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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-03-01 · 179 added, 417 removed, 174 unchanged (77% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

We are a diversified manufacturer of highly engineered industrial products.

Our operations are currently comprised of four segments:

Aerospace & Electronics, Process Flow Technologies, Payment & Merchandising Technologies, and Engineered Materials.

Our primary end markets include commercial and military aerospace, defense and space, chemical production, pharmaceutical production, water and wastewater, non-residential and municipal construction, energy, banknote design and production, payment automation solutions, along with a wide range of general industrial and certain consumer related end markets.

Our strategy is to grow earnings and cash flow by focusing on the manufacturing of highly engineered industrial products for specific markets where our scale is a relative advantage, and where we can compete based on our proprietary and differentiated technology, our deep vertical expertise, and our responsiveness to unique and diverse customer needs.

We continuously evaluate our portfolio, pursue acquisitions that complement our existing businesses and are accretive to our growth profile, selectively divest businesses where appropriate, and pursue internal mergers to improve efficiency.

We strive to foster a performance-based culture focused on productivity and continuous improvement, to attract and retain a committed management team whose interests are directly aligned with those of our shareholders, and to maintain a focused, efficient corporate structure.

We will continue to execute this strategy while remaining committed to the values of our founder, R.T.

Crane, who resolved to conduct business "in the strictest honesty and fairness;

to avoid all deception and trickery;

to deal fairly with both customers and competitors;

to be liberal and just toward employees;

and to put my whole mind upon the business."

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated and combined financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

We are a leading provider of trusted technology solutions to secure, detect, and authenticate our customers’ most valuable assets.

Our primary end markets include central banks and a wide range of consumer related end markets including retail and gaming.

Our operations are comprised of two segments, Crane Payment Innovations (“CPI”) and Crane Currency:

• CPI provides electronic equipment and associated software leveraging extensive and proprietary core capabilities with various detection and sensing technologies for applications including verification and authentication of payment transactions.

CPI also provides advanced automation solutions, and processing systems, field service solutions, and remote diagnostics and productivity software solutions.

• Crane Currency provides advanced security solutions based on proprietary technology for securing physical products, including banknotes, consumer goods and industrial products.

We are committed to delivering shareholder value by focusing on our proprietary and differentiated technology and investing in core businesses to capitalize on opportunities to enhance organic growth.

We maintain a strong balance sheet with financial flexibility, allowing us the ability to expand the business through strategic acquisitions into higher-growth adjacencies.

We continuously evaluate our portfolio, pursue acquisitions that complement our existing businesses and are accretive to our growth profile, and selectively divest businesses where appropriate.

We foster a performance-based culture with clearly defined values and utilize our well-established Crane Business System (CBS) to drive operational excellence and profitable growth.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figures.

Recent Transactions

Holding Company Reorganization

On May 16, 2022, Crane Co., a Delaware corporation (“Crane Co.”), completed its previously announced reorganization merger pursuant to the Agreement and Plan of Merger, dated as of February 28, 2022 (the “Reorganization Agreement”), by and among Crane Co., Crane Holdings, Co., a Delaware corporation (“Crane Holdings”), and Crane Transaction Company, LLC, a Delaware limited liability company and, as of immediately prior to the consummation of such merger, a wholly-owned subsidiary of Crane Holdings (“Merger Sub”).

The Reorganization Agreement provided for the merger of Crane Co.

and Merger Sub, with Crane Co.

surviving the merger as a wholly-owned subsidiary of Crane Holdings (the “Reorganization Merger”).

Following the Reorganization Merger, on May 16, 2022, Crane Co.

converted from a Delaware corporation into a Delaware limited liability company named “Crane LLC” (such conversion, together with the Reorganization Merger, the “Reorganization”).

Following the Reorganization, substantially all of the assets of Crane LLC were distributed, assigned, transferred, conveyed and delivered to, and certain non-asbestos related liabilities of Crane LLC were assumed by, Crane Holdings.

On May 17, 2022, Crane LLC converted from a Delaware limited liability company to a Delaware corporation named “Crane Co.” Subsequently, on May 26, 2022, Crane Co.

filed a Certificate of Amendment to its Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware, which became effective upon filing, pursuant to which the Crane Co.

officially changed its name from “Crane Co.” to “Redco Corporation”.

The “Crane Co.” name has been reserved for future use by Crane Holdings.

Divestiture of asbestos-related assets and liabilities

On August 12, 2022, Crane Holdings, Co., Crane Company, a wholly-owned subsidiary of Crane Holdings, Co., and Redco Corporation (“Redco”), then a wholly-owned subsidiary of Crane Company that held asbestos liabilities and related insurance assets, entered into a Stock Purchase Agreement (the “Redco Purchase Agreement”) with Spruce Lake Liability Management Holdco LLC (“Redco Buyer”), an unrelated third party and long-term liability management company specializing in the acquisition and management of legacy corporate liabilities whereby Crane Company transferred to Redco Buyer all of the issued and outstanding shares of Redco (the “Redco Sale”).

In connection with the Redco Sale, Crane Holdings, Co., on behalf of Crane Company, contributed approximately $550 million in cash to Redco, which was funded by a combination of short-term borrowings and cash on hand.

As a result of the Redco Sale, all asbestos obligations and liabilities, related insurance assets and associated deferred tax assets have been removed from Crane Holdings, Co.’s consolidated balance sheets effective August 12, 2022.

A loss on the divestiture of asbestos-related assets and liabilities of $162.4 million was recognized in the consolidated statements of operations for the year ended December 31, 2022.

On April 3, 2023, Holdings was separated (the “Separation”) into two independent, publicly-traded companies, Crane NXT, Co.

and Crane Company (“SpinCo”) through a pro-rata distribution (the “Distribution”) of all the issued and outstanding common stock of SpinCo to the stockholders of Holdings.

As part of the Separation, the Aerospace & Electronics, Process Flow Technologies and Engineered Materials businesses of Holdings were spun off to SpinCo.

Also, as part of the Separation, Holdings retained the Payment and Merchandising Technologies business and was renamed “Crane NXT, Co.” on April 3, 2023.

Following the consummation of the Separation, our common stock is listed under the symbol “CXT” on the New York Stock Exchange.

Due to SpinCo’s larger operations, greater tangible assets, greater fair value and greater net sales, in each case, relative to ours, among other factors, SpinCo was considered to be the “accounting spinnor” and therefore is the “accounting successor” to Holdings for accounting purposes, notwithstanding the legal form of the Separation.

Therefore, following the Separation, our historical financial statements are comprised solely of combined carve-out financial statements representing only our operations, assets, liabilities and equity on a stand-alone basis derived from the consolidated financial statements and accounting records of Holdings.

Credit Facilities

We are party to a senior secured credit agreement (the “Credit Agreement”) entered into on March 17, 2023, which provides for (i) a $500 million, five-year revolving credit facility (the “Revolving Facility”) and (ii) a $350 million, 3-year term loan facility (the “Term Facility”), funding under each of which became available in connection with the Separation, upon the satisfaction of customary conditions of facilities of this type.

On March 31, 2023, we borrowed the full amount of the Term Facility and $245.0 million was repaid as of December 31, 2023.

Separation Agreements

On April 3, 2023, we entered into definitive agreements with SpinCo in connection with the Separation.

The agreements set forth the terms and conditions of the Separation and provide a framework for Crane NXT’s relationship with SpinCo following the Separation, including the allocation between Crane NXT and SpinCo of Crane NXT’s and SpinCo’s assets, liabilities and obligations attributable to periods prior to, at and after the Separation.

These agreements include the Separation and Distribution Agreement, which contains certain key provisions related to the Separation, as well as a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement and an Intellectual Property Matters Agreement (each, as described below).

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Sale of Crane Supply

On April 8, 2022, the Company entered into an agreement to sell the Crane Supply business for CAD 380 million on a cash-free and debt-free basis.

Subsequent to net working capital and other closing adjustments, the sale closed on May 31, 2022 for CAD 402 million.

In August 2022, the Company received CAD 5 million related to a final working capital adjustment.

The Company recognized a total gain on sale of $232.5 million.

Pending Separation

On March 30, 2022, the Company announced that its Board of Directors unanimously approved a plan to pursue a separation into two independent, publicly-traded companies (the “Separation”), Crane Company and Crane NXT, Co.

Upon completion of the pending Separation, Crane Holdings, Co.

will be renamed “Crane NXT, Co.” and will continue to operate our Payment & Merchandising Technologies segment.

The new company distributed to our stockholders in the Separation, Crane Company, will hold our Aerospace & Electronics and Process Flow Technologies global growth platforms, as well as our Engineered Materials segment.

The Separation is expected to occur through a tax-free distribution of all of the outstanding shares of Crane Company common stock to holders of our common stock and is expected to be completed in April, 2023, subject to the satisfaction of customary conditions and final approval by Crane Holdings, Co.’s Board of Directors.

On February 7, 2023, the SEC declared effective the registration statement of Crane Company on Form 10.

Each of our stockholders will receive 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.

For additional information regarding the Separation, including risk factors, see the Information Statement of Crane Company, filed as Exhibit 99.1 to Amendment No.

1 to the registration statement on Form 10 filed by Crane Company with the SEC on January 23, 2023.

Termination of Agreement to Sell Engineered Materials

On May 16, 2021, we entered into an agreement to sell the Engineered Materials segment to Grupo Verzatec S.A.

(“Verzatec”) for $360 million on a cash-free and debt-free basis.

In the second quarter of 2021, the assets and liabilities of the segment were classified as held for sale.

On May 26, 2022, Verzatec terminated the sale agreement and paid $7.5 million to the Company in termination fees, which is presented within Miscellaneous income, net on the Consolidated Statements of Operations.

As such, as of June 30, 2022 the Engineered Materials segment is no longer classified as assets held for sale and is presented herein as continuing operations for all periods presented.

Separation and Distribution Agreement

The Separation and Distribution Agreement sets forth, among other things, the agreements between us and SpinCo regarding the principal transactions necessary to effect the Separation.

It also sets forth other agreements that govern certain aspects of our ongoing relationship with SpinCo after the completion of the Separation.

Transition Services Agreement

The Transition Services Agreement provides for the transition of Holdings into two independent, publicly-traded companies following the consummation of the Separation, and provides each party time to replace certain assets and employees that have been allocated to the other party.

Under the Transition Services Agreement, we agreed with SpinCo to provide transition service support to the other for various periods of time of up to 18 months in the areas of finance, tax, human resources, legal and information technology.

Such services are provided on customary commercial terms, and each such service can be terminated prior to the expected termination date of such service if it is no longer required.

The Transition Services Agreement was negotiated in the context of a parent-subsidiary relationship and in the context of the Separation.

Transactions under this agreement did not have a material impact to our financial statements and services were substantially completed as of December 31, 2023.

Tax Matters Agreement

The Tax Matters Agreement, among other things, governs our and SpinCo’s respective rights, responsibilities and obligations after the Separation with respect to tax liabilities and benefits (including any taxes imposed that are attributable to the failure of the Distribution and certain related transactions to qualify as a transaction that is tax-free for U.S.

federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.

Although enforceable as between the parties, the Tax Matters Agreement will not be binding on the Internal Revenue Service or other tax authorities.

Employee Matters Agreement

The Employee Matters Agreement, among other things, governs Crane NXT’s, SpinCo’s and their respective subsidiaries’ rights, responsibilities and obligations after the Separation with respect to the following matters:

(i) employees and former employees (and their respective dependents and beneficiaries) who are or were employed with Crane NXT, SpinCo or their respective subsidiaries, (ii) the allocation of assets and liabilities generally relating to employees, employment or service-related matters and employee benefit plans, (iii) employee compensation plans and director compensation plans, including equity plans, and (iv) other human resources, employment and employee benefits matters.

Intellectual Property Matters Agreement

The Intellectual Property Matters Agreement, among other things, governs the continued ownership and use by Crane NXT and SpinCo of their respective trademarks and trade names that include or are comprised of the term “Crane” in their respective businesses.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

4 unchanged sentences

(in millions, except %) 2023 2022 2021 $ % $ %

Aerospace & Electronics $ 667.3 $ 638.3 $ 650.7 $ 29.0 4.5 % $ (12.4) (1.9) %

Process Flow Technologies 1,109.4 1,196.6 1,005.8 (87.2) (7.3) % 190.8 19.0 %

Payment & Merchandising Technologies 1,339.9 1,345.1 1,104.8 (5.2) (0.4) % 240.3 21.8 %

Engineered Materials 258.3 228.0 175.6 30.3 13.3 % 52.4 29.8 %

Crane Payment Innovations $ 886.4 $ 874.3 $ 805.7 $ 12.1 1.4 % $ 68.6 8.5 %

Crane Currency 504.9 465.6 539.4 39.3 8.4 % (73.8) (13.7) %

Total net sales $ 1,391.3 $ 1,339.9 $ 1,345.1 $ 51.4 3.8 % $ (5.2) (0.4) %

2 unchanged sentences

Foreign exchange (6.1) (0.5) % (65.3) (4.9) %

Acquisitions/dispositions (139.1) (4.1) % 5.0 0.2 %

Total sales growth $ 51.4 3.8 % $ (5.2) (0.4) %

2 unchanged sentences

Restructuring charges (gains), net $ 0.5 $ 6.2 $ (3.7) $ 5.7 (91.9) % $ (9.9) NM

Acquisition-related and integration charges — — $ 12.9 — — $ 12.9 NM

Loss on divestiture of asbestos-related assets and liabilities $ 162.4 — — $ (162.4) NM — —

Operating profit (loss):

Aerospace & Electronics $ 120.3 $ 110.0 $ 100.7 $ 10.3 9.4 % $ 9.3 9.2 %

Process Flow Technologies 168.2 182.5 97.7 (14.3) (7.8) % 84.8 86.8 %

Payment & Merchandising Technologies 333.1 307.5 100.6 25.6 8.3 % 206.9 205.7 %

Engineered Materials 32.6 26.9 22.7 5.7 21.2 % 4.2 18.5 %

Corporate expense (284.7) (97.7) (58.8) (187.0) (191.4) % (38.9) (66.2) %

Crane Payment Innovations $ 242.8 $ 217.1 $ 164.5 $ 25.7 11.8 % $ 52.6 32.0 %

Crane Currency 116.3 117.3 145.1 (1.0) (0.9) % (27.8) (19.2) %

Corporate (72.3) (33.1) (30.4) (39.2) (118.4) % (2.7) (8.9) %

Total operating profit $ 286.8 $ 301.3 $ 279.2 $ (14.5) (4.8) % $ 22.1 7.9 %

Operating margin:

Aerospace & Electronics 18.0 % 17.2 % 15.5 %

Process Flow Technologies 15.2 % 15.2 % 9.7 %

Payment & Merchandising Technologies 24.9 % 22.9 % 9.1 %

Engineered Materials 12.6 % 11.8 % 12.9 %

Crane Payment Innovations 27.4 % 24.8 % 20.4 %

Crane Currency 23.0 % 25.2 % 26.9 %

Total operating margin 20.6 % 22.5 % 20.8 %

2 unchanged sentences

The comparability of our results for the years ended December 31, 2023, 2022 and 2021 is affected by the following significant items:

Divestiture of asbestos-related assets and liabilities

In 2022, we recognized a loss on the divestiture of asbestos-related assets and liabilities of $162.4 million.

Please refer to item 8 under Note 12, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for further discussion.

Sale of Crane Supply

In 2022, we recognized a gain on sale of $232.5 million related to the sale of Crane Supply, which is presented within Gain on sale of business on the Consolidated Statements of Operations.

Termination of Agreement to Sell Engineered Materials

Restructuring and Related (Gains) Charges, net

In 2022, we recorded net pre-tax restructuring and related charges of $14.9 million primarily related to modest cost reduction efforts across our businesses in response to continued macroeconomic uncertainty.

In 2021, we recorded total pre-tax restructuring and related gains of $9.6 million primarily related to a gain on the sale of real estate.

In 2020, we recorded total pre-tax restructuring and related charges of $37.4 million primarily in response to the adverse economic impact of COVID-19 and integration actions related to the Cummins-Allison acquisition.

The Separation

Following the Separation, our historical financial statements are comprised solely of combined carve-out financial statements representing only our operations, assets, liabilities and equity on a stand-alone basis derived from the consolidated and combined financial statements and accounting records of Holdings.

Transaction Related Expenses

In 2022, we recorded pre-tax transaction related expenses of $49.8 million most of which related to the planned separation, coupled with expenses associated with defending the asbestos liability and to a lesser extent, divestiture costs related to the intended sale of Engineered Materials and the completed sale of Crane Supply.

During 2021, we recorded pre-tax transaction related expenses of $8.2 million related to the previously proposed divestiture of Engineered Materials and other professional fees.

Acquisition-Related and Integration Charges

During 2020, we recorded pre-tax acquisition-related and integration charges of $12.9 million.

Please refer to Item 8 under Note 2, "Acquisitions" in the Notes to Consolidated Financial Statements for further discussion.

In connection with the Separation, we have incurred transaction related expenses of $20.9 million for the year ended December 31, 2023 recorded in “Selling, general and administrative” in the Consolidated and Combined Statements of Operations.

Separation costs primarily consist of professional service fees.

There were no allocated transaction-related expenses in connection with the Separation for the years ended December 31, 2022 and 2021.

2023 compared with 2022

Sales decreased by $33.1 million, or 1.0%, to $3,374.9 million in 2022.

The year-over-year lower sales included:

• an increase in core sales of $219.6 million, or 6.4%;

Sales increased by $51.4 million, or 3.8%, to $1,391.3 million in 2023.

The change in sales included:

• an increase in core sales of $57.5 million, or 4.3%, driven primarily by favorable pricing across both segments, and

• unfavorable foreign currency translation of $6.1 million, or 0.5%.

• a decrease in sales related to the sale of Crane Supply of $139.1 million, or 4.1%.

Cost of sales decreased by $85.2 million, or 4.0%, to $2,035.1 million in 2022.

The decrease is primarily related to the sale of Crane Supply of $102.4 million, or 4.8%, favorable foreign currency translation of $72.6 million, or 3.4%, the impact of lower volumes of $46.8 million, or 2.2%, and strong productivity of $59.5 million, or 2.8%, partially offset by an increase in material, labor and other manufacturing costs of $169.0 million, or 8.0%, and unfavorable mix of $34.6 million, or 1.6%.

Selling general and administrative expenses increased b y $22.1 million, or 2.9%, to $797.5 million in 2022.

The increase was driven primarily by increased costs of $72.8 million, or 9.4%, including transaction related expenses o f $41.6 million, or 5.4%, supporting the Crane Supply and asbestos divestiture as well as the planned Separation, partially offset by favorable foreign currency translation of $21.9 million, or 2.8%, the impact of the sale of Crane Supply of $16.5 million, or 2.1%, and strong productivity of $7.8 million, or 1%.

Cost of sales increased by $23.5 million, or 3.3%, to $737.2 million in 2023.

The increase was driven primarily by unfavorable mix of $69.2 million, or 9.7%, partially offset by productivity gains net of inflation, lower volumes and favorable foreign currency translation.

Selling, general and administrative expenses increased by $48.1 million, or 15.1%, to $366.8 million in 2023.

The increase was driven primarily by higher administrative expenses related to professional services to support the Separation, including transaction related expenses of $20.9 million, or 6.6%, and higher compensation and benefit costs.

Operating profit decreased by $14.5 million, or 4.8%, to $286.8 million in 2023.

The decrease in operating profit is primarily related to the loss on divestiture of asbestos-related assets and liabilities of $162.4 million, coupled with the divested

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

operating profit of $20.2 million related to the sale of Crane Supply.

Operating segment performance was strong across the Company, with pricing actions and strong productivity more than offsetting higher material, labor and other manufacturing costs.

Operating profit in 2022 included net restructuring and related charges of $14.9 million and transaction related expenses of $49.8 million.

Operating profit in 2021 included net restructuring and related gains of $9.6 million and transaction related expenses of $8.2 million.

The decrease was driven by increased corporate costs related to the Separation and unfavorable mix primarily in the Currency segment, partially offset by favorable pricing, productivity gains, and cost saving actions.

2022 compared with 2021

Sales increased by $471.1 million, or 16.0%, to $3,408.0 million in 2021.

The year-over-year higher sales included:

• an increase in core sales of $395.5 million, or 13.5%, largely driven by end markets that continued to recover from the 2020 impact of the COVID-19 pandemic;

• favorable foreign currency translation of $70.6 million, or 2.4%;

• an increase in sales related to acquisitions of $5.0 million, or 0.2%.

Cost of sales increased by $189.6 million, or 9.8%, to $2,120.3 million in 2021, primarily related to $175.2 million, or 9.1%, to support the higher sales volumes, and an increase in material, labor and other manufacturing costs of $94.2 million, or 4.9%.

Cost of Sales also increased $46.8 million, or 2.4%, related to unfavorable foreign currency translation.

These increases were offset by higher productivity of $68.9 million, or 3.6%, and favorable mix of $53.5 million, or 2.8%.

Selling, general and administrative expense increased $77.3 million, or 11.1%, to $775.4 million in 2021, primarily related to a proportionate increase to the higher sales in the period, including higher compensation costs of $57.6 million, or 8.3%, which was primarily related to higher incentive compensation, driven by above-budget performance.

The remaining increase primarily relates to unfavorable foreign currency translation of $12.9 million, or 1.8%.

Sales decreased by $5.2 million, or 0.4%, to $1,339.9 million in 2022.

The change in sales included:

• unfavorable foreign currency translation of $65.3 million, or 4.9%, and

• an increase in core sales of $60.1 million, or 4.5%, driven primarily by favorable pricing, partially offset by lower volumes.

Cost of sales decreased by $32.5 million, or 4.4%, to $713.7 million in 2022.

The decrease was driven primarily by favorable foreign currency translation, lower volumes, and productivity gains, partially offset by increased manufacturing costs and unfavorable mix.

Selling, general and administrative expenses decreased by $4.7 million, or 1.5%, to $318.7 million in 2022.

The decrease was driven primarily by favorable foreign currency translation, partially offset by increased selling costs.

Operating profit increased by $22.1 million, or 7.9%, to $301.3 million in 2022.

The increase in operating profit reflected higher operating profit in each of our segments, partially offset by higher corporate costs.

Operating profit in 2021 included net restructuring and related gains of $9.6 million and transaction related expenses of $8.2 million.

Operating profit in 2020 included restructuring and related charges of $37.4 million and acquisition-related and integration charges of $12.9 million.

Comprehensive income

(in millions) For the year ended December 31, 2022 2021 2020

Net income before allocation to noncontrolling interests $ 401.1 $ 435.4 $ 181.1

Other comprehensive (loss) income, net of tax

Currency translation adjustment (93.3) (69.2) 70.4

Changes in pension and postretirement plan assets and benefit obligation, net of tax 30.0 96.0 (53.6)

Other comprehensive (loss) income, net of tax (63.3) 26.8 16.8

Comprehensive income before allocation to noncontrolling interests 337.8 462.2 197.9

Noncontrolling interests in comprehensive income (loss) (0.2) 0.6 (0.5)

Comprehensive income attributable to common shareholders $ 338.0 $ 461.6 $ 198.4

For the year ended December 31, 2022, comprehensive income before allocation to noncontrolling interests was $337.8 million compared to $462.2 million in 2021.

The $124.4 million decrease was primarily driven by $34.3 million of lower net income before allocation to noncontrolling interests, a $66.0 million decrease primarily related to changes in pension discount rates and a $24.1 million unfavorable impact of foreign currency translation adjustments, primarily related to the British pound and euro.

For the year ended December 31, 2021, comprehensive income before allocation to noncontrolling interests was $462.2 million compared to $197.9 million in 2020.

The $264.3 million increase was primarily driven by $254.3 million of higher net income before allocation to noncontrolling interests and a $149.6 million increase primarily related to changes in pension discount rates, coupled with improved asset performance, partially offset by a $139.6 million unfavorable impact of foreign currency translation adjustments, primarily related to the British pound, Canadian dollar and euro.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AEROSPACE & ELECTRONICS

(in millions, except %) For the year ended December 31, 2022 2021 2020

Net sales by product line:

Commercial Original Equipment $ 250.5 $ 229.4 $ 226.4

Military Original Equipment 231.2 239.7 258.7

Commercial Aftermarket 129.3 104.5 93.0

Military Aftermarket 56.3 64.7 72.6

Total net sales $ 667.3 $ 638.3 $ 650.7

Cost of sales $ 417.7 $ 399.6 $ 428.2

Selling, general and administrative (a)

$ 129.3 $ 128.7 $ 121.8

Operating profit $ 120.3 $ 110.0 $ 100.7

Assets $ 663.3 $ 604.7 $ 593.9

Backlog $ 613.1 $ 459.8 $ 491.2

Operating margin 18.0 % 17.2 % 15.5 %

(a) Selling, general and administrative expense includes net restructuring charges of $1.5 million, $0.0 million and $6.5 million in 2022, 2021 and 2020, respectively.

2022 compared to 2021

Aerospace & Electronics sales increased $29.0 million, or 4.5%, to $667.3 million in 2022.

Price was the primary contribution to the growth for the year.

The commercial market and military market accounted for 57% and 43%, respectively, of total segment sales in 2022.

Sales to OEM and aftermarket customers in 2022 were 72% and 28% of total segment sales, respectively.

• Sales of Commercial Original Equipment increased by $21.1 million, or 9.2%, to $250.5 million in 2022, 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 decreased by $8.5 million, or 3.5%, to $231.2 million in 2022, primarily reflecting lower shipments due to order timing and material availability constraints.

• Sales of Commercial Aftermarket increased by $24.8 million, or 23.7%, to $129.3 million in 2022, reflecting strong demand from the airlines due to improving air traffic as the industry continues to recover from the COVID-19 related slowdown, along with higher pricing.

• Sales of Military Aftermarket decreased by $8.4 million, or 13.0%, to $56.3 million in 2022, primarily reflecting timing of government orders for certain programs and material availability constraints.

Cost of sales increased $18.1 million, or 4.5%, to $417.7 million in 2022 compared to 2021, primarily reflecting $29.5 million, or 7.4%, of increased material, labor and other manufacturing costs supporting the higher sales, partially offset by $14.3 million, or 3.6%, of productivity gains.

Selling, general and administrative expense increased by $0.6 million, or 0.5%, to $129.3 million in 2022, as higher selling and engineering costs were offset by lower administrative costs.

Operating profit increased $10.3 million, or 9.4%, to $120.3 million in 2022 compared to 2021, primarily due to productivity gains of $16.0 million, or 14.5%, partially offset by increased material, labor and other costs of $2.4 million, or 2.2%, and unfavorable mix of $2.1 million, or 1.9%.

2021 compared to 2020

A&E sales decreased $12.4 million, or 1.9%, to $638.3 million in 2021 compared to 2020.

The commercial market and military market accounted for 52% and 48%, respectively, of total segment sales in 2021.

Sales to OEM and aftermarket customers in 2021 were 74% and 26% of total sales, respectively.

• Sales of Commercial Original Equipment increased by $3.0 million, or 1.3%, to $229.4 million in 2021 compared to 2020.

• Sales of Military Original Equipment decreased by $19.0 million, or 7.3%, to $239.7 million in 2021 compared to 2020, primarily reflecting challenging comparisons to particularly strong sales growth during the prior three years.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Sales of Commercial Aftermarket increased by $11.5 million, or 12.4%, to $104.5 million in 2021 compared to 2020, primarily reflecting higher demand driven by a rebound in commercial air traffic following the 2020 impact of the COVID-19 pandemic.

• Sales of Military Aftermarket decreased by $7.9 million, or 10.9%, to $64.7 million in 2021 compared to 2020, primarily reflecting particularly strong sales in the prior year.

Cost of sales decreased $28.6 million, or 6.7%, to $399.6 million in 2021 compared to 2020, primarily related to increased productivity of $14.0 million, or 3.3%, and improved mix of $12.2 million, or 2.8%.

Selling, general and administrative expense increased $6.9 million, or 5.7%, to $128.7 million in 2021 compared to 2020, primarily related to higher compensation costs of $10.7 million, or 8.8%, offset by restructuring charges $6.5 million, or 5.3%, in 2020, which did not repeat in 2021.

Operating profit increased by $9.3 million, or 9.2%, to $110.0 million in 2021 compared to 2020, primarily as a result of savings from 2020 repositioning actions of $19.0 million, or 18.9%, and productivity benefits of $16.5 million, or 16.4%, largely offset by the impact of lower sales volumes of $21.3 million, or 21.2%.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Process Flow Technologies

(in millions, except %) For the year ended December 31, 2022 2021 2020

Net sales by product line:

Process Valves and Related Products $ 749.8 $ 717.1 $ 631.6

Commercial Valves 232.2 374.2 286.3

Pumps and Systems 127.4 105.3 87.9

Total net sales $ 1,109.4 $ 1,196.6 $ 1,005.8

Cost of sales $ 697.8 $ 791.5 $ 689.5

Selling, general and administrative (a)

$ 243.4 $ 222.6 $ 218.6

Operating profit $ 168.2 $ 182.5 $ 97.7

Assets $ 1,064.7 $ 1,240.4 $ 1,106.1

Backlog $ 368.8 $ 357.9 $ 313.4

Operating margin 15.2 % 15.2 % 9.7 %

(a) Selling, general and administrative expense includes net restructuring charges of $2.3 million in 2022, net restructuring gain of $13.2 million in 2021 and net restructuring charges of $6.1 million in 2020.

2022 compared to 2021

Sales decreased by $87.2 million, or 7.3%, to $1,109.4 million in 2022, driven by lost sales associated with the divestiture of Crane Supply of $139.1 million, or 11.6%, and unfavorable foreign currency translation of $46.6 million, or 3.9%, partially offset by higher core sales of $98.3 million, or 8.2%.

Core sales growth was driven primarily by pricing, with modestly higher volumes.

• Sales of Process Valves and Related Products increased by $32.7 million, or 4.6%, to $749.8 million in 2022.

The increase reflected higher core sales of $63.6 million, or 8.9%, driven by higher pricing, offset by unfavorable foreign currency translation of $31.1 million, or 4.3%, as the euro weakened against the U.S.

Demand remained strong across Chemical, Pharmaceutical and General Industrial end markets.

• Sales of Commercial Valves decreased by $142.0 million, or 37.9%, to $232.2 million in 2022, primarily driven by lost sales associated with the divestiture of Crane Supply of $139.1 million, or 37.2%, and unfavorable foreign currency translation of $15.1 million, or 4.0%, as the British pound weakened against the U.S.

dollar, partially offset by an increase in core sales of $12.2 million, or 3.3%.

The higher core sales reflected higher demand in Canadian non-residential construction markets.

• Sales of Pumps and Systems increased by $22.1 million, or 21.0%, to $127.4 million in 2022, primarily driven by higher sales to municipal customers and non-residential construction end markets.

Cost of sales decreased by $93.7 million, or 11.8%, to $697.8 million, primarily related to $102.4 million of divested cost related to the sale of Crane Supply, or 12.9%, favorable foreign currency of $30.0 million, or 3.8%, and productivity gains of $17.1 million, or 2.2%, partially offset by a $45.3 million, or 5.7%, increase in material, labor and other manufacturing costs and unfavorable mix of $16.1 million, or 2.0%.

Selling, general and administrative expense increased by $20.8 million, or 9.3%, to $243.4 million primarily reflecting higher administrative and selling costs of $36.1 million, or 16.2%, and lower net restructuring gains of $15.5 million, or 7.0%, partially offset by favorable currency translation of $10.6 million, or 4.8%, and the divested cost related to the sale of Crane Supply of $16.5 million, or 7.4%.

Operating profit decreased by $14.3 million, or 7.8%, to $168.2 million in 2022.

The decrease is primarily due to divested operating profit of $20.2 million related to the sale of Crane Supply, or 11.1%, and lower net restructuring gains of $15.5 million, or 8.5%, partially offset by productivity gains of $20.1 million, or 11.0%.

2021 compared to 2020

Sales increased by $190.8 million, or 19.0%, to $1,196.6 million in 2021 compared to 2020, driven by higher core sales of $145.2 million, or 14.5%, favorable foreign currency translation of $40.6 million, or 4.0% and a benefit from the January 2020 acquisition of Instrumentation & Sampling (“I&S”) of $5.0 million, or 0.5%.

• Sales of Process Valves and Related Products increased by $85.5 million, or 13.5%, to $717.1 million in 2021 compared to 2020.

The increase reflected higher core sales of $66.2 million, or 10.5%, favorable foreign currency translation of $14.3 million, or 2.3%, primarily reflecting the strengthening of the euro against the U.S.

dollar, and a

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

benefit from the acquisition of I&S of $5.0 million, or 0.8%.

The higher core sales primarily reflected broad based strengthening across chemical, pharmaceutical, and general industrial end markets that continue to recover from the 2020 impact of the COVID-19 pandemic.

• Sales of Commercial Valves increased by $87.9 million, or 30.7%, to $374.2 million in 2021 compared to 2020, primarily driven by a core sales increase of $62.3 million, or 21.8%, and favorable foreign currency translation of $25.6 million, or 8.9%, as the Canadian dollar and British pound strengthened against the U.S.

The higher core sales reflected higher demand in Canadian non-residential construction markets, and to a lesser extent, higher demand in UK non-residential construction markets.

• Sales of Pumps and Systems increased by $17.4 million, or 19.8%, to $105.3 million in 2021 compared to 2020, primarily reflecting higher demand from municipal and non-residential construction end markets.

Cost of sales increased $102.0 million, or 14.8%, to $791.5 million in 2021 compared to 2020, primarily related to higher volumes of $62.7 million, or 9.1%, increased material, labor and other manufacturing costs of $29.4 million, or 4.3%, and unfavorable foreign currency translation of $27.5 million, or 4.0%, partially offset by increased productivity of $21.9 million, or 3.2%.

Selling, general and administrative expense increased $4.0 million, or 1.8%, to $222.6 million in 2021 compared to 2020, primarily related to higher compensation costs of $17.5 million, or 8.0%, partially offset by a restructuring gain in 2021 of $13.2 million.

Operating profit increased by $84.8 million, or 86.8%, to $182.5 million in 2021 compared to 2020.

The increase primarily reflected the impact of higher sales volumes of $45.2 million, or 46.3%, productivity benefits of $24.7 million, or 25.3%, lower restructuring costs of $16.4 million, or 16.8%, which included a gain on the sale of real estate related to prior repositioning actions, and the absence of acquisition-related and integration charges of $6.3 million, or 6.4%, partially offset by $7.8 million, or 8.0%, of other items, net.

The increase was driven by favorable pricing and productivity gains, primarily in the Crane Payment Innovations segment.

Increases were offset by lower volumes, primarily in the Currency segment, unfavorable mix in the Crane Payment Innovations segment, unfavorable foreign currency translation and higher net restructuring charges.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PAYMENT & MERCHANDISING TECHNOLOGIES

CRANE PAYMENT INNOVATIONS

(in millions, except %) For the year ended December 31, 2023 2022 2021

1 unchanged sentence

Payment Acceptance and Dispensing Products $ 758.7 $ 752.2 $ 692.2

Banknotes and Security Products 465.6 539.4 434.0

Services 127.7 122.1 113.5

Total net sales $ 886.4 $ 874.3 $ 805.7

6 unchanged sentences

Operating margin 27.4 % 24.8 % 20.4 %

(a) Selling, general and administrative expense includes net restructuring charges of $6.2 million in 2022, net restructuring gains of $3.7 million in 2021, and net restructuring charges of $19.1 million in 2020.

Selling, general and administrative expense includes net restructuring charges of $0.5 million in 2023, $6.2 million in 2022 and net restructuring gains of $0.9 million in 2021.

2023 compared to 2022

Sales decreased $5.2 million, or 0.4%, to $1,339.9 million in 2022, driven by unfavorable foreign currency translation of $65.3 million, or 4.9%, offset by higher core sales of $60.1 million, or 4.5%.

The higher core sales were driven by higher pricing, partially offset by lower volumes.

Sales increased by $12.1 million, or 1.4%, to $886.4 million in 2023, driven by higher core sales of $21.3 million, or 2.4%, offset by unfavorable foreign currency translation of $9.2 million, or 1.0%.

• Sales of Payment Acceptance and Dispensing Products increased $6.5 million, or 0.9%, to $758.7 million in 2023.

The increase reflected higher core sales of $103.6 million, or 12.8%, partially offset by unfavorable foreign currency translation of $35.0 million, or 4.3%, primarily reflecting the weakening of the British pound and Japanese Yen against the U.S.

The core sales growth primarily reflected higher sales to Gaming customers and strong pricing across all end markets.

• Sales of Banknotes and Security Products decreased $73.8 million, or 13.7%, to $465.6 million in 2022.

The decrease reflected lower core sales of $43.6 million, or 8.1%, and unfavorable foreign currency translation of $30.2 million, or 5.6%, as the euro weakened against the U.S.

The core sales decline primarily reflected lower sales to international customers after a record-sales year in 2021.

Cost of sales decreased by $32.5 million, or 4.4%, to $713.7 million, primarily related to favorable foreign currency translation of $42.1 million, or 5.6%, the impact of lower volumes of $37.7 million, or 5.1%, and productivity gains of $26.4 million, or 3.5%, partially offset by an increase in material, labor and other manufacturing costs of $59.4 million, or 8.0%, and unfavorable mix of $14.4 million, or 1.9%.

Selling, general and administrative expense increased by $1.7 million, or 0.6%, to $293.1 million, primarily due to net restructuring charges of $6.2 million, or 2.1%, and higher selling costs of $6.0 million, or 2.1%, partially offset by favorable foreign currency translation of $11.3 million, or 3.9%.

The increase reflected higher core sales of $15.5 million, or 2.1%, primarily due to favorable pricing, partially offset by unfavorable foreign currency translation of $9.0 million, or 1.2%, primarily reflecting the weakening of the Japanese Yen, British pound and Australian dollar against the U.S.

• Service revenue increased by $5.6 million, or 4.6%, to $127.7 million in 2023, primarily driven by favorable pricing.

Cost of sales decreased by $4.7 million, or 1.1%, to $439.4 million in 2023, as lower volumes, productivity gains and favorable foreign currency translation, were partially offset by unfavorable mix.

Selling, general and administrative expense decreased by $8.9 million, or 4.2%, to $204.2 million in 2023, primarily reflecting lower performance-based compensation and cost saving actions.

Operating profit increased by $25.7 million, or 11.8%, to $242.8 million in 2023.

The increase primarily reflected higher pricing net of inflation, and productivity, of $92.9 million, or 30.2%, partially offset by lower volumes of $31.1 million, or 10.1%, unfavorable mix of $14.4 million, or 4.7%, unfavorable foreign currency translation of $11.8 million, or 3.8%, and higher restructuring charges of $9.9 million, or 3.2%.

The increase primarily reflected favorable pricing net of inflation, and productivity gains, of $51.8 million, or 23.9%, and cost saving actions of $10.4 million, or 4.8%, partially offset by unfavorable mix of $21.6 million, or 9.9%, and lower volumes of $16.6 million, or 7.6%.

2022 compared to 2021

Sales increased $240.3 million, or 21.8%, to $1,345.1 million in 2021 compared to 2020, reflecting higher core sales of $210.6 million, or 19.1%, and favorable foreign currency translation of $29.7 million, or 2.7%.

• Sales of Payment Acceptance and Dispensing Products increased $134.9 million, or 20.1%, to $805.7 million in 2021 compared to 2020.

The increase reflected higher core sales of $123.3 million, or 18.4%, and favorable foreign currency translation of $11.6 million, or 1.7%, primarily reflecting the strengthening of the British pound against the U.S.

The core sales increase primarily reflected higher sales to gaming, retail, vending and transportation customers as end markets continued to recover from the 2020 impact of the COVID-19 pandemic.

Sales increased by $68.6 million, or 8.5%, to $874.3 million in 2022, driven by higher core sales of $103.6 million, or 12.9%, offset by unfavorable foreign currency translation of $35.1 million, or 4.4%.

• Sales of Payment Acceptance and Dispensing Products increased $60.0 million, or 8.7%, to $752.2 million in 2022.

The increase reflected higher core sales of $94.1 million, or 13.6%, primarily due to favorable pricing, partially offset by unfavorable foreign currency translation of $34.1 million, or 4.9%, primarily reflecting the weakening of the British pound, Japanese Yen and Australian dollar against the U.S.

• Service revenue increased by $8.6 million, or 7.6%, to $122.1 million in 2022, primarily driven by favorable pricing.

Cost of sales increased by $11.2 million, or 2.6%, to $444.1 million in 2022, as increased manufacturing costs and unfavorable mix, were partially offset by favorable foreign currency translation, productivity gains and lower volumes.

Selling, general and administrative expense increased by $4.8 million, or 2.3%, to $213.1 million in 2022, primarily reflecting higher net restructuring charges and higher selling costs, partially offset by favorable foreign currency translation.

Operating profit increased by $52.6 million, or 32.0%, to $217.1 million in 2022.

The increase primarily reflected favorable pricing net of inflation, and productivity gains of $85.6 million, or 52.0%, partially offset by unfavorable mix of $17.9 million, or 10.9%, net restructuring charges of $7.1 million, or 4.3%, and unfavorable foreign currency translation of $6.6 million, or 4.0%.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Sales of Banknotes and Security Products increased $105.4 million, or 24.3%, to $539.4 million in 2021 compared to 2020.

The increase reflected higher core sales of $87.3 million, or 20.1%, and favorable foreign currency translation of $18.1 million, or 4.2%, as the euro strengthened against the U.S.

The core sales increase reflected substantially higher sales of banknotes, globally.

Cost of sales increased $63.4 million, or 9.3%, to $746.2 million in 2021 compared to 2020, primarily reflecting a $91.3 million, or 13.4%, increase in costs proportionate to the higher sales volumes, increased material, labor and other manufacturing costs of $29.2 million, or 4.3%, and unfavorable foreign currency translation of $19.3 million, or 2.8%, partially offset by favorable mix of $41.9 million, or 6.1%, and increased productivity of $31.5 million, or 4.6%.

Selling, general and administrative expense decreased $30.0 million, or 9.3%, to $291.4 million in 2021 compared to 2020, primarily related to a $19.1 million restructuring charge in 2020 which did not repeat in 2021 and a $3.7 million restructuring gain in 2021.

Operating profit increased by $206.9 million, or 205.7%, to $307.5 million in 2021 compared to 2020.

The increase primarily reflected the impact of higher sales volumes of $100.7 million, or 100.1%, favorable mix of $41.9 million, or 41.7%, productivity benefits of $34.7 million, or 34.5%, lower restructuring and related costs of $23.5 million, or 23.4%, and acquisition-related and integration charges of $6.5 million, or 6.5%, which did not repeat in the current year, partially offset by $0.4 million, or 0.4% of other items, net.

Engineered Materials

CRANE CURRENCY

(in millions, except %) For the year ended December 31, 2023 2022 2021

Net sales by product line:

FRP - Recreational Vehicles $ 111.9 $ 102.5 $ 68.9

FRP - Building Products 112.5 94.9 83.1

FRP - Transportation 33.9 30.6 23.6

Total net sales $ 258.3 $ 228.0 $ 175.6

Net sales $ 504.9 $ 465.6 $ 539.4

Cost of sales $ 297.8 $ 269.6 $ 313.3

5 unchanged sentences

Operating margin 23.0 % 25.2 % 26.9 %

(a) Selling, general and administrative expense includes net restructuring charges of $0.4 million, $0.0 million and $0.6 million in 2022, 2021 and 2020 respectively.

Selling, general and administrative expense includes net restructuring gains of $2.8 million in 2021.

2023 compared to 2022

Sales increased by $30.3 million, or 13.3%, to $258.3 million in 2022 with higher pricing more than offsetting a decline in volume, primarily related to softening end market demand in the RV industry.

The increase reflected higher sales to building products customers and recreational vehicle manufacturers.

Cost of sales increased by $24.9 million, or 13.7%, to $206.2 million, primarily related to higher increase in material, labor and other manufacturing costs of $36.7 million, or 20.2%, offset by the impact of the lower volumes of $12.2 million, or 6.7%.

Selling, general and administrative expense decreased by $0.3 million, or 1.5%, to $19.5 million primarily reflecting lower selling costs.

Operating profit increased by $5.7 million, or 21.2%, to $32.6 million in 2022, primarily reflecting higher pricing net of inflation, and productivity gains, of $16.8 million, or 62.5%, partially offset by the impact of the lower volumes of $11.1 million, or 41.3%.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Banknote and security product sales increased by $39.3 million, or 8.4%, to $504.9 million in 2023, reflecting higher core sales of $36.2 million, or 7.8%, predominantly driven by higher sales in international markets, as well as favorable foreign currency translation of $3.1 million, or 0.7%.

Cost of sales increased by $28.2 million, or 10.5%, to $297.8 million in 2023, primarily due to unfavorable mix and higher volumes, partially offset by productivity gains net of inflation, and favorable fixed cost leverage resulting from increased backlog.

Unfavorable mix is related to higher U.S.

demand for lower denomination banknotes in 2023.

Selling, general and administrative expense increased by $12.1 million, or 15.4%, to $90.8 million in 2023, primarily in engineering related to higher compensation and benefit costs.

Operating profit decreased by $1.0 million, or 0.9%, to $116.3 million in 2023, reflecting unfavorable mix of $47.6 million, or 40.6%, partially offset by favorable pricing net of inflation, and productivity gains, of $32.4 million, or 27.6%, and higher volumes of $12.8 million, or 10.9%.

2022 compared to 2021

Engineered Materials sales increased $52.4 million, or 29.8%, to $228.0 million in 2021 compared to 2020, primarily due to higher core sales to RV manufacturers, and to a lesser extent, to building product and transportation customers.

Core sales increases included end markets recovering from the 2020 impact of the COVID-19 pandemic as well as higher pricing to offset higher raw material costs.

Cost of sales increased $46.8 million, or 34.8%, to $181.3 million in 2021 compared to 2020, primarily related to increased material, labor and other manufacturing costs of $32.4 million, or 24.1%, and $16.2 million, or 12.0%, of increased costs proportionate to the higher sales volumes.

Operating profit increased by $4.2 million, or 18.5%, to $26.9 million in 2021 compared to 2020.

The increase primarily reflected the impact of higher sales volumes of $9.5 million, or 41.9%, offset by increased material, labor and other costs of $7.4 million, or 32.6%.

Banknote and security product sales decreased by $73.8 million, or 13.7%, to $465.6 million in 2022, reflecting lower core sales of $43.6 million, or 8.1%, predominantly driven by lower volumes, as well as unfavorable foreign currency translation of $30.2 million, or 5.6%.

Cost of sales decreased by $43.7 million, or 13.9%, to $269.6 million in 2022, primarily due to lower volumes, favorable foreign currency translation, and productivity gains, partially offset by increased manufacturing costs.

Selling, general and administrative expense decreased by $2.3 million, or 2.8%, to $78.7 million in 2022, primarily due to favorable foreign currency translation, partially offset by net restructuring gains in 2021 which did not repeat in 2022.

Operating profit decreased by $27.8 million, or 19.2%, to $117.3 million in 2022, reflecting lower volumes of $29.7 million, or 20.5%, and unfavorable foreign currency translation of $5.3 million, or 3.7%.

Increased manufacturing costs were more than offset by favorable pricing and productivity gains.

Operating profit included net restructuring gains of $2.8 million in 2021 which did not repeat in 2022.

NON-GAAP FINANCIAL MEASURES

"Core sales" exclude currency effects and, where applicable, the first-year impacts of acquisitions and divestitures from sales.

Management believes that non-GAAP financial measures that exclude these items provide investors with an alternative metric that can assist in identifying underlying growth trends in our business and facilitate comparison of our sales performance with prior and future periods that are complementary to GAAP metrics.

(in millions) For the year ended December 31, 2023 2022 2021

Corporate expense $ 72.3 $ 33.1 $ 30.4

Loss on divestiture of asbestos-related assets and liabilities (162.4) — —

Total Corporate expense $ (284.7) $ (97.7) $ (58.8)

Total Corporate expense increased by $187.0 million, or 191.4%, in 2022, primarily related to the loss on divestiture of asbestos related assets and liabilities of $162.4 million, or 166.2%, and higher transaction related expenses of $33.9 million, or 34.7%, partially offset by slightly lower compensation and benefit costs.

Total Corporate expense increased by $38.9 million, or 66.2%, in 2021 compared to 2020 primarily related to higher compensation and benefit costs of $19.0 million, or 32.3%, and transaction related expenses of $8.2 million, or 13.9%.

Corporate expense increased by $39.2 million, or 118.4%, in 2023 compared with 2022, primarily related to transaction related expenses of $20.9 million, or 63.1%, and higher compensation and benefit costs.

Corporate expense increased by $2.7 million, or 8.9%, in 2022 compared with 2021 primarily related to higher compensation and benefit costs.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTEREST AND MISCELLANEOUS INCOME, NET

2 unchanged sentences

Interest expense $ (48.1) $ (41.9) $ (41.8)

Gain on sale of business $ 232.5 $ — $ —

Related party interest expense* $ (2.5) $ (14.4) $ (16.1)

Miscellaneous income, net $ 2.5 $ 3.1 $ 4.7

2022 compared to 2021

Interest expense increased $5.3 million, or 11.3%, primarily due to interest paid for the 364-day credit facility that was entered into on August 11, 2022.

The $232.5 million gain on sale of business relates to the divestiture of Crane Supply.

Miscellaneous income, net, decreased $9.3 million, or 48.7%, primarily reflecting a loss on the settlement of a pension plan.

2021 compared to 2020

Interest expense decreased $8.4 million, or 15.2%, in 2021 compared to 2020 resulting from the repayment of the 364-day credit facility, entered into on April 16, 2020 (the “2020 364-Day Credit Agreement”) in April 2021 and lower amounts outstanding under the commercial paper facility beginning in the second quarter of 2021.

Miscellaneous income, net, increased $4.2 million, or 28.2%, primarily reflecting a gain on sale of a property.

* Related party interest with Crane Company incurred prior to the Separation.

Interest expense increased by $6.2 million, or 14.8%, in 2023 compared with 2022, primarily due to higher interest rates and the increase in the total debt balance related to the $350 million Term facility, partially offset by the redemption of the $300 million outstanding on the 4.45% senior notes.

Related party interest expense decreased by $11.9 million, or 82.6%, in 2023 compared with 2022 as 2023 only included the period prior to the Separation.

(in millions, except %) For the year ended December 31, 2023 2022 2021

6 unchanged sentences

Effective tax rate 21.5 % 17.5 % 21.2 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, and examinations initiated by tax authorities around the world.

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, and examinations initiated by tax authorities around the world.

Our 2023 effective tax rate of 21.5% is higher than the prior year’s comparable period due to the mix in jurisdictional earnings.

The Organization for Economic Co-operation and Development (OECD) has proposed a global minimum tax of 15% of reported profits (“Pillar 2”) that has been agreed upon by over 140 member jurisdictions including the United States.

Pillar 2 addresses the risks associated with profit shifting to entities in low tax jurisdictions.

We are currently assessing the impact of this minimum tax on our business.

See "Application of Critical Accounting Policies" included later in this Item 7 for additional information about our provision for income taxes.

A reconciliation of the statutory U.S.

federal tax rate to our effective tax rate is set forth in Item 8 under Note 9, "Income Taxes" in the Notes to Consolidated Financial Statements.

federal tax rate to our effective tax rate is set forth in Item 8 under Note 9, "Income Taxes" in the Notes to Consolidated and Combined Financial Statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

6 unchanged sentences

Effect of exchange rates on cash and cash equivalents 3.8 (20.2) (7.0)

Increase (decrease) in cash and cash equivalents $ 179.0 $ (72.4) $ 157.1

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 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 August 2022, we entered a new $400 million senior unsecured 364-day Credit Agreement (the”364 Day Credit Agreement”).

The proceeds were used to partially fund the $550 million contribution related to the divestiture of asbestos-related assets and liabilities.

Please see Item 8 under Note 13, “Financing” to our Consolidated Financial Statements for additional details.

In July 2021, we entered a $650 million, 5-year Revolving Credit Agreement, which replaced the prior $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).

See Item 8 under Note 13, “Financing,” and Note 14, “Fair Value Measurements” in the Notes to our Consolidated Financial Statements for details regarding our financing arrangements.

On April 15, 2021, we repaid the amount outstanding under a prior credit agreement which was entered into to enhance financial flexibility and maintain maximum liquidity in response to the uncertainty in the global markets resulting from the COVID-19 pandemic.

(Decrease) increase in cash and cash equivalents $ (3.5) $ 129.5 $ (43.9)

Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to stockholders 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 and borrowings available under our revolving credit facility, is expected to be sufficient to finance our short- and long-term capital requirements.

In addition, we believe our credit ratings afford us adequate access to public and private debt markets.

In March 2023, we entered into a senior secured credit agreement, which provides for a $500 million, five-year revolving credit facility and a $350 million, three-year term loan facility.

Funding under each facility became available in connection with the Separation, upon the satisfaction of customary conditions of facilities of this type.

In the third quarter of 2023, we drew down and subsequently repaid $20 million on our revolving credit facility.

On March 31, 2023, we borrowed the full amount of the Term Facility.

As of December 31, 2023, we have repaid $245.0 million on the Term Facility.

Please see Item 8 under Note 13, “Financing” to our Consolidated and Combined Financial Statements for additional details.

On April 3, 2023, prior to the consummation of the Separation, SpinCo paid a dividend to Holdings in the amount of $275 million.

Please see Item 8 under Note 1, “Nature of Operations and Significant Accounting Policies” to our Consolidated and Combined Financial Statements for additional details.

On April 4, 2023, we redeemed all our outstanding 4.45% senior notes due 2023, of which $300 million aggregate principal amount was outstanding upon redemption.

Please see Item 8 under Note 13, “Financing” to our Consolidated and Combined Financial Statements for additional details.

Operating Activities

Cash used for operating activities, a key source of our liquidity, was $151.6 million in 2022, compared to cash provided by operating activities of $498.5 million in 2021.

The increase in cash used by operating activities was primarily driven by the $550.0 million payment related to the divestiture of asbestos-related assets, together with increased working capital investments supporting higher levels of demand across most businesses.

Cash provided by operating activities was $498.5 million in 2021, compared to $309.5 million in 2020.

The increase in cash provided by operating activities was primarily driven by higher net income, partially offset by higher asbestos-related payments.

Net asbestos-related payments in 2021 and 2020 were $44.9 million and $31.1 million, respectively.

Cash provided by operating activities was $276.3 million in 2023, compared with $306.0 million in 2022.

The decrease in cash provided by operating activities was primarily driven by transaction related expenses as a result of the Separation, tax-related items and lower working capital requirements.

Cash provided by operating activities was $306.0 million in 2022, compared with $277.0 million in 2021.

The increase in cash provided by operating activities was primarily driven by higher net income.

Investing Activities

Cash flows relating to investing activities consist primarily of cash provided by divestitures of businesses or assets, capital expenditures and cash used for acquisitions.

Cash used for investing activities consists of cash used for capital expenditures.

Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, and improving information systems.

Cash provided by investing activities was $264.0 million in 2022, compared to cash used for investing activities of $0.3 million in 2021.

The increase in cash provided by investing activities was primarily related to $318.1 million of proceeds related to the divestiture of Crane Supply.

Cash used for investing activities was $0.3 million in 2021, compared to cash used for investing activities of $229.1 million in 2020.

Cash used for investing activities in 2020 was driven by the acquisition of I&S for $169.2 million.

There were no similar acquisitions in 2021.

In addition, there was $30 million of net proceeds from the sale of marketable securities in 2021 compared to $30 million of cash used for the purchase of marketable securities in 2020.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We expect capital expenditures of approximately $50 million in 2024.

Cash used for investing activities was $31.1 million in 2023, compared with $21.3 million in 2022.

The increase in cash used for investing activities was primarily driven by higher cash used for capital expenditures to support the U.S.

Currency redesign program and other capital projects.

Cash used for investing activities was $21.3 million in 2022, compared with $15.8 million in 2021.

The increase in cash used for investing activities was primarily driven by higher cash used for capital expenditures primarily related to projects to enhance safety and security in our Currency segment.

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 provided by financing activities was $106.0 million in 2022, compared to cash used for financing activities of $557.9 million in 2021.

The increase in cash provided by financing activities was primarily driven by $399.4 million in net borrowings from the 2022 364-Day Credit Agreement, compared to a $348.1 million repayment of the outstanding amount under the 364-Day Credit Agreement in 2021.

This was partially offset by $107.4 million increase in share repurchases.

Cash used for financing activities was $557.9 million in 2021, compared to cash provided by financing activities of $55.1 million in 2020.

The increase in cash used for financing activities was driven by the $348.1 million repayment of the outstanding amount under the 2020 364-Day Credit Agreement in 2021, compared to proceeds of $343.9 million received from the 2020 364-Day Credit Agreement in 2020.

Financing cash flows consist primarily of dividend payments to shareholders, repayments of indebtedness, proceeds from the issuance of long-term debt and debt issuance cost on new credit facilities.

Cash used for financing activities was $252.5 million in 2023, compared with $135.0 million in 2022.

The increase in cash used for financing activities was primarily driven by higher repayments of debt.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash used for financing activities was $135.0 million in 2022, compared with $298.1 million in 2021.

The decrease in cash used for financing activities was primarily driven by lower net transfers to Crane.

Financing Arrangements

Total net debt was $1,243.0 million and $842.4 million as of December 31, 2022 and 2021, respectively.

Total debt was $644.9 million and $844.8 million as of December 31, 2023 and 2022, respectively.

Our indebtedness as of December 31, 2023 was as follows:

• $399.6 million related to the 364-Day Credit Agreement due in 2023;

• $299.7 million of 4.45% notes due 2023;

• $103.1 million related to the Term Facility;

• $198.6 million of 6.55% notes due 2036;

• $346.6 million of 4.20% notes due 2048.

As of December 31, 2022, our total debt to total capitalization ratio was 39.5%, computed as follows:

(in millions)

Short-term borrowings $ 699.3

Long-term debt $ 543.7

Total debt $ 1,243.0

Equity 1,904.0

Capitalization $ 3,147.0

Total indebtedness to capitalization 39.5 %

See Item 8 under Note 13, “Financing,” in the Notes to Consolidated Financial Statements for details regarding our financing arrangements.

See Item 8 under Note 13, “Financing,” in the Notes to Consolidated and Combined Financial Statements for details regarding our financing arrangements.

Credit Ratings

As of December 31, 2022, our senior unsecured debt was rated BBB by S&P Global Ratings with a Stable outlook and Baa2 with a Stable outlook by Moody’s Investors Service.

As of December 31, 2023, Crane NXT’s Corporate Rating was BB+ by S&P Global Ratings with a Stable Outlook and Ba1 with a Stable Outlook by Moody’s Investor Services.

Our senior secured debt was rated BB+ by S&P Global Ratings with a Stable outlook and Baa3 with a Stable Outlook by Moody’s Investor Service.

Our senior unsecured debt was rated BB- by S&P Global Ratings with a Stable outlook and Ba2 with a Stable outlook by Moody’s Investors Service.

We believe that these ratings afford us adequate access to the public and private debt markets.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Contractual Obligations

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49.2 4.9 9.2 9.6 25.5

Other long-term liabilities reflected on Consolidated Balance Sheets (c)

Other long-term liabilities reflected on Consolidated and Combined Balance Sheets (c)

Total $ 1,362.0 $ 88.2 $ 84.2 $ 169.7 $ 1,019.9

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(b) Pension benefits are funded by the respective pension trusts.

The postretirement benefit component of the obligation is approximately $1.6 million per year for which there is no

trust and will be directly funded by us.

The postretirement benefit component of the obligation is approximately $1.1 million per year for which there is no trust and will be directly funded by us.

Pension benefits are included through 2033.

(c) As the timing of future cash outflows is uncertain, the following long-term liabilities (and related balances) are excluded from the above table:

long-term environmental liability $17.6 and gross unrecognized tax benefits $28.2 and related gross interest and penalties $4.8.

gross unrecognized tax benefits of $16.5 million and related gross interest and penalties of $2.8 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Capital Structure

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Total debt $ 644.9 $ 844.8

Equity $ 964.0 $ 783.8

Capitalization $ 1,608.9 $ 1,628.6

Debt to capitalization 40.1 % 51.9 %

Total debt $ 644.9 $ 844.8

Less cash and cash equivalents 227.2 230.7

$ 417.7 $ 614.1

Equity $ 964.0 $ 783.8

6 unchanged sentences

Net debt, a non-GAAP measure, represents total debt less cash and cash equivalents.

Net debt is comprised of components disclosed above which are presented on our Consolidated Balance Sheets.

Net debt is comprised of components disclosed above which are presented on our Consolidated and Combined Balance Sheets.

Net capitalization, a non-GAAP measure, represents Net Debt plus Equity.

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Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in the context of the definitions of the elements of such measures we provide and in addition to, and not as a substitute for, our reported results prepared and presented in accordance with U.S.

In 2022, equity increased $68.9 million as a result of net income before allocation to noncontrolling interests of $401.1 million, changes in pension and postretirement plan assets and benefit obligations, net of tax of $30.0 million and the impact of equity-based awards and related settlement activities of $40.4 million.

These increases were partially offset by share repurchases of $203.7 million, cash dividends of $105.6 million and currency translation adjustment of $93.3 million.

In 2023, equity increased $180.2 million as a result of the dividend from Crane of $275.0 million, net income attributable to common shareholders of $188.3 million, currency translation adjustment of $18.1 million, and the impact of equity-based awards and related settlement activities of $12.9 million.

These increases were partially offset by net transfers to Crane of $285.2 million, cash dividends of $23.7 million, and changes in pension and postretirement plan assets and benefit obligations, net of tax of $5.2 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.

Our Consolidated and Combined Financial Statements are prepared in accordance with accounting principles generally accepted in the United States.

Certain accounting policies require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period.

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We have discussed the development and selection of these accounting estimates and the related disclosures with the Audit Committee of our Board of Directors.

Our significant accounting policies are more fully described in Item 8 under Note 1, “Nature of Operations and Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

Our significant accounting policies are more fully described in Item 8 under Note 1, “Nature of Operations and Significant Accounting Policies” in the Notes to Consolidated and Combined Financial Statements.

Revenue Recognition.

We primarily generate revenue through the manufacture and sale of engineered industrial products.

We primarily generate revenue through the manufacture and sale of technology solutions including advanced detection and sensing systems, software to authenticate and manage transactions and micro-optics materials technology.

Each product within a contract generally represents a separate performance obligation, as we do not provide a significant service of integrating or installing the products, the products do not customize each other, and the products can function independently of each other.

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When products are customized or products are sold directly to the U.S.

government or indirectly to the U.S.

government through subcontracts, revenue is recognized over time because control is transferred continuously to customers, as the contract progresses.

government, revenue is recognized over time because control is transferred continuously to customers, as the contract progresses.

We exercise judgment to determine whether the products have an alternative use to us.

1 unchanged sentence

When a contract with the U.S.

government or subcontract for the U.S.

government contains clauses indicating that the U.S.

5 unchanged sentences

Total revenue recognized and cost estimates are updated monthly.

In 2022, the Company recognized approximately $120 million in revenue over time related to contracts in progress as of December 31, 2022.

In 2023, the Company recognized approximately $211 million in revenue over time related to products.

These estimates are subject to uncertainties and require judgment.

3 unchanged sentences

Provisions for estimated losses, if any, on uncompleted long-term contracts, are made in the period in which such losses are determined.

We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract estimates for 2022, 2021 or 2020 was material to the consolidated statements of income for such annual periods.

We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract estimates for 2023, 2022 or 2021 was material to the consolidated and combined statements of operations for such annual periods.

Income Taxes.

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The tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line of the Consolidated Statement of Operations, while accrued interest and penalties are included within the related tax liability line of the Consolidated Balance Sheets.

Goodwill and Other Intangible Assets.

As of December 31, 2022, we had $1,527.5 million of goodwill and $416.6 million of net intangible assets, of which $67.3 million were intangibles with indefinite useful lives, consisting of trade names.

As of December 31, 2021, we had $1,583.8 million of goodwill and $467.1 million of net intangible assets, of which $70.6 million were intangibles with indefinite useful lives, consisting of trade names.

Our business acquisitions have typically resulted in the recognition of goodwill and other intangible assets.

We follow the provisions under ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in the Consolidated Financial Statements.

These provisions require that we, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if an impairment has occurred.

We perform our annual impairment testing during the fourth quarter.

Impairment testing takes place more often than annually if events or circumstances indicate a change in status that would indicate a potential impairment.

We believe that there have been no events or circumstances which would more likely than not reduce the fair value of our reporting units below its carrying value.

A reporting unit is an operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the reporting unit.

As of December 31, 2022, we had six reporting units.

When performing our annual impairment assessment, we compare the fair value of each of our reporting units to our respective carrying value.

Goodwill is potentially impaired when the net book value of the reporting unit exceeds its estimated fair value.

Fair values are established primarily by discounting estimated future cash flows at an estimated cost of capital which varies for each reporting unit and which, as of our most recent annual impairment assessment, ranged between 9.5% and 11.5% (a weighted average of 10.8%), reflecting the respective inherent business risk of each of the reporting units tested.

This methodology for valuing our reporting units (commonly referred to as the Income Method) has not changed since the adoption of the provisions under ASC 350.

The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year.

The revenue growth rates included in the forecasts represent best estimates based on current and forecasted market conditions.

Profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost increases/reductions.

There are inherent uncertainties related to these assumptions, including changes in market conditions, and management judgment is necessary in applying them to the analysis of goodwill impairment.

In addition to the foregoing, for each reporting unit, market multiples are used to corroborate discounted cash flow results where fair value is estimated based on earnings multiples determined by available public information of comparable businesses.

While we believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting units, it is possible a material change could occur.

If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may then be determined to be overstated and a charge would need to be taken against net earnings.

Furthermore, to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied a hypothetical, reasonably possible 10% decrease to the fair values of each reporting unit.

The effects of this hypothetical 10% decrease would still result in a fair value calculation exceeding our carrying value for each of our reporting units.

No impairment charges have been required during 2022, 2021 or 2020.

Intangibles with indefinite useful lives are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment.

If the carrying amount of an indefinite lived intangible asset exceeds its fair value, the intangible asset is written down to its fair value.

Fair value is calculated using relief from royalty method.

We amortize the cost of definite-lived intangibles over their estimated useful lives.

We review all our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

losses or a forecast of continuing losses associated with the use of an asset or asset group, or a current expectation that an asset or asset group will be sold or disposed of before the end of its previously estimated useful life.

Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the definite-lived intangible asset (or asset group), as well as specific appraisal in certain instances.

Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other long-lived assets or asset groups and include estimated future revenues, gross profit margins, operating profit margins and capital expenditures which are based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year.

The revenue growth rates included in the forecasts represent our best estimates based on current and forecasted market conditions, and the profit margin assumptions are based on the current cost structure and anticipated net cost increases or reductions.

There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis.

If the future undiscounted cash flows are less than the carrying value, then the definite-lived intangible asset is considered impaired and a charge would be taken against net earnings based on the amount by which the carrying amount exceeds the estimated fair value.

Judgments that we make which impact these assessments relate to the expected useful lives of definite lived assets and its ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows.

Since judgment is involved in determining the recoverable amount of definite-lived intangible assets, there is risk that the carrying value of our definite-lived intangible assets may require adjustment in future periods.

Historical results to date have generally approximated expected cash flows for the identifiable cash flow generating level.

We believe there have been no events or circumstances which would more likely than not reduce the fair value of our indefinite-lived or definite-lived intangible assets below their carrying value.

As of the last annual assessment, fair values have been substantially in excess of carrying values.

Environmental.

For environmental matters, we record a liability for estimated remediation costs when it is probable that we will be responsible for such costs and they can be reasonably estimated.

Generally, third party specialists assist in the estimation of remediation costs.

The environmental remediation liability as of December 31, 2022 is substantially all for the former manufacturing site in Goodyear, Arizona (the "Goodyear Site").

Estimates of our environmental liabilities at the Goodyear Site are based on currently available facts, present laws and regulations and current technology available for remediation, and are recorded on an undiscounted basis.

These estimates consider our prior experience in the Goodyear Site investigation and remediation, as well as available data from, and in consultation with, our environmental specialists.

Estimates at the Goodyear Site are subject to significant uncertainties caused primarily by the dynamic nature of the Goodyear Site conditions, the range of remediation alternatives available, together with the corresponding estimates of cleanup methodology and costs, as well as ongoing, required regulatory approvals, primarily from the EPA.

During the fourth quarter of 2019, we received conceptual agreement from the EPA on an alternative remediation strategy which is expected to further reduce the contaminant plume.

Accordingly, we recorded a pre-tax charge of $18.9 million, net of reimbursements, to extend our forecast period through 2027 and reflect our revised workplan.

The total estimated gross liability was $24.8 million and $32.3 million as of December 31, 2022 and 2021, respectively.

On July 31, 2006, we entered into a consent decree with the U.S.

Department of Justice on behalf of the Department of Defense and the Department of Energy pursuant to which, among other things, the U.S.

Government reimburses us for 21% of qualifying costs of investigation and remediation activities at the Goodyear Site.

We have recorded a receivable of $4.8 million and $7.3 million for the expected reimbursements from the U.S.

Government in respect of the aggregate liability as of December 31, 2022 and 2021, respectively.

Pension Plans.

In the United States, we sponsor a defined benefit pension plan that covers approximately 12% of all U.S.

Effective January 1, 2013, pension eligible non-union employees no longer earn future benefits in the domestic defined benefit pension plan.

The benefits are based on years of service and compensation on a final average pay basis, except for certain hourly employees where benefits are fixed per year of service.

Charges to expense are based upon costs computed by an independent actuary.

Contributions are intended to provide for future benefits earned to date.

Additionally, a number of our non-U.S.

subsidiaries sponsor defined benefit pension plans that cover approximately 12% of all non-U.S.

The benefits are typically based upon years of service and compensation.

Most of these plans are funded by company contributions to pension funds, which are held for the sole benefit of plan participants and beneficiaries.

The expected return on plan assets component of net periodic benefit cost is determined by applying the assumed expected return on plan assets to the fair value of plan assets.

For one of the U.K.

pension plans, a market-related value of assets is used in lieu of the fair value of plan assets for this purpose.

The net actuarial loss (gain) is amortized to the extent that it exceeds 10% of the greater of the fair value of plan assets and the projected benefit obligation.

The amortization period is the average life expectancy of plan participants for most plans.

The amortization period for plans with a significant number of active participants accruing benefits is the average future working lifetime of plan participants.

The prior service cost (credit) is amortized over the average future working lifetime of plan participants whose prior service benefits were changed.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The net periodic pension benefit was $2.3 million, $6.8 million and $6.8 million in 2022, 2021 and 2020, respectively.

The net periodic pension benefit was the same in 2021 compared to 2020, driven by lower interest costs for both U.S.

plans offset by higher amortization of a net loss.

Employer cash contributions were $19.7 million, $26.7 million and $26.1 million in 2022, 2021 and 2020, respectively.

Holding all other factors constant, a decrease in the expected long-term rate of return on plan assets by 0.25 percentage points would have increased 2022 pension expense by $1.3 million for U.S.

pension plans and $0.9 million for non-U.S.

pension plans.

Also, holding all other factors constant, a decrease in the discount rate used to determine net periodic pension cost by 0.25 percentage points would have decreased 2022 pension expense by $0.1 million for U.S.

pension plans and increased 2022 pension expense by $0.5 million for non-U.S.

pension plans.

We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line of the Consolidated and Combined Statement of Operations, while accrued interest and penalties are included within the related tax liability line of the Consolidated and Combined Balance Sheets.

Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included in Item 8 under Note 1 to the Consolidated Financial Statements.

Information regarding new accounting pronouncements is included in Item 8 under Note 1 to the Consolidated and Combined Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis