What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 127 added, 49 removed, 121 unchanged (59% of the section changed)

44 unchanged sentences

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.

As of March 31, 2024, we drew down $25.0 million on our Revolving Facility .

As of June 30, 2024, we drew down $215.0 million, net on our Revolving Facility.

2024 Restructuring

In the first quarter of 2024, in response to challenging industry conditions, we initiated workforce reductions in Crane Payment Innovations (“CPI”), incurring $2.7 million of severance charges during the three months ended March 31, 2024.

We expect to substantially complete these restructuring actions in 2025.

On May 3, 2024, we acquired the OpSec Security business (“OpSec”), for a base purchase price of $270 million on a cash-free and debt-free basis, subject to a later adjustment reflecting OpSec’s net working capital, cash, the assumption of certain debt-like items, and OpSec's transaction expenses.

OpSec Acquisition

On May 3, 2024, we acquired the OpSec Security business (“OpSec”), for a base purchase price of $270 million on a cash-free and debt-free basis, subject to customary purchase price adjustments.

We utilized $210 million from our Revolving Facility and cash on hand to fund the acquisition.

Transaction costs incurred for the quarter ended March 31, 2024 were $3.9 million.

OpSec is a global leader in brand protection and authentication solutions, serving the world’s most recognized brands, as well as government agencies and financial insti tutions.

2024 Segment Update

In connection with our acquisition of OpSec, we renamed our “Crane Currency” reportable segment to “Security and Authentication Technologies,” which will consist of the Crane Currency business and the acquired OpSec business.

Our CPI segment will remain unchanged.

This updated structure is consistent with how the Chief Operating Decision Maker will allocate resources and assess performance, and better aligns with our mission to secure, detect and authenticate our customers’ most valuable assets.

The updated segment presentation will be effective in the second quarter of 2024 and has no effect on the first quarter’s financial results presented herein.

In connection with the acquisition of OpSec, we renamed our “Crane Currency” reportable segment to “Security and Authentication Technologies,” which consists of the Crane Currency business and the acquired OpSec business.

Basis of Presentation

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

Results from Operations – Three Month Periods Ended March 31,

Results from Operations – Three Month Periods Ended June 30,

The following information should be read in conjunction with our Unaudited Consolidated and Combined Condensed financial statements and related notes.

All comparisons below refer to the first three months of 2024 versus the first three months of 2023, unless otherwise specified.

Three Months Ended March 31, Favorable/(Unfavorable) Change

(dollars in millions) 2024 2023 $ %

All comparisons below refer to the second quarter 2024 versus the second quarter 2023 , unless otherwise specified.

Three Months Ended June 30, Favorable/(Unfavorable) Change

(in millions) 2024 2023 $ %

Net sales $ 370.6 $ 352.4 $ 18.2 5.2 %

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Selling, general and administrative $ 93.3 $ 99.6 $ 6.3 6.3 %

as a percentage of sales 25.2 % 28.3 %

Operating profit $ 67.6 $ 68.8 $ (1.2) (1.7) %

Operating margin 18.2 % 19.5 %

Other income (expense):

Interest income 0.4 0.2 0.2 100.0 %

Interest expense (12.4) (14.1) 1.7 12.1 %

Miscellaneous (expense) income, net (0.2) 1.0 (1.2) (120.0) %

Total other expense, net (12.2) (12.9) 0.7 5.4 %

Income before income taxes 55.4 55.9 (0.5) (0.9) %

Provision for income taxes 13.8 12.7 (1.1) (8.7) %

Net income attributable to common shareholders $ 41.6 $ 43.2 $ (1.6) (3.7) %

Sales increased by $18.2 million, or 5.2%, to $370.6 million in 2024.

The change in sales included:

• benefit in sales from the May 2024 OpSec acquisition of $20.5 million, or 5.8%,

• core sales growth of $2.9 million, or 0.8%, driven primarily by higher core sales at CPI;

• unfavorable foreign currency translation of $5.2 million, or 1.4%.

Cost of sales increased by $25.7 million, or 14.0%, to $209.7 million in 2024.

The increase was driven primarily by the impact from the OpSec acquisition, unfavorable mix in CPI, and higher material and other manufacturing costs in SAT, partially offset by productivity gains.

Selling, general and administrative expenses decreased by $6.3 million, or 6.3%, to $93.3 million in 2024.

The decrease was driven primarily by lower transaction related expenses, cost saving actions, and favorable foreign currency translation, partially offset by the impact from the OpSec acquisition.

Operating profit decreased by $1.2 million, or 1.7%, to $67.6 million in 2024.

The decrease was primarily driven by unfavorable product mix at CPI, and the impact from the OpSec acquisition, partially offset by lower transaction related expenses, and productivity gains.

Our effective tax rate for the three months ended June 30, 2024 is higher than the prior year’s comparable period primarily due to the mix of non-U.S.

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

Segment Results of Operations - Three Month Periods Ended June 30,

Crane Payment Innovations

Three Months Ended June 30, Favorable/(Unfavorable) Change

(in millions) 2024 2023 $ %

Net sales by product line:

Payment Acceptance and Dispensing Products $ 190.6 $ 193.1 $ (2.5) (1.3) %

Services 33.8 32.8 1.0 3.0 %

Total net sales $ 224.4 $ 225.9 $ (1.5) (0.7) %

Cost of sales $ 114.6 $ 111.8 $ (2.8) (2.5) %

as a percentage of sales 51.1 % 49.5 %

Selling, general and administrative $ 48.4 $ 49.3 $ 0.9 1.8 %

as a percentage of sales 21.6 % 21.8 %

Operating profit $ 61.4 $ 64.8 $ (3.4) (5.2) %

Operating margin 27.4 % 28.7 %

Sales decreased by $1.5 million, or 0.7%, to $224.4 million in 2024, driven by unfavorable foreign currency translation of $4.2 million, or 1.9%, partially offset by higher core sales of $2.7 million, or 1.2%.

• Sales of Payment Acceptance and Dispensing Products decreased by $2.5 million, or 1.3%, to $190.6 million in 2024.

The decrease was driven by unfavorable foreign currency translation of $4.2 million, or 2.2%, partially offset by higher core sales of $1.7 million, or 0.9%.

Unfavorable foreign currency translation primarily reflected the weakening of the Japanese yen against the U.S.

dollar, partially offset by the strengthening of the British pound against the U.S.

• Service revenue increased by $1.0 million, or 3.0%, to $33.8 million in 2024, primarily driven by favorable pricing.

Cost of sales increased by $2.8 million, or 2.5%, to $114.6 million, as lower material and other manufacturing costs, productivity gains and favorable foreign currency translation were more than offset by unfavorable mix.

Selling, general and administrative expense decreased by $0.9 million, or 1.8%, to $48.4 million, primarily due to lower compensation and benefits through cost saving actions, and favorable foreign currency translation.

Operating profit decreased by $3.4 million, or 5.2%, to $61.4 million in 2024.

The decrease primarily reflected unfavorable mix of $13.2 million, or 20.3%, partially offset by lower material and other manufacturing costs, and productivity gains of $8.1 million, or 12.5%.

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

Security and Authentication Technologies

Three Months Ended June 30, Favorable/(Unfavorable) Change

(in millions) 2024 2023 $ %

Net sales by product line:

Banknotes and Security Products $ 124.1 $ 125.5 $ (1.4) (1.1) %

Authentication Products and Solutions 22.1 1.0 21.1 NM

Total net sales $ 146.2 $ 126.5 $ 19.7 15.6 %

Cost of sales $ 95.1 $ 72.2 $ (22.9) (31.7) %

as a percentage of sales 65.0 % 57.1 %

Selling, general and administrative $ 27.1 $ 19.6 $ (7.5) (38.3) %

as a percentage of sales 18.5 % 15.5 %

Operating profit $ 24.0 $ 34.7 $ (10.7) (30.8) %

Operating margin 16.4 % 27.4 %

Sales increased by $19.7 million, or 15.6%, to $146.2 million in 2024, primarily driven by the sales benefit from the OpSec acquisition of $20.5 million, or 16.2%.

• Banknote and security product sales decreased by $1.4 million, or 1.1%, to $124.1 million in 2024, reflecting lower core sales predominantly driven by lower volumes in international markets impacted by the timing of shipments, and unfavorable foreign currency translation, as the Swedish krona and the euro weakened against the U.S.

• Authentication products and solutions sales increased to $22.1 million in 2024, primarily driven by the sales benefit from the OpSec acquisition.

Cost of sales increased by $22.9 million, or 31.7%, to $95.1 million in 2024, primarily due to the impact from the OpSec acquisition, and higher material and other manufacturing costs, partially offset by productivity gains.

Selling, general and administrative expense increased by $7.5 million, or 38.3%, to $27.1 million in 2024, primarily due to the impact from the OpSec acquisition.

Operating profit decreased by $10.7 million, or 30.8%, to $24.0 million in 2024, reflecting higher material and other manufacturing costs net of favorable pricing of $8.0 million, or 23.1%, and the impact from the OpSec acquisition of $5.4 million, or 15.6%, partially offset by productivity gains of $5.2 million, or 15.0%.

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

Results from Operations – Six Month Periods Ended June 30,

The following information should be read in conjunction with our Unaudited Consolidated and Combined Condensed Financial Statements and related notes.

All comparisons below refer to the first six months of 2024 versus the first six months of 2023, unless otherwise specified.

Six Months Ended June 30, Favorable/(Unfavorable) Change

(in millions) 2024 2023 $ %

Net sales $ 684.2 $ 681.5 $ 2.7 0.4 %

Cost of sales $ 370.9 $ 358.4 $ (12.5) (3.5) %

as a percentage of sales 54.2 % 52.6 %

Selling, general and administrative

$ 187.6 $ 188.4 $ 0.8 0.4 %

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Net income attributable to common shareholders $ 79.4 $ 86.9 $ (7.5) (8.6) %

Sales decreased by $15.5 million, or 4.7%, to $313.6 million in 2024.

Sales increased by $2.7 million, or 0.4%, to $684.2 million in 2024.

The change in sales included:

• a decrease in core sales of $13.9 million, or 4.2%, driven primarily by lower volumes at Crane Payment Innovations (“CPI”), and

• sales benefit from the OpSec acquisition of $20.5 million, or 3.0%,

• core sales decline of $11.0 million, or 1.6%, driven primarily by lower volumes at CPI, and

• unfavorable foreign currency translation of $6.8 million, or 1.0%.

Cost of sales decreased by $13.2 million, or 7.6%, to $161.2 million in 2024.

The decrease was driven primarily by productivity gains net of inflation, lower manufacturing costs, and the impact of lower sales volumes, partially offset by unfavorable mix.

Selling, general and administrative expenses increased by $5.5 million, or 6.2%, to $94.3 million in 2024.

The increase was driven primarily by professional services, including higher transaction related expenses of $2.3 million, or 2.6%.

Cost of sales increased by $12.5 million, or 3.5%, to $370.9 million in 2024.

The increase was driven primarily by unfavorable mix, and the impact of the OpSec acquisition, partially offset by productivity gains, the impact of lower sales volumes, and favorable foreign currency translation.

Selling, general and administrative expenses decreased by $0.8 million, or 0.4%, to $187.6 million in 2024.

The decrease was driven primarily by cost saving actions, favorable foreign currency translation, and productivity gains, partially offset by the impact from the OpSec acquisition.

Operating profit decreased by $11.7 million, or 8.7%, to $123.0 million in 2024.

The decrease was primarily driven by CPI lower volumes and unfavorable mix, partially offset by favorable pricing net of inflation and productivity gains.

Our effective tax rate for the three months ended March 31, 2024 is lower than the prior year’s comparable period primarily due to a higher equity compensation deduction.

The decrease was primarily driven by CPI unfavorable mix and lower volumes, as well as the impact from the OpSec acquisition, partially offset by favorable pricing across both segments and productivity gains.

Our effective tax rate for the six months ended June 30, 2024 is higher than the prior year’s comparable period primarily due to the mix of non-U.S.

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

Segment Results of Operations - Three Month Periods Ended March 31,

Segment Results of Operations - Six Month Periods Ended June 30,

Crane Payment Innovations

Three Months Ended March 31, Favorable/(Unfavorable) Change

(dollars in millions) 2024 2023 $ %

Six Months Ended June 30, Favorable/(Unfavorable) Change

(in millions) 2024 2023 $ %

Net sales by product line:

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• Sales of Payment Acceptance and Dispensing Products decreased $18.8 million, or 4.9%, to $367.0 million in 2024.

The decrease reflected lower core sales of $14.1 million, or 7.3%, primarily in gaming as customers adjust inventory levels to reflect reduced lead times.

The decrease reflected lower core sales of $12.4 million, or 3.2%, as favorable pricing was more than offset by lower volumes primarily in gaming as customers adjust inventory levels to reflect reduced lead times.

Included in the sales decrease is unfavorable foreign currency translation of $6.4 million, or 1.7%, primarily reflecting the weakening of the Japanese yen against the U.S.

1 unchanged sentence

• Service revenue increased by $2.5 million, or 3.9%, to $66.4 million in 2024, primarily driven by favorable pricing.

Cost of sales decreased by $2.6 million, or 2.4%, to $104.8 million in 2024, as unfavorable mix was more than offset by the impact of lower sales volumes, lower manufacturing costs and productivity gains.

Selling, general and administrative expense decreased by $5.8 million, or 10.6%, to $48.8 million in 2024, primarily due to lower reserves on customer receivables driven by higher collections.

Cost of sales increased by $0.2 million, or 0.1%, to $219.4 million in 2024, as lower manufacturing costs, the impact of lower sales volumes, productivity gains and favorable foreign currency translation were more than offset by unfavorable mix.

Selling, general and administrative expense decreased by $6.7 million, or 6.4%, to $97.2 million in 2024, primarily due to cost saving actions, and lower reserves on customer receivables driven by higher collections.

Operating profit decreased by $12.5 million, or 9.9%, to $114.1 million in 2024.

The decrease primarily reflected unfavorable mix of $11.2 million, or 18.1%, lower volumes of $10.7 million, or 17.3%, partially offset by favorable pricing and productivity gains of $14.0 million, or 22.7%.

Restructuring charges of $2.7 million, or 4.4%, were mostly offset by cost saving actions.

The decrease primarily reflected unfavorable mix of $24.3 million, or 19.2%, and lower volumes of $11.9 million, or 9.4%, partially offset by favorable pricing, lower manufacturing costs and productivity gains of $24.4 million, or 19.2%.

Cost saving actions of $4.9 million, or 3.9%, were mostly offset by restructuring charges and unfavorable foreign currency translation.

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

Crane Currency

Three Months Ended March 31, Favorable/(Unfavorable) Change

(dollars in millions) 2024 2023 $ %

Security and Authentication Technologies

Six Months Ended June 30, Favorable/(Unfavorable) Change

(in millions) 2024 2023 $ %

Net sales by product line:

Banknotes and Security Products $ 227.5 $ 229.5 $ (2.0) (0.9) %

Authentication Products and Solutions 23.3 2.3 21.0 NM

Net sales $ 250.8 $ 231.8 $ 19.0 8.2 %

5 unchanged sentences

Operating margin 17.7 % 22.6 %

Banknote and security product sales decreased by $0.7 million, or 0.7%, to $104.6 million in 2024, reflecting lower core sales of $1.4 million, or 1.3%, predominantly driven by lower volumes in the U.S.

Currency business.

Cost of sales decreased by $10.6 million, or 15.8%, to $56.4 million in 2024, primarily due to favorable mix, the impact of lower sales volumes and productivity gains net of inflation.

Selling, general and administrative expense increased by $7.3 million, or 35.3%, to $28.0 million in 2024, primarily due to higher compensation and benefits, and higher engineering costs associated with the U.S.

Currency redesign program.

Operating profit increased by $2.6 million, or 14.8%, to $20.2 million in 2024, reflecting favorable mix of $5.0 million, or 28.4%, partially offset by lower volumes of $2.8 million, or 15.9%.

Sales increased by $19.0 million, or 8.2%, to $250.8 million in 2024, reflecting the sales benefit from the OpSec acquisition of $20.5 million, or 8.8%, partially offset by lower core sales of $1.0 million, or 0.4%.

• Banknote and security product sales decreased by $2.0 million, or 0.9%, to $227.5 million in 2024, reflecting lower core sales predominantly driven by lower volumes in international markets impacted by the timing of shipments, and unfavorable foreign currency translation, as the Swedish krona weakened against the U.S.

• Authentication products and solutions sales increased by $21.0 million to $23.3 million in 2024, primarily driven by the sales benefit from the OpSec acquisition.

Cost of sales increased by $12.3 million, or 8.8%, to $151.5 million in 2024, primarily due to the impact of the OpSec acquisition, and higher material and other manufacturing costs, partially offset by productivity gains, favorable mix, and the impact of lower sales volumes.

Selling, general and administrative expense increased by $14.8 million, or 36.7%, to $55.1 million in 2024, primarily due to higher compensation and benefits, higher engineering costs associated with the U.S.

Currency redesign program, and the impact of the OpSec acquisition.

Operating profit decreased by $8.1 million, or 15.5%, to $44.2 million in 2024, reflecting higher compensation, benefits and engineering costs of $7.3 million, or 13.9%, the impact of the OpSec acquisition of $5.4 million, or 10.3%, lower sales volumes of $4.7 million, or 9.1%, and higher material and other manufacturing costs net of favorable pricing of $3.6 million, or 6.8%, partially offset by productivity gains of $8.8 million, or 16.8%, and favorable mix of $4.6 million, or 8.8%.

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

Liquidity and Capital Resources

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2024 2023

7 unchanged sentences

At any given time, and from time to time, we may be evaluating one or more of these opportunities, although we cannot assure you if or when we will consummate any such transactions.

Our current cash balance, together with cash we expect to generate from future operations along with our borrowings available under our revolving credit facility and our term facility, is expected to be sufficient to finance our short- and long-term capital requirements.

In the three months ended March 31, 2024, we drew down $30.0 million and repaid $5.0 million on our Revolving Facility.

Our current cash balance, together with cash we expect to generate from future operations along with our borrowings available under our Revolving Facility and our term facility, is expected to be sufficient to finance our short- and long-term capital requirements.

In the six months ended June 30, 2024, we drew down $280.0 million and repaid $65.0 million on our Revolving Facility.

Operating Activities

Cash provided by operating activities was $9.5 million in the first three months of 2024, as compared to $35.5 million during the same period last year.

Cash provided by operating activities was $66.3 million in the first six months of 2024, as compared to $95.0 million during the same period last year.

The decrease in cash provided by operating activities was primarily driven by increased working capital requirements.

Investing Activities

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

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

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

Cash used for investing activities was $12.5 million in the first three months of 2024, as compared to $4.0 million in the comparable period last year.

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 $291.1 million in the first six months of 2024, as compared to $8.5 million in the comparable period last year.

The increase in cash used for investing activities was primarily driven by the acquisition of OpSec.

Financing Activities

Cash provided by (used for) financing activities consists primarily of d ividend payments to shareholders, repayments of indebtedness, proceeds from the issuance of long-term debt and debt issuance cost on new credit facilities .

Cash provided by financing activities was $10.6 million during the first three months of 2024 compared to cash used for financing activities of $46.6 million in the comparable period last year.

The increase in cash provided by financing activities was primarily driven by lower net transfers to Crane, partially offset by lower debt proceeds and higher dividend payments.

Cash provided by (used for) financing activities consists primarily of d ividend payments to shareholders, repayments of indebtedness, and proceeds from our credit facilities .

Cash provided by financing activities was $190.2 million during the first six months of 2024 compared to cash used for financing activities of $43.7 million in the comparable period last year.

The increase in cash provided by financing activities was primarily driven by higher net proceeds from the Revolving Facility used to fund the acquisition of OpSec.

Recent Accounting Pronouncements

3 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis