What changed in Crane NXT, Co.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Crane NXT, Co.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+200 added−365 removedSource: 10-K (2024-02-22) vs 10-K (2023-03-01)
Top changes in Crane NXT, Co.'s 2023 10-K
200 paragraphs added · 365 removed · 126 edited across 7 sections
- Item 7. Management's Discussion & Analysis+92 / −185 · 56 edited
- Item 1A. Risk Factors+53 / −95 · 40 edited
- Item 1. Business+45 / −72 · 22 edited
- Item 5. Market for Registrant's Common Equity+3 / −5 · 2 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+5 / −4 · 4 edited
Item 1. Business
Business — how the company describes what it does
22 edited+23 added−50 removed4 unchanged
Item 1. Business
Business — how the company describes what it does
22 edited+23 added−50 removed4 unchanged
2022 filing
2023 filing
Biggest changeUpon 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.
Biggest changeAs 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.
Reportable Segments For additional information on recent business developments and other information about us and our business, please refer to the information set forth under the captions, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7 of this report, as well as in Part II, Item 8 under Note 3, “Segment Information,” in the Notes to Consolidated Financial Statements for sales, operating profit and assets employed by each segment.
Reportable Segments For additional information on recent business developments and other information about us and our business, please refer to the information set forth under the captions, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7 of this report, as well as in Part II, Item 8 under Note 3, “Segment Information,” in the Notes to Consolidated and Combined Financial Statements for sales, operating profit and assets employed by each segment.
From time to time, however, we do engage in litigation to protect our intellectual property. Raw Materials Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics, cotton, flax and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world.
From time to time, however, we do engage in litigation to protect our intellectual property. Raw Materials Our manufacturing operations employ a wide variety of raw materials, including steel, copper, electronic components, aluminum, plastics, cotton, flax and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world.
Code of Ethics and the charters and a brief description of each of the Audit Committee, the Management Organization and Compensation Committee and the Nominating and Governance Committee. These items are available in the “Investors – Corporate Governance” section of our website at www.craneco.com. The content of our website is not part of this report. 12
Code of Ethics and the charters and a brief description of each of the Audit Committee, the Management Organization and Compensation Committee and the Nominating and Governance Committee. These items are available in the “Investors – Corporate Governance” section of our website at www.cranenxt.com. The content of our website is not part of this report. 10
Although market forces have at times , including in 2022, caused increases in the costs of key raw materials, there have been no raw materials shortages that have had a material adverse impact on our business. We believe that we will generally be able to obtain adequate supplies of major raw material requirements or reasonable substitutes at acceptable costs.
Although market forces have at times, includin g in 2023, caused increases in the costs of key raw materials, there have been no raw materials shortages that have had a material adverse impact on our business. We believe that we will generally be able to obtain adequate supplies of major raw material requirements or reasonable substitutes at acceptable costs.
The address of the SEC’s website is www.sec.gov. We also make our filings available free of charge through our Internet website, as soon as reasonably practicable after filing such material electronically with, or furnishing such material, to the SEC. Also posted on our website are our Corporate Governance Guidelines, Standards for Director Independence, Crane Holdings, Co.
We also make our filings available free of charge through our Internet website, as soon as reasonably practicable after filing such material electronically with, or furnishing such material, to the SEC. Also posted on our website are our Corporate Governance Guidelines, Standards for Director Independence, Crane NXT, Co.
“Risk Factors.” For further discussion of our environmental matters, please refer to Part II, Item 8 under Note 12, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements. Human Capital Resources To remain a leading manufacturer of highly engineered industrial products, it is important that we continue to attract, develop, and retain exceptional talent across our global enterprise.
“Risk Factors.” For further discussion of our environmental matters, please refer to Part II, Item 8 under Note 12, “Commitments and Contingencies,” in the Notes to Consolidated and Combined Financial Statements. Human Capital Resources To remain a premier industrial technology company, it is important that we continue to attract, develop, and retain exceptional talent across our global enterprise.
The Company has a diverse global workforce located in 34 countries, spanning six continents. At December 31, 2022, we employed approximately 11,000 persons worldwide, of which substantially all were full time employees. In the United States, we employed approximately 5,900 people across 100 locations.
The Company has a diverse global workforce located in 29 countries, spanning six continents. At December 31, 2023, we employed approximately 4,000 persons worldwide, of which substantially all were full time employees. In the United States, we employed approximately 2,000 people across 56 locations.
As a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws and regulations governing government contracts differ from those governing private contracts. For example, some government contracts require disclosure of cost and pricing data and impose certain sourcing conditions that are not applicable to private contracts.
The laws and regulations governing government contracts differ from those governing private contracts. For example, some government contracts require disclosure of cost and pricing data and impose certain sourcing conditions that are not applicable to private contracts.
CPI provides electronic equipment and associated software leveraging extensive and proprietary core capabilities with various detection and sensing technologies for applications including payment verification and authentication. CPI also provides automation solutions, field service solutions, and remote diagnostics and productivity enhancing software solutions.
Crane NXT, Co. operates through two reportable segments. Crane Payment Innovations 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.
At December 31, 2022, approximately 4% of our U.S. employees were represented by a union under a collective bargaining agreement. Employees based in some foreign countries may, from time to time, be represented by works councils or unions or subject to collective bargaining agreements. We consider our relations with our employees to be good.
Employees based in some foreign countries may, from time to time, be represented by works councils or unions or subject to collective bargaining agreements. We consider our relations with our employees to be good.
For a further discussion of risks related to raw materials, please refer to Item 1A. “Risk Factors.” Government Contracts We have agreements relating to the sale of products to government entities, primarily involving products in our Aerospace & Electronics and Payment & Merchandising Technologies segments and, to a lesser extent, our Process Flow Technologies segment.
For a further discussion of risks related to raw materials, please refer to Item 1A. “Risk Factors.” Government Contracts We have agreements relating to the sale of products to government entities, primarily involving products in our Currency segments. As a result, we are subject to various statutes and regulations that apply to companies doing business with the government.
Our regular IC cadence includes constructive reviews and various talent and leadership development initiatives conducted by the executive management team and provided throughout an associate’s career. We are also committed to an inclusive and high-performance culture at all levels of the organization, based on trust and respect.
Our regular IC cadence includes constructive reviews and various talent and leadership development initiatives conducted by the executive management team and provided throughout an associate’s career.
Key R&D and manufacturing facilities are located in the United States, the United Kingdom, Mexico, Japan, Switzerland, and Germany, with additional sales offices across the world. Crane Currency is a pioneer in advanced, proprietary micro-optics technology 9 for securing physical products.
Key research and development and manufacturing facilities are located in the United States, the United Kingdom, Mexico, Japan, and Germany, with additional sales offices across the world. Crane Currency Crane Currency provides advanced security solutions based on proprietary technology for securing physical products, including banknotes, consumer goods and industrial products. Facilities are located in the United States, Sweden and Malta.
As such, our revenues depend on numerous unpredictable factors, including changes in market demand, general economic conditions, customer capital spending, timing and amount of contract awards and credit availability.
Our products are sold into primary end markets which include payment automation solutions, banknote design and production, along with a wide range of consumer related and financial services end markets. As such, our revenues depend on numerous unpredictable factors, including changes in market demand, general economic conditions, customer capital spending, timing and amount of contract awards and credit availability.
Because of the diversity of products manufactured and sold, our businesses typically have a different set of competitors in each geographic area and end market in which they participate. Accordingly, it is not possible to estimate the number of competitors, or precise market share; however, we believe that we are a principal competitor in most of our markets.
Other Matters Relating to Our Business as a Whole Competitive Conditions Our businesses participate in markets that are highly competitive. Because of the diversity of products manufactured and sold, our businesses typically have a different set of competitors in each geographic area and end market in which they participate.
“Risk Factors.” 11 Available Information We file annual, quarterly and current reports and amendments to these reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC.
For a discussion of risks related to employee relations, please refer to Item 1A. “Risk Factors.” Available Information We file annual, quarterly and current reports and amendments to these reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”).
The manufacture and production of our products requires the use of a variety of tools, equipment, materials, and supplies. At Crane, we are strongly committed to the health and safety of our associates and strive to continuously adhere to global regulatory safety requirements and to reduce the incidence and severity of job-related injuries.
At Crane NXT, we are strongly committed to the health and safety of our associates and strive to continuously adhere to global regulatory safety requirements and to reduce the incidence and severity of job-related injuries. We utilize strict compliance protocols, training programs, effective risk management practices, and sound science in our operations to minimize risk to our associates.
“Risk Factors.” 10 Environmental Compliance and Climate Change We are regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions.
“Risk Factors.” Environmental Compliance and Climate Change We are regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts that would be considered hazardous waste or otherwise harmful to the environment if not properly handled or maintained.
Our primary basis of competition is providing high quality products, with technological differentiation, at competitive prices, with superior customer service and timely delivery.
Accordingly, it is not possible to estimate the number of competitors, or precise market share; however, we believe that we are a principal competitor in most of our markets. Our primary basis of competition is providing high quality products, with technological differentiation, at competitive prices, with superior customer service and timely delivery.
Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts that would be considered hazardous waste or otherwise harmful to the environment if not properly handled or maintained. Accordingly, continued compliance with these existing laws has not had a material impact on our capital expenditures or earnings.
Accordingly, continued compliance with these existing laws has not had a material impact on our capital expenditures or earnings. For further discussion of environmental related risks, please refer to Item 1A.
We continuously evaluate our portfolio, pursue acquisitions that complement our existing businesses and selectively divest businesses where appropriate. 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 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.
Removed
Item 1. Business General We are a diversified manufacturer of highly engineered industrial products. Our operations are currently comprised of four segments: Aerospace & Electronics (“A&E”), Process Flow Technologies (“PFT”), Payment & Merchandising Technologies (“P&MT”), and Engineered Materials (“EM”).
Added
Item 1. Business General Crane NXT is a premier industrial technology company that provides proprietary and trusted technology solutions to secure, detect, and authenticate what matters most to its customers.
Removed
Our primary end markets include aerospace, defense and space, process industries, non-residential and municipal construction, payment automation solutions, banknote design and production, along with a wide range of general industrial and certain consumer related end markets. We have been committed to the highest standards of business conduct since inception in 1855 when our founder, R.T.
Added
The company is a pioneer in advanced, proprietary micro-optics technology for securing physical products, and its sophisticated electronic equipment and associated software leverages proprietary core capabilities with detection and sensing technologies. We are comprised of two reporting segments: Crane Payment Innovations (“CPI”) and Crane Currency.
Removed
Crane, resolved “to conduct my 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.” 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.
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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.
Removed
We operate a comprehensive set of business processes, philosophies and operational excellence tools to drive continuous improvement throughout our businesses (collectively, the Crane Business System).
Added
Recent Transactions Separation 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.
Removed
Beginning with a core value of integrity, we incorporate “Voice of the Customer” teachings (specific processes designed to capture our customers’ requirements) and a broad range of tools into a disciplined strategy deployment process to continuously improve safety, quality, delivery, cost and growth.
Added
Following the consummation of the Separation, our common stock is listed under the symbol “CXT” on the New York Stock Exchange.
Removed
An embedded intellectual capital development process helps ensure that we attract, develop, promote and retain talent to drive continuity and repeatable results.
Added
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.
Removed
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”).
Added
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.
Removed
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”).
Added
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.
Removed
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”).
Added
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.
Removed
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.
Added
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.
Removed
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”.
Added
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).
Removed
The “Crane Co.” name has been reserved for future use by Crane Holdings.
Added
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.
Removed
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”).
Added
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 7 have been allocated to the other party.
Removed
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- 7 term borrowings and cash on hand.
Added
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.
Removed
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.
Added
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.
Removed
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. 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.
Added
Transactions under this agreement did not have a material impact to our financial statements and services were substantially completed as of December 31, 2023.
Removed
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.
Added
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.
Removed
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.
Added
Although enforceable as between the parties, the Tax Matters Agreement will not be binding on the Internal Revenue Service or other tax authorities.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
We are a leader in a number of distinct areas including materials and surface technology applied for anti-counterfeiting applications, differentiated capabilities in the design and manufacturing of detection systems, and image recognition software 8 built on advance algorithms to authenticate products.
Removed
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. de C.V. (“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.
Added
We are also committed to an inclusive and high-performance culture at all levels of the organization, based on trust and respect. 9 The manufacture and production of our products requires the use of a variety of tools, equipment, materials, and supplies.
Removed
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.
Added
The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. The address of the SEC’s website is www.sec.gov.
Removed
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.
Removed
Aerospace & Electronics The Aerospace & Electronics segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace, and the military aerospace, defense and space markets. The commercial market and military market accounted for 57% and 43%, respectively, of total segment sales in 2022.
Removed
Sales to original equipment manufacturers ("OEMs") and aftermarket customers were 72% and 28%, respectively, in 2022. We provide mission critical systems that require high reliability and high accuracy, such as pressure sensors for aircraft engine control, aircraft braking systems for fighter jets, power conversion solutions for spacecraft and lubrication systems for the harshest and most hazardous environmental conditions.
Removed
Crane has differentiated proprietary technology and know-how supporting many of the fundamental technologies that are supporting solutions where we are often sole source in the areas where we compete, with a track record for performance, reliability and continued innovation.
Removed
A&E’s integrated capabilities include the following: • Power Solutions: Provides enabling technology to accelerate electrification of air, land, space and sea vehicles and systems. • Sensing Systems: Provides components and systems for condition and position sensing, and pressure and flow measurement, with high-accuracy, reliability and engineering to excel in rugged aerospace environments. 8 • Fluid & Thermal Management: Designs and manufactures positive displacement pumps, centrifugal pumps and true mass flowmeters for aerospace and defense applications. • Landing Systems: Provides hydraulic and electric brake control systems with antiskid and autobrake functionality, as well as electronic and hydraulic subsystems for landing gear control. • Microwave Solutions: Designs and manufactures high-performance RF and IF components and millimeter-wave systems and subsystems for defense, space and commercial end-use customers.
Removed
A&E has a solid long term growth profile driven by positions on market leading platforms, recent new program wins and continued investment in technology readiness.
Removed
The segment is also positioned to benefit from underlying market growth driven by increasing new commercial aircraft deliveries, air passenger travel growth, defense investment, ongoing maintenance, repair and overhaul organizations (“MRO”) requirements and emerging applications in the space market, as well as a strong trend driving greater electrification for aerospace and defense applications.
Removed
Our unique position to drive sustained growth is driven by differentiated technology investment focused on high-growth market segments, including Low Earth Orbit satellite constellations, next-generation aircraft engines, advanced ground and sea-based radar systems, as well as high-power and bi-directional power conversion for numerous emerging commercial and military applications, including more-electric and hybrid-electric ground vehicles and hybrid-electric and pure electric-propulsion aircraft.
Removed
Facilities are located in the United States, Taiwan, and France. Process Flow Technologies The Process Flow Technologies segment is a provider of highly engineered fluid handling equipment for mission critical applications that require high reliability.
Removed
The segment is comprised of Process Valves and Related Products, Pumps and Systems and Commercial Valves. • Process Valves and Related Products: Manufactures a wide range of on/off isolation valves, including check valves, sleeved plug valves, lined valves, process ball valves, high performance butterfly valves, bellows sealed globe valves, aseptic and industrial diaphragm valves and multi / quarter-turn valves actuation.
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Other related products include lined pipe, fittings and hoses, air operated diaphragm and peristaltic pumps, instrumentation and sampling systems, valve positioning and control systems, valve diagnostic and calibration systems. Across the portfolio, the primary focus is on chemical, pharmaceutical and general industrial end markets.
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Manufacturing facilities, along with sales and service centers, are located across North America, Europe, the Middle East, Asia and Australia. • Pumps and Systems: Manufactures pumps products for water and wastewater applications, primarily in the United States municipal and industrial markets. • Commercial Valves: Manufactures valves and related products for the non-residential construction, gas utility and municipal markets.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
40 edited+13 added−55 removed32 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
40 edited+13 added−55 removed32 unchanged
2022 filing
2023 filing
Biggest changeThe adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows. • The COVID-19 pandemic had and may continue to have an adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve.
Biggest changeThe adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs (including in Mexico where our facility operates under the Mexican Maquiladora program, which provides for reduced tariffs and eased import regulations) or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows.
A cyber-attack on our information systems technology or those of our partners, vendors, suppliers could adversely affect our ability to process orders, maintain proper levels of inventory, collect accounts receivable and pay expenses; all of which could have an adverse effect on our results of operations, financial condition and cash flows.
A cyber-attack on our information systems technology or those of our partners, vendors, or suppliers could adversely affect our ability to process orders, maintain proper levels of inventory, collect accounts receivable and pay expenses, all of which could have an adverse effect on our results of operations, financial condition and cash flows.
The competitors in many of our business segments can be expected in the future to improve technologies, reduce costs and develop and 17 introduce new products. The ability of our business segments to achieve similar advances will be important to our competitive positions.
The competitors in many of our business segments can be expected in the future to improve technologies, reduce costs and develop and introduce new products. The ability of our business segments to achieve similar advances will be important to our competitive positions.
This business is also directly and indirectly exposed to changes in government regulations; for example, changes in gaming regulations could influence the spending patterns of our casino operator customers, or changes in anti-money laundering regulations could result in additional technical requirements for our products.
Our business is directly and indirectly exposed to changes in government regulations; for example, changes in gaming regulations could influence the spending patterns of our casino operator customers, or changes in anti-money laundering regulations could result in additional technical requirements for our products.
In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item.
In certain circumstances, export control and economic sanctions, and other trade-related regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item.
In addition, our operations outside the U.S. are subject to the risks associated with conducting business internationally, including, but not limited to: • economic and political instability, including the risk of geopolitical conflict or territorial incursions, in the countries and regions in which we operate; • the risks of fluctuations in foreign currency exchange rates, primarily the euro, the British pound and the Japanese yen, could adversely affect our reported results, primarily in our Process Flow Technologies and Payment & Merchandising Technologies segments, as amounts earned in other countries are translated into U.S. dollars for reporting purposes; and • changes in the U.S. government's approach to trade policy, including in some cases renegotiating and terminating certain existing bilateral or multi-lateral trade agreements.
In addition, our operations outside the U.S. are subject to the risks associated with conducting business internationally, including, but not limited to: • economic and political instability, including the risk of geopolitical conflict or territorial incursions, in the countries and regions in which we operate; • the risks of fluctuations in foreign currency exchange rates, primarily the euro, the British pound, the Japanese yen, and the Swedish krona, could adversely affect our reported results, as amounts earned in other countries are translated into U.S. dollars for reporting purposes; and • changes in the U.S. government's approach to trade policy, including in some cases renegotiating and terminating certain existing bilateral or multi-lateral trade agreements.
Competitive pressures, including those discussed above, could cause one or more of our business segments to lose market share or could result in significant price erosion, either of which could have an adverse effect on our financial condition, results of operations and cash flows. Fluctuations in interest rates could affect our financial results.
Competitive pressures, including those discussed above, could cause one or more of our business segments to lose 14 market share or could result in significant price erosion, either of which could have an adverse effect on our financial condition, results of operations and cash flows.
Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks, including credit market conditions, trade policies, levels of consumer and business confidence, commodity prices and availability, inflationary pressures, exchange rates, levels of government spending and deficits, political conditions, and other challenges that could affect the global economy including impacts associated with any economic sanctions imposed against Russia, including any territory within the Ukraine that Russia has occupied, in response to their invasion of the Ukraine.
Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks, including credit market conditions, trade policies, levels of consumer and business confidence, commodity prices and availability, inflationary pressures, exchange rates, levels of government spending and deficits, political conditions, extraordinary public health issues such as large-scale health epidemics or pandemics and other challenges that could affect the global economy including impacts associated with any economic sanctions imposed against Russia, including any territory within the Ukraine that Russia has occupied, in response to their invasion of the Ukraine.
Information systems and technology networks failures and breaches in data security, personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of our privacy and security policies with respect to such information, could adversely affect us.
Additionally, a disruption within our supply chain network could adversely affect our results of operations. 11 Information systems and technology networks failures and breaches in data security, personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of our privacy and security policies with respect to such information, could adversely affect us.
In addition, our results in this segment are subject to significant variability due to the timing and size of contract awards by central banks for banknote production and actual order rates, particularly with the U.S. government. This business regularly develops and markets new products.
In addition, our results in Currency are subject to significant variability due to the timing and size of contract awards by central banks for banknote production and actual order rates, particularly with the U.S. government.
We could incur significant and/or unexpected costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters. Our inability to protect our intellectual property could have an adverse effect on our financial condition, results of operations and cash flows. We may be unable to identify or to complete acquisitions, or to successfully integrate the businesses we acquire.
We could incur significant and/or unexpected costs in our efforts to successfully avoid, manage, defend and litigate intellectual property matters. Our inability to protect our intellectual property could have an adverse effect on our financial condition, results of operations and cash flows.
In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs of warranty or breach of contract claims if our products have defects in manufacture or design or they do not meet contractual specifications.
We may in the future incur liability if product liability lawsuits against us are successful. In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs of warranty or breach of contract claims if our products have defects in manufacture or design or they do not meet contractual specifications.
A substantial portion of our sales is concentrated in industries that are cyclical in nature or subject to market conditions which may cause customer demand for our products to be volatile.
A substantial portion of our sales is concentrated in industries that are cyclical in nature or subject to market conditions which may cause customer demand for our products to be volatile. Reductions in demand by these industries would reduce the sales and profitability of our business.
Failure to comply with any of these and similar regulations could result in civil and criminal liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.
We are also subject to the anti-bribery laws of other jurisdictions. Failure to comply with any of these and similar regulations could result in civil and criminal liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.
Deterioration in any of these economic factors could result in sales and profits falling below our current outlook. • Our Payment & Merchandising Technologies segment could be affected by sustained weakness in certain geographic markets or certain end markets such as gaming, retail or banking, as well as low employment levels, office occupancy rates and factors affecting vending operator profitability such as higher fuel, food and equipment financing costs; results could also be impacted by unforeseen advances in payment processing technologies.
Our CPI business could be affected by sustained weakness in certain geographic markets or certain end markets such as gaming, retail or banking, as well as low employment levels, office occupancy rates and factors affecting vending operator profitability such as higher fuel, food and equipment financing costs; results could also be impacted by unforeseen advances in payment processing technologies.
We deploy a continuous, company-wide process to source our components and raw materials from fewer suppliers, and to obtain parts from suppliers in low-cost countries where possible.
We deploy a continuous, company-wide process to secure an adequate supply of raw materials at prices which are favorable to us, to source our components and raw materials from fewer suppliers, and to obtain parts from suppliers in low-cost countries where possible.
In addition, we cannot provide assurance that our costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices will not exceed our estimates or adversely affect our financial condition, results of operations and cash flows.
In addition, we cannot provide assurance that our costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices will not exceed our estimates or adversely affect our financial condition, results of operations and cash flows. • We face an inherent business risk of exposure to product liability or other claims in the event our products are alleged to be defective or the use of our products is alleged to have resulted in harm to others or to property.
Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have an adverse effect on our financial condition and results of operations. 16 Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations, cash flows and reputation.
Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have an adverse effect on our financial condition and results of operations. Additional tax expense or exposures could affect our financial condition, results of operations and cash flows.
Any liabilities not covered by insurance or that exceed our established reserves could have an adverse effect on our financial condition, results of operations and cash flows.
Any liabilities not covered by insurance or that exceed our established reserves could have an adverse effect on our financial condition, results of operations and cash flows. We may be unable to improve productivity, reduce costs and align manufacturing capacity with customer demand.
Our ability to achieve our growth goals depends in part upon our ability to identify and successfully acquire, finance and integrate companies and businesses at appropriate prices and realize anticipated cost savings. Our future results of operations and financial condition could be adversely impacted by intangible asset impairment charges.
Our ability to achieve our growth goals depends in part upon our ability to identify and successfully acquire, finance and integrate companies and businesses at appropriate prices and realize anticipated cost savings.
We must also comply with various health and safety regulations in the U.S. and abroad in connection with our operations. The costs of compliance with these regulations results in ongoing costs that may increase over time.
We must also comply with various health and safety regulations in the U.S. and abroad. The costs of compliance with these regulations results in ongoing costs that may increase over time. Failure to comply with any of these laws could result in civil and criminal liability, substantial monetary and non-monetary penalties and damage to our reputation.
In addition, we are subject to the Foreign Corrupt Practices Act, which prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business, or securing any improper advantage. We are also subject to the anti-bribery laws of other jurisdictions.
A failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting. We are subject to the Foreign Corrupt Practices Act, which prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business, or securing any improper advantage.
Existing trade secret, patent, trademark and copyright laws offer only limited protection. Our patents could be invalidated or circumvented. In addition, others may develop substantially equivalent, or superseding proprietary technology, or competitors may offer equivalent non-infringing products in competition with our products, thereby substantially reducing the value of our proprietary rights.
In addition, others may develop substantially equivalent, or superseding proprietary technology, or competitors may offer equivalent non-infringing products in competition with our products, thereby substantially reducing the value of our proprietary rights.
Any excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill) are generally amortized over the useful life of such assets.
Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Any excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill) are generally amortized over the useful life of such assets.
While we have taken actions aimed at securing an adequate supply of raw materials at prices which are favorable to us, if the prices of critical components and raw materials continue to increase or we are unable to pass increased costs of components and raw materials to customers, our operating profit could be adversely affected.
If the prices of critical components and raw materials continue to increase or we are unable to pass increased costs of components and raw materials to customers, our results of operations could be adversely affected.
While we maintain insurance coverage with respect to certain liability claims, that insurance coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost.
We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them. • While we maintain insurance coverage with respect to certain liability claims, that insurance coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost.
Delays in the product development process, the inability of new products to meet targeted performance measures, or the discovery of a successful counterfeit of our security technology products could hurt future sales.
Any delay in the development or launch of a new product could result in our not being the first to market, which could compromise our competitive position. The inability of new products to meet targeted performance measures, or the discovery of a successful counterfeit of our security technology products, could cause reputational harm and hurt future sales.
Similarly, credit restrictions may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy.
Similarly, credit restrictions may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. Demand for our products is variable and subject to factors beyond our control, which could result in unanticipated events significantly impacting our results of operations.
We conduct a substantial portion of our business outside the U.S. and face risks inherent in non-domestic operations. Net sales by destination outside the U.S. were 41% of our consolidated amounts in 2022. We expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future.
We have experienced and expect to continue to experience some of these types of cybersecurity threats and incidents, which could be material in the future. We conduct a substantial portion of our business outside the U.S. and face risks inherent in non-domestic operations. Net sales by destination outside the U.S. were 44% of our consolidated amounts in 2023.
We have evaluated, and expect to continue to evaluate, a wide array of potential acquisition transactions.
We may be unable to identify or to complete acquisitions, or to successfully integrate the businesses we acquire. We have evaluated, and expect to continue to evaluate, a wide array of potential acquisition transactions.
We have seen a period of sustained price increases for components and raw materials that may continue into the future as demand increases and supply may remain constrained, which has resulted in, and may continue to result in, increased costs for us.
Our costs are affected by price fluctuations of metals such as steel and copper as well as other raw materials such as electronic components, cotton and flax. We have seen a period of sustained price increases for components and raw materials, which has resulted in, and may continue to result in, increased costs for us.
Any delay in the development or launch of a new product could result in our not being the first to market, which could compromise our competitive position. Further, the development and introduction of new products may require us to make investments in specialized personnel and capital equipment, increase marketing efforts and reallocate resources away from other uses.
Further, the development and introduction of new products may require us to make investments in specialized personnel and capital equipment, increase marketing efforts and reallocate resources away from other uses. We also may need to modify our systems and strategy in light of new products that we develop.
We compete with other manufacturing businesses for highly qualified employees in the countries in which we operate, and we may not be able to retain our personnel or hire and retain additional personnel needed for us to sustain and grow our business as planned.
If we are unable to develop and introduce new products in a cost-effective manner or otherwise manage effectively the operations related to new products, our financial condition, results of operations and cash flows could be adversely impacted. 12 We compete with other industrial technology businesses for highly qualified employees in the countries in which we operate, and we may not be able to retain our personnel or hire and retain additional personnel needed for us to sustain and grow our business as planned.
We may be unable to improve productivity, reduce costs and align manufacturing capacity with customer demand. We are committed to continuous productivity improvement, and we continue to evaluate opportunities to reduce costs, simplify or improve global processes, and increase the reliability of order fulfillment and satisfaction of customer needs.
We are committed to continuous productivity improvement, and we continue to evaluate opportunities to reduce costs, simplify or improve global processes, and increase the reliability of order fulfillment and satisfaction of customer needs. In order to operate more efficiently and control costs, from time to time we execute restructuring activities, which include workforce reductions and facility consolidations.
Variances in related estimates could have an adverse effect on our financial condition, results of operations and cash flows. Our business could be harmed if we are unable to protect our intellectual property. We rely on a combination of trade secrets, patents, trademarks, copyrights and confidentiality procedures to protect our products and technology.
Our business could be harmed if we are unable to protect our intellectual property. We rely on a combination of trade secrets, patents, trademarks, copyrights and confidentiality procedures to protect our products and technology. Existing trade secret, patent, trademark and copyright laws offer only limited protection. Our patents could be invalidated or circumvented.
Our operations are subject to extensive environmental and health and safety laws and regulations in the jurisdictions in which they operate, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of solid and hazardous wastes.
In addition, we may be required to pay damage awards, penalties or settlements, or become subject to injunctions or other equitable remedies, that could cause reputational harm and have a material adverse effect on our business, financial condition, results of operations and cash flows. • Our operations are subject to extensive environmental and health and safety laws and regulations, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of solid and hazardous wastes.
A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, including enhanced or expanded unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other government regulations.
Our business segments and corporate offices are dependent upon highly qualified personnel, and we generally are dependent upon the continued efforts of key management employees. A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, and other government regulations.
Nonetheless, reduced availability or interruption in supplies, whether resulting from more stringent regulatory requirements; supplier financial condition; increases in duties and tariff costs; disruptions in transportation; an outbreak of a severe public health pandemic, such as the COVID-19 pandemic; severe weather; the occurrence or threat of wars, including Russia’s invasion of Ukraine or other conflicts, could have an adverse effect on our financial condition, results of operations and cash flows.
If we are unable to timely source these components or raw materials, whether resulting from more stringent regulatory requirements; supplier financial condition; disruptions in transportation; an outbreak of a severe public health pandemic; severe weather; or the occurrence or threat of wars, including Russia’s invasion of Ukraine or other conflicts, our operations may be disrupted, or we could experience a delay or temporary stoppage in certain of our manufacturing operations.
The prices of our components and raw materials could fluctuate dramatically, which may adversely affect our profitability. The costs of certain components and raw materials that are critical to our profitability can be volatile which can have a significant impact on our profitability.
Fluctuation in the prices of, or our ability to source, our components and raw materials, and delays in the distribution of our products could adversely affect our results of operations. Our operations require significant amounts of necessary components and raw materials that are critical to our profitability and can fluctuate in price.
As of December 31, 2022, we had goodwill and other intangible assets, net of accumulated amortization, of $1,944.1 million, which represented approximately 44% of our total assets. Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired.
Our future results of operations and financial condition could be adversely impacted by intangible asset impairment charges. As of December 31, 2023, we had goodwill and other intangible assets, net of accumulated amortization, of $1,150.1 million, which represented approximately 54% of our total assets.
Removed
See “Specific Risks Related to Our Business Segments.” Our ability to source components and raw materials from our suppliers could be disrupted or delayed in our supply chain which could adversely affect our results of operations. Our operations require significant amounts of necessary components and raw materials.
Added
We expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future.
Removed
Due to a variety of global factors, our business has been experiencing, and may continue to experience, supply chain disruptions from an insufficient availability of certain components and raw materials and substantial freight delays in obtaining them.
Added
Our businesses are subject to governmental regulation; failure to comply with those regulations, as well as changes in those regulations, could adversely affect our financial condition, results of operations, cash flows and reputation. We are required to comply with various import and export control laws, which may affect our transactions with certain customers.
Removed
If we are unable to timely source these components or raw materials, our operations may be disrupted, or we could experience a delay or temporary stoppage in certain of our manufacturing operations. We believe that our supply management and production practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices.
Added
Our operations expose us to the risk of litigation, claims and investigations, including those related to product liability and warranties, and employee, commercial, intellectual property and environmental matters, that could adversely affect our 13 financial condition, results of operations, cash flows and reputation.
Removed
The costs in our business segments are affected by fluctuations in the price of metals such as steel and copper as well as other raw materials such as resin, electronic components, cotton, and flax.
Added
We may not have sufficient insurance coverage or indemnification rights to cover such claims. • Defending these lawsuits and becoming involved in these investigations may divert our management’s attention, and may cause us to incur significant expenses.
Removed
The COVID-19 pandemic had and may continue to have an adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve.
Added
For example, we recorded pre-tax restructuring charges in 2023 and 2022 related to our 2022 restructuring program.
Removed
The COVID-19 pandemic continues to present business challenges, and we continue to experience impacts related to COVID-19, primarily in disruptions in global supply chains, delays in supplier deliveries, higher raw material prices, delays in deliveries to customers, travel restrictions, site access and quarantine restrictions, and employee absences.
Added
We are subject to risks related to the Separation that could negatively impact our results including not obtaining the intended tax treatment of the Separation transaction, failure of Crane Company to perform under the various transaction agreements and actual or potential conflicts of interest with Crane Company. • In connection with the Separation, we received an Internal Revenue Service (the “IRS”) ruling (the “IRS Ruling”) on certain issues relevant to the qualification of the distribution under sections 368(a)(1)(D) and 355 of the Internal Revenue Code, based on certain facts and representations set forth in such request.
Removed
Because the severity, 13 magnitude and duration of the COVID-19 pandemic and its continuing economic consequences remain uncertain and rapidly changing, it is difficult to predict the extent of the pandemic’s impact on our operations and financial performance.
Added
The IRS Ruling does not address all of the requirements relevant to the qualification of the distribution for the intended tax treatment. It was a condition to the completion of the distribution that Crane Holdings, Co. receive a tax opinion regarding the tax treatment of the distribution (the “Tax Opinion”).
Removed
We have experienced and expect to continue to experience some of these types of cybersecurity threats and incidents, which could be material in the future. Demand for our products is variable and subject to factors beyond our control, which could result in unanticipated events significantly impacting our results of operations.
Added
The Tax Opinion relied on certain facts, assumptions, representations and undertakings from us and Crane Company, including those regarding the past and future conduct of the companies’ respective businesses and other matters.
Removed
Reductions in demand by these industries would reduce the sales and profitability of the affected business segments. • In our Aerospace & Electronics segment, a significant decline in demand for air travel, or a decline in airline profitability generally, could result in reduced orders for aircraft and could also cause airlines to reduce their purchases of repair parts from our businesses.
Added
Notwithstanding the Tax Opinion, the IRS could determine that the distribution or any such related transaction is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the Tax Opinion.
Removed
In addition, our Aerospace & Electronics segment could be impacted to the extent that our major aircraft manufacturing customers encounter problems which impact their production rates and, correspondingly, reduce purchases of our products (for example, the grounding of the 737 MAX and associated suspension of 737 MAX production announced by Boeing in December 2019 reduced our sales and operating profit in 2020), or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices and/or extend payment terms; in addition, demand for military and defense products is dependent upon government spending in certain areas which can vary year to year. • Our Process Flow Technologies segment is dependent on global economic conditions, customer capital spending and commodity prices.
Added
If the distribution or any of the above referenced related transactions is determined to be taxable for U.S. federal income tax purposes, we could incur significant U.S. federal income tax liabilities. • We and Crane Company entered into certain agreements in connection with the separation transaction, including a separation and distribution agreement, a transition services agreement, a tax matters agreement, an intellectual property matters agreement and an employee matters agreement, which provide for certain obligations of each company for the benefit of the other for a period of time after the completion of the separation transaction.
Removed
In addition, our results in this segment are subject to significant variability due to the timing and size of contract awards by central banks for banknote production and actual order rates, particularly with the U.S. government. • In our Engineered Materials segment, sales and profits could be affected by declines in demand for RVs, building materials or truck trailers; results could also be impacted by unforeseen changes in capacity or price increases related to certain raw materials, in particular, resin. 14 Our businesses are subject to extensive governmental regulation; failure to comply with those regulations could adversely affect our financial condition, results of operations, cash flows and reputation.
Added
If Crane Company is unable, or otherwise fails, to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses and experience an adverse impact on our financial condition, results of operations and cash flows. • Crane Company is not restricted from competing with us.
Removed
We are required to comply with various import and export control laws, which may affect our transactions with certain customers, particularly in our Aerospace & Electronics, Process Flow Technologies and Payment & Merchandising Technology segments, as discussed more fully under “Specific Risks Relating to Our Business Segments.” In certain circumstances, export control and economic sanctions, and other trade-related regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item.
Added
If Crane Company in the future decides to engage in the type of business we conduct, it may have a competitive advantage over us, which may cause our business, financial condition and results of operations to be materially adversely affected. 15 Because of their positions with us prior to the completion of the separation transaction, certain of our executive officers and directors have a financial interest in shares of Crane Company common stock.
Removed
A failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting.
Added
Continuing ownership of shares of Crane Company common stock and equity awards could create, or appear to create, potential conflicts of interest if we and Crane Company pursue the same corporate opportunities or face decisions that could have different implications for Crane Company and us. Item 1B. Unresolved Staff Comments None
Removed
For example, compliance with regulations related to the sourcing of conflict-free minerals mined from the democratic Republic of Congo and adjoining countries could limit the pool of suppliers who can provide conflict-free minerals to us, and as a result, may cause us to incur additional expenses and may create challenges for us to obtain conflict-free minerals at competitive prices.
Removed
Our business segments and corporate offices are dependent upon highly qualified personnel, and we generally are dependent upon the continued efforts of key management employees.
Removed
The COVID-19 pandemic continues to present business challenges, and we continue to experience impacts related to COVID-19, primarily in disruptions in global supply chains, delays in supplier deliveries, higher raw material prices, delays in deliveries to customers, travel restrictions, site access and quarantine restrictions, and employee absences.
Removed
Because the severity, magnitude and duration of the COVID-19 pandemic and 15 its continuing economic consequences remain uncertain and rapidly changing, it is difficult to predict the extent of the pandemic’s impact on our operations and financial performance.
Removed
Net periodic pension (benefit) cost and pension contributions associated with our retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions and future market performance of plan assets. Total net periodic pension benefit and pension contributions were $2.3 million and $19.7 million, respectively in 2022.
Removed
The costs of our defined benefit pension plans are dependent upon various factors, including rates of return on investment assets, discount rates for future payment obligations, and expected mortality, among other things. In addition, funding requirements for benefit obligations of our pension plans are subject to legislative and other government regulatory actions.
Removed
Failure to comply with any of these laws could result in civil and criminal liability, substantial monetary and non-monetary penalties and damage to our reputation.
Removed
In order to operate more efficiently and control costs, from time to time we execute restructuring activities, which include workforce reductions and facility consolidations.
Removed
For example, we recorded pre-tax restructuring charges of $32.1 million for the 2020 repositioning program related to actions to reduce our global workforce in response to the adverse economic impact of COVID-19 and integration actions related to the Cummins-Allison acquisition. At the end of 2022, we took modest cost reduction actions in response to continued global economic uncertainty.
Removed
We could face potential product liability or warranty claims, we may not accurately estimate costs related to such claims, and we may not have sufficient insurance coverage available to cover such claims. Our products are used in a wide variety of commercial applications and certain residential applications, including, in many cases, in severe service or mission critical applications.
Removed
We face an inherent business risk of exposure to product liability or other claims in the event our products are alleged to be defective or that the use of our products is alleged to have resulted in harm to others or to property. We may in the future incur liability if product liability lawsuits against us are successful.
Removed
Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales to decline.
Removed
We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them.
Removed
We also may need to modify our systems and strategy in light of new products that we develop. If we are unable to develop and introduce new products in a cost-effective manner or otherwise manage effectively the operations related to new products, our financial condition, results of operations and cash flows could be adversely impacted.
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Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−1 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−1 removed0 unchanged
2022 filing
2023 filing
Biggest changeProperties The following is a summary of our principal facilities as of December 31, 2022: Facilities - Owned Location Aerospace & Electronics Process Flow Technologies Payment & Merchandising Technologies Engineered Materials Corporate Total Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Manufacturing United States 6 731,575 6 698,573 8 1,516,331 4 644,333 — — 24 3,590,812 Europe — — 6 753,616 3 732,713 — — — — 9 1,486,329 Other international — — 4 509,925 2 294,666 — — — — 6 804,591 6 731,575 16 1,962,114 13 2,543,710 4 644,333 — — 39 5,881,732 Non-Manufacturing United States — — 2 98,510 6 154,500 — — — — 8 253,010 Canada — — — — — — — — — — — — Europe — — 2 73,780 1 11,000 — — — — 3 84,780 Other international — — — — — — — — — — — — — — 4 172,290 7 165,500 — — — — 11 337,790 Facilities - Leased Location Aerospace & Electronics Process Flow Technologies Payment & Merchandising Technologies Engineered Materials Corporate Total Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Manufacturing United States — — 2 97,220 1 141,049 — — — — 3 238,269 Canada — — 1 20,572 — — — — — — 1 20,572 Europe 1 19,418 4 822,573 1 15,718 — — — — 6 857,709 Other international 1 63,653 2 111,594 — — — — — — 3 175,247 2 83,071 9 1,051,959 2 156,767 — — — — 13 1,291,797 Non-Manufacturing United States 2 8,348 6 186,765 51 428,795 3 78,950 3 39,875 65 742,733 Canada — — 1 11,200 5 16,327 — — — — 6 27,527 Europe 2 1,596 7 50,864 3 293,069 — — — — 12 345,529 Other international — — 18 126,367 5 20,394 — — — — 23 146,761 4 9,944 32 375,196 64 758,585 3 78,950 3 39,875 106 1,262,550 In our opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes. 21 Item 3.
Biggest changeProperties The following is a summary of our principal facilities as of December 31, 2023: Facilities - Owned Location Crane Payment Innovations Crane Currency Corporate Total Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Manufacturing United States 2 663,558 6 852,773 — — 8 1,516,331 Europe 2 242,212 1 490,501 — — 3 732,713 Other international 2 294,666 — — — — 2 294,666 6 1,200,436 7 1,343,274 — — 13 2,543,710 Non-Manufacturing United States 3 135,689 3 18,811 — — 6 154,500 Europe 1 11,000 — — — — 1 11,000 4 146,689 3 18,811 — — 7 165,500 Facilities - Leased Location Crane Payment Innovations Crane Currency Corporate Total Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Number Area (sq. ft.) Manufacturing United States — — 1 141,049 — — 1 141,049 Europe — — 1 269,098 — — 1 269,098 — — 2 410,147 — — 2 410,147 Non-Manufacturing United States 37 203,373 1 119,528 3 18,503 41 341,404 Canada 2 11,704 — — — — 2 11,704 Europe 1 20,053 — — — — 1 20,053 Other international 6 23,257 — — — — 6 23,257 46 258,387 1 119,528 3 18,503 50 396,418 In our opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes. 18
Removed
Legal Proceedings. Discussion of legal matters is incorporated by reference to Part II, Item 8 under Note 12, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements. Item 4. Mine Safety Disclosures. Not applicable. 22 Part II
Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
1 edited+0 added−1 removed0 unchanged
Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
1 edited+0 added−1 removed0 unchanged
2022 filing
2023 filing
Biggest changeItem 4. Mine Safety Disclosures Page 22 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Page 23 Item 6. Supplementary Financial Information Page 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Page 25 Item 7A.
Biggest changeItem 4. Mine Safety Disclosures Page 19 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Page 20 Item 6. [Reserved] Page 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Page 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Page 34 Item 8.
Removed
Quantitative and Qualitative Disclosures About Market Risk Page 44 Item 8. Financial Statements and Supplementary Data Page 45
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
2 edited+1 added−3 removed0 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
2 edited+1 added−3 removed0 unchanged
2022 filing
2023 filing
Biggest changeStock Performance Graph The following chart compares the total stockholder returns (stock price increase plus reinvested dividends) on our common stock from December 31, 2017 through December 31, 2022 with the total stockholder returns for the S&P 500 Index and the S&P MidCap Capital Goods Index.
Biggest changeStock Performance Graph The following chart compares the total stockholder returns (stock price increase plus reinvested dividends) on our common stock from April 4, 2023, the date our stock commenced regular-way trading on the NYSE, through December 31, 2023 with the total stockholder returns for the S&P 500 Index and the S&P MidCap 400 Capital Goods Index.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Crane Holdings, Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol "CR". As of December 31, 2022, there were 1,623 holders of record of Crane Holdings, Co. common stock.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Crane NXT, Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol "CXT". As of December 31, 2023, there were 1,561 holders of record of Crane NXT, Co. common stock.
Removed
The graph assumes that the value of the investment in the common stock and each index was $100 on December 31, 2017 and that all dividends were reinvested. 23 Purchases of Equity Securities On October 25, 2021, the Company announced that its Board of Directors authorized the Company to purchase up to $300 million of its common stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market from time-to-time at prevailing prices in accordance with federal securities laws.
Added
The graph assumes that the value of the investment in the common stock and each index was $100 on April 4, 2023 and that all dividends were reinvested. 20 Purchases of Equity Securities None Equity Compensation Plans For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.
Removed
All remaining availability under the Program as of March 31, 2022 was repurchased in April 2022 prior to the Program expiring on April 22, 2022. We did not make any open-market share repurchases of our common stock during the remainder of 2022.
Removed
We routinely receive shares of our common stock as payment for stock option exercises and the withholding taxes due on stock option exercises and the vesting of restricted share units from stock-based compensation program participants. Equity Compensation Plans For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
56 edited+36 added−129 removed18 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
56 edited+36 added−129 removed18 unchanged
2022 filing
2023 filing
Biggest changeOperating 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%. 31 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%.
Biggest changeThe 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%. 26 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRANE CURRENCY (in millions, except %) For the year ended December 31, 2023 2022 2021 Net sales $ 504.9 $ 465.6 $ 539.4 Cost of sales $ 297.8 $ 269.6 $ 313.3 Selling, general and administrative (a) $ 90.8 $ 78.7 $ 81.0 Operating profit $ 116.3 $ 117.3 $ 145.1 Assets $ 814.4 $ 863.3 $ 812.7 Backlog $ 243.0 $ 192.7 $ 124.3 Operating margin 23.0 % 25.2 % 26.9 % (a) Selling, general and administrative expense includes net restructuring gains of $2.8 million in 2021. 2023 compared to 2022 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%.
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. Revenue Recognition.
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 and Combined Financial Statements. Revenue Recognition.
The evidence we consider in reaching such conclusions includes, but is not limited to; (1) future reversals of existing taxable temporary differences, (2) future taxable income exclusive of reversing taxable temporary differences, (3) taxable income in prior carryback year(s) if carryback is permitted under the tax law, (4) cumulative losses in recent years, (5) a history of tax losses or credit carryforwards expiring unused, (6) a carryback or carryforward period that is so brief it limits realization of tax 41 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS benefits, and (7) a strong earnings history exclusive of the loss that created the carryforward and support showing that the loss is an aberration rather than a continuing condition.
The evidence we consider in reaching such conclusions includes, but is not limited to; (1) future reversals of existing taxable temporary differences, (2) future taxable income exclusive of reversing taxable temporary differences, (3) taxable income in prior carryback year(s) if carryback is permitted under the tax law, (4) cumulative losses in recent years, (5) a history of tax losses or credit carryforwards expiring unused, (6) a carryback or carryforward period that is so brief it limits realization of tax 32 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS benefits, and (7) a strong earnings history exclusive of the loss that created the carryforward and support showing that the loss is an aberration rather than a continuing condition.
Net debt is comprised of components disclosed above which are presented on our Consolidated Balance Sheets. Net capitalization, a non-GAAP measure, represents Net Debt plus Equity. We report our financial results in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
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. We report our financial results in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
When a contract with the U.S. government or subcontract for the U.S. government contains clauses indicating that the U.S. government owns any work-in-progress as the contracted product is being built, revenue is recognized over time. The measure of progress applied by us is the cost-to-cost method as this provides the most faithful depiction of the pattern of transfer of control.
When a contract with the U.S. government contains clauses indicating that the U.S. government owns any work-in-progress as the contracted product is being built, revenue is recognized over time. The measure of progress applied by us is the cost-to-cost method as this provides the most faithful depiction of the pattern of transfer of control.
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.
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.
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. We exercise judgment to determine whether the products have an alternative use to us.
When products are customized or products are sold directly to the U.S. 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.
(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. Pension benefits are included through 2032.
(b) Pension benefits are funded by the respective pension trusts. 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.
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. Income Taxes.
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.
Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in Item 8 under Note 1 to the Consolidated Financial Statements.
Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in Item 8 under Note 1 to the Consolidated and Combined Financial Statements. 33
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.
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.
Costs incurred represent work performed, which corresponds with, and thereby depicts, the transfer of control to the customer. 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. These estimates are subject to uncertainties and require judgment.
Costs incurred represent work performed, which corresponds with, and thereby depicts, the transfer of control to the customer. Total revenue recognized and cost estimates are updated monthly. In 2023, the Company recognized approximately $211 million in revenue over time related to products. These estimates are subject to uncertainties and require judgment.
We primarily generate revenue through the manufacture and sale of engineered industrial products. 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.
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.
Item 7. 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.
Item 7. 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 and combined financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.
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. 37 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (in millions) For the year ended December 31, 2022 2021 2020 Net cash (used for) provided by: Operating activities $ (151.6) $ 498.5 $ 309.5 Investing activities 264.0 (0.3) (229.1) Financing activities 106.0 (557.9) 55.1 Effect of exchange rates on cash and cash equivalents (39.4) (12.7) 21.6 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.
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 and Combined Financial Statements. 28 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (in millions) For the year ended December 31, 2023 2022 2021 Net cash (used for) provided by: Operating activities $ 276.3 $ 306.0 $ 277.0 Investing activities (31.1) (21.3) (15.8) Financing activities (252.5) (135.0) (298.1) Effect of exchange rates on cash and cash equivalents 3.8 (20.2) (7.0) (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.
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%. Operating profit increased by $25.6 million, or 8.3%, to $333.1 million in 2022.
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.
INCOME TAX (in millions, except %) For the year ended December 31, 2022 2021 2020 Income before tax — U.S. $ 133.6 $ 342.1 $ 124.9 Income before tax — non-U.S. 429.4 160.7 99.6 Income before tax — worldwide $ 563.0 $ 502.8 $ 224.5 Provision for income taxes $ 161.9 $ 67.4 $ 43.4 Effective tax rate 28.8 % 13.4 % 19.3 % 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 36 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.
INCOME TAX (in millions, except %) For the year ended December 31, 2023 2022 2021 Income before tax — U.S. $ 97.4 $ 163.9 $ 173.9 Income before tax — non-U.S. 142.4 84.4 52.2 Income before tax — worldwide $ 239.8 $ 248.3 $ 226.1 Provision for income taxes $ 51.5 $ 43.4 $ 48.1 Effective tax rate 21.5 % 17.5 % 21.2 % 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.
The following table summarizes our fixed cash obligations as of December 31, 2022: Payment due by Period (in millions) Total 2023 2024 -2025 2026 -2027 2028 and after Debt (a) $ 1,250.0 $ 700.0 $ — $ — $ 550.0 Fixed interest payments 565.1 40.6 55.6 55.6 413.3 Operating lease payments 131.5 22.1 31.3 18.2 59.9 Purchase obligations 288.0 270.3 14.4 3.0 0.3 Pension and postretirement benefits (b) 557.6 54.3 110.0 112.6 280.7 Other long-term liabilities reflected on Consolidated Balance Sheets (c) — — — — — Total $ 2,792.2 $ 1,087.3 $ 211.3 $ 189.4 $ 1,304.2 (a) Debt includes scheduled principal payments.
The following table summarizes our fixed cash obligations as of December 31, 2023: Payment due by Period (in millions) Total 2024 2025 -2026 2027 -2028 2029 and after Debt (a) $ 655.0 $ 4.6 $ 5.2 $ 95.2 $ 550.0 Fixed interest payments 536.2 27.8 55.6 55.6 397.2 Operating lease payments 79.6 9.4 13.7 9.3 47.2 Purchase obligations 42.0 41.5 0.5 — — Pension and postretirement benefits (b) 49.2 4.9 9.2 9.6 25.5 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 (a) Debt includes scheduled principal payments.
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.
Credit Ratings 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.
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. dollar.
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. dollar. • Service revenue increased by $5.6 million, or 4.6%, to $127.7 million in 2023, primarily driven by favorable pricing.
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%. 2021 compared to 2020 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 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 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.
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. 40 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.
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. 31 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS APPLICATION OF CRITICAL ACCOUNTING ESTIMATES Our Consolidated and Combined Financial Statements are prepared in accordance with accounting principles generally accepted in the United States.
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%.
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.
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.
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.
We believe that these ratings afford us adequate access to the public and private debt markets. 39 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Contractual Obligations Under various agreements, we are obligated to make future cash payments in fixed amounts.
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. Contractual Obligations Under various agreements, we are obligated to make future cash payments in fixed amounts.
CORPORATE (in millions) For the year ended December 31, 2022 2021 2020 Corporate expense $ (122.3) $ (97.7) $ (58.8) 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.
CORPORATE (in millions) For the year ended December 31, 2023 2022 2021 Corporate expense $ 72.3 $ 33.1 $ 30.4 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.
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. dollar.
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. dollar. • Service revenue increased by $8.6 million, or 7.6%, to $122.1 million in 2022, primarily driven by favorable pricing.
See "Application of Critical Accounting Policies" included later in this Item 7 for additional information about our provision for income taxes.
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.
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 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.
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. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, and improving information systems.
Investing Activities 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. 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.
Operating profit decreased by $14.3 million, or 7.8%, to $168.2 million in 2022.
Operating profit increased by $25.7 million, or 11.8%, to $242.8 million in 2023.
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.
Our indebtedness as of December 31, 2023 was as follows: • $103.1 million related to the Term Facility; • $198.6 million of 6.55% notes due 2036; and • $346.6 million of 4.20% notes due 2048. See Item 8 under Note 13, “Financing,” in the Notes to Consolidated and Combined Financial Statements for details regarding our financing arrangements.
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.
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.
The year-over-year lower sales included: • an increase in core sales of $219.6 million, or 6.4%; • unfavorable foreign currency translation of $113.6 million, or 3.3%; and • 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 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%. Cost of sales increased by $23.5 million, or 3.3%, to $737.2 million in 2023.
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 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 decreased by $5.2 million, or 0.4%, to $1,339.9 million in 2022.
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. 33 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PAYMENT & MERCHANDISING TECHNOLOGIES (in millions, except %) For the year ended December 31, 2022 2021 2020 Net sales by product line: Payment Acceptance and Dispensing Products $ 874.3 $ 805.7 $ 670.8 Banknotes and Security Products 465.6 539.4 434.0 Total net sales $ 1,339.9 $ 1,345.1 $ 1,104.8 Cost of sales $ 713.7 $ 746.2 $ 682.8 Selling, general and administrative (a) $ 293.1 $ 291.4 $ 321.4 Operating profit $ 333.1 $ 307.5 $ 100.6 Assets $ 2,125.9 $ 2,096.5 $ 2,215.3 Backlog $ 565.6 $ 438.0 $ 347.6 Operating margin 24.9 % 22.9 % 9.1 % (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. 2022 compared to 2021 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%.
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. 25 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRANE PAYMENT INNOVATIONS (in millions, except %) For the year ended December 31, 2023 2022 2021 Net sales by product line: Payment Acceptance and Dispensing Products $ 758.7 $ 752.2 $ 692.2 Services 127.7 122.1 113.5 Total net sales $ 886.4 $ 874.3 $ 805.7 Cost of sales $ 439.4 $ 444.1 $ 432.9 Selling, general and administrative (a) $ 204.2 $ 213.1 $ 208.3 Operating profit $ 242.8 $ 217.1 $ 164.5 Assets $ 1,279.1 $ 1,266.1 $ 1,286.4 Backlog $ 216.8 $ 372.9 $ 313.7 Operating margin 27.4 % 24.8 % 20.4 % (a) 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 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.
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." 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.
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.
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%.
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.
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. 38 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financing Activities Financing cash flows consist primarily of dividend payments to shareholders, share repurchases, repayments of indebtedness, proceeds from the issuance of long-term debt and commercial paper and proceeds from the issuance of common stock.
Financing Activities 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.
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.
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.
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%.
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.
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.
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.
Capital Structure The following table sets forth our capitalization: (in millions, except %) December 31, 2022 2021 Short-term borrowings $ 699.3 $ — Long-term debt 543.7 842.4 Total debt 1,243.0 842.4 Less cash and cash equivalents 657.6 478.6 Net debt (a) 585.4 363.8 Equity 1,904.0 1,835.1 Net capitalization (a) $ 2,489.4 $ 2,198.9 Net debt to equity (a) 30.7 % 19.8 % Net debt to net capitalization (a) 23.5 % 16.5 % (a) Net debt, a non-GAAP measure, represents total debt less cash and cash equivalents.
(c) As the timing of future cash outflows is uncertain, the following long-term liabilities (and related balances) are excluded from the above table: gross unrecognized tax benefits of $16.5 million and related gross interest and penalties of $2.8 million. 30 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Structure The following table sets forth our capitalization: (in millions, except %) December 31, 2023 2022 Short-term borrowings $ 4.6 $ 299.7 Long-term debt 640.3 545.1 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 Net debt (a) $ 417.7 $ 614.1 Equity $ 964.0 $ 783.8 Net capitalization (a) $ 1,381.7 $ 1,397.9 Net debt to equity (a) 43.3 % 78.3 % Net debt to net capitalization (a) 30.2 % 43.9 % (a) Net debt, a non-GAAP measure, represents total debt less cash and cash equivalents.
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%.
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.
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.
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.
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%.
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.
INTEREST AND MISCELLANEOUS INCOME, NET (in millions) For the year ended December 31, 2022 2021 2020 Interest income $ 3.4 $ 1.4 $ 2.0 Interest expense $ (52.2) $ (46.9) $ (55.3) Gain on sale of business $ 232.5 $ — $ — Miscellaneous income, net $ 9.8 $ 19.1 $ 14.9 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.
Corporate expense increased by $2.7 million, or 8.9%, in 2022 compared with 2021 primarily related to higher compensation and benefit costs. 27 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTEREST AND MISCELLANEOUS INCOME, NET (in millions) For the year ended December 31, 2023 2022 2021 Interest income $ 1.1 $ 0.2 $ 0.1 Interest expense $ (48.1) $ (41.9) $ (41.8) Related party interest expense* $ (2.5) $ (14.4) $ (16.1) Miscellaneous income, net $ 2.5 $ 3.1 $ 4.7 * Related party interest with Crane Company incurred prior to the Separation.
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.
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.
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%. 35 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2021 compared to 2020 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.
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 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%.
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.
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.
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.
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.
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%.
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.
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 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 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.
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.
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 used for financing activities was primarily driven by higher repayments of debt. 29 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.
Financing Arrangements Total net debt was $1,243.0 million and $842.4 million as of December 31, 2022 and 2021, respectively.
The decrease in cash used for financing activities was primarily driven by lower net transfers to Crane. Financing Arrangements Total debt was $644.9 million and $844.8 million as of December 31, 2023 and 2022, respectively.
Removed
Our operations are currently comprised of four segments: Aerospace & Electronics, Process Flow Technologies, Payment & Merchandising Technologies, and Engineered Materials.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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”).
Added
Recent Transactions Separation 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.
Removed
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”).
Added
Following the consummation of the Separation, our common stock is listed under the symbol “CXT” on the New York Stock Exchange.
Removed
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”).
Added
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.
Removed
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.
Added
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.
Removed
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”.
Added
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.
Removed
The “Crane Co.” name has been reserved for future use by Crane Holdings.
Added
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.
Removed
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”).
Added
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.
Removed
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.
Added
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). 22 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+1 added−0 removed2 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+1 added−0 removed2 unchanged
2022 filing
2023 filing
Biggest changeTotal net debt outstanding was $1,243.0 million as of December 31, 2022, which was at fixed rates of interest ranging from 4.20% to 6.55% and variable rates of interest of; (a) a base rate (determined in a customary manner), plus a margin of 0.25% or 0.50% that is determined based upon the ratings by S&P and Moody’s of the Company’s senior unsecured long-term debt (the “Index Debt Rating”) or (b) an adjusted Term SOFR (determined in a customary manner) for an interest period to be selected by the Company, plus a margin of 1.25% or 1.50% that is determined based upon the Index Debt Rating.
Biggest changeTotal debt outstanding was $644.9 million as of December 31, 2023, which was at fixed rates of interest ranging from 4.20% to 6.55% and variable rates of interest of: (a) an adjusted term Secured Overnight Financing Rate (SOFR) plus a credit spread adjustment of 0.10% for the applicable interest period plus a margin ranging from 1.50% to 2.25%, or (b) a base rate plus a m argin ranging from 0.50% to 1.25%, in each case, with such margin determined based on the lower of the ratings of our senior, unsecured long-term debt (the “Ratings”) and our total net leverage ratio.
The following is an analysis of the potential changes in interest rates and currency exchange rates based upon sensitivity analysis that models effects of shifts in rates. These are not forecasts. • 68% of our year-end portfolio is comprised of fixed-rate debt; therefore, the effect of a market change in interest rates would not be significant.
The following is an analysis of the potential changes in interest rates and currency exchange rates based upon sensitivity analysis that models effects of shifts in rates. These are not forecasts. • 84% of our year-end portfolio is comprised of fixed-rate debt; therefore, the effect of a market change in interest rates would not be significant.
This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices. 44
This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices. 34
As of December 31, 2022, a hypothetical 1% increase in prevailing interest rates would increase our variable rate interest expense by approximately $4.0 million. • Based on a sensitivity analysis as of December 31, 2022, a 10% change in the foreign currency exchange rates for the year ended December 31, 2022 would have impacted our net earnings by approximately $15.2 million, due primarily to the British pound, euro and Canadian dollar.
As of December 31, 2023, a hypothetical 1% increase in prevailing interest rates would increase our 2023 interest expense by approximately $1.1 million. • Based on a sensitivity analysis as of December 31, 2023, a 10% change in the foreign currency exchange rates for the year ended December 31, 2023 would have impacted our net earnings by approximately $10.7 million, due primarily to the euro, British pound and Japanese yen.
Added
We are required to pay a fee on undrawn commitments under the Revolving Facility at a rate per annum that ranges from 0.20% to 0.35%, based on the lower of the Ratings and our total net leverage ratio.