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 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. 30 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 its stockholders received one share of Crane Company common stock for every one share of its common stock held on March 23, 2023, the record date for the distribution. BAUM Acquisition On October 4, 2023, the Company completed the acquisition of Baum lined piping GmbH (“BAUM”) for approximately $91 million on a cash-free and debt-free basis. BAUM is a German based company that designs, manufactures, and distributes lined piping products primarily focused on chemical and industrial end markets. BAUM will be included in our Process Flow Technologies segment. 31 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Three Months 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 third quarter 2023 versus the third quarter 2022, unless otherwise specified. Third Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales $ 530.1 $ 480.0 $ 50.1 10.4 % Cost of sales 326.9 310.7 (16.2) (5.2) % as a percentage of sales 61.7 % 64.7 % Selling, general and administrative 126.9 124.1 (2.8) (2.3) % as a percentage of sales 23.9 % 25.9 % Loss on divestiture of asbestos-related assets and liabilities — 162.4 162.4 NM Operating profit (loss) 76.3 (117.2) 193.5 NM Operating margin 14.4 % (24.4) % Other income (expense): Interest income 1.5 1.4 0.1 7.1 % Interest expense (4.8) (3.0) (1.8) (60.0) % Gain on sale of business — 3.8 (3.8) NM Miscellaneous income (expense), net 1.3 4.5 (3.2) (71.1) % Total other (expense) income, net (2.0) 6.7 (8.7) (129.9) % Income (Loss) from continuing operations before income taxes 74.3 (110.5) 184.8 167.2 % Provision for income taxes 19.1 10.4 (8.7) (83.7) % Net income (loss) from continuing operations attributable to common shareholders $ 55.2 $ (120.9) $ 176.1 145.7 % (1) Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis. Sales increased by $50.1 million, or 10.4%, to $530.1 million in 2023. The year-over-year change in sales included: • an increase in core sales of $44.7 million, or 9.3%, which was driven primarily by higher pricing; and • favorable foreign currency translation of $5.4 million, or 1.1%. Cost of sales increased by $16.2 million, or 5.2%, to $326.9 million in 2023. The increase is primarily related to higher material, labor and other manufacturing costs of $13.8 million, or 4.4%, increased volumes of $5.3 million, or 1.7% and unfavorable mix of $4.4 million, or 1.4%, partially offset by strong productivity gains of $10.2 million, or 3.3%, and unfavorable foreign currency translation of $3.3 million, or 1.1%. Selling, general and administrative expenses increased by $2.8 million, or 2.3%, to $126.9 million in 2023. The increase primarily reflected a $4.9 million, or 3.9%, increase in selling and engineering costs, partially offset by productivity gains and restructuring savings of $2.1 million, or 1.7%. Operating profit increased by $193.5 million to $76.3 million in 2023. The increase is primarily related to the absence of the 2022 loss on divestiture of asbestos-related assets and liabilities of $162.4 million and higher pricing net of inflation, and productivity, of $28.0 million, or 23.9%. Other (expense) income, net decreased by $8.7 million, or 129.9%, to ($2.0) million, primarily reflecting the prior year gain on the sale of Crane Supply. For the three months ended September 30, 2023, our effective tax rate is impacted by earnings in jurisdictions with statutory rates higher than the U.S. and expenses statutorily non-deductible for income tax purposes in the current period, this is partially offset by the statutory U.S. deduction related to our non-U.S. subsidiaries’ income. In the prior year’s three month period ended September 30, 2022, the Company reported a loss on the asbestos related transaction with no correlative income tax benefit, which resulted in the prior year’s negative effective tax rate. 32 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comprehensive Income (Loss) Three Months Ended September 30, (in millions) 2023 2022 Net income (loss) before allocation to noncontrolling interests $ 55.2 $ (59.3) Components of other comprehensive (loss) income, net of tax Currency translation adjustment (15.7) (77.7) Changes in pension and postretirement plan assets and benefit obligation, net of tax 3.6 2.3 Other comprehensive loss, net of tax (12.1) (75.4) Comprehensive income (loss) before allocation to noncontrolling interests 43.1 (134.7) Less: Noncontrolling interests in comprehensive income — (0.3) Comprehensive income (loss) attributable to common shareholders $ 43.1 $ (134.4) For the three months ended September 30, 2023, comprehensive income before allocation to noncontrolling interests was $43.1 million compared to $134.7 million loss in the same period of 2022. The $177.8 million increase was primarily driven by higher net income before allocation to noncontrolling interests of $114.5 million and a $62.0 million year-over-year favorable impact of foreign currency translation, reflecting a stronger euro against the U.S. dollar. 33 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Three Months Ended September 30, Aerospace & Electronics Third Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Commercial Original Equipment $ 75.8 $ 63.7 $ 12.1 19.0 % Military Original Equipment 64.4 57.1 7.3 12.8 % Commercial Aftermarket Products 48.5 34.8 13.7 39.4 % Military Aftermarket Products 18.5 11.6 6.9 59.5 % Total net sales $ 207.2 $ 167.2 $ 40.0 23.9 % Cost of sales $ 131.5 $ 106.8 $ (24.7) (23.1) % as a percentage of sales 63.5 % 63.9 % Selling, general and administrative $ 35.5 $ 32.2 $ (3.3) (10.2) % as a percentage of sales 17.1 % 19.3 % Operating profit $ 40.2 $ 28.2 $ 12.0 42.6 % Operating margin 19.4 % 16.9 % Supplemental Data: Backlog $ 677.9 $ 591.6 $ 86.3 14.6 % Sales increased $40.0 million, or 23.9%, to $207.2 million in 2023, primarily due to higher volumes and pricing. • Sales of Commercial Original Equipment increased $12.1 million, or 19.0%, to $75.8 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 $7.3 million, or 12.8%, to $64.4 million in 2023, primarily reflecting strong demand from defense and space customers. • Sales of Commercial Aftermarket Products increased $13.7 million, or 39.4%, to $48.5 million in 2023, reflecting continued strong demand from the airlines due to improving air traffic and inventory restocking. • Sales of Military Aftermarket Products increased $6.9 million, or 59.5%, to $18.5 million in 2023, reflecting stronger demand from military customers. Cost of sales increased by $24.7 million, or 23.1%, to $131.5 million in 2023, primarily reflecting higher material and other manufacturing costs of $16.3 million, or 15.3%, increased volumes of $12.7 million, or 11.9%, partially offset by productivity gains and favorable mix of $4.5 million, or 4.2%. Selling, general and administrative expenses increased $3.3 million, or 10.2%, to $35.5 million, primarily related to higher administrative and engineering costs of $5.0 million, or 15.5%, partially offset by productivity and restructurings savings of $1.8 million, or 5.6%. Operating profit increased by $12.0 million, or 42.6%, to $40.2 million in 2023. The increase primarily reflected higher volumes and productivity of $12.5 million, or 44.3%. 34 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Process Flow Technologies Third Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Process Valves and Related Products $ 197.3 $ 186.2 $ 11.1 6.0 % Commercial Valves 31.2 30.4 0.8 2.6 % Pumps and Systems 38.2 33.4 4.8 14.4 % Total net sales $ 266.7 $ 250.0 $ 16.7 6.7 % Cost of sales $ 152.2 $ 153.0 $ 0.8 0.5 % as a percentage of sales 57.1 % 61.2 % Selling, general and administrative $ 63.3 $ 55.7 $ (7.6) (13.6) % as a percentage of sales 23.7 % 22.3 % Operating profit $ 51.2 $ 41.3 $ 9.9 24.0 % Operating margin 19.2 % 16.5 % Supplemental Data: Backlog $ 352.9 $ 353.7 $ (0.8) (0.2) % Sales increased by $16.7 million, or 6.7%, to $266.7 million in 2023, driven by core sales growth of $12.0 million, or 4.8%, and $4.7 million, or 1.9%, of favorable foreign currency translation. • Sales of Process Valves and Related Products increased by $11.1 million, or 6.0%, to $197.3 million in 2023, reflecting an increase in core sales and favorable foreign currency translation as the Euro strengthened against the U.S. dollar. Sales growth was driven primarily by strength in Industrial end markets and higher pricing. • Sales of Pumps & Systems increased by $4.8 million, or 14.4%, to $38.2 million in 2023, reflecting an increase in core sales primarily driven by higher prices and volumes a cross key end markets. Cost of sales decreased by $0.8 million, or 0.5%, to $152.2 million, primarily related to productivity gains of $6.7 million, or 4.4%, impact of lower volumes of $3.8 million, or 2.5%, partially offset by unfavorable mix of $6.8 million, or 4.4% and unfavorable foreign currency translation of $3.1 million, or 2.0%. Selling, general and administrative expense increased by $7.6 million, or 13.6%, to $63.3 million, primarily related to higher selling and administrative costs of $8.0 million, or 14.4%. Operating profit increas ed by $9.9 million, or 24.0%, to $51.2 million in 2023. The increase is primarily due to higher pricing net of inflation, and productivity of $17.7 million, or 42.9%, partially offset by the impact of unfavorable mix of $6.8 million, or 16.5%. 35 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Engineered Materials Third Quarter Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: FRP - Recreational Vehicles $ 19.6 $ 24.9 $ (5.3) (21.3) % FRP - Building Products 27.5 29.0 (1.5) (5.2) % FRP - Transportation 9.1 8.9 0.2 2.2 % Total net sales $ 56.2 $ 62.8 $ (6.6) (10.5) % Cost of sales $ 43.3 $ 51.2 $ 7.9 15.4 % as a percentage of sales 77.0 % 81.5 % Selling, general and administrative $ 5.2 $ 4.9 $ (0.3) (6.1) % as a percentage of sales 9.3 % 7.8 % Operating profit $ 7.7 $ 6.7 $ 1.0 14.9 % Operating margin 13.7 % 10.7 % Supplemental Data: Backlog $ 14.6 $ 18.5 $ (3.9) (21.1) % Sales decreased $6.6 million, or 10.5%, to $56.2 million in 2023, primarily reflecting lower volumes of $5.8 million, or 9.2% . The decrease was primarily driven by lower sales to recreational vehicle manufacturers. Cost of sales decreased $7.9 million, or 15.4%, to $43.3 million in 2023, primarily related to lower volumes of $3.5 million, or 6.8%, and lower raw materials and other manufacturing costs of $2.9 million, or 5.7%. Operating profit increased by $1.0 million, or 14.9%, to $7.7 million in 2023, primarily reflecting lower raw material and other manufacturing costs, stronger productivity gains and favorable mix, partially offset by lower volumes. 36 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Nine Months 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 2023 versus the first nine months of 2022, unless otherwise specified. Year-to-Date Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales $ 1,553.5 $ 1,549.1 $ 4.4 0.3 % Cost of sales 942.3 1,010.6 68.3 6.8 % as a percentage of sales 60.7 % 65.2 % Selling, general and administrative 394.3 386.8 (7.5) (1.9) % as a percentage of sales 25.4 % 25.0 % Loss on divestiture of asbestos-related assets and liabilities — 162.4 162.4 NM Operating profit (loss) 216.9 (10.7) 227.6 NM Operating margin 14.0 % (0.7) % Other income (expense): Interest income 3.2 2.3 0.9 39.1 % Interest expense (16.7) (4.4) (12.3) (279.5) % Gain on sale of business — 232.5 (232.5) NM Miscellaneous (expense) income, net (0.5) 20.6 (21.1) (102.4) % Total other (expense) income, net (14.0) 251.0 (265.0) (105.6) % Income from continuing operations before income taxes 202.9 240.3 (37.4) (15.6) % Provision for income taxes 48.5 108.5 60.0 55.3 % Net income from continuing operations attributable to common shareholders $ 154.4 $ 131.8 $ 22.6 17.1 % (1) Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis. Sales increased by $4.4 million, or 0.3%, to $1,553.5 million in 2023. The year-over-year change in sales included: • an increase in core sales of $114.9 million, or 7.4%, which was driven primarily by higher pricing; • unfavorable foreign currency translation of $4.8 million, or 0.3%; and • a decrease in sales related to the May 2022 divestiture of Crane Supply of $105.8 million, or 6.8%. Cost of sales decreased by $68.3 million, or 6.8%, to $942.3 million in 2023. The decrease is primarily related to the sale of Crane Supply of $78.3 million, or 7.7%, strong productivity of $28.6 million, or 2.8%, lower volumes of $4.7 million, or 0.5%, favorable foreign currency translation of $2.3 million, or 0.2%, partially offset by an increase in material, labor and other manufacturing costs of $30.7 million, or 3.0%, and unfavorable mix of $17.9 million, or 1.8%. Selling general and administrative expenses increased by $7.5 million, or 1.9%, to $394.3 million in 2023, r eflecting a $29.7 million, or 7.7%, increase in administrative expenses primarily related to the Separation, pa rtially offset by the impact of the sale of Crane Supply of $12.5 million, or 3.2%, and restructuring savings and productivity gains of $7.9 million, or 2.0%. Operating profit increased by $227.6 million to $216.9 million in 2023. The increase is primarily related to the absence of the 2022 loss on divestiture of asbestos-related assets and liabilities of $162.4 million, higher pricing net of inflation of $53.1 million, productivity and restructuring savings of $37.8 million and the impact of volumes of $7.5 million, partially offset by unfavorable mix of $17.9 million and the impact of the sale of Crane Supply of $14.9 million. Other (expense) income, net decreased by $265.0 million, or 105.6%, to ($14.0) million, primarily reflecting the gain on the sale of Crane Supply not repeating in 2023. 37 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our effective tax rate attributable to continuing operations for the nine months ended September 30, 2023, is lower than the prior year’s comparable period primarily due to the prior year effect of a reversal of a deferred tax asset established that related to the planned sale of a subsidiary in a prior period and a prior year loss on the asbestos-related transaction and the lack of a related tax benefit. 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. Comprehensive Income Nine Months Ended September 30, (in millions) 2023 2022 Net income before allocation to noncontrolling interests $ 206.5 $ 303.9 Components of other comprehensive income (loss), net of tax Currency translation adjustment (2.3) (175.2) Changes in pension and postretirement plan assets and benefit obligation, net of tax 8.9 9.1 Other comprehensive income (loss), net of tax 6.6 (166.1) Comprehensive income before allocation to noncontrolling interests 213.1 137.8 Less: Noncontrolling interests in comprehensive income (0.2) (0.3) Comprehensive income attributable to common shareholders $ 213.3 $ 138.1 For the nine months ended September 30, 2023, comprehensive income before allocations to noncontrolling interests was $213.1 million compared to $137.8 million in the same period of 2022. The $75.3 million increase was primarily driven by a $172.9 million favorable impact of foreign currency translation, due to the impact of the euro against the U.S. dollar, offset by lower net income before allocation to noncontrolling interests of $97.4 million. 38 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Nine Months Ended September 30, Aerospace & Electronics Year-to-Date Favorable/(Unfavorable) Change (dollars in millions) 2023 2022 $ % Net sales by product line: Commercial Original Equipment $ 214.1 $ 182.9 $ 31.2 17.1 % Military Original Equipment 189.1 171.5 17.6 10.3 % Commercial Aftermarket Products 127.2 92.5 34.7 37.5 % Military Aftermarket Products 46.1 38.9 7.2 18.5 % Total net sales $ 576.5 $ 485.8 $ 90.7 18.7 % Cost of sales $ 359.1 $ 305.4 $ (53.7) (17.6) % as a percentage of sales 62.3 % 62.9 % Selling, general and administrative $ 101.3 $ 96.0 $ (5.3) (5.5) % as a percentage of sales 17.6 % 19.8 % Operating profit $ 116.1 $ 84.4 $ 31.7 37.6 % Operating margin 20.1 % 17.4 % Sales increased $90.7 million, or 18.7%, to $576.5 million in 2023, primarily due to higher volumes and strong pricing. • Sales of Commercial Original Equipment increased $31.2 million, or 17.1%, to $214.1 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 $17.6 million, or 10.3%, to $189.1 million in 2023, primarily reflecting strong demand from defense and space customers. • Sales of Commercial Aftermarket Products increased $34.7 million, or 37.5%, to $127.2 million in 2023, reflecting continued strong demand from the airlines due to improving air traffic and inventory restocking. • Sales of Military Aftermarket Products increased $7.2 million, or 18.5%, to $46.1 million in 2023, reflecting stronger demand from military customers. Cost of sales increased by $53.7 million, or 17.6%, to $359.1 million in 2023, primarily reflecting increased material, labor and other manufacturing costs of $27.6 million, or 9.0%, increased volumes of $25.4 million, or 8.3%, unfavorable mix of $9.4 million, or 3.1%, partially offset by $9.0 million, or 2.9%, of productivity gains. Selling, general and administrative expense increased by $5.3 million, or 5.5%, to $101.3 million in 2023, primarily reflecting higher engineering, selling and administrative costs of $10.6 million, or 11.0%, partially offset by productivity and restructuring savings of $5.3 million, or 5.5%. Operating profit increased by $31.7 million, or 37.6%, to $116.1 million in 2023, primarily reflecting the impact from higher volumes of $21.6 million, or 25.6%, coupled with higher pricing net of inflation, productivity gains and restructuring savings of $19.4 million, or 23.0%, partially offset by an unfavorable mix of $9.4 million, or 11.1%. 39 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 $ 597.6 $ 555.8 $ 41.8 7.5 % Commercial Valves 90.5 205.8 (115.3) (56.0) % Pumps and Systems 113.2 95.8 17.4 18.2 % Total net sales $ 801.3 $ 857.4 $ (56.1) (6.5) % Cost of sales $ 451.7 $ 541.1 $ 89.4 16.5 % as a percentage of sales 56.4 % 63.1 % Selling, general and administrative $ 184.5 $ 185.4 $ 0.9 0.5 % as a percentage of sales 23.0 % 21.6 % Operating profit $ 165.1 $ 130.9 $ 34.2 26.1 % Operating margin 20.6 % 15.3 % Sales decreased by $56.1 million, or 6.5%, to $801.3 million in 2023, driven by the impact of the sale of Crane Supply of $105.8 million, or 12.3%, and favorable foreign currency translation of $5.2 million, or 0.6%, partially offset by higher core sales of $54.9 million, or 6.4%. Core sales growth was driven primarily by pricing, with modestly lower volumes. • Sales of Process Valves and Related Products increased by $41.8 million, or 7.5%, to $597.6 million in 2023. The increase reflected higher core sales of $45.0 million, or 8.1%, driven by higher pricing, partially offset by unfavorable foreign currency translation of $3.2 million, or 0.6%, as the Chinese Yuan 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 $115.3 million, or 56.0%, to $90.5 million in 2023, primarily driven by the impact of the divestiture of Crane Supply of $105.8 million, or 51.4%, lower core sales of $8.0 million, or 3.9%, 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 $17.4 million, or 18.2%, to $113.2 million in 2023, reflecting an increase in core sales primarily driven by higher pricing and higher volumes across all key end markets. Cost of sales decreased by $89.4 million, or 16.5%, to $451.7 million, primarily related to the impact of the sale of Crane Supply of $78.3 million, or 14.5%, and productivity gains of $17.3 million, or 3.2% offset by unfavorable mix of 11.0 million, or 2.0%. Selling, general and administrative expense increased by $0.9 million, or 0.5%, to $184.5 million, primarily related to higher administrative costs net of savings offset by the sale of Crane Supply. Operating profit increased by $34.2 million, or 26.1%, to $165.1 million in 2023. The increase is primarily due to higher pricing net of inflation and productivity of $57.1 million, or 43.6%, partially offset by the impact from the sale of Crane Supply of $14.9 million, or 11.4%, and unfavorable mix of $11.0 million, or 8.4%. 40 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 $ 57.1 $ 92.8 $ (35.7) (38.5) % FRP - Building Products 91.1 88.2 2.9 3.3 % FRP - Transportation 27.5 24.9 2.6 10.4 % Total net sales $ 175.7 $ 205.9 $ (30.2) (14.7) % Cost of sales $ 131.6 $ 164.5 $ 32.9 20.0 % as a percentage of sales 74.9 % 79.9 % Selling, general and administrative $ 15.2 $ 14.5 $ (0.7) (4.8) % as a percentage of sales 8.7 % 7.0 % Operating profit $ 28.9 $ 26.9 $ 2.0 7.4 % Operating margin 16.4 % 13.1 % Sales decreased $30.2 million, or 14.7%, to $175.7 million in 2023, reflecting lower core sales of $30.2 million, or 14.7%, primarily due to lower volumes, offset by higher pricing. The decrease was primarily driven by lower sales to recreational vehicle manufacturers. Cost of sales decreased by $32.9 million, or 20.0%, to $131.6 million, primarily related to lower volumes of $25.2 million, or 15.3%, and productivity gains and favorable mix of $4.9 million, or 3.0%. Operating profit increased by $2.0 million, or 7.4%, to $28.9 million in 2023, primarily reflecting higher pricing net of inflation, productivity gains and favorable mix, offset by lower volumes. 41 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Nine Months Ended September 30, (in millions) 2023 2022 Net cash provided by (used for): Operating activities from continuing operations $ 33.9 $ (608.5) Investing activities from continuing operations (29.1) 293.6 Financing activities (415.7) 119.3 Discontinued operations 30.5 218.3 Effect of exchange rates on cash and cash equivalents (3.4) (62.7) Decrease in cash and cash equivalents $ (383.8) $ (40.0) 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. We have a senior secured credit agreement, which provides for a $500 million, 5-year revolving credit facility through March 2028 and a $300 million, 3-year term loan facility, through March 2026. At September 30, 2023, there was $251 million outstanding under the term loan facility. In October 2023, we exercised a portion of the accordion feature under the revolving credit facility to increase the available borrowing capacity from $500 million to $800 million. In October 2023, we borrowed $100 million under the revolving credit facility and used approximately $91 million of the proceeds to acquire Baum lined piping GmbH. See Note 15 for further detail. Operating Activities Cash provided by operating activities from continuing operations was $33.9 million in the first nine months of 2023, as compared to cash used for operating activities of $608.5 million during the same period last year. The increase in cash provided by operating activities from continuing operations was primarily driven by the absence of a $550.0 million payment made last year in connection with the divestiture of the Company’s asbestos-related assets and liabilities and, to a lesser extent, the $128.3 million increase in net income adjusted for the exclusion of non-cash items; both partially offset by increased working capital investments of $51.6 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 $29.1 million in the first nine months of 2023, as compared to cash provided by investing activities from continuing operations of $293.6 million in the comparable period of 2022. The increase in cash used for investing activities is primarily related to the absence of $318.1 million in proceeds from 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. 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 and proceeds from the issuance of common stock. During the first nine 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 $415.7 million during the first nine months of 2023 compared to cash provided by financing activities of $119.3 million in the comparable period of 2022. Cash used for financing activities was driven by: • $578.1 million of distribution cash outflows, which was comprised of the $275 million dividend to Crane NXT, Co. and $303.1 million in cash balances at the Crane NXT businesses at time of Separation; • $400.0 million repayment of the 364-Day Credit Agreement; and • $48.8 million in prepayments on the 3-year term loan facility. 42 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to our Condensed Consolidated Financial Statements. 43 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.