % Pumps and Systems 37.0 32.1 4.9 15.3 % Total net sales $ 263.2 $ 296.0 $ (32.8) (11.1) % Cost of sales $ 149.4 $ 191.2 $ 41.8 21.9 % as a percentage of sales 56.8 % 64.6 % Selling, general and administrative $ 63.2 $ 64.2 $ 1.0 1.6 % as a percentage of sales 24.0 % 21.7 % Operating profit $ 50.6 $ 40.6 $ 10.0 24.6 % Operating margin 19.2 % 13.7 % Supplemental Data: Backlog $ 352.9 $ 348.6 $ 4.3 1.2 % Sales decreased by $32.8 million, or 11.1%, to $263.2 million in 2023, driven by a $44.0 million, or 14.9%, impact from the sale of Crane Supply and $1.6 million, or 0.5%, of unfavorable foreign currency translation, partially offset by core sales growth of $12.7 million, or 4.3%. • Sales of Process Valves and Related Products increased by $10.7 million, or 5.7%, to $197.4 million in 2023, reflecting an increase in core sales, partially offset by unfavorable foreign currency translation as the Chinese Yuan and the Canadian Dollar weakened against the U.S. dollar. Sales growth was driven primarily by strength in Industrial end markets and higher pricing. • Sales of Commercial Valves decreased by $48.4 million, or 62.7%, to $28.8 million in 2023, primarily driven by the impact of the divestiture of Crane Supply of $44.0 million, or 57.0%, and, to a lesser extent, modest weakening in the U.K. non-residential construction markets. • Sales of Pumps & Systems increased by $4.9 million, or 15.3%, to $37.0 million in 2023, reflecting an increase in core sales primarily driven by higher prices and volumes a cross all key end markets. Cost of sales decreased by $41.8 million, or 21.9%, to $149.4 million, primarily related to the impact of the sale of Crane Supply of $32.3 million, or 16.9%, productivity gains of $5.8 million, or 3.0%, impact of lower volumes of $5.0 million, or 2.6%, partially offset by unfavorable mix of $3.3 million, or 1.7%. Selling, general and administrative expense decreased by $1.0 million, or 1.6%, to $63.2 million, primarily related to the sale of Crane Supply of $6.2 million, or 9.7%, partially offset by higher administrative costs of $5.3 million, or 8.3%. Operating profit increas ed by $10.0 million, or 24.6%, to $50.6 million in 2023. The increase is primarily due to higher pricing net of inflation and productivity of $22.2 million, or 54.7%, partially offset by the impact of lower volumes and unfavorable mix of $6.5 million, or 16.0%, and the impact from the sale of Crane Supply of $5.5 million, or 13.5%. 34 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Engineered Materials Second Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: FRP - Recreational Vehicles $ 17.1 $ 32.2 $ (15.1) (46.9) % FRP - Building Products 31.4 31.8 (0.4) (1.3) % FRP - Transportation 8.7 8.8 (0.1) (1.1) % Total net sales $ 57.2 $ 72.8 $ (15.6) (21.4) % Cost of sales $ 42.5 $ 60.6 $ 18.1 29.9 % as a percentage of sales 74.3 % 83.2 % Selling, general and administrative $ 4.9 $ 4.9 $ — 0.0 % as a percentage of sales 8.6 % 6.7 % Operating profit $ 9.8 $ 7.3 $ 2.5 34.2 % Operating margin 17.1 % 10.0 % Supplemental Data: Backlog $ 14.5 $ 22.0 $ (7.5) (34.1) % Sales decreased $15.6 million, or 21.4%, to $57.2 million in 2023, reflecting lower volumes, partially offset by higher pricing. The decrease was primarily driven by lower sales to recreational vehicle manufacturers. Cost of sales decreased $18.1 million, or 29.9%, to $42.5 million in 2023, primarily related to lower volumes of $11.4 million, or 18.8%, and lower raw materials and other manufacturing costs of $4.8 million, or 7.9%. Operating profit increased by $2.5 million, or 34.2%, to $9.8 million in 2023, reflecting the impact of higher pricing net of inflation and favorable mix, partially offset by lower volumes. 35 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Six Month Periods Ended June 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 six months of 2023 versus the first six months of 2022, unless otherwise specified. Year-to-Date Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales $ 1,023.4 $ 1,069.1 $ (45.7) (4.3) % Cost of sales 615.4 699.9 84.5 12.1 % as a percentage of sales 60.1 % 65.5 % Selling, general and administrative 1 267.4 262.7 (4.7) (1.8) % as a percentage of sales 26.1 % 24.6 % Operating profit 140.6 106.5 34.1 32.0 % Operating margin 13.7 % 10.0 % Other income (expense): Interest income 1.7 0.9 0.8 88.9 % Interest expense (11.8) (1.4) (10.4) (742.9) % Gain on sale of business — 228.7 (228.7) NM Miscellaneous income, net (1.9) 16.1 (18.0) (111.8) % Total other (expense) income (12.0) 244.3 (256.3) (104.9) % Income from continuing operations before income taxes 128.6 350.8 (222.2) (63.3) % Provision for income taxes 29.4 98.1 68.7 70.0 % Net income from continuing operations attributable to common shareholders $ 99.2 $ 252.7 $ (153.5) (60.7) % Sales decreased by $45.7 million, or 4.3%, to $1,023.4 million in 2023. The year-over-year change in sales included: • an increase in core sales of $70.4 million, or 6.6%; • unfavorable foreign currency translation of $10.2 million, or 1.0%; and • a decrease in sales related to the May 2022 divestiture of Crane Supply of $105.8 million, or 9.9%. Cost of sales decreased by $84.5 million, or 12.1%, to $615.4 million in 2023. The decrease is primarily related to the sale of Crane Supply of $78.3 million, or 11.2%, strong productivity of $18.4 million, or 2.6%, lower volumes of $10.0 million, or 1.4%, favorable foreign currency translation of $5.6 million, or 0.8%, partially offset by an increase in material, labor and other manufacturing costs of $16.9 million, or 2.4%, and unfavorable mix of $13.4 million, or 1.9%. Selling general and administrative expenses increased by $4.7 million, or 1.8%, to $267.4 million in 2023, r eflecting a $23.0 million, or 8.8%, increase in administrative expenses primarily related to the Separation, pa rtially offset by the impact of the sale of Crane Supply of $12.2 million, or 4.7% and restructuring savings and productivity gains of $5.1 million, or 2.0%. Operating profit increased by $34.1 million, or 32.0%, to $140.6 million in 2023. The increase in operating profit is primarily related to higher pricing net of inflation $36.7 million, or 34.4%, productivity and restructuring savings of $24.5 million or 23.0% and impact of volumes of $3.6 million, or 3.3%, partially offset by the impact of the sale of Crane Supply of $15.2 million, or 14.3%, unfavorable mix of $13.4 million, or 12.6%, unfavorable foreign currency translation of $4.4 million, or 4.1%. Other income (expense) decreased $256.3 million to $(12.0) million reflecting the gain on the sale of the Crane Supply business of $228.7 million in 2022, not repeating in 2023. Our effective tax rate attributable to continuing operations for the six months ended June 30, 2023, is lower than the prior year’s comparable periods primarily due to prior year effect of a reversal of a deferred tax asset established that related to the sale of a subsidiary in a prior period and a greater benefit related to share-based compensation in current period. This is partially offset by earnings in jurisdictions with statutory tax rates higher than the United States and expenses statutorily non-deductible for income tax purposes in current period. 36 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our effective tax rate attributable to continuing operations for the six months ended June 30, 2023 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 United States, expenses that are statutorily non-deductible for income tax purposes and U.S. state taxes, partially offset by excess share-based compensation benefits, tax credit utilization, and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income. Comprehensive Income Six Months Ended June 30, (in millions) 2023 2022 Net income before allocation to noncontrolling interests $ 151.3 $ 363.2 Components of other comprehensive income (loss), net of tax Currency translation adjustment 13.4 (97.5) Changes in pension and postretirement plan assets and benefit obligation, net of tax 5.3 6.8 Other comprehensive income (loss), net of tax 18.7 (90.7) Comprehensive income before allocation to noncontrolling interests 170.0 272.5 Less: Noncontrolling interests in comprehensive income (0.2) — Comprehensive income attributable to common shareholders $ 170.2 $ 272.5 For the six months ended June 30, 2023, comprehensive income before allocations to noncontrolling interests was $170.0 million compared to $272.5 million in the same period of 2022. The $102.5 million decrease was primarily driven by a $110.9 million favorable impact of foreign currency translation, due to the impact of the British pound and euro against the U.S. dollar, offset by lower net income before allocation to noncontrolling interests of $211.9 million. 37 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Six Month Periods Ended June 30, Aerospace & Electronics Year-to-Date Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Commercial Original Equipment $ 138.2 $ 119.2 $ 19.0 15.9 % Military Original Equipment 124.8 114.4 10.4 9.1 % Commercial Aftermarket Products 78.6 57.7 20.9 36.2 % Military Aftermarket Products 27.7 27.3 0.4 1.5 % Total net sales $ 369.3 $ 318.6 $ 50.7 15.9 % Cost of sales $ 227.6 $ 198.6 $ (29.0) (14.6) % as a percentage of sales 61.6 % 62.3 % Selling, general and administrative $ 65.8 $ 63.8 $ (2.0) (3.1) % as a percentage of sales 17.8 % 20.0 % Operating profit $ 75.9 $ 56.2 $ 19.7 35.1 % Operating margin 20.6 % 17.6 % Sales increased $50.7 million, or 15.9%, to $369.3 million in 2023, with strong pricing and higher volumes . • Sales of Commercial Original Equipment increased $19.0 million, or 15.9%, to $138.2 million in 2023, reflecting strong demand from aircraft manufacturers as the industry aircraft build rates continue to recover from the COVID-19 related slowdown, partially offset by material availability constraints. • Sales of Military Original Equipment increased $10.4 million, or 9.1%, to $124.8 million in 2023, primarily reflecting strong demand from defense and space customers. • Sales of Commercial Aftermarket Products increased $20.9 million, or 36.2%, to $78.6 million in 2023, reflecting continued strong demand from the airlines due to improving air traffic and inventory restocking. • Sales of Military Aftermarket Products increased $0.4 million, or 1.5%, to $27.7 million in 2023. Cost of sales increased by $29.0 million, or 14.6%, to $227.6 million in 2023, primarily reflecting increased volumes of $12.7 million, or 6.4%, increased material, labor and other manufacturing costs of $11.3 million, or 5.7%, unfavorable mix of $11.3 million, or 5.7%, partially offset by $6.3 million, or 3.2%, of productivity gains. Selling, general and administrative expense increased by $2.0 million, or 3.1%, to $65.8 million in 2023, primarily reflecting higher engineering, selling and administrative costs, partially offset by productivity and restructuring savings. Operating profit increased by $19.7 million, or 35.1%, to $75.9 million in 2023, primarily reflecting higher pricing net of inflation, productivity gains and restructuring savings of $18.8 million, or 33.4%, coupled with impact from higher volumes of $12.4 million, or 22.0%, partially offset by an unfavorable mix of $11.3 million, or 20.0%. 38 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Process Flow Technologies Year-to-Date Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Process Valves and Related Products $ 400.3 $ 369.6 $ 30.7 8.3 % Commercial Valves 59.4 175.4 (116.0) (66.1) % Pumps and Systems 74.9 62.4 12.5 20.0 % Total net sales $ 534.6 $ 607.4 $ (72.8) (12.0) % Cost of sales $ 299.5 $ 388.1 $ 88.6 22.8 % as a percentage of sales 56.0 % 63.9 % Selling, general and administrative $ 121.2 $ 129.7 $ 8.5 6.6 % as a percentage of sales 22.7 % 21.4 % Operating profit $ 113.9 $ 89.6 $ 24.3 27.1 % Operating margin 21.3 % 14.8 % Sales decreased by $72.8 million, or 12.0%, to $534.6 million in 2023, driven by the impact of the sale of Crane Supply of $105.8 million, or 17.4%, and unfavorable foreign currency translation of $10.0 million, or 1.6%, partially offset by higher core sales of $43.0 million, or 7.1%. Core sales growth was driven primarily by pricing, with modestly higher volumes. • Sales of Process Valves and Related Products increased by $30.7 million, or 8.3%, to $400.3 million in 2023. The increase reflected higher core sales of $36.7 million, or 9.9%, driven by higher pricing, partially offset by unfavorable foreign currency translation of $6.1 million, or 1.7%, as the Chinese Yuan, euro and Canadian dollar weakened against the U.S. dollar. Sales growth was driven primarily by strength in the Chemical and Industrial verticals. • Sales of Commercial Valves decreased by $116.0 million, or 66.1%, to $59.4 million in 2023, primarily driven by the impact of the divestiture of Crane Supply of $105.8 million, or 60.3%, lower core sales of $6.7 million, or 3.8%, and to a lesser extent, unfavorable foreign currency translation as the British pound weakened against the U.S. dollar. • Sales of Pumps & Systems increased by $12.5 million, or 20.0%, to $74.9 million in 2023, reflecting an increase in core sales primarily driven by higher volumes across all key end markets and higher pricing. Cost of sales decreased by $88.6 million, or 22.8%, to $299.5 million, primarily related to the impact of the sale of Crane Supply of $78.3 million, or 20.2% and productivity gains of $10.7 million, or 2.8%. Selling, general and administrative expense decreased by $8.5 million, or 6.6%, to $121.2 million, primarily related to the sale of Crane Supply of $12.2 million, or 9.4%, partially offset by higher administrative costs of $6.2 million, or 4.8%. Operating profit increased by $24.3 million, or 27.1%, to $113.9 million in 2023. The increase is primarily due to higher pricing net of inflation and productivity $40.8 million, or 45.6%, partially offset by the impact from the sale of Crane Supply of $15.2 million, or 17.0%. 39 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Engineered Materials Year-to-Date Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: FRP - Recreational Vehicles $ 37.4 $ 67.9 $ (30.5) (44.9) % FRP - Building Products 63.7 59.2 4.5 7.6 % FRP - Transportation 18.4 16.0 2.4 15.0 % Total net sales $ 119.5 $ 143.1 $ (23.6) (16.5) % Cost of sales $ 88.3 $ 113.3 $ 25.0 22.1 % as a percentage of sales 73.9 % 79.2 % Selling, general and administrative $ 10.0 $ 9.6 $ (0.4) (4.2) % as a percentage of sales 8.4 % 6.7 % Operating profit $ 21.2 $ 20.2 $ 1.0 5.0 % Operating margin 17.7 % 14.1 % Sales decreased $23.6 million, or 16.5%, to $119.5 million in 2023, reflecting lower volumes, partially offset by higher pricing. The decrease was primarily driven by lower sales to recreational vehicle manufacturers. Cost of sales decreased by $25.0 million, or 22.1%, to $88.3 million, primarily related to lower volumes of $21.7 million or 19.2%, and productivity gains and favorable mix of $3.5 million, or 3.1%. Operating profit increased by $1.0 million, or 5.0%, to $21.2 million in 2023, primarily reflecting higher pricing net of inflation, productivity gains and favorable mix , offset by lower volumes. 40 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Six Months Ended June 30, (in millions) 2023 2022 Net cash (used for) provided by: Operating activities from continuing operations $ (53.0) $ (30.7) Investing activities from continuing operations (20.8) 296.8 Financing activities (395.6) (135.6) Discontinued operations 30.5 72.1 Effect of exchange rates on cash and cash equivalents 0.2 (30.6) (Decrease) increase in cash and cash equivalents $ (438.7) $ 172.0 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 or aligned with our portfolio and where such divestitures can generate capacity for strategic investments and initiatives that further optimize our portfolio, and by paying dividends and/or repurchasing shares. At any given time, and from time to time, we may be evaluating one or more of these opportunities, although we cannot assure you if or when we will consummate any such transactions. Our current cash balance, together with cash we expect to generate from future operations along with our borrowings available under our revolving credit facility is expected to be sufficient to finance our short- and long-term capital requirements, as well as to fund expected pension contributions. In March 2023, we entered into a new senior secured credit agreement, which provides for a $500 million, 5-year revolving credit facility and a $300 million, 3-year term loan facility. Funding under each facility became available in connection with the Separation. Operating Activities Cash used for operating activities from continuing operations was $53.0 million in the first six months of 2023, as compared to $30.7 million during the same period last year. The increase in cash used for operating activities from continuing operations was primarily driven by increased working capital investments of $87.1 million, partially offset by the $42.4 million increase in net income adjusted for the exclusion of non-cash items and a $23.4 million decrease in asbestos related payments. Cash provided by operating activities from continuing operations was $30.7 million in the first six months of 2022. The cash provided by operating activities from continuing operations was primarily driven by increased working capital investments supporting higher levels of demand across most businesses, together with higher tax payments in the first half of 2022. Net asbestos-related payments for the first six months of 2022 were $23.4 million. Investing Activities Cash flows relating to investing activities from continuing operations consist primarily of cash used for capital expenditures and cash provided by divestitures of businesses or assets. Cash used for investing activities from continuing operations was $20.8 million in the first six months of 2023, as compared to cash provided by investing activities from continuing operations of $296.8 million in the comparable period of 2022. The increase in cash used for investing activities is primarily related to the absence of the $314.3 million provided by the sale of Crane Supply in the prior year. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, and improving information systems. Cash provided by investing activities from continuing operations was $296.8 million in the first six months of 2022. The cash provided from investing activities from continuing operations was primarily related to proceeds from the sale of Crane Supply of $314.3 million. Financing Activities Financing cash flows consist primarily of dividend payments to shareholders, share repurchases and repayments of indebtedness, proceeds from the issuance of long-term debt, commercial paper, proceeds from the issuance of common stock. During the first six months of 2023, financing cash flows also includes activities associated with the distribution of Crane NXT Co. in support of the Separation. Cash used for financing activities was $395.6 million during the first six months of 2023 compared to $135.6 million in the comparable period of 2022. Cash used for financing activities was driven by: 41 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • $578.1 million of distribution cash outflows, which was comprised of the $275 million dividend to Crane NXT, Co. and $303 million in cash balances at the Crane NXT businesses at time of Separation; • $400.0 million repayment of the 364-Day Credit Agreement; and • $36.9 million in prepayments on the 3-year term loan facility. The above uses were primarily funded by $650 million in proceeds from the term loan facilities, comprised of a $350 million term loan issued by Crane NXT, Co. (discontinued operations) and the $300 million term loan issued by Crane Company. Cash used for financing activities was $135.6 million during the first six months of 2022. The cash used for financing activities was driven by the repayment of the term loan of $348.1 million in 2021 which did not repeat in 2022. In 2022, we also had $203.7 million of share repurchases, partially offset by a $119.4 million increase in net borrowings from the issuance of commercial paper. Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to our Condensed Consolidated Financial Statements. 42 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, 2022.