# Crane Co (CR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Crane Co's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1944013/000162828024006915/cr-20231231.htm
Accession: 0001628280-24-006915
Filing date: 2024-02-26
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CR/
All MD&A years: /company/CR/mda/
Previous year: /company/CR/mda/fy2022/ (FY 2022)
Next year: /company/CR/mda/fy2024/ (FY 2024)

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. Our operations are currently comprised of three segments: Aerospace & Electronics, Process Flow Technologies, and Engineered Materials. Our primary end markets include commercial and military aerospace, defense and space, chemical production, pharmaceutical production, water and wastewater, non-residential and municipal construction, energy, along with a wide range of general industrial and certain consumer related end markets.

Our strategy is to grow earnings and cash flow by focusing on the manufacturing of highly engineered industrial products for specific markets where our scale is a relative advantage, and where we can compete based on our proprietary and differentiated technology, our deep vertical expertise, and our responsiveness to unique and diverse customer needs. We continuously evaluate our portfolio, pursue acquisitions that complement our existing businesses and are accretive to our growth profile, selectively divest businesses where appropriate, and pursue internal mergers to improve efficiency. We strive to foster a performance-based culture focused on productivity and continuous improvement, to attract and retain a committed management team whose interests are directly aligned with those of our shareholders, and to maintain a focused, efficient corporate structure.

We will continue to execute this strategy while remaining committed to the values of our founder, R.T. Crane, who resolved to conduct business "in the strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees; and to put my whole mind upon the business."

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

Recent Transactions

Separation

On April 3, 2023, Crane Holdings, Co. was separated into two independent, publicly-traded companies in a transaction in which Crane Holdings, Co. retained its Payment & Merchandising Technologies segment (Crane NXT) and spun-off its Aerospace & Electronics, Process Flow Technologies and Engineered Materials segments to Crane Holdings, Co. stockholders (Crane Company). Upon consummation of the Separation, each of its stockholders received one share of Crane Company common stock for every one share of its common stock held on March 23, 2023, the record date for the distribution.

Acquisitions

On October 4, 2023, the Company completed the acquisition of Baum lined piping GmbH (“BAUM”) for approximately $93.5 million on a cash-free and debt-free basis, with $90.5 million paid in 2023 and $3 million to be paid in 2024, related to the final working capital adjustment. BAUM is a German based company that designs, manufactures, and distributes lined piping products primarily focused on chemical and industrial end markets. BAUM has been integrated into our Process Flow Technologies segment.

On January 2, 2024, the Company completed the acquisition of Vian Enterprises, Inc. (“Vian”) for $103 million on a cash-free and debt-free basis, subject to a net working capital adjustment and potential additional payments of up to $7.5 million depending on the resolution of outstanding contingencies. Vian is a global designer and manufacturer of multi-stage lubrication pumps and lubrication system components technology for critical aerospace and defense applications with sole-sourced and proprietary content on the highest volume commercial and military aircraft platforms. Vian will be included in the Aerospace & Electronics segment.

22

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

Results from Operations - For the Years ended December 31, 2023, 2022 and 2021

[[GREPCENT_TABLE]]
[["","","For the year ended December 31,","","2023 vs 2022 Favorable / (Unfavorable) Change","","2022 vs 2021 Favorable / (Unfavorable) Change"],["(in millions, except %)","","2023","","2022","","2021","","$","","%","","$","","%"],["Net sales:"],["Aerospace & Electronics","","$","789.3","","","$","667.3","","","$","638.3","","","$","122.0","","","18.3","%","","$","29.0","","","4.5","%"],["Process Flow Technologies","","1,072.8","","","1,109.4","","","1,196.6","","","(36.6)","","","(3.3)","%","","(87.2)","","","(7.3)","%"],["Engineered Materials","","224.3","","","258.3","","","228.0","","","(34.0)","","","(13.2)","%","","30.3","","","13.3","%"],["Total net sales","","$","2,086.4","","","$","2,035.0","","","$","2,062.9","","","$","51.4","","","2.5","%","","$","(27.9)","","","(1.4)","%"],["Sales growth:"],["Core business","","","","","","","","$","141.3","","","6.9","%","","$","159.5","","","7.7","%"],["Foreign exchange","","","","","","","","0.5","","","\u2014","%","","(48.3)","","","(2.3)","%"],["Acquisitions/dispositions","","","","","","","","(90.4)","","","(4.4)","%","","(139.1)","","","(6.7)","%"],["Total sales growth","","","","","","","","$","51.4","","","2.5","%","","$","(27.9)","","","(1.4)","%"],["Cost of sales","","$","1,281.4","","","$","1,321.4","","","$","1,374.1","","","$","40.0","","","3.0","%","","$","52.7","","","3.8","%"],["Selling, general and administrative","","$","521.2","","","$","513.3","","","$","467.1","","","$","(7.9)","","","(1.5)","%","","$","(46.2)","","","(9.9)","%"],["Loss on divestiture of asbestos-related assets and liabilities","","$","\u2014","","","162.4","","","\u2014","","","$","162.4","","","NM","","(162.4)","","","NM"],["Operating profit:"],["Aerospace & Electronics","","$","159.0","","","$","120.3","","","$","110.0","","","$","38.7","","","32.2","%","","$","10.3","","","9.4","%"],["Process Flow Technologies","","208.5","","","168.2","","","182.5","","","40.3","","","24.0","%","","(14.3)","","","(7.8)","%"],["Engineered Materials","","33.4","","","32.6","","","26.9","","","0.8","","","2.5","%","","5.7","","","21.2","%"],["Corporate expense(a) (b)","","(117.1)","","","(283.2)","","","(97.7)","","","166.1","","","58.7","%","","(185.5)","","","(189.9)","%"],["Total operating profit","","$","283.8","","","$","37.9","","","$","221.7","","","$","245.9","","","648.8","%","","$","(183.8)","","","(82.9)","%"],["Operating margin:"],["Aerospace & Electronics","","20.1","%","","18.0","%","","17.2","%"],["Process Flow Technologies","","19.4","%","","15.2","%","","15.2","%"],["Engineered Materials","","14.9","%","","12.6","%","","11.8","%"],["Total operating margin","","13.6","%","","1.9","%","","10.7","%"]]
[[/GREPCENT_TABLE]]

(a) For the years ended December 31, 2023, 2022 and 2021, Corporate expense included transaction related expenses of $41.5 million, $40.5 million and $8.2 million, respectively.

(b) For the year ended December 31, 2022, Corporate expense included a $162.4 million loss on the divestiture of asbestos-related assets and liabilities.

23

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

Items Affecting Comparability of Reported Results

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

Divestiture of asbestos-related assets and liabilities

In 2022, we recognized a loss on the divestiture of asbestos-related assets and liabilities of $162.4 million. Please refer to item 8 under Note 13, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for further discussion.

Sale of Crane Supply

On May 31, 2022, the Company divested its Crane Supply business. In connection with the divestiture, the Company recognized a total gain on sale of $232.5 million which is presented within Gain on sale of business on the Consolidated Statement of Operations.

Termination of Agreement to Sell Engineered Materials

In 2021, we entered into an agreement to sell the Engineered Materials segment to Grupo Verzatec S.A. de C.V. (“Verzatec”). In 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.

Restructuring and Related (Gains) Charges, net

In 2022, we recorded net pre-tax restructuring and related charges of $8.7 million primarily related to modest cost reduction efforts across our businesses in response to continued macroeconomic uncertainty. In 2021, we recorded total pre-tax restructuring and related gains of $5.9 million primarily related to a gain on the sale of real estate. There were no new restructuring programs in 2023.

Transaction Related Expenses

In 2023, we recorded pre-tax transaction related expenses of $39.6 million primarily related to the separation.

In 2022, we recorded pre-tax transaction related expenses of $48.3 million most of which related to the planned separation, coupled with expenses associated with defending the asbestos liability and to a lesser extent, divestiture costs related to the intended sale of Engineered Materials and the completed sale of Crane Supply.

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

OVERALL

2023 compared with 2022

Sales increased by $51.4 million, or 2.5%, to $2,086.4 million in 2023. The year-over-year higher sales included:

•an increase in core sales of $141.3 million, or 6.9%, which was driven primarily by higher pricing;

•an increase in sales related to the October 2023 acquisition of BAUM of $15.4 million, or 0.8%;

•favorable foreign currency translation of $0.5 million, and

•a decrease in sales related to the May 2022 divestiture Crane Supply of $105.8, or 5.2%.

Cost of sales decreased by $40.0 million, or 3.0%, to $1,281.4 million in 2023. The decrease is primarily related to the sale of Crane Supply of $66.1 million, or 5.0%, strong productivity gains of $37.6 million, or 2.8%, lower volumes of $9.9 million, or 0.7%, partially offset by an increase in material, labor and other manufacturing costs of $52.7 million, or 4.0%, and unfavorable mix of $24.0 million, or 1.8%.

Selling, general and administrative expenses increased by $7.9 million, or 1.5%, to $521.2 million in 2023, reflecting an $18.6 million, or 3.6%, increase in administrative expenses primarily related to the Separation, partially offset by the net impact of the sale of Crane Supply $11.2 million, or 2.2%.

Operating profit increased by $245.9 million, or 648.8%, to $283.8 million in 2023. The increase is primarily related to the absence of loss on divestiture of asbestos-related assets and liabilities of $162.4 million, an increase in core sales primarily

24

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

driven by higher pricing net of inflation of $63.3 million, strong productivity of $41.8 million, partially offset by unfavorable mix of $24.0 million.

2022 compared with 2021

Sales decreased by $27.9 million, or 1.4%, to $2,035.0 million in 2022. The year-over-year lower sales included:

• an increase in core sales of $159.5 million, or 7.7%;

• unfavorable foreign currency translation of $48.3 million, or 2.3%, and

• a decrease in sales related to the sale of Crane Supply of $139.1 million, or 6.7%.

Cost of sales decreased by $52.7 million, or 3.8%, to $1,321.4 million in 2022. The decrease is primarily related to the impact of the sale of Crane Supply of $102.4 million, or 7.5%, favorable foreign currency translation of $30.5 million, or 2.2%, lower volumes of $9.1 million, or 0.7%, and strong productivity of $33.1 million, or 2.4%, partially offset by an increase in material, labor and other manufacturing costs of $109.6 million, or 8.0%, and unfavorable mix of $20.2 million, or 1.5%.

Selling general and administrative expenses increased by $46.2 million, or 9.9%, to $513.3 million in 2022. The increase was driven primarily by increased costs of $65.3 million, or 14.0%, including transaction related expenses of $40.1 million, or 8.6%, primarily related to sale of Crane Supply, asbestos divestiture and the planned Separation, increased net restructuring costs of $12.7 million, or 2.7%, partially offset by favorable foreign currency translation of $10.5 million, or 2.2%, the impact of the sale of Crane Supply of $16.5 million, or 3.5%, and strong productivity of $4.7 million, or 1%.

Operating profit decreased by $183.8 million, or 82.9%, to $37.9 million in 2022. The decrease in operating profit is primarily related to the loss on divestiture of asbestos-related assets and liabilities of $162.4 million, coupled with the divested operating profit of $20.2 million related to the sale of Crane Supply. Operating segment performance was strong across the Company, with pricing actions and strong productivity more than offsetting higher material, labor and other manufacturing costs. Operating profit in 2022 included net restructuring and related charges of $8.7 million and transaction related expenses of $48.3 million. Operating profit in 2021 included net restructuring and related gains of $5.9 million and transaction related expenses of $8.2 million.

Comprehensive income

[[GREPCENT_TABLE]]
[["(in millions) For the year ended December 31,","","2023","","2022","","2021"],["Net income before allocation to noncontrolling interests","","$","255.9","","","$","401.1","","","$","435.4"],["Other comprehensive income (loss), net of tax"],["Currency translation adjustment","","20.7","","","(93.3)","","","(69.2)"],["Changes in pension and postretirement plan assets and benefit obligation, net of tax","","10.0","","","30.0","","","96.0"],["Other comprehensive income (loss), net of tax","","30.7","","","(63.3)","","","26.8"],["Comprehensive income before allocation to noncontrolling interests","","286.6","","","337.8","","","462.2"],["Less: Noncontrolling interests in comprehensive income (loss)","","(0.1)","","","(0.2)","","","0.6"],["Comprehensive income attributable to common shareholders","","$","286.7","","","$","338.0","","","$","461.6"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2023, comprehensive income before allocation to noncontrolling interests was $286.6 million compared to $337.8 million in 2022. The $51.2 million decrease was primarily driven by $145.2 million of lower net income before allocation to noncontrolling interests which reflects the 2022 gain on sale of Crane Supply of $232.5 million, a $20.0 million decrease primarily related to changes in pension discount rates and a $114.0 million favorable impact of foreign currency translation adjustments, primarily related to the British pound and euro.

For the year ended December 31, 2022, comprehensive income before allocation to noncontrolling interests was $337.8 million compared to $462.2 million in 2021. The $124.4 million decrease was primarily driven by $34.3 million of lower net income before allocation to noncontrolling interests, a $66.0 million decrease primarily related to changes in pension discount rates and a $24.1 million unfavorable impact of foreign currency translation adjustments, primarily related to the British pound and euro.

25

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

AEROSPACE & ELECTRONICS

[[GREPCENT_TABLE]]
[["(in millions, except %) For the year ended December 31,","","2023","","2022","","2021"],["Net sales by product line:"],["Commercial Original Equipment","","$","291.4","","","$","250.5","","","$","229.4"],["Military Original Equipment","","252.4","","","231.2","","","239.7"],["Commercial Aftermarket Products","","180.2","","","129.3","","","104.5"],["Military Aftermarket Products","","65.3","","","56.3","","","64.7"],["Total net sales","","$","789.3","","","$","667.3","","","$","638.3"],["Cost of sales","","$","495.2","","","$","417.7","","","$","399.6"],["Selling, general and administrative","","$","135.1","","","$","129.3","","","$","128.7"],["Operating profit","","$","159.0","","","$","120.3","","","$","110.0"],["Assets","","$","744.6","","","$","663.3","","","$","604.7"],["Backlog","","$","700.9","","","$","613.1","","","$","459.8"],["Operating margin","","20.1","%","","18.0","%","","17.2","%"]]
[[/GREPCENT_TABLE]]

2023 compared to 2022

Aerospace & Electronics sales increased $122.0 million, or 18.3%, to $789.3 million in 2023 primarily due to higher volumes and strong pricing. The commercial market and military market accounted for 60% and 40%, respectively, of total segment sales in 2023. Sales to OEM and aftermarket customers in 2023 were 69% and 31% of total segment sales, respectively.

•Sales of Commercial Original Equipment increased by $40.9 million, or 16.3%, to $291.4 million in 2023, reflecting strong demand from aircraft manufacturers as the industry aircraft build rates continue to recover from the COVID-19 related slowdown, partially offset by component availability constraints.

•Sales of Military Original Equipment increased by $21.2 million, or 9.2%, to $252.4 million in 2023, primarily reflecting strong demand from defense customers.

•Sales of Commercial Aftermarket Products increased by $50.9 million, or 39.4%, to $180.2 million in 2023, reflecting continued strong demand from the airlines due to improving air traffic and inventory restocking.

•Sales of Military Aftermarket Products increased by $9.0 million, or 16.0%, to $65.3 million in 2023, reflecting stronger demand from military customers.

Cost of sales increased $77.5 million, or 18.6%, to $495.2 million in 2023 compared to 2022, primarily reflecting $48.7 million, or 11.7%, of increased material, labor and other manufacturing costs, increased volumes of $29.3 million, or 7.0%, unfavorable mix of $10.1 million, or 2.4%, partially offset by $ 11.1 million, or 2.7% of productivity gains.

Selling, general and administrative expense increased by $5.8 million, or 4.5%, to $135.1 million in 2023, primarily reflecting higher engineering, administrative and selling costs of $12.9 million, or 10.0%, partially offset by restructuring savings of $5.1 million, or 4.0%, and productivity gains of $1.9 million, or 1.5%.

Operating profit increased $38.7 million, or 32.2%, to $159.0 million in 2023 compared to 2022, primarily reflecting the impact from higher volumes of $25.4 million, or 21.1%, coupled with higher pricing net of inflation, productivity gains and restructuring savings of $23.2 million, or 19.3%, partially offset by unfavorable mix of $10.1 million, or 8.4%.

2022 compared to 2021

Aerospace & Electronics sales increased $29.0 million, or 4.5%, to $667.3 million in 2022. Price was the primary contribution to the growth for the year. The commercial market and military market accounted for 57% and 43%, respectively, of total segment sales in 2022. Sales to OEM and aftermarket customers in 2022 were 72% and 28% of total segment sales, respectively.

•Sales of Commercial Original Equipment increased by $21.1 million, or 9.2%, to $250.5 million in 2022, reflecting strong demand from aircraft manufacturers as the industry aircraft build rates continue to recover from the COVID-19 related slowdown, partially offset by material availability constraints.

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

26

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

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

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

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

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

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

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

Process Flow Technologies

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Selling, general and administrative expense includes net restructuring charges of $0.9 million, $2.3 million and net restructuring gain of $13.2 million in 2023, 2022 and 2021, respectively."]]
[[/GREPCENT_TABLE]]

2023 compared to 2022

Sales decreased by $36.6 million, or 3.3%, to $1,072.8 million in 2023, driven by the impact of the sale of Crane Supply of $105.8 million, or 9.5%, partially offset by the impact of the BAUM acquisition of $15.4 million or 1.4%, and higher core sales of $54.1 million, or 4.9%. Core sales growth was driven by higher pricing.

•Sales of Process Valves and Related Products increased by $61.5 million, or 8.2%, to $811.3 million in 2023. The increase reflected higher core sales of $46.0 million, or 6.1%, driven by higher pricing and the impact of the BAUM acquisition of $15.4 million, or 2.1%.

•Sales of Commercial Valves decreased by $115.8 million, or 49.9%, to $116.4 million in 2023, primarily driven by the impact of the divestiture of Crane Supply of $105.8 million, or 45.6%, and lower core sales of $10.1 million, or 4.3%, primarily as a result of lower sales in the Middle East.

•Sales of Pumps and Systems increased by $17.7 million, or 13.9%, to $145.1 million in 2023, reflecting an increase in core sales primarily driven by higher pricing and higher volumes across all key end markets.

Cost of sales decreased by $81.9 million, or 11.7%, to $615.9 million, primarily related to the net impacts of the sale of Crane Supply and the BAUM acquisition of $66.1 million or 9.5%, productivity gains of $23.6 million, or 3.4%, lower volumes of $13.3 million, or 1.9%, offset by unfavorable mix of 17.3 million, or 2.5%, and modestly higher material, labor and other manufacturing costs of $7.3 million, or 1.0%.

Selling, general and administrative expense increased by $5.0 million, or 2.0%, to $248.4 million primarily related to higher administrative costs net of productivity savings, offset by the sale of Crane Supply.

Operating profit increased by $40.3 million, or 24.0%, to $208.5 million in 2023. The increase was primarily due to higher pricing net of inflation and productivity of $74.0 million, or 44.0%, partially offset by unfavorable mix of $17.3 million, or 10.3%, and the net impact from the sale of Crane Supply of $13.8 million, or 8.2%.

2022 compared to 2021

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

•Sales of Process Valves and Related Products increased by $32.7 million, or 4.6%, to $749.8 million in 2022. The increase reflected higher core sales of $63.6 million, or 8.9%, driven by higher pricing, offset by unfavorable foreign currency translation of $31.1 million, or 4.3%, as the euro weakened against the U.S. dollar. Demand remained strong across Chemical, Pharmaceutical and General Industrial end markets.

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

28

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

increase in core sales of $12.2 million, or 3.3%. The higher core sales reflected higher demand in Canadian non-residential construction markets.

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

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

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

Operating profit decreased by $14.3 million, or 7.8%, to $168.2 million in 2022. The decrease was primarily due to divested operating profit of $20.2 million related to the sale of Crane Supply, or 11.1%, and lower net restructuring gains of $15.5 million, or 8.5%, partially offset by productivity gains of $20.1 million, or 11.0%.

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

Engineered Materials

[[GREPCENT_TABLE]]
[["(in millions, except %) For the year ended December 31,","","2023","","2022","","2021"],["Net sales by product line:"],["FRP - Recreational Vehicles","","$","73.0","","","$","111.9","","","$","102.5"],["FRP - Building Products","","117.0","","","112.5","","","94.9"],["FRP - Transportation","","34.3","","","33.9","","","30.6"],["Total net sales","","$","224.3","","","$","258.3","","","$","228.0"],["Cost of sales","","$","170.5","","","$","206.2","","","$","181.3"],["Selling, general and administrative (a)","","$","20.4","","","$","19.5","","","$","19.8"],["Operating profit","","$","33.4","","","$","32.6","","","$","26.9"],["Assets","","$","191.8","","","$","218.6","","","$","220.5"],["Backlog","","$","11.3","","","$","16.2","","","$","20.1"],["Operating margin","","14.9","%","","12.6","%","","11.8","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Selling, general and administrative expense includes net restructuring gain of $0.3 million, restructuring charges of $0.4 million and $0.0 million in 2023, 2022 and 2021, respectively."]]
[[/GREPCENT_TABLE]]

2023 compared to 2022

Sales decreased by $34.0 million, or 13.2%, to $224.3 million in 2023 reflecting lower core sales of $34.0 million, or 13.2%, primarily due to lower volumes, partially offset by higher pricing. The decrease was primarily driven by lower sales to recreational vehicle manufacturers.

Cost of sales decreased by $35.7 million, or 17.3%, to $170.5 million, primarily related to lower volumes of $25.8 million, or 12.5%, and cost savings, favorable mix and productivity gains of $9.8 million, or 4.7%.

Operating profit increased by $0.8 million, or 2.5%, to $33.4 million in 2023, primarily reflecting higher pricing net of inflation, productivity gains and favorable mix, offset by lower volumes.

2022 compared to 2021

Sales increased by $30.3 million, or 13.3%, to $258.3 million in 2022 with higher pricing more than offsetting a decline in volume, primarily related to softening end market demand in the RV industry. The increase reflected higher sales to building products customers and recreational vehicle manufacturers.

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

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

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

CORPORATE

[[GREPCENT_TABLE]]
[["(in millions) For the year ended December 31,","","2023","","2022","","2021"],["Corporate expense","","$","(117.1)","","","$","(120.8)","","","$","(97.7)"],["Loss on divestiture of asbestos-related assets and liabilities","","\u2014","","","(162.4)","","","\u2014"],["Total Corporate expense","","$","(117.1)","","","$","(283.2)","","","$","(97.7)"]]
[[/GREPCENT_TABLE]]

30

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

Total Corporate expense decreased by $166.1 million, or 58.7%, in 2023, primarily related to the absence of the loss on divestiture of asbestos related assets and liabilities of $162.4 million, or 57.3%.

Total Corporate expense increased by $185.5 million, or 189.9%, 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 $32.5 million, or 33.3%, partially offset by slightly lower compensation and benefit costs.

INTEREST AND MISCELLANEOUS INCOME, NET

[[GREPCENT_TABLE]]
[["(in millions) For the year ended December 31,","","2023","","2022","","2021"],["Interest income","","$","5.1","","","$","3.2","","","$","1.3"],["Interest expense","","$","(22.7)","","","$","(10.1)","","","$","(4.9)"],["Gain on sale of business","","$","\u2014","","","$","232.5","","","$","\u2014"],["Miscellaneous income, net","","$","0.8","","","$","7.9","","","$","15.6"]]
[[/GREPCENT_TABLE]]

2023 compared to 2022

Interest expense increased by $12.6 million, or 124.7%, primarily due to interest on the $300 million, 3-year term loan facility. Miscellaneous income, net, decreased $7.1 million, or 89.9%, primarily reflecting the absence of the 2022 $7.5 million termination fee paid to the Company related to the termination of agreement to sell the Engineered Materials segment.

2022 compared to 2021

Interest expense increased $5.2 million, or 106.1%, primarily due to interest on the 364-day credit facility that was entered into on August 11, 2022. The $232.5 million gain on sale of business relates to the divestiture of Crane Supply. Miscellaneous income, net, decreased $7.7 million, or 49.4%, primarily reflecting the absence of the 2021 $18.5 million gain on sale of property, offset by the $7.5 million termination fee paid to the Company in 2022 related to the termination of agreement to sell the Engineered Materials segment.

INCOME TAX

[[GREPCENT_TABLE]]
[["(in millions, except %) For the year ended December 31,","","2023","","2022","","2021"],["Income before tax \u2014 U.S.","","$","155.4","","","$","(82.2)","","","$","201.1"],["Income before tax \u2014 non-U.S.","","111.6","","","353.6","","","32.6"],["Income before tax \u2014 worldwide","","$","267.0","","","$","271.4","","","$","233.7"],["Provision for income taxes","","$","63.2","","","$","99.8","","","$","36.3"],["Effective tax rate","","23.7","%","","36.7","%","","15.6","%"]]
[[/GREPCENT_TABLE]]

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. See "Application of Critical Accounting Policies" included later in this Item 7 for additional information about our provision for income taxes. A reconciliation of the statutory U.S. federal tax rate to our effective tax rate is set forth under Note 10, "Income Taxes" in the Notes to Consolidated Financial Statements.

31

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

LIQUIDITY AND CAPITAL RESOURCES

[[GREPCENT_TABLE]]
[["(in millions) For the year ended December 31,","","2023","","2022","","2021"],["Net cash provided by (used for):"],["Operating activities from continuing operations","","$","193.6","","","$","(472.2)","","","$","185.1"],["Investing activities from continuing operations","","(132.5)","","","285.3","","","18.2"],["Financing activities","","(423.2)","","","106.0","","","(557.9)"],["Discontinued operations","","30.5","","","299.3","","","294.9"],["Effect of exchange rates on cash and cash equivalents","","3.6","","","(39.4)","","","(12.7)"],["(Decrease) increase in cash and cash equivalents","","$","(328.0)","","","$","179.0","","","$","(72.4)"]]
[[/GREPCENT_TABLE]]

Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will strengthen and complement our portfolio, by divesting businesses that are no longer strategic or aligned with our portfolio and where such divestitures can generate capacity for strategic investments and initiatives that further optimize our portfolio, and by paying dividends and/or repurchasing shares. At any given time, and from time to time, we may be evaluating one or more of these opportunities, although we cannot assure you if or when we will consummate any such transactions.

Our current cash balance, together with cash we expect to generate from future operations and borrowing capacity available under our revolving credit facility, is expected to be sufficient to finance our short- and long-term capital requirements, as well as to fund expected pension contributions.

In March 2023, we entered into a senior secured credit agreement which provides for a $500 million, 5-year revolving credit facility through March 2028 and a $300 million, 3-year term loan facility through March 2026. In October 2023, we exercised a portion of the accordion feature under the revolving credit facility to increase the available borrowing capacity from $500 million to $800 million. In October 2023, we borrowed $100 million under the revolving credit facility and used approximately $91 million of the proceeds to acquire Baum lined piping GmbH. In November 2023, we repaid the $100 million of the outstanding borrowings under the revolving credit facility. At December 31, 2023, there was $249 million outstanding under the term loan facility.

On January 2, 2024, we borrowed $100 million under the revolving credit facility to fund the Vian acquisition.

Operating Activities

Cash provided by operating activities from continuing operations, a key source of our liquidity, was $193.6 million in 2023, compared to cash used for operating activities from continuing operations of $472.2 million in 2022. The increase in cash provided by operating activities from continuing operations was primarily driven by the absence of a $550.0 million payment made in 2022 in connection with the divestiture of all asbestos-related assets and liabilities and, to a lesser extent, the $111.2 million increase in net income, adjusted for the exclusion of non-cash items.

Cash used for operating activities from continuing operations was $472.2 million in 2022, compared to cash provided by operating activities from continuing operations of $185.1 million in 2021. The increase in cash used for operating activities from continuing operations was primarily driven by the $550.0 million payment in 2022 related to the divestiture of the asbestos-related assets and liabilities, together with increased working capital investments supporting higher levels of demand across most businesses.

Investing Activities

Cash flows relating to investing activities from continuing operations consist primarily of cash used for capital expenditures, acquisitions of businesses and cash provided by divestitures of businesses or assets. Cash used for investing activities from continuing operations was $132.5 million in 2023, compared to cash provided by investing activities from continuing operations of $285.3 million in 2022. The increase in cash used for investing activities is primarily related to the absence of $318.1 million in proceeds from the sale of Crane Supply in 2022, the acquisition of BAUM for $90.5 million and higher capital expenditures of $5.6 million. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, and improving information systems.

Cash provided by investing activities from continuing operations was $285.3 million in 2022, compared to $18.2 million in 2021. The increase in cash provided by investing activities from continuing operations was primarily related to $318.1 million of proceeds related to the divestiture of Crane Supply.

32

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 and repayments of indebtedness, proceeds from the issuance of long-term debt and proceeds from the issuance of common stock. During the year 2023, financing cash flows also includes activities associated with the distribution of Crane NXT, Co. in support of the Separation. Cash used by financing activities was $423.2 million in 2023, compared to cash provided by financing activities of $106.0 million in 2022. Cash used for financing activities in 2023 was driven by:

•$578.1 million of distribution cash outflows, which was comprised of the $275 million dividend to Crane NXT, Co. and $303.1 million in cash balances at the Crane NXT businesses at time of Separation;

•$400.0 million repayment of the 364-Day Credit Agreement; and

•$50.6 million in prepayments on the 3-year term loan facility.

The above uses were primarily funded by $650 million in proceeds from the term loan facilities, comprised of a $350 million term loan issued to Crane NXT, Co. (discontinued operations) and the $300 million term loan issued to Crane Company.

Cash provided by financing activities was $106.0 million in 2022, compared to cash used for financing activities of $557.9 million in 2021. The increase in cash provided by financing activities was primarily driven by $399.4 million in net borrowings from the 2022 364-Day Credit Agreement, compared to a $348.1 million repayment of the outstanding amount under the 364-Day Credit Agreement in 2021. This was partially offset by an $107.4 million increase in share repurchases.

Financing Arrangements

Total net debt was $248.5 million and $399.6 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, our total debt to total capitalization ratio was 15.4%, computed as follows:

[[GREPCENT_TABLE]]
[["(in millions)"],["Short-term borrowings","$","\u2014"],["Long-term debt","$","248.5"],["Total debt","$","248.5"],["Equity","1,360.3"],["Capitalization","$","1,608.8"],["Total indebtedness to capitalization","15.4","%"]]
[[/GREPCENT_TABLE]]

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

Credit Ratings

As of December 31, 2023, we have not sought a rating from the credit agencies, and we have no immediate plans to do so. Although the Company is currently unrated, we believe that we have adequate access to capital through the bank market and our current Revolving Credit Facility.

33

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. These include payments under our short-term and long-term debt agreements and rent payments required under operating lease agreements. The following table summarizes our fixed cash obligations as of December 31, 2023:

[[GREPCENT_TABLE]]
[["","","Payment due by Period"],["(in millions)","","Total","","2024","","2025 -2026","","2027 -2028","","2029 and after"],["Debt (a)","","$","249.4","","","$","\u2014","","","$","249.4","","","$","\u2014","","","$","\u2014"],["Operating lease payments","","81.2","","","14.9","","","24.6","","","17.7","","","24.0"],["Purchase obligations","","272.1","","","252.0","","","19.7","","","0.2","","","0.2"],["Pension and postretirement benefits (b)","","515.1","","","50.3","","","103.2","","","106.9","","","254.7"],["Other long-term liabilities reflected on Consolidated Balance Sheets (c)","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total","","$","1,117.8","","","$","317.2","","","$","396.9","","","$","124.8","","","$","278.9"]]
[[/GREPCENT_TABLE]]

(a) Debt includes scheduled principal payments.

(b) Pension benefits are primarily funded by the respective pension trusts. Pension benefits are included through 2033.

(c) As the timing of future cash outflows is uncertain, the following long-term liabilities (and related balances) are excluded from the above table: long-term environmental liability of $12.9 million, gross unrecognized tax benefits of $7.9 million and related gross interest and penalties of $2.2 million.

34

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

OUTLOOK

Overall

Our sales depend heavily on industries that are cyclical in nature or are subject to market conditions, which may cause customer demand for our products to be volatile and unpredictable. Demand in these industries is affected by fluctuations in domestic and international economic conditions, as well as currency fluctuations, commodity costs, and a variety of other factors.

For 2024, we expect a total year-over-year sales increase of approximately 7% to 9%, driven by approximately 3% to 5% core growth, and approximately 4% sales contribution from the Baum lined piping GmbH and the Vian Enterprises, Inc. acquisitions. We expect an improvement in operating profit driven primarily by lower transaction related expenses, productivity benefits, higher pricing net of inflation, operating leverages on higher volumes and contributions from the BAUM and Vian acquisitions, partially offset by unfavorable mix.

Aerospace & Electronics

In 2024, we expect Aerospace & Electronics core sales to increase in the mid-teens range compared to 2023, driven by approximately 10% core sales and a 4% to 5% contribution from the Vian Enterprises, Inc. acquisition. We expect a substantial improvement in our commercial OEM business driven by higher aircraft build rates, and we expect a substantial improvement in our commercial aftermarket business given continued recovery in airline flight hours. We expect our defense OEM sales to be approximately flat, but the defense aftermarket businesses are expected to grow significantly given continued global geopolitical uncertainty which is driving increased demand to replace legacy product sales. We expect segment operating profit and operating margin to increase compared to 2023 driven primarily by the impact of operating leverage on higher volumes and productivity benefits.

Process Flow Technologies

In 2024, we expect Process Flow Technologies sales to increase approximately 4% to 5% driven by contribution from the Baum lined piping GmbH acquisition, with core sales approximately flat.

We expect Process Valves and Related Products sales to increase in the low- to mid-single digit range compared to 2023, driven by mid-single digit contribution from the Baum lined piping GmbH acquisition, partially offset by a slight decline in core sales. We expect Commercial Valves sales to increase in the low- to mid-single digit range, and we expect Pumps and Systems sales to increase in the high-single digit range compared to 2023, driven by strong demand across municipal and non-residential U.S. end markets. We expect an improvement in segment operating profit and operating margin compared to 2023, driven primarily by higher pricing net of inflation, strong productivity and contribution from the Baum lined piping GmbH acquisition, partially offset by lower volumes and unfavorable mix.

Engineered Materials

In 2024, we expect Engineered materials sales to be flat compared to 2023, with a modest increase in sales to the Recreational Vehicle market, offset by a decline in sales to the Transportation market.

We expect operating profit and operating margin to be approximately flat compared to 2023.

35

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. Certain accounting policies require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. The accounting estimates described below are those that most frequently require us to make estimates and judgments and, therefore, are critical to understanding our results of operations. 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 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. Control of products generally transfers to the customer at a point in time, as the customer does not control the products as they are manufactured. We exercise judgment and consider the timing of right to payment, transfer of risk and rewards, transfer of title, transfer of physical possession, and customer acceptance when determining when control transfers to the customer. As a result, revenue from the sale of products is generally recognized at a point in time - either upon shipment or delivery - based on the specific shipping terms in the contract.

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 an alternative use does not exist for these products and we are entitled to payment for performance completed to date which includes a reasonable profit margin, revenue is recognized over time. 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. Under this method, we measure progress by comparing costs incurred to date to the total estimated costs to provide the performance obligation. This method effectively reflects our progress toward completion, as this methodology includes any work-in-process amounts as part of the measure of progress. 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 $100.0 million in revenue over time related to contracts in progress as of December 31, 2023.

These estimates are subject to uncertainties and require judgment. Estimates of contract costs include labor hours and rates, and material costs. These estimates consider historical performance, the complexity of the work to be performed, the estimated time to complete the project, and other economic factors such as inflation and market rates. We update our estimates on a periodic basis and any revisions to such estimates are recorded in earnings in the period in which they are determined. Provisions for estimated losses, if any, on uncompleted long-term contracts, are made in the period in which such losses are determined. We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract estimates for 2023, 2022 or 2021 was material to the Consolidated Statement of Operations for such annual periods.

Income Taxes.  We account for income taxes in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which requires an asset and liability approach for the financial accounting and reporting of income taxes. Under this method, deferred income taxes are recognized for the expected future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These balances are measured using the enacted tax rates expected to apply in the year(s) in which these temporary differences are expected to reverse. The effect of a change in tax rates on deferred income taxes is recognized in income in the period when the change is enacted.

Based on consideration of all available evidence regarding their utilization, we record net deferred tax assets to the extent that it is more likely than not that they will be realized. Where, based on the weight of all available evidence, it is more likely than not that some amount of a deferred tax asset will not be realized, we establish a valuation allowance for the amount that, in our judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized. 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

36

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.

We account for unrecognized tax benefits in accordance with ASC 740, which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation, based solely on the technical merits of the position. The tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

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

Goodwill and Other Intangible Assets.  As of December 31, 2023, we had $747.7 million of goodwill and $87.9 million of net intangible assets, of which $22.1 million were intangibles with indefinite useful lives, consisting of trade names. As of December 31, 2022, we had $690.9 million of goodwill and $71.7 million of net intangible assets, of which $21.8 million were intangibles with indefinite useful lives, consisting of trade names.

Our business acquisitions have typically resulted in the recognition of goodwill and other intangible assets. We follow the provisions under ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in the Consolidated Financial Statements. These provisions require that we, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if an impairment has occurred. We perform our annual impairment testing during the fourth quarter. Impairment testing takes place more often than annually if events or circumstances indicate a change in status that would indicate a potential impairment. We believe that there have been no events or circumstances which would more likely than not reduce the fair value of our reporting units below its carrying value. A reporting unit is an operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the reporting unit. As of December 31, 2023, we had four reporting units.

When performing our annual impairment assessment, we compare the fair value of each of our reporting units to our respective carrying value. Goodwill is potentially impaired when the net book value of the reporting unit exceeds its estimated fair value. Fair values are established primarily by discounting estimated future cash flows at an estimated cost of capital which varies for each reporting unit and which, as of our most recent annual impairment assessment, ranged between 9.5% and 10.0% (a weighted average of 9.9%), reflecting the respective inherent business risk of each of the reporting units tested. This methodology for valuing our reporting units (commonly referred to as the Income Method) has not changed since the adoption of the provisions under ASC 350. The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent best estimates based on current and forecasted market conditions. Profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost increases/reductions.

There are inherent uncertainties related to these assumptions, including changes in market conditions, and management judgment is necessary in applying them to the analysis of goodwill impairment. In addition to the foregoing, for each reporting unit, market multiples are used to corroborate discounted cash flow results where fair value is estimated based on earnings multiples determined by available public information of comparable businesses. While we believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting units, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may then be determined to be overstated and a charge would need to be taken against net earnings. Furthermore, to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied a hypothetical, reasonably possible 10% decrease to the fair values of each reporting unit. The effects of this hypothetical 10% decrease would still result in a fair value calculation exceeding our carrying value for each of our reporting units. No impairment charges have been required during 2023, 2022 or 2021.

Intangibles with indefinite useful lives are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment. If the carrying amount of an indefinite lived intangible asset exceeds its fair value, the intangible asset is written down to its fair value. Fair value is calculated using relief from royalty method. We amortize the cost of definite-lived intangibles over their estimated useful lives.

We review all our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of

37

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

losses or a forecast of continuing losses associated with the use of an asset or asset group, or a current expectation that an asset or asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the definite-lived intangible asset (or asset group), as well as specific appraisal in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other long-lived assets or asset groups and include estimated future revenues, gross profit margins, operating profit margins and capital expenditures which are based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent our best estimates based on current and forecasted market conditions, and the profit margin assumptions are based on the current cost structure and anticipated net cost increases or reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis. If the future undiscounted cash flows are less than the carrying value, then the definite-lived intangible asset is considered impaired and a charge would be taken against net earnings based on the amount by which the carrying amount exceeds the estimated fair value. Judgments that we make which impact these assessments relate to the expected useful lives of definite lived assets and its ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Since judgment is involved in determining the recoverable amount of definite-lived intangible assets, there is risk that the carrying value of our definite-lived intangible assets may require adjustment in future periods. Historical results to date have generally approximated expected cash flows for the identifiable cash flow generating level. We believe there have been no events or circumstances which would more likely than not reduce the fair value of our indefinite-lived or definite-lived intangible assets below their carrying value. As of the last annual assessment, fair values have been substantially in excess of carrying values.

Environmental.  For environmental matters, we record a liability for estimated remediation costs when it is probable that we will be responsible for such costs and they can be reasonably estimated. Generally, third party specialists assist in the estimation of remediation costs. The environmental remediation liability as of December 31, 2023 is substantially all for the former manufacturing site in Goodyear, Arizona (the "Goodyear Site"). Estimates of our environmental liabilities at the Goodyear Site are based on currently available facts, present laws and regulations and current technology available for remediation, and are recorded on an undiscounted basis. These estimates consider our prior experience in the Goodyear Site investigation and remediation, as well as available data from, and in consultation with, our environmental specialists. Estimates at the Goodyear Site are subject to significant uncertainties caused primarily by the dynamic nature of the Goodyear Site conditions, the range of remediation alternatives available, together with the corresponding estimates of cleanup methodology and costs, as well as ongoing, required regulatory approvals, primarily from the EPA. During the fourth quarter of 2019, we received conceptual agreement from the EPA on an alternative remediation strategy which is expected to further reduce the contaminant plume. Accordingly, we recorded a pre-tax charge of $18.9 million, net of reimbursements, to extend our forecast period through 2027 and reflect our revised workplan.  The total estimated gross liability was $20.7 million and $24.8 million as of December 31, 2023 and 2022, respectively.

On July 31, 2006, we entered into a consent decree with the U.S. Department of Justice on behalf of the Department of Defense and the Department of Energy pursuant to which, among other things, the U.S. Government reimburses us for 21% of qualifying costs of investigation and remediation activities at the Goodyear Site. We have recorded a receivable of $3.8 million and $4.8 million for the expected reimbursements from the U.S. Government in respect of the aggregate liability as of December 31, 2023 and 2022, respectively.

Pension Plans.  In the United States, we sponsor a defined benefit pension plan that covers approximately 18% of all U.S. employees. Effective January 1, 2013, pension eligible non-union employees no longer earn future benefits in the domestic defined benefit pension plan. The benefits are based on years of service and compensation on a final average pay basis, except for certain hourly employees where benefits are fixed per year of service. Charges to expense are based upon costs computed by an independent actuary. Contributions are intended to provide for future benefits earned to date. Additionally, a number of our non-U.S. subsidiaries sponsor defined benefit pension plans cover approximately 10% of all non-U.S. employees. The benefits are typically based upon years of service and compensation. Most of these plans are funded by company contributions to pension funds, which are held for the sole benefit of plan participants and beneficiaries.

The expected return on plan assets component of net periodic benefit cost is determined by applying the assumed expected return on plan assets to the fair value of plan assets. For one of the U.K. pension plans, a market-related value of assets is used in lieu of the fair value of plan assets for this purpose. The net actuarial loss (gain) is amortized to the extent that it exceeds 10% of the greater of the fair value of plan assets and the projected benefit obligation. The amortization period is the average life expectancy of plan participants for most plans. The amortization period for plans with a significant number of active participants accruing benefits is the average future working lifetime of plan participants. The prior service cost (credit) is amortized over the average future working lifetime of plan participants whose prior service benefits were changed.

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

The net periodic pension cost was $11.2 million in 2023 and net periodic pension benefit was, $2.3 million and $5.9 million in 2022 and 2021, respectively. The net periodic pension cost increased in 2023 compared to 2022, primarily driven by higher interest costs for both U.S. and non-U.S. plans and lower expected return on assets. Employer cash contributions were $18.1 million, $17.8 million and $25.4 million in 2023, 2022 and 2021, respectively.

Holding all other factors constant, a decrease in the expected long-term rate of return on plan assets by 0.25 percentage points would have increased 2023 pension expense by $1.0 million for U.S. pension plans and $0.6 million for non-U.S. pension plans. Also, holding all other factors constant, a decrease in the discount rate used to determine net periodic pension cost by 0.25 percentage points would have increased 2023 pension expense by $0.1 million for U.S. pension plans and $0.1 million for non-U.S. pension plans.

Recent Accounting Pronouncements

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