Crane NXT, 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 Co., 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 Co. 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 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: uncertainties regarding the extent and duration of the impact of the COVID-19 pandemic on many aspects of our business, operations and financial performance, as detailed in Part II, Item 1A of this Quarterly Report on Form 10-Q; changes in economic, financial and end-market conditions in the markets in which we operate; fluctuations in raw material prices; inflationary pressures; supply chain disruptions; the effects of any government imposed vaccine mandates on the workforce; the financial condition of our customers and suppliers; economic, social and political instability, currency fluctuation and other risks of doing business outside of the United States; competitive pressures, including the need for technology improvement, successful new product development and introduction and any inability to pass increased costs of raw materials to customers; our ability to value and successfully integrate acquisitions and to realize synergies and opportunities for growth and innovation, and to attract and retain highly qualified personnel and key management; the risks that any regulatory approval that may be required for the Engineered Materials divestiture is delayed or is not obtained, that the Engineered Materials divestiture does not close or that the related transaction agreement is terminated, or that the benefits expected from the Engineered Materials divestiture will not be realized or will not be realized within the expected time period; a reduction in congressional appropriations that affect defense spending and our ability to predict the timing and award of substantial contracts in our banknote business; adverse effects on our business and results of operations, as a whole, as a result of increases in asbestos claims or the cost of defending and settling such claims; adverse effects as a result of environmental remediation activities, costs, liabilities and related claims; investment performance of our pension plan assets and fluctuations in interest rates, which may affect the amount and timing of future pension plan contributions; 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, 2020, and subsequent reports filed with the Securities and Exchange Commission. We do not undertake any obligation to update or revise any forward-looking statements. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK - CONTINUING OPERATIONS Our sales depend heavily on industries that are cyclical in nature or are subject to market conditions which may cause customer demand for our products to be volatile and unpredictable. Demand in these industries is affected by fluctuations in domestic and international economic conditions, as well as currency fluctuations, commodity costs, and a variety of other factors. For 2021, we expect a total year-over-year sales increase of approximately 14%, driven by low-double digit core growth following the substantial core sales decline in 2020 attributable to the COVID-19 pandemic, an approximate 2.5% benefit from favorable foreign exchange, and a slight acquisition benefit. We expect operating profit to nearly double compared to 2020, driven by a combination of operating leverage on higher volumes, strong productivity, favorable mix, and restructuring and acquisition related charges recorded last year that will not repeat in 2021, and carry-over savings related to COVID-19 related repositioning actions. Aerospace & Electronics In 2021, we expect Aerospace & Electronics core sales to decline slightly compared to 2020 as the COVID-19 pandemic had a major impact on business and leisure air travel beginning in the early part of the second quarter of last year which has only recently began to recover. Accordingly, we expect a slight decline in our commercial business driven by lower aircraft build rates and lower airline flight hours. We expect a slight decline in our defense businesses given very challenging comparisons to 2020 where these markets exhibited very strong growth. We expect the segment’s operating profit to increase slightly compared to 2020 driven primarily by the carry-over savings related to COVID-19 related repositioning actions and the absence of restructuring related costs and strong productivity, partially offset by the impact of the lower sales volume. Process Flow Technologies In 2021, we expect Process Flow Technologies sales to increase in the low-double digit range compared to 2020, driven by core sales growth in the low-double digit range following the substantial core sales decline in 2020 attributable to the COVID-19 pandemic; favorable foreign exchange of approximately 4%; and a small benefit from the I&S acquisition. We expect Process Valves and Related Products sales to increase in the low-teens digit range compared to 2020, driven by high-single digit core sales growth, an approximate 3% benefit from favorable foreign exchange, and a small benefit from the I&S acquisition. We expect Commercial Valves sales to increase nearly 30% compared to 2020 driven by close to 20% core sales growth, and high-single digit favorable foreign exchange. The higher core sales relates to increased spending in non-residential end markets primarily in Canada and the U.K. We expect Pumps and Systems sales to increase nearly 20% compared to 2020, driven by growth in the U.S. municipal, non-residential construction and military end markets. We expect an improvement in the segment’s operating profit and operating margin compared to 2020, driven by the impact of the higher sales, strong productivity, lower restructuring and acquisition related charges, and carry-over savings primarily related to COVID-19 related repositioning actions. Payment & Merchandising Technologies In 2021, we expect Payment & Merchandising Technologies sales to increase approximately 20% compared to 2020, driven primarily by high-teens core sales growth, and an approximate 3% benefit from favorable foreign exchange. At Crane Payment Innovations, we expect core sales growth in the mid-teen range, driven by broad-based strength across most vertical end markets following the substantial core sales decline in 2020 attributable to the COVID-19 pandemic. At Crane Currency, we expect core sales to increase more than 20% compared to 2020 primarily driven by higher sales to the U.S. Government, and to a lesser extent, by higher sales to international customers. We expect the segment’s operating profit and operating margin to increase substantially compared to 2020, driven by the impact from the higher sales volume, favorable mix, strong productivity, carry-over savings associated with COVID-19 related repositioning actions, and the absence of restructuring and acquisition-related costs. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Three Month Periods 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 2021 versus the third quarter 2020, unless otherwise specified. Third Quarter Change (dollars in millions) 2021 2020 $ % Net sales $ 833.5 $ 686.5 $ 147.0 21.4 % Operating profit 138.2 75.9 62.3 82.1 % Acquisition-related and integration charges 1 — 2.7 (2.7) NM Restructuring and related charges, net 1 0.8 1.4 (0.6) (42.9) % Operating margin 16.6 % 11.1 % Other income (expense): Interest income 0.2 0.6 (0.4) (66.7) % Interest expense (11.0) (14.4) 3.4 23.6 % Miscellaneous income, net 3.6 4.4 (0.8) (18.2) % Total other expense (7.2) (9.4) 2.2 23.4 % Income from continuing operations before income taxes 131.0 66.5 64.5 97.0 % Provision for income taxes 19.6 17.1 2.5 14.6 % Net income from continuing operations attributable to common shareholders $ 111.4 $ 49.4 $ 62.0 125.5 % 1 Acquisition-related and integration charges and restructuring and related (gains) charges, net are included in operating profit and operating margin. Sales increased by $147.0 million, or 21.4%, to $833.5 million in 2021. Net sales related to operations outside the United States were 40.4% and 38.6% of total net sales for the quarters ended September 30, 2021 and 2020, respectively. The year-over-year change in sales included: • an increase in core sales of $134.3 million, or 19.6%; and • favorable foreign currency translation of $12.7 million, or 1.8%. Operating profit increased by $62.3 million, or 82.1%, to $138.2 million in 2021. The increase in operating profit reflected higher operating profit in all segments, partially offset by higher corporate costs. Operating profit in the third quarter of 2021 included restructuring and related charges of $0.8 million. Operating profit in the third quarter of 2020 included acquisition-related and integration costs of $2.7 million related to the I&S and Cummins-Allison acquisitions and restructuring and related charges of $1.4 million. Other expense decreased $2.2 million, or 23.4% to $7.2 million, primarily reflecting lower interest expense following the repayment of the 364-day credit facility in April 2021. Our effective tax rate is affected by a number of items, both recurring and discrete, including the amount of income we earn in different jurisdictions and their respective statutory tax rates, acquisitions and dispositions, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, the continued reinvestment of our overseas earnings, and examinations initiated by tax authorities around the world. Our effective tax rate attributable to continuing operations for the three months ended September 30, 2021 is lower than the prior year’s comparable period primarily due to higher foreign tax credits utilized, partially offset by a lower amount of U.S. federal research credits generated. Our effective tax rates attributable to continuing operations for the three months ended September 30, 2021 is lower than the statutory U.S. federal tax rate of 21% primarily due to tax credit utilization, partially offset by state taxes net of federal benefit, statutory inclusions, and nondeductible expenses. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comprehensive Income Three Months Ended September 30, (in millions) 2021 2020 Net income before allocation to noncontrolling interests $ 116.6 $ 56.6 Components of other comprehensive income, net of tax Currency translation adjustment (24.8) 41.0 Changes in pension and postretirement plan assets and benefit obligation, net of tax 5.2 3.4 Other comprehensive income, net of tax (19.6) 44.4 Comprehensive income before allocation to noncontrolling interests 97.0 101.0 Less: Noncontrolling interests in comprehensive income (0.1) 0.1 Comprehensive income attributable to common shareholders $ 97.1 $ 100.9 For the three months ended September 30, 2021, comprehensive income before allocations to noncontrolling interests was $97.0 million compared to $101.0 million in the same period of 2020. The $4.0 million decrease was driven by a $65.8 million year over year unfavorable impact of foreign currency translation adjustments, primarily related to the euro, partially offset by higher net income before allocation to noncontrolling interests of $60.0 million. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Three Month Periods Ended September 30 Aerospace & Electronics Third Quarter Change (dollars in millions) 2021 2020 $ % Net sales by product line: Commercial Original Equipment $ 62.2 $ 47.5 $ 14.7 30.9 % Military Original Equipment 58.4 70.9 (12.5) (17.6) % Commercial Aftermarket Products 30.2 20.2 10.0 49.5 % Military Aftermarket Products 17.8 18.4 (0.6) (3.3) % Total net sales $ 168.6 $ 157.0 $ 11.6 7.4 % Operating profit $ 32.5 $ 24.5 $ 8.0 32.7 % Backlog $ 478.5 $ 498.1 $ (19.6) (3.9) % Operating margin 19.3 % 15.6 % Aerospace & Electronics sales increased $11.6 million, or 7.4%, to $168.6 million in 2021. • Sales of Commercial Original Equipment increased $14.7 million, or 30.9%, to $62.2 million in 2021, reflecting higher shipments to aircraft manufacturers as the industry begins to recover from the COVID-19 related slowdown, and stronger demand for modular power products. • Sales of Military Original Equipment decreased $12.5 million, or 17.6%, to $58.4 million in 2021, primarily reflecting challenging comparisons to particularly strong sales in the same period last year. • Sales of Commercial Aftermarket Products increased $10.0 million, or 49.5%, to $30.2 million in 2021, reflecting higher demand from the airlines due to improving air traffic as the industry continues to recover from the COVID-19 related slowdown. • Sales of Military Aftermarket Products decreased $0.6 million, or 3.3%, to $17.8 million in 2021, primarily reflecting lower sales for Modernization & Upgrade programs. Aerospace & Electronics operating profit increased by $8.0 million, or 32.7%, to $32.5 million in 2021, primarily as a result of the impact of higher sales volumes, productivity benefits, and benefits form 2020 cost actions. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Process Flow Technologies Third Quarter Change (dollars in millions) 2021 2020 $ % Net sales by product line: Process Valves and Related Products $ 176.6 $ 153.9 $ 22.7 14.7 % Commercial Valves 95.8 76.1 19.7 25.9 % Pumps and Systems 26.7 22.3 4.4 19.7 % Total net sales $ 299.1 $ 252.3 $ 46.8 18.5 % Operating profit $ 44.3 $ 25.9 $ 18.4 71.0 % Acquisition-related and integration charges 1 $ — $ 1.7 $ (1.7) NM Restructuring and related charges, net 1 $ 1.9 $ 1.2 $ 0.7 58.3 % Backlog $ 351.4 $ 304.8 $ 46.6 15.3 % Operating margin 14.8 % 10.3 % 1 Acquisition-related and integration charges and restructuring and related charges, net are included in operating profit and operating margin. Process Flow Technologies sales increased by $46.8 million, or 18.5%, to $299.1 million in 2021, driven by higher core sales of $38.9 million, or 15.4%, and favorable foreign currency translation of $7.9 million, or 3.1%. • Sales of Process Valves and Related Products increased by $22.7 million, or 14.7%, to $176.6 million in 2021. The increase reflected higher core sales of $20.5 million, or 13.3%, and favorable foreign currency translation of $2.2 million, or 1.4%, primarily due to the British pound and euro strengthening against the U.S. dollar. The higher core sales primarily reflected improving demand across chemical and general industrial end markets. • Sales of Commercial Valves increased by $19.7 million, or 25.9%, to $95.8 million in 2021, primarily driven by a core sales increase of $14.1 million, or 18.5%, and favorable foreign currency translation of $5.6 million, or 7.4%, as the Canadian dollar and British pound strengthened against the U.S. dollar. The higher core sales primarily reflected broad-based improvement in demand across the Canadian, and, to a lesser extent, U.K., non-residential construction markets. • Sales of Pumps & Systems increased by $4.4 million, or 19.7%, to $26.7 million in 2021, reflecting broad-based improvement in demand across municipal, non-residential construction, and military end markets. Process Flow Technologies operating profit increas ed by $18.4 million, or 71.0%, to $44.3 million in 2021. The increase primarily reflected the impact of higher sales volumes and productivity benefits. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Payment & Merchandising Technologies Third Quarter Change (dollars in millions) 2021 2020 $ % Net sales by product line: Payment Acceptance and Dispensing Products $ 206.0 $ 161.6 $ 44.4 27.5 % Banknotes and Security Products 159.8 115.6 44.2 38.2 % Total net sales $ 365.8 $ 277.2 $ 88.6 32.0 % Operating profit $ 83.7 $ 40.5 $ 43.2 106.7 % Acquisition-related and integration charges 1 $ — $ 1.0 $ (1.0) NM Restructuring and related (gains) charges, net 1 $ (1.1) $ 0.2 $ (1.3) NM Backlog $ 387.9 $ 270.1 $ 117.8 43.6 % Operating margin 22.9 % 14.6 % 1 Acquisition-related and integration charges and restructuring and related (gains) charges, net are included in operating profit and operating margin. Payment & Merchandising Technologies sales increased $88.6 million, or 32.0%, to $365.8 million in 2021, driven by higher core sales of $83.8 million, or 30.3%, and favorable foreign currency translation of $4.8 million, or 1.7%. • Sales of Payment Acceptance and Dispensing Products increased $44.4 million, or 27.5%, to $206.0 million in 2021. The increase reflected higher core sales of $41.9 million, or 26.0%, and favorable foreign currency translation of $2.5 million, or 1.5%, primarily due to the British pound strengthening against the U.S. dollar. The core sales increase primarily reflected higher sales to gaming and vending customers. • Sales of Banknotes and Security Products increased $44.2 million, or 38.2%, to $159.8 million in 2021. The increase reflected higher core sales of $41.9 million, or 36.2%, and favorable foreign currency translation of $2.3 million, or 2.0%, as the euro strengthened against the U.S. dollar. The core sales increase primarily reflected higher sales to international customers, and to a lesser extent, higher sales to the U.S. Government. Payment & Merchandising Technologies operating profit increased by $43.2 million, or 106.7%, to $83.7 million in 2021. The increase primarily reflected the impact of higher sales volumes . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Nine Month Periods 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 2021 versus the first nine months of 2020, unless otherwise specified. Year-to-Date Change (dollars in millions) 2021 2020 $ % Net sales $ 2,409.5 $ 2,077.6 $ 331.9 16.0 % Operating profit 415.1 186.3 228.8 122.8 % Acquisition-related and integration charges 1 — 10.3 (10.3) NM Restructuring and related (gains) charges, net 1 (8.6) 25.9 (34.5) NM Operating margin 17.2 % 9.0 % Other income (expense): Interest income 1.1 1.3 (0.2) (15.4) % Interest expense (36.0) (41.3) 5.3 12.8 % Miscellaneous income, net 17.2 10.6 6.6 62.3 % Total other expense (17.7) (29.4) 11.7 39.8 % Income from continuing operations before income taxes 397.4 156.9 240.5 153.3 % Provision for income taxes 71.9 36.6 35.3 96.4 % Net income from continuing operations attributable to common shareholders $ 325.5 $ 120.3 $ 205.2 170.6 % 1 Acquisition-related and integration charges and restructuring and related (gains) charges, net are included in operating profit and operating margin. Sales increased by $331.9 million, or 16.0%, to $2,409.5 million in 2021. Net sales related to operations outside the United States were 39.8% and 38.3% of total net sales for the nine months ended September 30, 2021 and 2020, respectively. The year-over-year change in sales included: • an increase in core sales of $257.3 million, or 12.4%; • favorable foreign currency translation of $69.6 million, or 3.4%; and • an increase in sales related to a benefit from the January 2020 I&S acquisition of $5.0 million, or 0.2%. Operating profit increased by $228.8 million, or 122.8%, to $415.1 million in 2021. The increase in operating profit reflected higher operating profit in our Payment & Merchandising Technologies, Process Flow Technologies and Aerospace & Electronics segments, partially offset by higher corporate costs. Operating profit in the first nine months of 2021 included net restructuring and related gains of $8.6 million and disposition costs of $1.3 million. Operating profit in the first nine months of 2020 included restructuring and related charges of $25.9 million and acquisition-related and integration charges of $10.3 million. Other expense decreased $11.7 million, or 39.8%, to $17.7 million primarily reflecting a gain on sale of a property, a curtailment gain related to our pension plan and lower interest expense resulting from the absence of interest paid for the 364-day credit facility that was paid in April 2021. Our effective tax rate is affected by a number of items, both recurring and discrete, including the amount of income we earn in different jurisdictions and their respective statutory tax rates, acquisitions and dispositions, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, the continued reinvestment of our overseas earnings, and examinations initiated by tax authorities around the world. Our effective tax rate attributable to continuing operations for the nine months ended September 30, 2021 is lower than the prior year’s comparable period primarily due to higher foreign tax credits utilized, partially offset by a lower reversal of tax accruals. Our effective tax rates attributable to continuing operations for the nine months ended September 30, 2021 is lower than the statutory U.S. federal tax rate of 21% primarily due to tax credit utilization, partially offset by state taxes net of federal benefit, statutory inclusions, and nondeductible expenses. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comprehensive Income Nine Months Ended September 30, (in millions) 2021 2020 Net income before allocation to noncontrolling interests $ 363.3 $ 134.2 Components of other comprehensive income (loss), net of tax Currency translation adjustment (52.1) 13.2 Changes in pension and postretirement plan assets and benefit obligation, net of tax 15.3 10.4 Other comprehensive loss, net of tax (36.8) 23.6 Comprehensive income before allocation to noncontrolling interests 326.5 157.8 Less: Noncontrolling interests in comprehensive income 0.6 — Comprehensive income attributable to common shareholders $ 325.9 $ 157.8 For the nine months ended September 30, 2021, comprehensive income before allocations to noncontrolling interests was $326.5 million compared to $157.8 million in the same period of 2020. The $168.7 million increase was primarily driven by higher net income before allocation to noncontrolling interests of $229.1 million, partially offset by a $65.3 million year over year unfavorable impact of foreign currency translation adjustments primarily related to the euro. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Nine Month Periods Ended September 30 Aerospace & Electronics Year-to-Date Change (dollars in millions) 2021 2020 $ % Net sales by product line: Commercial Original Equipment $ 170.5 $ 180.0 $ (9.5) (5.3) % Military Original Equipment 184.0 196.8 (12.8) (6.5) % Commercial Aftermarket Products 75.1 74.4 0.7 0.9 % Military Aftermarket Products 50.6 56.1 (5.5) (9.8) % Total net sales $ 480.2 $ 507.3 $ (27.1) (5.3) % Operating profit $ 89.3 $ 87.8 $ 1.5 1.7 % Restructuring and related charges 1 $ — $ 4.7 $ (4.7) NM Operating margin 18.6 % 17.3 % 1 Restructuring and related charges are included in operating profit and operating margin. Aerospace & Electronics sales decreased $27.1 million, or 5.3%, to $480.2 million in 2021. • Sales of Commercial Original Equipment decreased $9.5 million, or 5.3%, to $170.5 million in 2021, primarily reflecting lower aircraft build rates as a result of COVID-19. • Sales of Military Original Equipment decreased $12.8 million, or 6.5%, to $184.0 million in 2021, primarily reflecting challenging comparisons to particularly strong sales in the same period last year • Sales of Commercial Aftermarket Products increased $0.7 million, or 0.9%, to $75.1 million in 2021. • Sales of Military Aftermarket Products decreased $5.5 million, or 9.8%, to $50.6 million in 2021, primarily reflecting challenging comparisons to particularly strong sales in the same period last year. Aerospace & Electronics operating profit increased by $1.5 million, or 1.7%, to $89.3 million in 2021, primarily as a result of savings from 2020 repositioning actions, productivity benefits and favorable product mix largely offset by the impact of lower sales volumes. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Process Flow Technologies Year-to-Date Change (dollars in millions) 2021 2020 $ % Net sales by product line: Process Valves and Related Products $ 535.4 $ 471.7 $ 63.7 13.5 % Commercial Valves 283.3 210.3 73.0 34.7 % Pumps and Systems 79.2 66.2 13.0 19.6 % Total net sales $ 897.9 $ 748.2 $ 149.7 20.0 % Operating profit $ 140.9 $ 74.1 $ 66.8 90.1 % Acquisition-related and integration charges 1 $ — $ 5.0 $ (5.0) NM Restructuring and related (gains) charges 1 $ (7.0) $ 7.7 $ (14.7) NM Operating margin 15.7 % 9.9 % 1 Acquisition-related and integration charges and restructuring and related (gains) charges are included in operating profit and operating margin. Process Flow Technologies sales increased by $149.7 million, or 20.0%, to $897.9 million in 2021, driven by higher core sales of $106.4 million, or 14.2%, favorable foreign currency translation of $38.3 million, or 5.1%, and a benefit from the January 2020 acquisition of I&S of $5.0 million, or 0.7%. • Sales of Process Valves and Related Products increased by $63.7 million, or 13.5%, to $535.4 million in 2021. The increase reflected higher core sales of $43.1 million, or 9.1%, favorable foreign currency translation of $15.6 million, or 3.3%, primarily due to the euro strengthening against the U.S. dollar, and a benefit from the acquisition of I&S of $5.0 million, or 1.1%. The higher core sales primarily reflected broad based strengthening across end markets that continue to recover from the 2020 impact of COVID-19. • Sales of Commercial Valves increased by $73.0 million, or 34.7%, to $283.3 million in 2021, primarily driven by a core sales increase of $50.9 million, or 24.2%, and favorable foreign currency translation of $22.1 million, or 10.5%, as the Canadian dollar and British pound strengthened against the U.S. dollar. The higher core sales primarily reflected higher demand in Canadian, and, to a lesser extent, U.K., non-residential construction markets. • Sales of Pumps & Systems increased by $13.0 million, or 19.6%, to $79.2 million in 2021, primarily reflecting higher demand from municipal and non-residential construction end markets. Process Flow Technologies operating profit increased by $66.8 million, or 90.1%, to $140.9 million in 2021. The increase primarily reflected the impact of higher sales volumes, productivity benefits and a gain on the sale of real estate related to prior repositioning actions. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Payment & Merchandising Technologies Year-to-Date Change (dollars in millions) 2021 2020 $ % Net sales by product line: Payment Acceptance and Dispensing Products $ 588.3 $ 505.7 $ 82.6 16.3 % Banknotes and Security Products 443.1 316.4 126.7 40.0 % Total net sales $ 1,031.4 $ 822.1 $ 209.3 25.5 % Operating profit $ 247.4 $ 68.9 $ 178.5 259.1 % Acquisition-related and integration charges 1 $ — $ 5.1 $ (5.1) NM Restructuring and related (gains) charges, net 1 $ (1.6) $ 13.5 $ (15.1) NM Operating margin 24.0 % 8.4 % 1 Acquisition-related and integration charges and restructuring and related (gains) charges, net are included in operating profit and operating margin. Payment & Merchandising Technologies sales increased $209.3 million, or 25.5%, to $1,031.4 million in 2021, driven by higher core sales of $178.5 million, or 21.8%, and favorable foreign currency translation of $30.8 million, or 3.7%. • Sales of Payment Acceptance and Dispensing Products increased $82.6 million, or 16.3%, to $588.3 million in 2021. The increase reflected higher core sales of $70.7 million, or 13.9%, and favorable foreign currency translation of $11.9 million, or 2.4%, primarily reflecting the strengthening of the British pound against the U.S. dollar. The core sales increase primarily reflected higher sales to gaming, transportation and retail customers. • Sales of Banknotes and Security Products increased $126.7 million, or 40.0%, to $443.1 million in 2021. The increase reflected higher core sales of $107.8 million, or 34.0%, and favorable foreign currency translation of $18.9 million, or 6.0%, as the euro strengthened against the U.S. dollar. The core sales increase reflected substantially higher sales to both international customers and the U.S. Government. Payment & Merchandising Technologies operating profit increased by $178.5 million, or 259.1%, to $247.4 million in 2021. The increase primarily reflected the impact of higher sales volumes, and to a lesser extent, favorable mix, productivity benefits and restructuring savings from 2020 repositioning actions. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Nine Months Ended September 30, (in millions) 2021 2020 Net cash provided by (used for): Operating activities from continuing operations $ 311.7 $ 197.0 Investing activities from continuing operations 28.0 (245.3) Financing activities from continuing operations (440.8) 187.3 Discontinued operations 13.9 10.5 Effect of exchange rates on cash and cash equivalents (13.0) 1.2 (Decrease) increase in cash and cash equivalents $ (100.2) $ 150.7 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 transaction. Our current cash balance, together with cash we expect to generate from future operations along with our commercial paper program or 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 payments associated with our asbestos and environmental liabilities and expected pension contributions. In addition, we believe our investment grade credit ratings afford us adequate access to public and private debt markets. In July 2021, we entered into a $650 million, 5-year Revolving Credit Agreement, which replaced the existing $550 million revolving credit facility. We also increased the size of our Commercial Paper Program (“CP Program”) to permit the issuance of short-term, unsecured commercial paper notes in an aggregate principal amount outstanding not to exceed $650 million at any time (up from $550 million, previously). Please see Note 13 for additional details. In April 2020, to enhance financial flexibility and maintain maximum liquidity in response to the uncertainty in the global markets resulting from the COVID-19 pandemic, we entered into a senior unsecured 364-day credit facility (the “364-Day Credit Agreement”). On April 15, 2021, we repaid the amount outstanding under the 364-Day Credit Agreement. Operating Activities Cash provided by operating activities from continuing operations was $311.7 million in the first nine months of 2021, compared to $197.0 million during the same period last year. The increase in cash provided by operating activities from continuing operations was primarily driven by higher net income, partially offset by higher working capital levels and pension contributions. Net asbestos-related payments in the first nine months of 2021 and 2020 were $29.6 million and $23.7 million, respectively. In 2021, we expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $45 million. Investing Activities Cash flows relating to investing activities from continuing operations consist primarily of cash used for acquisitions, capital expenditures and cash provided by divestitures of businesses or assets. Cash provided by investing activities from continuing operations was $28.0 million in the first nine months of 2021, compared to cash used for investing activities from continuing operations of $245.3 million in the comparable period of 2020. The increase in cash provided by investing activities from continuing operations was driven by the absence of cash paid for the acquisition of I&S of $169.2 million. In addition, there was $30 million of net proceeds from the sale of marketable securities in the first nine months of 2021 compared to $60 million of cash used for the purchase of marketable securities in the first nine months of 2020. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. We expect capital expenditures of approximately $60 million in 2021. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financing Activities Financing cash flows consist primarily of dividend payments to shareholders, share repurchases, repayments of indebtedness, proceeds from the issuance of long-term debt and commercial paper and proceeds from the issuance of common stock. Cash used for financing activities from continuing operations was $440.8 million during the first nine months of 2021, compared to cash provided by financing activities from continuing operations of $187.3 million in the comparable period of 2020. The increase in cash used for financing activities from continuing operations was driven by the $348.1 million repayment of the outstanding amount under the 364-Day Credit Agreement in the first nine months of 2021, compared to proceeds of $343.9 million received from the same 364-Day Credit Agreement in the first nine months of 2020. This was partially offset by the absence of $70.0 million of cash used for the repurchase of shares in the first nine months of 2020. Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to our Condensed Consolidated Financial Statements. 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, 2020.