Edgar Filing: CRANE CO /DE/

CR-2012.12.31-10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-1657

CRANE CO.




State of incorporation: Delaware		I.R.S. Employer identification No. 13-1952290

Principal executive office: 100 First Stamford Place, Stamford, CT 06902

Registrant’s telephone number, including area code: (203) 363-7300

Securities registered pursuant to Section 12(b) of the Act:




Title of each class		Name of each exchange on which registered
Common Stock, par value $1.00		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act

Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):



Large accelerated filer x		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

Based on the closing stock price of $36.38 on June 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common equity held by nonaffiliates of the registrant was $1,700,765,946

The number of shares outstanding of the registrant’s common stock, par value $1.00, was 57,345,715 at January 31, 2013.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders’ meeting to be held on April 22, 2013

are incorporated by reference into Part III of this Form 10-K.

Index




		Page

Part I
Item 1.	Business	Page2
Item 1A.	Risk Factors	Page8
Item 1B.	Unresolved Staff Comments	Page15
Item 2.	Properties	Page15
Item 3.	Legal Proceedings	Page15
Item 4.	Mine Safety Disclosures	Page15

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	Page16
Item 6.	Selected Financial Data	Page16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	Page37
Item 8.	Financial Statements and Supplementary Data	Page38
Item 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	Page80
Item 9A.	Controls and Procedures	Page80
Item 9B.	Other Information	Page81

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	Page81
Item 11.	Executive Compensation	Page82
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page82
Item 13.	Certain Relationships and Related Transactions, and Director Independence	Page82
Item 14.	Principal Accounting Fees and Services	Page82

Part IV
Item 15.	Exhibits and Financial Statement Schedules	Page85
	Signatures	Page85

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains information about us, some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as “believes”, “contemplates”, “expects”, “may”, “will”, “could”, “should”, “would”, or “anticipates”, other similar phrases, or the negatives of these terms.

We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:


•	The effect of changes in economic conditions in the markets in which we operate, including financial market conditions, fluctuations in raw material prices and the financial condition of our customers and suppliers;


•	Economic, social and political instability, currency fluctuation and other risks of doing business outside of the United States;


•	Competitive pressures, including the need for technology improvement, successful new product development and introduction and any inability to pass increased costs of raw materials to customers;


•	Our ability to successfully integrate our pending acquisition and to realize synergies and opportunities for growth and innovation;


•	Our ability to successfully value acquisition candidates;


•	Our ongoing need to attract and retain highly qualified personnel and key management;


•	A reduction in congressional appropriations that affect defense spending or the ability of the U.S. government to terminate our government contracts;


•	The outcomes of legal proceedings, claims and contract disputes;


•	Adverse effects on our business and results of operations, as a whole, as a result of increases in asbestos claims or the cost of defending and settling such claims;


•	The outcome of restructuring and other cost savings initiatives;


•	Adverse effects as a result of further increases in environmental remediation activities, costs and related claims;


•	Investment performance of our pension plan assets and fluctuations in interest rates, which may affect the amount and timing of future pension plan contributions; and


•	The effect of changes in tax, environmental and other laws and regulations in the United States and other countries in which we operate.

Part I

Reference herein to “Crane”, “we”, “us”, and “our” refer to Crane Co. and its subsidiaries unless the context specifically states or implies otherwise. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated.

Item 1. Business.

We are a diversified manufacturer of highly engineered industrial products. Comprised of five segments – Aerospace & Electronics, Engineered Materials, Merchandising Systems, Fluid Handling and Controls – our businesses give us a substantial presence in focused niche markets, allowing us to pursue attractive returns and excess cash flow. Our primary markets are aerospace, defense electronics, non-residential construction, recreational vehicle (“RV”), transportation, automated merchandising, chemical, pharmaceutical, oil, gas, power, nuclear, building services and utilities.

Since our founding in 1855, when R.T. 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,” we have been committed to the highest standards of business conduct.

Our strategy is to grow the earnings and cash flows of niche businesses with leading market shares, acquire businesses that fit strategically with existing businesses, successfully develop new products, aggressively pursue operational and strategic linkages among our businesses, build a performance culture focused on productivity and continuous improvement, continue to attract and retain a committed management team whose interests are directly aligned with those of our shareholders and maintain a focused, efficient corporate structure.

We use a comprehensive set of business processes and operational excellence tools that we call the Crane Business System to drive continuous improvement throughout our businesses. Beginning with a core value of integrity, the Crane Business System incorporates “Voice of the Customer” teachings (specific processes designed to capture our customers’ requirements) and a broad range of operational excellence tools into a disciplined strategy deployment process that drives profitable growth by focusing on continuously improving safety, quality, delivery and cost.

We employ approximately 10,500 people in North and South America, Europe, the Middle East, Asia and Australia. Revenues from outside the United States were approximately 41% and 43% in 2012 and 2011, respectively. For more information regarding our sales and assets by geographical region, see Part II, Item 8 under Note 14, “Segment Information,” to the Consolidated Financial Statements.

Business Segments

For additional information on recent business developments and other information about us and our business, you should 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 14, “Segment Information,” to the Consolidated Financial Statements for sales, operating profit and assets employed by each segment.

Aerospace & Electronics

The Aerospace & Electronics segment has two groups, the Aerospace Group and the Electronics Group. This segment supplies critical components and systems, including original equipment and aftermarket parts, for both the commercial and military aerospace industries. The commercial market accounted for approximately 63% of segment sales in 2012, while sales to the military market were approximately 37% of total sales.

The Aerospace Group’s products are organized into the following solution sets which are designed, manufactured and sold under their respective brand names: Landing Systems (Hydro-Aire), Sensing and Utility Systems (ELDEC), Fluid Management (Lear Romec) and Cabin Systems (P.L. Porter). The Electronics Group products are organized into the following solution sets: Power Solutions (ELDEC, Keltec and Interpoint), Microwave Systems (Signal Technology and Merrimac) and Microelectronics (Interpoint).

The Landing Systems solution set includes aircraft brake control and anti-skid systems, including electro-hydraulic servo valves and manifolds, embedded software and rugged electronic controls, hydraulic control valves, landing gear sensors, and electrical braking as original equipment to the commercial transport, business, regional, general aviation, military and government aerospace, repair and overhaul markets. This solution set also includes similar systems for the retrofit of aircraft with improved systems as well as replacement parts for systems installed as original equipment by aircraft manufacturers. All of these solution sets are proprietary to us and are custom designed to the requirements and specifications of the aircraft manufacturer or program contractor. These systems and replacement parts are sold directly to aircraft manufacturers, Tier 1 integrators

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(companies which make products specifically for an aircraft manufacturer), airlines, governments and aircraft maintenance, repair and overhaul (“MRO”) organizations. Manufacturing for Landing Systems is located in Burbank, California.

The Sensing and Utility Systems solution set includes custom position indication and control systems, proximity sensors, and pressure sensors for the commercial business, regional and general aviation, military, maintenance, repair and overhaul ("MRO") and electronics markets. These products are custom designed for specific aircraft to meet technically demanding requirements of the aerospace industry. Our Sensing and Utility Systems products are manufactured at facilities in Lynnwood, Washington and Lyon, France.

Our Fluid Management solution set includes lubrication and fuel pumps and fuel flow meters for aircraft and radar cooling systems for the commercial and military aerospace industries. It also includes fuel boost and transfer pumps for commuter and business aircraft. Our Fluid Management products are manufactured at three facilities located in Elyria, Ohio; Burbank, California; and Lynnwood, Washington.

Our Cabin Systems solution set includes motion control products for airline seating. We manufacture both electromechanical actuation and hydraulic/mechanical actuation solutions for aircraft seating, selling directly to seat manufacturers and to the airlines. Our Cabin Systems solutions are primarily manufactured in Burbank, California.

Our Power solution set includes custom low voltage and high voltage power supplies, miniature (hybrid) power modules, battery charging systems, transformer rectifier units, high power traveling wave tube (“TWT”) transmitters and power for TWT and solid state transmitters and amplifiers for a broad array of applications predominantly in the defense, commercial aerospace and space markets. These products are used to provide power for avionics, weapons systems, radar, electronic warfare suites, communications systems, data links, aircraft utilities systems, emergency power, bulk ac/dc power conversion and motor pulse power. Products range from standard modules to full custom designed power management and distribution systems. We supply our products to commercial aerospace and space prime contractors, Tier 1 integrators and U.S. Department of Defense prime contractors and foreign allied defense organizations. Facilities are located in Redmond and Lynnwood, Washington; Ft. Walton Beach, Florida; and Kaohsiung, Taiwan.

Our Microwave Systems solution set includes sophisticated electronic radio frequency components and subsystems and specialty components and materials. These products are used in defense and space electronics applications that include radar, electronic warfare suites, communications systems and data links. We supply many U.S. Department of Defense prime contractors and foreign allied defense organizations with products that enable missile seekers and guidance systems, aircraft sensors for tactical and intelligence applications, surveillance and reconnaissance missions, communications and self-protect capabilities for naval vessels, sensors and communications capability on unmanned aerial systems and applications for combat troops. Facilities are located in Beverly, Massachusetts; Chandler, Arizona; West Caldwell, New Jersey; San Jose, Costa Rica; and Norwalk, Connecticut.

Our Microelectronics solution set, headquartered in Redmond, Washington, designs, manufactures and sells custom miniature (hybrid) electronic circuits for applications in medical, military and commercial aerospace industries.

The Aerospace & Electronics segment employed approximately 2,700 people and had assets of $510 million at December 31, 2012. The order backlog totaled $378 million and $411 million at December 31, 2012 and 2011, respectively.

Engineered Materials

The Engineered Materials segment manufactures fiberglass-reinforced plastic panels for the transportation industry, in refrigerated and dry-van trailers and truck bodies, RVs, industrial building applications and the commercial construction industry for food processing, restaurants and supermarket applications. Engineered Materials sells the majority of its products directly to trailer and RV manufacturers and uses distributors and retailers to serve the commercial construction market. Manufacturing facilities are located in Joliet, Illinois; Jonesboro, Arkansas; Florence, Kentucky and Goshen, Indiana.

The Engineered Materials segment employed approximately 620 people and had assets of $237 million at December 31, 2012. The order backlog totaled $13 million and $11 million at December 31, 2012 and 2011, respectively.

Merchandising Systems

The Merchandising Systems segment is comprised of two businesses, Vending Solutions and Payment Solutions.

Our Vending Solutions business, which is primarily engaged in the design and manufacture of vending equipment and related solutions, creates customer value through innovation by improving consumer experience and store profitability. Our products, which include a full line of vending options, including those for food, snack, coffee and cold beverages, are sold to vending operators and food and beverage companies throughout the world. Vending Solutions has leading positions in both the direct and indirect distribution channels. Our solutions include vending management software and online solutions to help customers

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operate their businesses more profitably, become more competitive and increase cash flow for continued business investment. Production facilities for Vending Solutions are located in Williston, South Carolina and Chippenham, England.

Our Payment Solutions business provides high technology products serving four global vertical markets: Retail, Vending, Gaming and Transportation. Our payment systems solutions for these markets include coin accepters and dispensers, coin hoppers, coin recyclers, bill validators and bill recyclers. Major facilities are located in Manchester, England; Buxtehude, Germany; Concord, Ontario, Canada; Kiev, Ukraine; and Salem, New Hampshire.

The Merchandising Systems segment employed approximately 1,680 people and had assets of $409 million at December 31, 2012. Order backlog totaled $15 million at both December 31, 2012 and 2011.

Fluid Handling

The Fluid Handling segment is a provider of highly engineered fluid handling equipment, such as valves, lined pipe and pumps, for critical performance applications that require high reliability. The segment operates through vertically focused end-market businesses consisting of the Crane Valve Group (“Valve Group”), Crane Pumps & Systems and Crane Supply.

The Valve Group business includes: Crane ChemPharma & Energy Flow Solutions and Building Services & Utilities.

The Valve Group is a global manufacturer of critical on/off process valves for demanding applications in industrial end markets, as well as innovative valves, coupling and gas components for commercial construction and utilities end markets. Products and services include a wide variety of valves, corrosion-resistant plastic-lined pipe, pipe fittings, couplings, connectors, actuators and valve testing. Markets served include the chemical processing, pharmaceutical, oil and gas, power, nuclear, mining, water and wastewater, general industrial and commercial construction industries. Products are sold under the trade names Crane, Saunders, Jenkins, Pacific, Xomox, Krombach, DEPA, ELRO, REVO, Flowseal, Centerline, Stockham, Wask, Viking Johnson, IAT, Hattersley, NABIC, Sperryn, Wade, Rhodes, Brownall, Resistoflex, Duochek and WTA. Facilities and sales/service centers are located in the United States, as well as in Australia, Austria, Belgium, Canada, China, England, Finland, France, Germany, Hungary, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Northern Ireland, Russia, Singapore, Slovenia, South Korea, Spain, Sweden, Taiwan, United Arab Emirates and Wales.

Crane Pumps & Systems manufactures pumps under the trade names Deming, Weinman, Burks and Barnes. Pumps are sold to a

broad customer base that includes industrial, municipal, and commercial water and wastewater, commercial heating, ventilation and air-conditioning industries, original equipment manufacturers and military applications. Crane Pumps & Systems has facilities in Piqua, Ohio; Bramalea, Ontario, Canada; and Zhejiang, China.

Crane Supply, a distributor of valves, fittings, piping and plumbing supplies, maintains 31 distribution facilities throughout Canada.

The Fluid Handling segment employed approximately 4,900 people and had assets of $955 million at December 31, 2012. Order backlog totaled $327 million and $314 million at December 31, 2012 and 2011, respectively.

Controls

The Controls segment provides customer solutions for sensing and control applications and has special expertise in control solutions for difficult and hazardous environments. It includes two businesses: Barksdale (valves and pressure, temperature and level sensors) and Crane Environmental (specialized water purification solutions).

The Controls segment employed approximately 340 people and had assets of $39 million at December 31, 2012. Order backlog totaled $17 million and $27 million at December 31, 2012 and 2011, respectively.

Acquisitions

In December 2012, we entered into a Stock Purchase Agreement to purchase all of the outstanding equity interests of MEI Conlux Holdings (U.S.), Inc. and its affiliate MEI Conlux Holdings (Japan), Inc. (together “MEI”) for a purchase price of $820 million on a cash free and debt free basis. The purchase of MEI is contingent upon regulatory approvals and customary closing conditions. MEI, a leading provider of payment solutions for unattended transaction systems, serves customers in the transportation, gaming, retail, service payment and vending markets. MEI had sales of approximately $400 million in 2012 and will be integrated into our Payment Solutions business within our Merchandising Systems segment.

We have completed five acquisitions since the beginning of 2008.

In July 2011, we completed the acquisition of W. T. Armatur GmbH & Co. KG (“WTA”), a manufacturer of bellows sealed globe valves, as well as certain types of specialty valves, for chemical, fertilizer and thermal oil applications, for a purchase price of $37 million in cash and $1 million of assumed debt. WTA’s 2010 sales were approximately $21 million, and WTA has been integrated into Crane ChemPharma & Energy Flow Solutions within our Fluid Handling segment. Goodwill for this acquisition amounted to $12 million.

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During 2010, we completed two acquisitions at a total cost of approximately $144 million, including the repayment of $3 million of assumed debt. Goodwill for the 2010 acquisitions amounted to $51 million.

In December 2010, we completed the acquisition of Money Controls, a leading producer of a broad range of payment systems and associated products for the gaming, amusement, transportation and retail markets. Money Controls’ 2010 full-year sales were approximately $64 million, and the purchase price was approximately $90 million, net of cash acquired of $3 million. Money Controls has been integrated into the Payment Solutions business within our Merchandising Systems segment.

In February 2010, we completed the acquisition of Merrimac Industries, Inc. (“Merrimac”), a designer and manufacturer of RF Microwave components, subsystem assemblies and micro-multifunction modules. Merrimac’s 2009 sales were approximately $32 million, and the aggregate purchase price was $54 million in cash, including the repayment of $3 million of assumed debt. Merrimac has been integrated into the Electronics Group within our Aerospace & Electronics segment.

During 2008, we completed two acquisitions at a total cost of $79 million in cash and the assumption of $17 million of net debt. Goodwill for the 2008 acquisitions amounted to $14 million.

In December 2008, we acquired all of the capital stock of the Krombach Group of Companies (“Krombach”). Krombach is a leading manufacturer of specialty valve flow solutions for the power, oil and gas, and chemical markets. Krombach’s 2008 full year sales were approximately $100 million, and the purchase price was $51 million in cash and the assumption of $17 million of net debt. Krombach has been integrated into the Crane ChemPharma & Energy Flow Solutions business within our Fluid Handling segment.

In September 2008, we acquired all of the capital stock of Delta Fluid Products Limited (“Delta”), a leading designer and manufacturer of regulators and fire safe valves for the gas industry, and safety valves and air vent valves for the building services market, for $28 million in cash. Delta had full year sales of $39 million in 2008 and has been integrated into the Building Services & Utilities business within our Fluid Handling segment.

Divestitures

In June 2012, we sold certain assets and operations of the Company’s valve service center in Houston, Texas, which was formerly part of the Fluid Handling segment, to Furmanite Corporation for $9.3 million. The service center had sales of $14 million in 2011 and is reported as discontinued operations on our Consolidated Statement of Operations.

In June 2012, we also sold Azonix Corporation (“Azonix”), which was formerly part of the Controls segment, to Cooper Industries for $44.8 million. Azonix had sales of $32 million in 2011 and is reported as discontinued operations on our Consolidated Statement of Operations.

In July 2010, we sold Wireless Monitoring Systems (“WMS”) to Textron Systems for $3 million. WMS was included in our Controls segment. WMS had sales of $3 million in 2009.

During 2009, we sold General Technology Corporation (“GTC”) to IEC Electronics Corp. for $14 million. GTC, also known as Crane Electronic Manufacturing Services, was included in our Aerospace & Electronics segment, as part of the Electronics Group. GTC had $26 million in sales in 2009.

Competitive Conditions

Our lines of business are conducted under highly competitive conditions in each of the geographic and product areas they serve. Because of the diversity of the classes of products manufactured and sold, they do not compete with the same companies in all geographic or product areas. Accordingly, it is not possible to estimate the precise number of competitors or to identify our competitive position, although we believe that we are a principal competitor in many of our markets. Our principal method of competition is production of quality products at competitive prices delivered in a timely and efficient manner.

Our products have primary application in the aerospace, defense electronics, non-residential construction, RV, transportation, automated merchandising, chemical, pharmaceutical, oil, gas, power, nuclear, building services and utilities. As such, our revenues are dependent upon numerous unpredictable factors, including changes in market demand, general economic conditions and capital spending. Because these products are also sold in a wide variety of markets and applications, we do not believe we can reliably quantify or predict the possible effects upon our business resulting from such changes.

Our engineering and product development activities are directed primarily toward improvement of existing products and adaptation of existing products to particular customer requirements as well as the development of new products. We own numerous patents, trademarks, copyrights, trade secrets and licenses to intellectual property, no one of which is of such importance that termination would materially affect our business. From time to time, however, we do engage in litigation to protect our intellectual property.

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Research and Development

Research and development costs are expensed when incurred. These costs were $66.9 million, $64.2 million and $65.9 million in 2012, 2011 and 2010, respectively, and were incurred primarily by the Aerospace & Electronics segment.

Our Customers

No customer accounted for more than 10% of our consolidated revenues in 2012, 2011 and 2010.

Raw Materials

Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world. Although market forces have generally caused increases in the costs of steel, copper and petroleum-based products, there have been no raw materials shortages that have had a material adverse impact on our business, and we believe that we will generally be able to obtain adequate supplies of major raw material requirements or reasonable substitutes at reasonable costs.

Seasonal Nature of Business

Our business does not experience significant seasonality.

Government Contracts

We have agreements relating to the sale of products to government entities, primarily involving products in our Aerospace & Electronics segment and our Fluid Handling segment. 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. Our failure to comply with these laws could result in suspension of these contracts, criminal or civil sanctions, administrative penalties and fines or suspension or debarment from government contracting or subcontracting for a period of time. For a further discussion of risks related to compliance with government contracting requirements; please refer to “Item 1A. Risk Factors.”

Financing

In December 2012, we obtained $600 million of bank loan commitments in support of our pending acquisition of MEI. The commitments support a $200 million expansion of our current multi-year credit facility, which expires in May 2017, and an additional $400 million 364-day credit facility.

In May 2012, we entered into a five-year, $300 million Amended and Restated Credit Agreement (as subsequently amended, the “facility”), which is due to expire in May 2017. The facility allows us to borrow, repay, or to the extent permitted by the agreement, prepay and re-borrow funds at any time prior to the stated maturity date, and the loan proceeds may be used for general corporate purposes including financing for acquisitions. Interest is based on, at our option, (1) a LIBOR-based formula that is dependent in part on the Company's credit rating (LIBOR plus 105 basis points as of the date of this Report; up to a maximum of LIBOR plus 147.5 basis points), or (2) the greatest of (i) the JPMorgan Chase Bank, N.A.'s prime rate, (ii) the Federal Funds rate plus 50 basis points, or (iii) an adjusted LIBOR rate plus 100 basis points. Neither facility was used in 2012 and 2011, and our prior facility was only used for letter of credit purposes in 2010. The facility contains customary affirmative and negative covenants for credit facilities of this type, including the absence of a material adverse effect and limitations on us and our subsidiaries with respect to indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of all or substantially all assets, transactions with affiliates and hedging arrangements. The facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, the fact that any representation or warranty made by us is false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting us and our subsidiaries, certain ERISA events, material judgments and a change in control. The facility contains a leverage ratio covenant requiring a ratio of total debt to total capitalization of less than or equal to 65%. At December 31, 2012, our ratio was 30%.

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holders of the notes may require us to repurchase them, in whole or in part, for 101% of the principal amount plus accrued and unpaid interest.

In September 2003, we issued $200 million of 5.50% notes that mature on September 15, 2013. The notes are unsecured, senior obligations with interest payable semi-annually on March 15 and September 15 of each year. These notes have been presented in the accompanying Consolidated Balance Sheet as a long-term liability due to our intent and ability to refinance these notes on a long-term basis. The notes have no sinking fund requirement but may be redeemed, in whole or in part, at our option. These notes do not contain any material debt covenants or cross default provisions.

Available Information

We file annual, quarterly and current reports and amendments to these reports, proxy statements and other information with the United States Securities and Exchange Commission (“SEC”). You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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.

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 Co. 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.

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Executive Officers of the Registrant



Name	Position	Business Experience During Past Five Years	Age	Executive Officer Since
Eric C. Fast	Chief Executive Officer	Chief Executive Officer and a Director since 2001 and President from 2001 to January 2013.	63	1999
Max H. Mitchell	President and Chief Operating Officer	President since January 2013. Chief Operating Officer since May 2011. Group President, Fluid Handling from 2005 to October 2012.	49	2004
Curtis A. Baron, Jr.	Vice President, Controller	Vice President, Controller since December 2011. Assistant Controller from August 2007 to December 2011.	43	2011
Thomas J. Craney	Group President, Engineered Materials	Group President, Engineered Materials since May 2007.	57	2007
Augustus I. duPont	Vice President, General Counsel and Secretary	Vice President, General Counsel and Secretary since 1996.	61	1996
Bradley L. Ellis	Group President, Merchandising Systems	Group President, Merchandising Systems since 2003. Vice President, Crane Business System from March 2009 to December 2011.	44	2000
Elise M. Kopczick	Vice President, Human Resources	Vice President, Human Resources since 2001.	59	2001
Andrew L. Krawitt	Vice President, Treasurer	Vice President, Treasurer since 2006 and Principal Financial Officer from May 2010 to January 2013.	47	2006
Richard A. Maue	Vice President - Finance and Chief Financial Officer	Vice President - Finance and Chief Financial Officer since January 2013. Principal Accounting Officer since August 2007 and Controller from August 2007 to December 2011.	42	2007
Anthony D. Pantaleoni	Vice President, Environment, Health and Safety	Vice President, Environment, Health and Safety since 1989.	58	1989
Thomas J. Perlitz	Vice President, Corporate Strategy and Acting Group President, Aerospace	Acting Group President, Aerospace of Aerospace & Electronics effective January 2013. Vice President, Corporate Strategy since March 2009 and Group President, Controls since October 2008. Vice President, Operational Excellence from 2005 to March 2009.	44	2005
Louis V. Pinkham	Group President, Fluid Handling	Group President, Fluid Handling since October 2012. Senior Vice President, General Manager at Eaton Corp. (diversified power management company) from June 2011 to October 2012. Vice President, General Manager Eaton Corp. from 2008 to 2011.	41	2012
Kristian R. Salovaara	Vice President, Business Development	Vice President, Business Development since May 2011. Managing Director at FBR Capital Markets & Co. from September 2009 to May 2011. Founding Partner at Watch Hill Partners, LLC (investment banking firm) from 2004 to September 2009.	52	2011
Edward S. Switter	Vice President, Tax	Vice President, Tax since 2011. Director Global Tax from 2010 to 2011. Director of Tax from 2006 to 2010.	38	2011
Robert E. Tavares	Group President, Electronics	President, Electronics Group of Aerospace & Electronics since March 2012. President of EV2, North America from July 2011 to March 2012 . Vice President, Microwave Solutions, Electronics from September 2010 to July 2011. Vice President, General Manager Cobham M/A-COM Inc (technology solutions company) from 2008 to 2010.	51	2012

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Item 1A. Risk Factors.

The following is a description of what we consider the key challenges and risks confronting our business. This discussion should be considered in conjunction with the discussion under the caption “Forward-Looking Information” preceding Part I, the information set forth under Item 1, “Business” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks comprise the material risks of which we are aware. If any of the events or developments described below or elsewhere in this Annual Report on Form 10-K, or in any documents that we subsequently file publicly were to occur, it could have a material adverse effect on our business, financial condition or results of operations.

Risks Relating to Our Business

We are subject to numerous lawsuits for asbestos-related personal injury, and costs associated with these lawsuits may adversely affect our results of operations, cash flow and financial position.

We are subject to numerous lawsuits for asbestos-related personal injury. Estimation of our ultimate exposure for asbestos-related claims is subject to significant uncertainties, as there are multiple variables that can affect the timing, severity and quantity of claims. Our estimate of the future expense of these claims is derived from assumptions with respect to future claims, settlement and defense costs which are based on experience during the last few years and which may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would substantial adverse verdicts at trial or on appeal. A legislative solution or a structured settlement transaction could also change the estimated liability. These uncertainties may result in us incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if the number of claims and settlements and defense costs escalates or if legislation or another alternative solution is implemented; however, we are currently unable to predict such future events. The resolution of these claims may take many years, and the effect on results of operations, cash flow and financial position in any given period from a revision to these estimates could be material.

As of December 31, 2012, we were one of a number of defendants in cases involving 56,442 pending claims filed in various state and federal courts that allege injury or death as a result of exposure to asbestos. See Note 11, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements for additional information on:


•	Our pending claims;


•	Our historical settlement and defense costs for asbestos claims;


•	The liability we have recorded in our financial statements for pending and reasonably anticipated asbestos claims through 2021;


•	The asset we have recorded in our financial statements related to our estimated insurance coverage for asbestos claims; and


•	Uncertainties related to our net asbestos liability.

We have recorded a liability for pending and reasonably anticipated asbestos claims through 2021, and while it is probable that this amount will change and that we may incur additional liabilities for asbestos claims after 2021, which additional liabilities may be significant, we cannot reasonably estimate the amount of such additional liabilities at this time.

Macroeconomic fluctuations may harm our business, results of operations and stock price.

Over the past few years, market and economic conditions in the global economy have been highly challenging with slower economic growth and a variety of problems, including turmoil in the credit and financial markets, concerns regarding the stability and viability of major financial institutions, the state of the housing markets and volatility in fuel prices and worldwide stock markets. Restrictions on credit availability have and could continue to adversely affect the ability of our customers to obtain financing for significant purchases and could result in decreases in or cancellation of orders for our products and services as well as impact the ability of our customers to make payments. 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. Despite positive economic indicators seen since the beginning of 2011, the overall rate of recovery experienced during 2012 was uneven and uncertainty continues to exist over the stability of the recovery. Contributing factors include persistent high unemployment in the U.S. and Europe, a slow recovery of the U.S. and European housing market, government budget reduction plans, including the potential of mandatory reductions in U.S. defense spending. A return to unfavorable economic conditions, or even an increase in economic uncertainty, could harm our business by adversely affecting our revenues, results of operations, cash flows and financial condition. See “Specific Risks Relating to Our Business Segments”.

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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 flow and reputation.

Our operations are subject to environmental 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. We must also comply with various health and safety regulations in the United States and abroad in connection with our operations. Failure to comply with any of these laws could result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. 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 flow.

Our businesses are subject to extensive governmental regulation; failure to comply with those regulations could adversely affect our financial condition, results of operations, cash flow and reputation.

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 and Fluid Handling segments, as discussed more fully under “Specific Risks Relating to Our Business Segments”. 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. A failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting. In addition, failure to comply with any of these regulations could result in civil and criminal, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

The prices of our raw materials can fluctuate dramatically, which may adversely affect our profitability.

The costs of certain raw materials that are critical to our profitability are volatile. This volatility can have a significant impact on our profitability. In our Engineered Materials segment, for example, profits could be adversely affected by further increases in resin and fiberglass material costs and by the inability on the part of the businesses to maintain their position in product cost and functionality against competing materials. The costs in our Fluid Handling and Merchandising Systems segments similarly are affected by fluctuations in the price of metals such as steel and copper. 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 raw materials increase, our operating costs could be negatively affected.

Our ability to obtain parts and raw materials from our suppliers is uncertain, and any disruptions or delays in our supply chain could negatively affect our results of operations.

Our operations require significant amounts of important parts and raw materials. We are engaged in a continuous, company-wide effort to concentrate our purchases of parts and raw materials on fewer suppliers, and to obtain parts from suppliers in low-cost countries where possible. If we are unable to procure these parts or raw materials, our operations may be disrupted, or we could experience a delay or halt 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. Nonetheless, supplier capacity constraints, supplier production disruptions, supplier financial condition, price volatility or the unavailability of some raw materials may have an adverse effect on our operating results and financial condition.

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.

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. These industries often are subject to fluctuations in domestic and international economies as well as to currency fluctuations and inflationary pressures. Reductions in the business levels of these industries would reduce the sales and profitability of the affected business segments. In our Aerospace & Electronics segment, for example, 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. Our Aerospace businesses could also be impacted to the extent that major aircraft manufacturers encountered production problems, or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices. In our Engineered Materials segment, sales and profits could be affected by declines in demand for truck trailers, RVs, or building products. In our Fluid Handling segment, a slower recovery of the economy or major markets could reduce sales and profits, particularly if projects for which these businesses are suppliers or bidders are canceled or delayed. Results at our Merchandising Systems segment could be affected by sustained low employment levels, office occupancy rates and factors affecting vending operator profitability such as higher fuel, food and equipment financing costs.

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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. 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. Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales to decline.

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 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.

We maintain insurance coverage to protect us against product liability claims, but that 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. Any liability not covered by insurance or that exceeds our established reserves could materially and adversely impact our financial condition and results of operations.

We may be unable to improve productivity, reduce costs and align manufacturing capacity with customer demand.

We are committed to continuous productivity improvement and 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. For example, in 2012, the Company recorded pre-tax restructuring and related charges of $20.6 million associated with repositioning actions designed to improve profitability beginning in 2013, primarily in the European portion of the Fluid Handling segment. However, our failure to respond to potential declines in global demand for our products and services and properly align our cost base would have an adverse effect on our financial condition, results of operations and cash flow.

We may be unable to successfully develop and introduce new products, which would limit our ability to grow and maintain our competitive position and adversely affect our financial condition, results of operations and cash flow.

Our growth depends, in part, on continued sales of existing products, as well as the successful development and introduction of new products, which face the uncertainty of customer acceptance and reaction from competitors. 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. 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 results of operations and financial condition could be adversely impacted.

Pension expense and pension contributions associated with the Company’s retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions and future market performance of plan assets.

A significant portion of our current and retired employee population is covered by pension and post-retirement benefit plans, the costs of which are dependent upon various assumptions, including estimates of rates of return on benefit related assets, discount rates for future payment obligations, rates of future cost growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension and post-retirement benefit plans are subject to legislative and other government regulatory actions. Variances from these estimates could have a significant impact on our consolidated financial position, results of operations and cash flow.

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. Our acquisition program attempts to address the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities, systems of internal control and potential profitability of acquisition candidates, as well as other challenges such as retaining the employees and integrating the operations of the businesses we acquire. Integrating acquired operations, such as the recent acquisitions of WTA and Money Controls or the pending acquisition of MEI involves significant risks and uncertainties, including:


•	Maintenance of uniform standards, controls, policies and procedures;


•	Distraction of management’s attention from normal business operations during the integration process;


•	Unplanned expenses associated with the integration efforts; and


•	Unidentified issues not discovered in the due diligence process, including legal contingencies.

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There can be no assurance that suitable acquisition opportunities will be available in the future, that we will continue to acquire businesses or that any business acquired will be integrated successfully or prove profitable, which could adversely impact our growth rate. Our ability to achieve our growth goals depends in part upon our ability to identify and successfully acquire and integrate companies and businesses at appropriate prices and realize anticipated cost savings.

We face significant competition which may adversely impact our results of operations and financial position in the future.

While we are a principal competitor in most of our markets, all of our markets are highly competitive. 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, and the ability of our business segments to achieve similar advances will be important to our competitive positions. 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 results of operations.

We conduct a substantial portion of our business outside the United States and face risks inherent in non-domestic operations.

Net sales and assets related to our operations outside the United States were 41% and 34% in 2012, respectively, of our consolidated amounts. These operations and transactions are subject to the risks associated with conducting business internationally, including the risks of currency fluctuations, slower payment of invoices, adverse trade regulations and possible social, economic and political instability in the countries and regions in which we operate. In addition, we expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future. Accordingly, declines in foreign currency exchange rates, primarily the Euro, the British Pound or the Canadian Dollar, could adversely affect our reported results, primarily in our Fluid Handling and Merchandising Systems segments, as amounts earned in other countries are translated into U.S. Dollars for reporting purposes.

We are dependent on key personnel, and we may not be able to retain our key personnel or hire and retain additional personnel needed for us to sustain and grow our business as planned.

Certain of 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. We may have difficulty retaining such personnel or locating and hiring additional qualified personnel. The loss of the services of any of our key personnel or our failure to attract and retain other qualified and experienced personnel on acceptable terms could impair our ability to successfully sustain and grow our business, which could impact our results of operations in a materially adverse manner.

If our internal controls are found to be ineffective, our financial results or our stock price may be adversely affected.

We believe that we currently have adequate internal control procedures in place for future periods; however, increased risk of internal control breakdowns generally exists in a business environment that is decentralized. In addition, if our internal control over financial reporting is found to be ineffective, investors may lose confidence in the reliability of our financial statements, which may adversely affect our stock price.

Failure to maintain the security of our information and technology networks, including personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of the Company’s privacy and security policies with respect to such information, could adversely affect us.

We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and, in the normal course of our business, we collect and retain significant volumes of certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving and companies that collect and retain such information are under increasing attack by cyber-criminals around the world. A significant actual or potential theft, loss, fraudulent use or misuse of customer, stockholder, employee or our data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in costs, fines, litigation or regulatory action against us. Security breaches of this infrastructure can create system disruptions and shutdowns that could result in disruptions to our operations. We cannot be certain that advances in criminal capabilities, new discoveries in the field of cryptography or other developments will not compromise or breach the technology protecting the networks that access our products and services.

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Specific Risks Relating to Our Business Segments

Aerospace & Electronics

Our Aerospace & Electronics segment is particularly affected by economic conditions in the commercial and military aerospace industries which are cyclical in nature and affected by periodic downturns that are beyond our control. Although the operating environment faced by commercial airlines generally continued to improve through 2012, uncertainty continues to exist. The principal markets for manufacturers of commercial aircraft are large commercial airlines, which could be adversely affected by a number of factors, including current and predicted traffic levels, load factors, aircraft fuel pricing, worldwide airline profits, terrorism, pandemic health issues and general economic conditions. Our commercial business is also affected by the market for business jets which could be adversely impacted by a decline in business travel due to lower corporate profitability. In addition, a portion of this segment’s business is conducted under U.S. government contracts and subcontracts; therefore, a reduction in Congressional appropriations that affect defense spending or the ability of the U.S. government to terminate our contracts could impact the performance of this business. Specifically, if the U.S. Congress fails to agree on a deficit reduction plan, mandatory reductions in defense are required under the law. The extent and scope of these cuts is difficult to assess at this time. Any decrease in demand for new aircraft or equipment or use of existing aircraft and equipment will likely result in a decrease in demand of our products and services, and correspondingly, our revenues, thereby adversely affecting our business, financial condition and results of operation. Our sales to military customers are also affected by continued pressure on U.S. and global defense spending and the level of activity in military flight operations. Furthermore, due to the lengthy research and development cycle involved in bringing commercial and military products to market, we cannot predict the economic conditions that will exist when any new product is complete. In addition, 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 results of operations and financial condition could be adversely impacted.

In addition, we are required to comply with various export control laws, which may affect our transactions with certain customers. 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. We are also subject to investigation and audit for compliance with the requirements governing government contracts, including requirements related to procurement integrity, export control, employment practices, the accuracy of records and the recording of costs. A failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting. Failure to comply with any of these regulations could result in civil and criminal, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

Engineered Materials

In our Engineered Materials segment, sales and profits could fall if there were a decline in demand or a loss in market share for products used for trucks, trailers, RVs and building product applications for which our business produce fiberglass panels. In addition, profits could also be adversely affected by further increases in resin and fiberglass material costs, by the loss of a principal supplier or by an inability on the part of the business to maintain product cost and functionality advantages when compared to competing materials.

Merchandising Systems

Results at our Merchandising Systems businesses could be reduced by unfavorable economic conditions, including sustained or increased levels of manufacturing unemployment and office vacancies, inflation for key raw materials and continued increases in fuel costs. In addition, delays in launching or supplying new products or an inability to achieve new product sales objectives, or unfavorable changes in gaming regulations affecting certain of our Payment Solutions customers would adversely affect our profitability. Results at our foreign locations have been and will continue to be affected by fluctuations in the value of the Euro, the British Pound and the Canadian Dollar versus the U.S. Dollar.

Fluid Handling

The markets for our Fluid Handling businesses’ products and services are fragmented and highly competitive. We compete against large and well established national and global companies, as well as smaller regional and local companies. While we compete based on technical expertise, timeliness of delivery, quality and reliability, the competitive influence of pricing has broadened as a result of the generally weaker global economy. Demand for most of our products and services depend on the level of new capital investment and planned maintenance expenditures by our customers. The level of capital expenditures by our customers depends in turn on general economic conditions, availability of credit and expectation of future market behavior. Additionally, volatility in commodity prices could negatively affect the level of these activities as could continued postponement of capital spending decisions or the delay or cancellation of projects. While we experienced a gradual continued recovery in 2012, orders in the fourth quarter of 2012 were weaker due to project delays, which could adversely affect our

Page13

future operating results. In addition, to the extent we do not achieve targeted cost savings in connection with our 2012 repositioning actions, our operating results would also be adversely affected.

A portion of this segment’s business is subject to government rules and regulations. Failure to comply with these requirements might result in suspension or debarment from government contracting or subcontracting. Failure to comply with any of these regulations could result in civil and criminal, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

In addition, at our foreign operations, reported results in U.S. dollar terms could be eroded by a weakening of currency of the respective businesses, particularly where we operate using the Euro, British Pound and Canadian Dollar.

Controls

A number of factors could affect operating results of these businesses. Lower sales and earnings could result if our businesses cannot maintain their cost competitiveness, encounter delays in introducing new products or fail to achieve their new product sales objectives. Results could decline because of an unanticipated decline in demand for the businesses’ products from the industrial machinery, oil and gas or heavy equipment industries.

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Item 1B. Unresolved Staff Comments.

None

Item 2. Properties.



	Number of Facilities - Owned
Location	Aerospace & Electronics		Engineered Materials		Merchandising Systems		Fluid Handling		Controls		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.)	Number	Area (sq. ft.)
Manufacturing
United States	8	829,000	4	644,000	2	568,000	5	676,000	2	148,000	—	—	21	2,865,000
Canada	—	—	—	—	—	—	—	—	—	—	—	—	—	—
Europe	—	—	—	—	3	338,000	8	1,528,000	1	27,000	—	—	12	1,893,000
Other international	—	—	—	—	—	—	6	965,000	—	—	—	—	6	965,000
	8	829,000	4	644,000	5	906,000	19	3,169,000	3	175,000	—	—	39	5,723,000
Non-Manufacturing
United States	—	—	—	—	1	15,000	4	216,000	—	—	—	—	5	231,000
Canada	—	—	—	—	—	—	8	208,000	—	—	—	—	8	208,000
Europe	—	—	—	—	—	—	2	78,000	—	—	—	—	2	78,000
Other international	—	—	—	—	—	—	—	—	—	—	—	—	—	—
	—	—	—	—	1	15,000	14	502,000	—	—	—	—	15	517,000



	Number of Facilities - Leased
Location	Aerospace & Electronics		Engineered Materials		Merchandising Systems		Fluid Handling		Controls		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.)	Number	Area (sq. ft.)
Manufacturing
United States	1	16,000	1	19,000	2	93,000	2	105,000	—	—	—	—	6	233,000
Canada	—	—	—	—	1	61,000	1	21,000	—	—	—	—	2	82,000
Europe	1	12,000	1	15,000	1	10,000	4	686,000	—	—	—	—	7	723,000
Other international	2	89,000	—	—	—	—	3	167,000	—	—	—	—	5	256,000
	4	117,000	2	34,000	4	164,000	10	979,000	—	—	—	—	20	1,294,000
Non-Manufacturing
United States	2	13,000	2	59,000	6	85,000	5	72,000	2	15,000	3	42,000	20	286,000
Canada	—	—	—	—	—	—	26	403,000	—	—	—	—	26	403,000
Europe	4	7,000	2	16,000	5	23,000	11	78,000	—	—	—	—	22	124,000
Other international	—	—	—	—	1	6,000	25	194,000	—	—	—	—	26	200,000
	6	20,000	4	75,000	12	114,000	67	747,000	2	15,000	3	42,000	94	1,013,000

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.

Item 3. Legal Proceedings.

Discussion of legal matters is incorporated by reference to Part II, Item 8, Note 11, “Commitments and Contingencies,” in the Notes to the Consolidated Financial Statements.

Item 4. Mine Safety Disclosures.

Not applicable.

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Part II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Crane Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol CR. The following are the high and low sale prices as reported on the NYSE Composite Tape and the quarterly dividends declared per share for each quarter of 2012 and 2011.

MARKET AND DIVIDEND INFORMATION — CRANE CO. COMMON SHARES



	New York Stock Exchange Composite Price per Share								Dividends per Share
Quarter	2012 High		2012 Low		2011 High		2011 Low		2012		2011
First	$	51.48	$	45.79	$	49.24	$	40.58	$	0.26	$	0.23
Second	$	49.24	$	35.30	$	51.15	$	45.66	0.26		0.23
Third	$	42.67	$	34.89	$	52.38	$	35.10	0.28		0.26
Fourth	$	46.74	$	39.99	$	48.69	$	33.23	0.28		0.26
									$	1.08	$	0.98
On December 31, 2012, there were approximately 2,740 holders of record of Crane Co. common stock.

The following table summarizes our share repurchases during the year ended December 31, 2012:



	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
January 1-31	—	—		—	—
February 1- 28	—	—		—	—
March 1-31	—	—		—	—
Total January 1 — March 31, 2012	—	—		—	—
April 1-30	—	—		—	—
May 1-31	637,735	$	39.24	—	—
June 1-30	134,590	$	36.88	—	—
Total April 1 — June 30, 2012	772,325	$	38.83	—	—
July 1-31	—	—		—	—
August 1-31	499,267	$	40.03	—	—
September 1-30	—	—		—	—
Total July 1 — September 30, 2012	499,267	$	40.03	—	—
October 1-31	—	—		—	—
November 1-30	—	—		—	—
December 1-31	—	—		—	—
Total October 1 — December 31, 2012	—	—		—	—
Total January 1 — December 31, 2012	1,271,592	$	39.31	—	—

The table above only includes the open-market repurchases of our common stock during the year ended December 31, 2012. 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 stock awards from stock-based compensation program participants.

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Item 6. Selected Financial Data.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA



	For the year ended December 31,
(in thousands, except per share data)	2012			2011			2010			2009			2008
Net sales(a)	$	2,579,068		$	2,500,369		$	2,179,319		$	2,163,860		$	2,554,416
Operating profit from continuing operations(b)	310,441			36,571			233,300			209,849			195,393
Interest expense	(26,831		)	(26,255		)	(26,841		)	(27,139		)	(25,799		)
Income from continuing operations before taxes(a)(b)	284,605			14,761			209,067			186,506			181,551
Provision (benefit) for income taxes(c)	88,416			(8,055		)	56,087			51,399			47,960
Income from continuing operations	196,189			22,816			152,980			135,107			133,591
Discontinued operations, net of tax (d)	21,632			3,700			1,210			(1,027		)	1,362
Net income attributable to common shareholders(c)	216,993			26,315			154,170			133,856			135,158
Earnings (loss) per basic share(c) *
Income from continuing operations attributable to common shareholders	3.40			0.39			2.61			2.31			2.25
Discontinued operations, net of tax	0.38			0.06			0.02			(0.02		)	0.02
Net income attributable to common shareholders	3.78			0.45			2.63			2.29			2.27
Earnings (loss) per diluted share(c) *
Income from continuing operations attributable to common shareholders	3.35			0.38			2.57			2.29			2.22
Discontinued operations, net of tax	0.37			0.06			0.02			(0.02		)	0.02
Net income attributable to common shareholders	3.72			0.44			2.59			2.28			2.24
Cash dividends per common share	1.08			0.98			0.86			0.80			0.76
Total assets	2,889,878			2,843,531			2,706,697			2,712,898			2,774,488
Long-term debt	399,092			398,914			398,736			398,557			398,479
Accrued pension and postretirement benefits	233,603			178,382			98,324			141,849			150,125
Long-term asbestos liability	704,195			792,701			619,666			730,013			839,496
Long-term insurance receivable — asbestos	171,752			208,952			180,689			213,004			260,660


(a)	Includes $18,880 from the Boeing and GE Aviation LLC settlement related to our brake control systems in 2009.

(b)

Includes i) an asbestos provision, net of insurance recoveries of $241,647 in 2011, ii) environmental provisions of $30,327 and $24,342 in 2011 and 2008, respectively, iii) acquisition related transaction costs of $3,874 and $1,276 in 2012 and 2010, respectively, iv) restructuring and related charges of $20,632, $6,676, $5,243 and $40,703 in 2012, 2010, 2009 and 2008, respectively, v) $16,360 from the above-mentioned settlement related to our brake control systems in 2009 and vi) a charge of $7,250 related to a lawsuit settlement in connection with our fiberglass-reinforced plastic material in 2009


(c)	Includes the tax effect of items cited in notes (a) and (b) as well as a $5,625 tax benefit caused by the reinvestment of non-U.S. earnings associated with the acquisition of Money Controls in 2010 and a $5,238 tax benefit related to a divestiture in 2009.


(d)	Includes $19,176 gain on divestiture, net of tax.

* EPS amounts may not add due to rounding

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

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 business consists of five segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, Fluid Handling and Controls. Our primary markets are aerospace, defense electronics, non-residential construction, recreational vehicle (“RV”), transportation, automated merchandising, chemical, pharmaceutical, oil, gas, power, nuclear, building services and utilities.

Our strategy is to grow the earnings of niche businesses with leading market shares, acquire companies that fit strategically with existing businesses, aggressively pursue operational and strategic linkages among our businesses, build a performance culture focused on continuous improvement and a committed management team whose interests are directly aligned with those of the shareholders and maintain a focused, efficient corporate structure.

Items Affecting Comparability of Reported Results

The comparability of our operating results from continuing operations for the years ended December 31, 2012, 2011 and 2010 is affected by the following significant items:

Acquisition Transaction Costs

During 2012, we recorded non-deductible transaction costs associated with the pending acquisition of MEI of $3.9 million. During 2010, we recorded transaction costs associated with the acquisition of Money Controls of $1.3 million.

Restructuring and Related Costs

In 2012, we recorded pre-tax restructuring charges and related costs of $20.6 million, of which $18.5 million was associated with repositioning actions designed to improve profitability beginning in 2013, primarily in the European portion of the Fluid Handling segment. Included in the repositioning actions are $2.0 million of non-cash charges related to the completion of previous restructuring actions.

During 2010, we recorded pre-tax restructuring and related charges in the business segments totaling $6.7 million. The charges are primarily related to plant consolidations associated with our Crane Energy Flow Solutions business and redundant costs associated with our Money Controls acquisition.

Asbestos Charge

With the assistance of Hamilton, Rabinovitz & Associates, Inc. (“HR&A”), a nationally recognized expert in the field, effective as of December 31, 2011, we updated and extended our estimate of the asbestos liability, including the costs of settlement or indemnity payments and defense costs relating to currently pending claims and future claims projected to be filed against us through 2021. Our previous estimate was for asbestos claims filed or projected to be filed through 2017. As a result of this updated estimate, we recorded an additional liability of $285 million as of December 31, 2011. Our decision to take this action at such date was based on several factors which contribute to our ability to reasonably estimate this liability for the additional period noted, as follows:

•

The number of mesothelioma claims (which, although constituting approximately 8% of our total pending asbestos claims, have accounted for approximately 90% of our aggregate settlement and defense costs) being filed against us and associated settlement costs have recently stabilized. In our opinion, the outlook for mesothelioma claims expected to be filed and resolved in the forecast period is reasonably stable.


•	There have been favorable developments in the trend of case law, which has been a contributing factor in stabilizing the asbestos claims activity and related settlement costs.


•	There have been significant actions taken by certain state legislatures and courts over the past several years that have reduced the number and types of claims that can proceed to trial, which has been a significant factor in stabilizing the asbestos claims activity.


•	We have now entered into coverage-in-place agreements with almost all of our excess insurers, which enable us to project a more stable relationship between settlement and defense costs paid by us and reimbursements from our insurers.

Taking all of these factors into account, we believe that we can reasonably estimate the asbestos liability for pending claims and future claims to be filed through 2021. While it is probable that we will incur additional charges for asbestos liabilities and defense costs in excess of the amounts currently provided, we do not believe that any such amount can be reasonably estimated beyond 2021. Accordingly, no accrual has been recorded for any costs which may be incurred for claims which may be made subsequent to 2021. The liability was $796 million and $894 million offset in part by a corresponding insurance receivable of $205 million and $225 million as of December 31, 2012 and 2011, respectively.

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

Environmental Charge

For environmental matters, the Company records a liability for estimated remediation costs when it is probable that the Company 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, 2012 and 2011 is substantially related to the former manufacturing site in Goodyear, Arizona (the “Goodyear Site”) discussed below.

The Goodyear Site was operated by UniDynamics/Phoenix, Inc. (“UPI”), which became an indirect subsidiary of the Company in 1985 when the Company acquired UPI’s parent company, UniDynamics Corporation. UPI manufactured explosive and pyrotechnic compounds at the Goodyear Site, including components for critical military programs, from 1962 to 1993, under contracts with the U.S. Department of Defense and other government agencies and certain of their prime contractors. No manufacturing operations have been conducted at the Goodyear Site since 1994. The Goodyear Site was placed on the National Priorities List in 1983, and is now part of the Phoenix-Goodyear Airport North Superfund Goodyear Site. In 1990, the EPA issued administrative orders requiring UPI to design and carry out certain remedial actions, which UPI has done. On July 26, 2006, the Company entered into a consent decree with the EPA with respect to the Goodyear Site providing for, among other things, a work plan for further investigation and remediation activities at the Goodyear Site. The remediation activities have changed over time due in part to the changing groundwater flow rates and contaminant plume direction, and required changes and upgrades to the remediation equipment in operation at the Goodyear Site. These changes have resulted in the Company revising its liability estimate from time to time. As of December 31, 2010, the liability was $53.8 million. During the fourth quarter of 2011, additional remediation activities were determined to be required, in consultation with our advisors, to further address the migration of the contaminant plume. As a result, we recorded a charge of $30 million during the fourth quarter of 2011, extending the accrued costs through 2016. It is not possible at this point to reasonably estimate the amount of any obligation in excess of our current accruals through the 2016 forecast period because of the aforementioned uncertainties, in particular, the continued significant changes in the Goodyear Site conditions and additional expectations of remediation activities experienced in recent years. As of December 31, 2012 and 2011, the liability was $50 million and $66 million, respectively.

Reinvestment of Non-U.S. Earnings

Associated with our acquisition of Money Controls in December 2010, we considered whether it was necessary to maintain a previously established deferred tax liability representing the additional income tax due upon the ultimate repatriation of a portion of our non-U.S. subsidiaries’ undistributed earnings. We considered our history of utilizing non-U.S. cash to acquire overseas businesses, our current and future needs for cash outside the United States, our ability to satisfy U.S. based cash needs with cash generated by our U.S. operations, and tax reform proposals calling for lower U.S. corporate tax rates. Based on these factors, we concluded that as of December 31, 2010, all of our non-U.S. subsidiaries’ earnings are indefinitely reinvested outside the United States, and as a result, we reversed the aforementioned deferred tax liability and recorded a $5.6 million tax benefit in 2010.

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

Results From Continuing Operations — For the Years Ended December 31, 2012, 2011 and 2010



	For the year ended December 31,									2012 vs 2011 Favorable / (Unfavorable) Change					2011 vs 2010 Favorable / (Unfavorable) Change
(in millions, except %)	2012			2011			2010			$			%		$			%
Net Sales
Aerospace & Electronics	$	701		$	678		$	577		$	24		3	%	$	101		17	%
Engineered Materials	217			220			212			(4		)	(2	)%	8			4	%
Merchandising Systems	372			374			298			(2		)	(1	)%	76			25	%
Fluid Handling	1,196			1,140			1,008			55			5	%	133			13	%
Controls	94			88			84			6			6	%	4			5	%
Total Net Sales	$	2,579		$	2,500		$	2,179		$	79		3	%	$	321		15	%
Sales Growth:
Core business										$	105		4	%	$	211		10	%
Acquisitions/dispositions										12			1	%	60			3	%
Foreign exchange										(38		)	(2)	%	51			2	%
Total Sales Growth										$	79		3	%	$	321		15
Operating Profit from Continuing Operations
Aerospace & Electronics		$156			$146		$	109		$	10		7	%	$	36		33	%
Engineered Materials	25			30			30			(5		)	(18	)%	—			(1	)%
Merchandising Systems	34			30			17			3			11	%	13			81	%
Fluid Handling	148			150			121			(2		)	(1	)%	28			23	%
Controls	13			11			5			2			14	%	6			121	%
Total Segment Operating Profit from Continuing Operations*	$	375		$	367		$	283		$	9		2	%	$	84		30	%
Corporate Expense	$	(65	)	$	(58	)	$	(49	)	$	(7	)	(11	)%	$	(9	)	(19	)%
Corporate — Asbestos charge	—			(242		)	—			242			NM		(242		)	NM
Corporate — Environmental Charge	—			(30		)	—			30			NM		(30		)	NM
Total Operating Profit from Continuing Operations	$	310		$	37		$	233		$	274		749	%	$	(197	)	(84	)%
Operating Margin %
Aerospace & Electronics	22.2		%	21.5		%	18.9		%
Engineered Materials	11.3		%	13.5		%	14.2		%
Merchandising Systems	9.1		%	8.1		%	5.6		%
Fluid Handling	12.4		%	13.1		%	12.1		%
Controls	13.6		%	12.7		%	6.0		%
Total Segment Operating Profit Margin % from Continuing Operations*	14.6		%	14.7		%	13.0		%
Total Operating Margin % from Continuing Operations	12.0		%	1.5		%	10.7		%



*	The disclosure of total segment operating profit and total segment operating profit margin provides supplemental information to assist management and investors in analyzing our profitability but is considered a non-GAAP financial measure when presented in any context other than the required reconciliation to operating profit in accordance with ASC 280 “Disclosures about Segments of an Enterprise and Related Information.” Management believes that the disclosure of total segment operating profit and total segment operating profit margin, non-GAAP financial measures, present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating our performance. Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for our reported results prepared in accordance with GAAP.

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

2012 compared with 2011

Sales in 2012 increased $79 million, or 3%, to $2.579 billion compared with $2.500 billion in 2011. The sales increase was driven by an increase in core business sales of $105 million (4%) and a net increase in revenue from acquisitions and dispositions of $12 million (1%), partially offset by unfavorable foreign exchange of $38 million (2%). Our Aerospace & Electronics segment reported a sales increase of $24 million, or 3%. Our Aerospace Group had a 5% sales increase in 2012 compared to the prior year, reflecting higher original equipment manufacturer (“OEM”) and aftermarket product sales. The Electronics Group experienced a 1% sales increase due to higher core sales of our Microwave and Power Solutions products. In our Engineered Materials segment, sales decreased 2%, reflecting lower sales to our transportation-related and international customers, partially offset by higher sales to RV manufacturers. Merchandising Systems segment revenue decreased 1% in 2012 reflecting unfavorable foreign exchange which more than offset higher core sales in both our Payment and Vending Solutions businesses. Our Fluid Handling segment reported a core sales increase of 6%, primarily reflecting sales growth in our Crane ChemPharma & Energy Flow Solutions business due to strong demand in the North America chemical industry as well as higher sales in our Crane Supply business resulting from increases in commercial construction and mining activity in Canada.

Total segment operating profit increased $9 million, or 2%, to $375 million in 2012 compared to $367 million in 2011. Total segment operating profit in 2012 included $20.6 million of restructuring and related charges and $3.9 million of non-deductible transaction costs associated with the pending acquisition of MEI. Reflecting these charges, total segment operating margins decreased to 14.6% in 2012 compared to 14.7% in 2011.

The increase in segment operating profit over the prior year was driven by increases in operating profit in our Aerospace & Electronics, Merchandising Systems and Controls segments, partially offset by decreases in our Engineered Materials and Fluid Handling segments. Our Aerospace & Electronics operating profit was $10 million, or 7%, higher in 2012 compared to the prior year; our Merchandising Systems segment was $3 million, or 11%, higher in 2011 compared to the prior year; our Controls segment operating profit was $2 million, or 14%, higher in 2012 compared to the prior year; our Engineered Materials segment was $5 million, or 18%, lower in 2012 compared to the prior year and our Fluid Handling segment was $2 million, or 1%, lower compared to the prior year. The improvement in the Aerospace & Electronics segment operating profit primarily reflected leverage on the higher sales volume. The operating profit increase in Merchandising Systems segment is primarily due to solid productivity gains, the absence of a non-recurring purchase accounting charge associated with our Money Controls acquisition in 2011 and the impact of higher sales volume, partially offset by restructuring and related charges recorded in the second quarter of 2012, and the costs to settle a lawsuit in the first quarter of 2012. Operating profit in our Engineered Materials segment decreased due to lower sales, higher raw material costs and restructuring and related charges, partially offset by effective cost controls. The decrease in our Fluid Handling segment's operating profit reflected restructuring and related charges, higher manufacturing costs in certain European manufacturing operations and, to a lesser extent, the impact of unfavorable foreign exchange, partially offset by strong leverage on the higher core sales.

Total operating profit was $310 million in 2012 compared to $37 million in 2011. In addition to the aforementioned segment results, the increase in 2012 operating results reflected the absence of a $242 million net asbestos provision and a $30 million charge related to an increase in our expected remediation liability at the Goodyear, Arizona Superfund Site.

Net income attributable to common shareholders in 2012 was $217 million as compared with $26 million in 2011.

2011 compared with 2010

Sales in 2011 increased $321 million, or 15%, to $2.500 billion compared with $2.179 billion in 2010. The sales increase was driven by an increase in core business of $211 million (10%), a net increase in revenue from acquisitions and dispositions of $60 million (3%) and favorable foreign exchange of $51 million (2%). Our Aerospace & Electronics segment reported a sales increase of $101 million, or 17%. Our Aerospace Group had a 21% sales increase in 2011 compared to the prior year, reflecting higher commercial OEM product sales and higher aftermarket product sales. The Electronics Group experienced a 12% sales increase due to higher core sales of our Power Solutions and Microelectronics products. In our Engineered Materials segment, sales increased 4%, reflecting higher sales to our transportation-related and building products customers and, to a lesser extent, our international customers, partially offset by lower sales to RV manufacturers. Merchandising Systems segment revenue increased 25% in 2011, of which 18% was related to the acquisition of Money Controls. Our Fluid Handling segment’s sales increased 13%, reflecting a broad-based core sales increase across the segment due to continued favorable maintenance, repair, and overhaul (“MRO”) trends and more favorable market conditions impacting our later-cycle, project-based energy, chemical, and pharmaceutical businesses.

Total segment operating profit increased $84 million, or 30%, to $367 million in 2011 compared to $283 million in 2010. Total segment operating profit in 2010 included $6.7 million of restructuring charges and $1.3 million of purchase accounting costs. Total segment operating margins increased to 14.7% in 2011 compared to 13.0% in 2010.

The increase in segment operating profit over the prior year was driven by increases in operating profit in our Aerospace & Electronics, Fluid Handling, Merchandising Systems and Controls segments. Our Aerospace & Electronics operating profit was $36

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

million higher, or 33% in 2011 compared to the prior year; our Fluid Handling segment operating profit was $28 million higher, or 23% in 2011 compared to the prior year; our Merchandising Systems segment was $13 million higher, or 81% in 2011 compared to the prior year; and our Controls segment was $6 million higher, or 121% in 2011 compared to the prior year. The significant improvement in the Aerospace & Electronics segment operating profit primarily reflected leverage on the higher sales volume. The increase in our Fluid Handling segment was primarily attributable to leverage on the higher core sales, and to a lesser extent, the impact of favorable foreign exchange, partially offset by higher raw material costs. The operating profit increase in Merchandising Systems is primarily due to the impact of the higher core sales and, continued improvements in operating efficiencies, partially offset by higher raw material costs. The increase in operating profit in our Controls segment reflected leverage on higher sales and the absence of losses from divested businesses in 2010.

Total operating profit was $37 million in 2011 compared to $233 million in 2010. In addition to the aforementioned segment results, 2011 operating results included a $242 million net asbestos provision and a $30 million charge related to an increase in our expected remediation liability at the Goodyear, Arizona Superfund Site.

Net income attributable to common shareholders in 2011 was $26 million as compared with $154 million in 2010. In addition to the items mentioned above, net of tax, net income in 2010 included a $5.6 million tax benefit caused by the reinvestment of non-U.S. earnings associated with the acquisition of Money Controls.

Results From Discontinued Operations — For the Years Ended December 31, 2012, 2011 and 2010



(in millions)	2012		2011		2010
Income from Continuing Operations	$	196	$	23	$	153
Discontinued Operations:
Income from Discontinued Operations, net of tax	2		4		1
Gain from Sales of Discontinued Operations, net of tax	19		—		—
Discontinued Operations, net of tax	22		4		1
Net income before allocation to noncontrolling interests	$	218	$	27	$	154
Net income attributable to common shareholders	$	217	$	26	$	154

For the years 2012, 2011 and 2010, we reported two divested businesses as discontinued operations on our Statements of Operations. The sale of Azonix resulted in an after-tax gain of $14.5 million. Azonix had sales of $17.1 million, $31.7 million and $26.3 million and pre-tax profit from operations of $2.4 million, $3.4 million and $0.8 million in 2012, 2011 and 2010, respectively. The sale of our valve service center in Houston, Texas resulted in an after-tax gain of $4.6 million. Our valve service center in Houston, Texas, had sales of $8.4 million, $13.8 million and $12.2 million and pre-tax profit from operations of $1.3 million, $2.3 million and $1.1 million in 2012, 2011 and 2010, respectively.

AEROSPACE & ELECTRONICS



(in millions, except %)	2012				2011			2010
Net Sales	$	701			$	678		$	577
Operating Profit	156				146			109
Assets	510			514.2	514			499
Operating Margin	22.2		%		21.5		%	18.9		%

2012 compared with 2011. Sales of our Aerospace & Electronics segment increased $24 million, or 3%, in 2012 to $701 million, reflecting sales increases of $20 million and $4 million in our Aerospace Group and Electronics Group, respectively. The Aerospace & Electronics segment’s operating profit increased $10 million, or 7%, in 2012. The increase in operating profit was due to a $15 million increase in operating profit in the Aerospace Group and $5 million decrease in the Electronics Group. The operating margin for the segment was 22.2% in 2012 compared to 21.5% in 2011. Backlog was $378 million at December 31, 2012, a decrease of 8% from $411 million at December 31, 2011.

Aerospace Group sales in 2012 by the four solution sets were as follows: Landing Systems, 34%; Sensing and Utility Systems, 33%; Fluid Management, 23%; and Cabin Systems, 10%. The commercial market accounted for 78% of Aerospace Group sales in 2012, while sales to the military market were 22% of total Aerospace Group sales. During both 2012 and 2011, sales to OEMs and aftermarket customers were 59% and 41%, respectively.

Aerospace Group sales increased 5% from $417 million in 2011 to $437 million in 2012. The increase in 2012 was due to higher OEM sales which increased $15 million, or 6%, to $260 million in 2012 from $246 million in 2011, primarily due to

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

higher commercial product sales associated with large commercial transport and business jets. In addition, the sales increase was attributable to higher aftermarket product sales which increased $5 million, or 3%, to $177 million in 2012 from $172 million in 2011 primarily due to higher modernization and upgrade (“M&U”) products sales and repair and overhaul sales.

Aerospace Group operating profit increased 14% over the prior year, primarily due to lower engineering expense and the leverage on the higher sales volume. Aerospace engineering expense was about 8% of sales in 2012 versus 11% in 2011. Total engineering expense for the Aerospace Group was $36 million in 2012 compared to $44 million in 2011.

Electronics Group sales by market in 2012 were as follows: military/defense, 58%; commercial aerospace, 25%; and other, 17%. Sales in 2012 by the Group’s solution sets were as follows: Power, 64%; Microwave Systems, 26%; and Microelectronics, 10%.

Electronics Group sales increased 1% from $261 million in 2011 to $264 million in 2012. The slight core sales increase reflects higher sales of our Microwave and Power Solutions products, partially offset by lower sales of our Microelectronics Solutions products. The increase in Power Solutions product sales reflects an increase in demand from the defense market. The decrease in Microelectronics product sales reflects lower sales to medical device customers.

Electronics Group operating profit decreased 11% over the prior year reflecting unfavorable sales mix and higher manufacturing costs, partially offset by the impact of the higher sales volume.

2011 compared with 2010. Sales of our Aerospace & Electronics segment increased $101 million, or 17%, in 2011 to $678 million, reflecting sales increases of $72 million and $29 million in our Aerospace Group and Electronics Group, respectively. The Aerospace & Electronics segment’s operating profit increased $36 million, or 33%, in 2011. The increase in operating profit was due to a $33 million increase in operating profit in the Aerospace Group and $3 million increase in the Electronics Group. The operating margin for the segment was 21.5% in 2011 compared to 18.9% in 2010. Backlog was $411 million at December 31, 2011, a decrease of 5% from $432 million at December 31, 2010.

Aerospace Group sales in 2011 by the four solution sets were as follows: Landing Systems, 34%; Sensing and Utility Systems, 33%; Fluid Management, 23%; and Cabin Systems, 10%. The commercial market accounted for 79% of Aerospace Group sales in 2011, while sales to the military market were 21% of total Aerospace Group sales. During 2011, sales to OEMs and aftermarket customers were 59% and 41%, respectively, compared to 60% and 40%, respectively, of the total sales in 2010.

Aerospace Group sales increased 21% from $345 million in 2010 to $417 million in 2011. The increase in 2011 was due to higher OEM sales which increased $37 million, or 18%, to $246 million in 2011 from $208 million in 2010, primarily due to higher commercial product sales associated with large commercial transport, regional and business jets. In addition, the sales increase was attributable to higher aftermarket product sales which increased $35 million, or 25%, to $172 million in 2011 from $137 million in 2010 primarily due to higher modernization and upgrade (“M&U”) products sales, primarily associated with C130 carbon brake control upgrade program, as well as commercial and military spares sales.

Aerospace Group operating profit increased 46% over the prior year, primarily reflecting leverage on the higher sales volume. Aerospace engineering expense was about 11% of sales in 2011 versus 13% in 2010. Total engineering expense for the Aerospace Group was $44 million in both 2011 and 2010.

Electronics Group sales by market in 2011 were as follows: military/defense, 61%; commercial aerospace, 27%; and other, 12%. Sales in 2011 by the Group’s solution sets were as follows: Power, 64%; Microwave Systems, 26%; and Microelectronics, 10%.

Electronics Group sales increased 12% from $232 million in 2010 to $261 million in 2011. The core sales increase reflects higher sales of our Power Solutions and Microelectronics products, partially offset by lower sales of our Microwave products. The increase in Power Solutions product sales reflects an increase in demand from the commercial aviation market. The increase in Microelectronics product sales reflects higher sales to medical device customers.

Electronics Group operating profit increased 9% over the prior year reflecting the favorable impact of the higher sales volume, partially offset by program execution inefficiencies and unfavorable sales mix.

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

ENGINEERED MATERIALS



(in millions, except %)	2012			2011			2010
Net Sales	$	217		$	220		$	212
Operating Profit	25			30			30
Restructuring and Related Charges*	4			—			—
Assets	237			245			255
Operating Margin	11.3		%	13.5		%	14.2		%



*	The restructuring and related charges are included in operating profit and operating margin.

2012 compared with 2011. Engineered Materials sales decreased by $4 million to $217 million in 2012, from $220 million in 2011. Operating profit of $25 million in 2012 decreased $5 million in 2012 compared to 2011. Operating margins were 11.3% in 2012 compared with 13.5% in 2011.

Sales decreased $4 million, or 2%, reflecting lower sales to our domestic transportation-related and international customers, partially offset by higher sales to RV manufacturers. We experienced a 10% sales increase to our traditional RV manufacturers reflecting an increase in demand for our RV related applications as RV OEM build rates improved, with strength in both dealer and retail demand in the second half of 2012. In addition, sales to our building product customers were flat, reflecting continued soft commercial construction markets. Sales to our transportation-related customers decreased 16%, due to difficult competitive conditions. Sales to our international customers decreased by 30% partly due to softness in our European market.

Operating profit in our Engineered Materials segment decreased $5 million, or 18%, reflecting lower sales, higher raw material costs and restructuring and related charges of $4 million recorded in 2012 ($1 million was related to the write-down of inventory resulting from the closure of a product line), partially offset by effective cost management. Our restructuring and related actions include the closure of a small manufacturing facility in the United Kingdom, which had total sales of $8 million in 2011.

2011 compared with 2010. Engineered Materials sales increased by $8 million to $220 million in 2011, from $212 million in 2010. Operating profit of $30 million in 2011 was generally flat compared to 2010. Operating margins were 13.5% in 2011 compared with 14.2% in 2010.

Sales increased $8 million, or 4%, reflecting higher sales to our domestic transportation-related and building products customers and, to a lesser extent, our international customers, partially offset by lower sales to RV manufacturers. Sales to our transportation-related customers increased 30%, due primarily to price increases implemented earlier this year and, to a lesser extent, improved build rates for dry and refrigerated trailers and new product sales related to aero-dynamic side skirts for trailers. Sales to our building products customers increased by 4%, also reflecting price increases implemented earlier this year. We experienced a 3% sales decrease to RV manufacturers reflecting a decline in demand for our RV related applications, as several RV OEMs slowed manufacturing in the second half of 2011. RV dealers managed their inventory levels down, reflecting a generally uncertain economic environment. In addition, we experienced a 9% increase in our International sales primarily related to increased demand from transportation, and RV customers in Europe.

Operating profit in our Engineered Materials segment was generally flat reflecting higher raw material costs which were offset by price increases.

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

MERCHANDISING SYSTEMS



(in millions, except %)	2012			2011			2010
Net Sales	$	372		$	374		$	298
Operating Profit	34			30			17
Restructuring and Related Charges*	4			—			3
Assets	409			409			420
Operating Margin	9.1		%	8.1		%	5.6		%



*	The restructuring and related charges are included in operating profit and operating margin.

2012 compared with 2011. Merchandising Systems sales decreased by $2 million from $374 million in 2011 to $372 million in 2012. Operating profit increased by $3 million from $30 million in 2011 to $34 million in 2012. Operating profit included restructuring and related charges of $4 million in 2012. Operating margins were 9.1% in 2012 compared with 8.1% in 2011.

Sales decreased $2 million, or 1%, compared to the prior year, including unfavorable foreign currency translation of $6 million, or 2%, partially offset by a core sales increase of $4 million, or 1%. The increase in core sales reflected higher sales in our Vending Solutions businesses, particularly to bottlers. We also experienced higher core sales in our Payment Solutions business reflecting higher sales volume in the vending and retail vertical markets.

Operating profit of $34 million increased 11% in 2012 compared to 2011. The operating profit increase is primarily due to solid productivity gains, the absence of a non-recurring purchase accounting charge associated with our Money Controls acquisition in 2011 and the impact of higher sales volume, partially offset by $4 million of restructuring and related charges recorded in 2012, as well as the costs to settle a lawsuit in 2012.

2011 compared with 2010. Merchandising Systems sales increased by $76 million from $298 million in 2010 to $374 million in 2011. Operating profit increased by $13 million from $17 million in 2010 to $30 million in 2011. Operating profit included net restructuring charges of $3 million in 2010. Operating margins were 8.1% in 2011 compared with 5.6% in 2010.

Sales increased $76 million, or 25%, compared to the prior year, including a sales increase resulting from the acquisition of Money Controls of $53 million, or 18%, a core sales increase of $14 million, or 4%, and favorable foreign currency translation of $9 million, or 3%. The increase in core sales reflected higher sales in both our Payment Solutions and Vending businesses.

Operating profit of $30 million increased $13 million in 2011 compared to 2010. The operating profit increase is primarily due to the impact of the higher sales, continued improvements in operating efficiencies, and the absence of restructuring costs incurred in 2010. The increase was partially offset by higher raw material costs and the absence of the favorable impact of a patent litigation settlement received in 2010.

FLUID HANDLING



(in millions, except %)	2012			2011			2010
Net Sales	$	1,196		$	1,140		$	1,008
Operating Profit	148			150			121
Restructuring and Related Charges*	13			—			3
Assets	955			909			830
Operating Margin	12.4		%	13.1		%	12.1		%



*	The restructuring and related charges are included in operating profit and operating margin.

2012 compared with 2011. Fluid Handling sales increased by $55 million from $1.140 billion in 2011 to $1.196 billion in 2012. Operating profit decreased by $2 million from $150 million in 2011 to $148 million in 2012. Our operating profit in 2012 included restructuring charges of $13 million. Operating margins were 12.4% in 2012 compared with 13.1% in 2011.

Sales increased $55 million, or 5%, including a core sales increase of $73 million, or 6%, and and an increase in sales from the acquisition of W.T. Armatur GmbH & Co. KG (“WTA”) of $12 million, or 1%, partially offset by unfavorable foreign currency translation of $30 million, or 3%. Backlog was $327 million at December 31, 2012, an increase of 4% from $314 million at December 31, 2011.

Crane Valve Group (“Valve Group”) includes the following businesses: Crane ChemPharma & Energy Flow Solutions and Building Services & Utilities. Valve Group sales increased 3% to $888 million in 2012 from $864 million in 2011, including a

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

core sales increase of $39 million, or 5% and an increase in sales from the acquisition of WTA of $12 million, or 1%, partially offset by unfavorable foreign currency translation of $26 million, or 3%. The Crane ChemPharma & Energy Flow Solutions business experienced a significant increase in sales reflecting strong demand in the North America chemical industry as well as price increases, partially offset by unfavorable foreign exchange and weaker end markets in Europe. Building Services & Utilities sales decreased, driven by a decline in volume, primarily reflecting a softer commercial building construction end market in the United Kingdom and weaker end markets in Europe and, to a lesser extent, unfavorable foreign exchange.

Crane Pumps & Systems sales of $83 million were flat in 2012 compared to 2011.

Crane Supply revenue increased $30 million to $224 million, or 15% in 2012, from $194 million in 2011 due to higher sales volume resulting from growth in commercial construction and mining activity in Canada, partially offset by unfavorable foreign exchange as the Canadian dollar weakened against the U.S. dollar.

Fluid Handling operating profit decreased $2 million, or 1%, compared to 2011, reflecting restructuring and related charges of $13 million in 2012, higher manufacturing costs in certain European manufacturing operations, and to a lesser extent, the impact of unfavorable exchange, partially offset by leverage on the higher core sales.

2011 compared with 2010. Fluid Handling sales increased by $133 million from $1.008 billion in 2010 to $1.140 billion in 2011. Operating profit increased by $28 million from $121 million in 2010 to $150 million in 2011. The 2010 operating profit included restructuring charges of $3 million. Operating margins were 13.1% in 2011 compared with 12.1% in 2010.

Sales increased $133 million, or 13%, including a core sales increase of $83 million, or 8.3%, favorable foreign currency translation of $39 million, or 3.9%, and an increase in sales from the acquisition of W.T. Armatur GmbH & Co. KG (“WTA”) of $10 million, or 1.0%. Backlog was $314 million at December 31, 2011, an increase of 15% from $272 million at December 31, 2010.

Valve Group sales increased 14% to $864 million in 2011 from $759 million in 2010, including a core sales increase of $67 million, or 9%, favorable foreign currency translation of $28 million, or 4%, and an increase in sales from the acquisition of WTA of $10 million, or 1%. Crane Energy sales increased significantly compared to the prior year primarily due to higher volume associated with our later-cycle, project based process valve applications in the power and refining industries and, to a lesser extent, favorable foreign exchange. Our Crane ChemPharma business experienced a significant increase in sales reflecting increased demand from the chemical industry, primarily due to strong market conditions in the Americas as well as favorable MRO trends which benefited from healthy plant operating rates and catch-up maintenance. Building Services & Utilities sales experienced a moderate increase, driven by favorable foreign exchange and price increases, which were partially offset by a slight decline in volume, reflecting primarily a softer commercial building construction end market in the United Kingdom.

Crane Pumps & Systems sales increased $10 million, or 14%, to $83 million in 2011 from $73 million in 2010, reflecting increased demand from our industrial and municipal markets.

Crane Supply revenue increased $18 million to $194 million in 2011, or 10%, from $176 million in 2010 due to favorable foreign exchange as the Canadian dollar strengthened against the U.S. dollar and higher sales volumes. The increase in volumes was due to increases in non-residential building construction in Canada and demand from certain industrial customers such as mining.

Fluid Handling operating profit increased $28 million, or 23%, compared to 2010. The increase in operating profit was primarily driven by leverage on the higher core sales and, to a lesser extent, the impact of favorable foreign exchange, partially offset by higher raw material costs.

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

CONTROLS



(in millions, except %)	2012			2011			2010
Net Sales	$	94		$	88		$	84
Operating Profit	13			11			5
Assets	39			64			67
Operating Margin	13.6		%	12.7		%	6.0		%

2012 compared with 2011. Controls segment sales of $94 million increased $6 million, or 6%, in 2012 compared with 2011. The sales increase reflects improvement in transportation and oil and gas related demand. Segment operating profit of $13 million increased $2 million, or 14%, reflecting leverage on the higher sales and productivity gains.

2011 compared with 2010. Controls segment sales of $88 million increased $4 million, or 5%, in 2011 compared with 2010. The sales increase reflects improvement in industrial, transportation, and upstream oil and gas end markets. Segment operating profit of $11 million increased $6 million, or 121%, reflecting the leverage on the higher sales and the absence of losses from businesses divested in 2010.

CORPORATE



(in millions, except %)	2012			2011			2010
Corporate expense	$	(65	)	$	(58	)	$	(49	)
Corporate expense — Asbestos	—			(242		)	—
Corporate expense — Environmental	—			(30		)	—
Total Corporate	(65		)	(330		)	(49		)
Interest income	2			2			1
Interest expense	(27		)	(26		)	(27		)
Miscellaneous	(1		)	3			1

2012 compared with 2011. Total Corporate decreased $265 million in 2012 due to the absence of a provision of $242 million to update and extend the estimate of our asbestos liability and an environmental provision of $30 million related to our expected liability at our Goodyear, Arizona Superfund Site, partially offset by higher corporate expenses, which included $3.9 million of acquisition related transaction costs recorded in 2012.

Our effective tax rate is affected by a number of items, both recurring and discrete, including the amount of income we earn in different jurisdictions and their respective statutory tax rates, acquisitions and dispositions, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, the continued reinvestment of our overseas earnings, and examinations initiated by tax authorities around the world.

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

The following table presents our income (loss) from continuing operations before taxes, provision (benefit) for income taxes from continuing operations, and effective tax rate from continuing operations for the last three years:



(in millions, except %)	2012			2011			2010
Income (loss) before tax — U.S.	$	175		$	(121	)	$	103
Income before tax — non-U.S.	110			136			106
Income before tax — worldwide	285			15			209
Provision (benefit) for income taxes	88			(8		)	56
Effective tax rate	31.1		%	(55.3		)%	26.8		%

Our effective rate from continuing operations of 31.1% for 2012 reflected a tax provision on pre-tax income from continuing operations, while our effective tax rate from continuing operations of (55.3%) for 2011 reflected a tax benefit on pre-tax income from continuing operations.

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

The tax benefit associated with our 2011 charges for asbestos and environmental was the most significant reason our effective tax rate from continuing operations was negative in 2011. Further, these 2011 charges reduced our income before tax from continuing operations to such a level that all our 2011 tax adjustments had a larger impact on our 2011 effective tax rate from continuing operations than they otherwise would have.

When compared to our 2011 effective tax rate from continuing operations, our 2012 effective tax rate from continuing operations reflects a lower benefit from both non-U.S. taxes and the U.S. federal research and development tax credit (due to its statutory expiration as of December 31, 2011), and higher state taxes. These items were partially offset by a higher tax benefit from domestic manufacturing activities and a lower amount of non-deductible expenses.

A reconciliation of the statutory U.S. federal tax rate to our effective tax rate is set forth in Note 3 of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

2011 compared with 2010. Total Corporate increased $281 million in 2011 due to 1) a provision of $242 million to update and extend the estimate of our asbestos liability, 2) an environmental provision of $30 million related to our expected liability at our Goodyear, Arizona Superfund Site and 3) an increase of $9 million primarily related to higher compensation and benefit costs and professional fees.

The tax benefit associated with our 2011 charges for asbestos and environmental was the most significant reason our effective tax rate from continuing operations decreased in 2011. Further, these 2011 charges reduced our income before tax from continuing operations to such a level that all our 2011 tax adjustments had a larger impact on our 2011 effective tax rate from continuing operations than they otherwise would have. Taking this into account, a lower amount of non-U.S. taxes also reduced our 2011 effective tax rate from continuing operations. However, these benefits were partially offset by a lower amount of tax credits and a higher amount of non-deductible expenses in 2011, and the absence of a tax benefit that was generated upon the reversal of a deferred tax liability related to the undistributed earnings of our non-U.S. subsidiaries in 2010.

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

LIQUIDITY AND CAPITAL RESOURCES

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 complement our portfolio of businesses and by paying dividends and/or repurchasing shares. Consistent with our philosophy of balanced capital deployment, in 2012, we paid dividends of $62 million (dividends per share increased 8% from $0.26 to $0.28 in July 2012); we repurchased stock for $50 million; and we announced our plans to acquire MEI for $820 million.

Our current cash balance of $424 million, cash we expect to generate from future operations, the $300 million available under our existing committed revolving credit facility, and the $600 million of bank loan commitments in support of our pending acquisition of MEI are expected to be sufficient to finance our short- and long-term capital requirements, as well as fund payments associated with our asbestos and environmental exposures and expected pension contributions. We have an estimated liability of $796 million for pending and reasonably anticipated asbestos claims through 2021, and while it is probable that this amount will change and we may incur additional liabilities for asbestos claims after 2021, which additional liabilities may be material, we cannot reasonably estimate the amount of such additional liabilities at this time. Similarly, we have an estimated liability of $50 million related to environmental remediation costs projected through 2016 related to our Superfund Site in Goodyear, Arizona. In addition, we believe our credit ratings afford us adequate access to public and private markets for debt. We have no borrowings outstanding under our $300 million Amended and Restated Credit Agreement which expires in May 2017. Senior unsecured notes having an aggregate principal amount of $200 million will mature in the third quarter of 2013. These notes have been presented in the accompanying consolidated balance sheet as a long-term liability due to our intent and ability to refinance these notes on a long-term basis. There are no other significant debt maturities coming due until 2036.

Our cash totaled $424 million as of December 31, 2012. Of this amount, approximately $321 million was held by our non-U.S. subsidiaries and is subject to additional tax upon repatriation to the U.S. Our intent is to permanently reinvest the earnings of our non-U.S. operations, and current plans do not anticipate that we will need funds generated from our non-U.S. operations to fund our U.S. operations. In the event we were to repatriate the cash balances of our non-U.S. subsidiaries, we would provide for and pay additional U.S. and non-U.S. taxes in connection with such repatriation.

Operating results during 2012 met our expectations, but we continue to monitor current market conditions and the impact on our business and continue to execute on our focused, disciplined approach to productivity to maintain a suitable liquidity position. In 2012, the Company recorded pre-tax restructuring and related charges of $20.6 million associated with repositioning actions designed to improve profitability beginning in 2013, primarily in the European portion of the Fluid Handling segment. Further, in the fourth quarter of 2012, we took further cost reduction actions including the announcement that pension eligible employees will no longer earn future benefits in our domestic defined benefit pension plan effective January 1, 2013.

Operating Activities

Cash provided by operating activities, a key source of our liquidity, was $235 million in 2012, an increase of $85 million, or 57%, compared to 2011.The increase resulted primarily from lower working capital requirements and lower defined benefit plan and postretirement contributions ($6 million in 2012 and $48 million in 2011), partially offset by higher environmental payments. We currently expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $60 million to $70 million and contributions to our defined benefit plans of approximately $15 million in 2013.

Investing Activities

Cash flows relating to investing activities consist primarily of cash provided by divestitures of businesses or assets and cash used for acquisitions and capital expenditures. Cash provided by investing activities was $31 million in 2012, compared to cash used for investing activities of $66 million in 2011. The increase in cash provided by investing activities primarily reflected proceeds of $54 million from divested businesses in our Fluid Handling and Controls segments, the absence of $37 million of payments we made for the acquisition of WTA in 2011 and, to a lesser extent, a decrease in capital spending of $5 million to $29 million in 2012 compared to $35 million in 2011. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. We expect our capital expenditures to approximate $35 million in 2013.

Financing Activities

Financing cash flows consist primarily of payments of dividends to shareholders, share repurchases, repayments of indebtedness and proceeds from the issuance of common stock. Cash used for financing activities was $95 million in 2012, compared to $109 million used in 2011. The lower levels of cash flows used in financing activities during 2012 was primarily

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

related to a decrease in cash used to repurchase shares of our common stock (we repurchased 1,271,592 shares of our common stock at a cost of $50 million in 2012 and we repurchased of 1,706,903 shares of our common stock at a cost of $80 million in 2011), partially offset by lower net proceeds received from stock option exercises of $10 million and an increase in dividend payments of $5 million.

Financing Arrangements

At December 31, 2012 and 2011, we had total debt of $400 million. Net debt improved by $179 million to a net cash position (cash less debt) of $24 million at December 31, 2012, primarily reflecting strong cash flow from operations and proceeds from divestitures. The net debt to net capitalization ratio was (2.6%) at December 31, 2012, compared to 15.9% at December 31, 2011.

In May 2012, we entered into a five-year, $300 million Amended and Restated Credit Agreement (as subsequently amended, the “facility”), which is due to expire in May 2017. The facility allows us to borrow, repay, or to the extent permitted by the agreement, prepay and re-borrow at any time prior to the stated maturity date, and the loan proceeds may be used for general corporate purposes including financing for acquisitions. Interest is based on, at our option, (1) a LIBOR-based formula that is dependent in part on the Company's credit rating (LIBOR plus 105 basis points as of the date of this Report; up to a maximum of LIBOR plus 147.5 basis points), or (2) the greatest of (i) the JPMorgan Chase Bank, N.A.'s prime rate, (ii) the Federal Funds rate plus 50 basis points or (iii) an adjusted LIBOR rate plus 100 basis points. The facility was not used in 2012 or 2011 and was only used for letter of credit purposes in 2010. The facility contains customary affirmative and negative covenants for credit facilities of this type, including the absence of a material adverse effect and limitations on us and our subsidiaries with respect to indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of all or substantially all assets, transactions with affiliates and hedging arrangements. The facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, the fact that any representation or warranty made by us is false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting us and our subsidiaries, certain ERISA events, material judgments and a change in control. The agreement contains a leverage ratio covenant requiring a ratio of total debt to total capitalization of less than or equal to 65%. At December 31, 2012, our ratio was 30%.

In November 2006, we issued notes having an aggregate principal amount of $200 million. The notes are unsecured, senior obligations that mature on November 15, 2036 and bear interest at 6.55% per annum, payable semi-annually on May 15 and November 15 of each year. The notes have no sinking fund requirement but may be redeemed, in whole or in part, at our option. These notes do not contain any material debt covenants or cross default provisions. If there is a change in control, and if as a consequence the notes are rated below investment grade by both Moody’s Investors Service and Standard & Poor’s, then holders of the notes may require us to repurchase them, in whole or in part, for 101% of the principal amount plus accrued and unpaid interest. Debt issuance costs are deferred and included in Other assets and then amortized as a component of interest expense over the term of the notes. Including debt issuance cost amortization, these notes have an effective annualized interest rate of 6.67%.

In September 2003, we issued notes having an aggregate principal amount of $200 million. The notes are unsecured, senior obligations that mature on September 15, 2013, and bear interest at 5.50% per annum, payable semi-annually on March 15 and September 15 of each year. These notes have been presented in the accompanying consolidated balance sheet as a long-term liability due to our intent and ability to refinance these notes on a long-term basis. The notes have no sinking fund requirement but may be redeemed, in whole or part, at our option. These notes do not contain any material debt covenants or cross default provisions. Debt issuance costs are deferred and included in Other assets and then amortized as a component of interest expense over the term of the notes. Including debt issuance cost amortization, these notes have an effective annualized interest rate of 5.70%.

All outstanding senior, unsecured notes were issued under an indenture dated as of April 1, 1991. The indenture contains certain limitations on liens and sale and lease-back transactions.

At December 31, 2012, we had open standby letters of credit of $30 million issued pursuant to a $60 million uncommitted Letter of Credit Reimbursement Agreement and certain other credit lines, substantially all of which expire in 2014.

Credit Ratings

As of December 31, 2012, our senior unsecured debt was rated BBB by Standard & Poor’s and Baa2 by Moody’s Investors Service. We believe that these ratings afford us adequate access to the public and private markets for debt.

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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 long-term debt agreements and rent payments required under operating lease agreements. The following table summarizes our fixed cash obligations as of December 31, 2012:



	Payment due by Period
(in thousands)	Total	2013	2014 -2015	2016