Edgar Filing: CRANE CO /DE/

Document

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, 2018

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

Commission file number 1-1657

CRANE CO.




Delaware State of or other jurisdiction of incorporation or organization:		13-1952290 (I.R.S. Employer identification No.)

100 First Stamford Place, Stamford, CT (Address of principal executive offices)		06902 (Zip Code)

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 every Interactive Data File required to be submitted 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 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. ¨

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



Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 $80.13 on June 29, 2018, 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 $3,989,286,215

The number of shares outstanding of the registrant’s common stock, par value $1.00, was 59,773,329 at January 31, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the 2019 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, 2018

Index




		Page

Part I
Item 1.	Business	Page 2
Item 1A.	Risk Factors	Page 7
Item 1B.	Unresolved Staff Comments	Page 13
Item 2.	Properties	Page 14
Item 3.	Legal Proceedings	Page 14
Item 4.	Mine Safety Disclosures	Page 14

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	Page 15
Item 6.	Selected Financial Data	Page 17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	Page 37
Item 8.	Financial Statements and Supplementary Data	Page 38
Item 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	Page 88
Item 9A.	Controls and Procedures	Page 88
Item 9B.	Other Information	Page 90

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	Page 90
Item 11.	Executive Compensation	Page 90
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page 90
Item 13.	Certain Relationships and Related Transactions, and Director Independence	Page 90
Item 14.	Principal Accounting Fees and Services	Page 90

Part IV
Item 15.	Exhibits and Financial Statement Schedules	Page 91
Item 16.	Form 10-K Summary	Page 92
	Signatures	Page 93

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, end markets for our products, 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 acquisitions and to realize synergies and opportunities for growth and innovation;


•	Our ability to successfully value acquisitions;


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


•	The ability of the U.S. government to terminate our government contracts;


•	Our ability to predict the timing and award of substantial contracts in our recently acquired banknote business;


•	A reduction in congressional appropriations that affect defense spending;


•	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;


•	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


•	Adverse effects 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 our subsidiaries unless the context specifically states or implies otherwise. Amounts in the following discussion are presented in millions, except employee, square feet, number of properties, share and per share data, or unless otherwise stated.

Item 1. Business

General

We are a diversified manufacturer of highly engineered industrial products comprised of four segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Our primary markets are chemicals, oil & gas, power, non-residential construction, automated payment solutions, banknote design and production and aerospace & defense, along with a wide range of general industrial and certain consumer related end markets.

We have been committed to the highest standards of business conduct since 1855 when our founder, 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.”

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

We deploy a comprehensive set of business processes, philosophies and operational excellence tools to drive continuous improvement throughout our businesses. Beginning with a core value of integrity, we incorporate “Voice of the Customer” teachings (specific processes designed to capture our customers’ requirements) and a broad range of tools into a disciplined strategy deployment process that drives profitable growth by focusing on continuously improving safety, quality, delivery, cost and growth. An embedded intellectual capital development process ensures that we attract, develop, promote and retain talent to drive continuity and repeatable results.

Reportable 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 3, “Segment Information,” in the Notes to Consolidated Financial Statements for sales, operating profit and assets employed by each segment.

Fluid Handling

The Fluid Handling segment is a provider of highly engineered fluid handling equipment for critical performance applications that require high reliability. The segment is comprised of Process Valves and Related Products, Commercial Valves and Other Products.

Process Valves and Related Products includes on/off valves and related products for critical and demanding applications in the chemical, oil & gas, power and general industrial end markets globally. Products are sold under the trade names Crane, Saunders, Jenkins, Pacific, Xomox, Krombach, DEPA, ELRO, REVO, Flowseal, Centerline, Resistoflex, Duochek, Barksdale, Westlock and WTA. Manufacturing locations, along with sales and service centers, are located across the Americas, Europe, the Middle East, Asia and Australia.

Commercial Valves is engaged primarily in the manufacturing and distribution of valves and related products for the non-residential construction, general industrial, and to a lesser extent, municipal markets. The primary geographies served include Canada, the United Kingdom, the Middle East and continental Europe. Brands include Stockham, Wask, Viking Johnson, IAT, Hattersley, NABIC, Sperryn, Wade, Rhodes and Brownall. Manufacturing facilities are located in the United Kingdom and China, with additional sales offices in continental Europe and the Middle East; distribution facilities are located throughout Canada.

Other Products includes pumps and related products for water and wastewater applications in the industrial, municipal, commercial and military markets, primarily in the United States. Products are sold under the trade names Deming, Weinman, Burks and Barnes. Facilities are located in the United States and Canada.

Page 2

Payment & Merchandising Technologies

The Payment & Merchandising Technologies segment consists of Crane Payment Innovations (“CPI”), Crane Merchandising Systems ("CMS") and Crane Currency.

CPI provides high technology payment acceptance products that improve our customers’ productivity in numerous global markets including retail self-checkout, vending, casino gaming, government lotteries, parking, transit fare collection, payment kiosks and banking. Products for these markets include coin acceptors and dispensers, coin hoppers, coin recyclers, bill validators, bill recyclers and cashless systems. Facilities are located in the United States, Mexico, Japan, Switzerland, Germany and the Ukraine, with additional sales offices across the world.

CMS is primarily engaged in the design and manufacture of vending equipment and related solutions. CMS’ innovative products and solutions create value by improving the consumer experience, and driving higher same store, or vendor machine, profitability. Products include a full line of vending equipment that dispenses food, snack, and hot and cold beverages. Other solutions include vending management software, cashless payment products, and wireless connectivity to enable our customers to operate their businesses more profitably. Primary customers include vending operators and food and beverage companies, primarily in the United States and Europe. Facilities are located in the United States and the United Kingdom.

On January 10, 2018, we completed the acquisition of Crane & Co., Inc. (“Crane Currency”), a supplier of banknotes and highly engineered banknote security features. The base purchase price of the acquisition was $800 million on a cash-free, debt-free basis, subject to a later adjustment reflecting Crane Currency’s net working capital, cash, the assumption by Crane of certain debt-like items, and Crane Currency’s transaction expenses. Founded in 1801, Crane Currency is a pioneer in advanced micro-optic security technology, and a fully integrated supplier of secure and highly engineered banknotes for central banks all over the world. Facilities are located in the United States, Sweden and Malta.

Aerospace & Electronics

The Aerospace & Electronics segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace and military aerospace and defense markets. The commercial market and military market accounted for 66% and 34%, respectively, of total segment sales in 2018. Sales to original equipment manufacturers ("OEM") and aftermarket customers were 73% and 27%, respectively, in 2018.

Crane Aerospace & Electronics has strong brands which have been supplying products to these end markets for several decades. Brands include Hydro-Aire, ELDEC, Lear Romec, P.L. Porter, Keltec, Interpoint, Signal Technology, Merrimac Industries, and Polyflon.

Products include a wide range of custom designed, highly engineered products used in landing systems, sensing and utility systems, fluid management, seat actuation, power and microelectronic applications, and microwave systems.

Our products are sold directly to aircraft manufacturers, commercial Tier 1 integrators (companies which make products specifically for an aircraft manufacturer), defense and space prime contractors, airlines, government agencies including the United States ("U.S.") Department of Defense, foreign allied defense organizations, aircraft seat manufacturers, and aircraft maintenance, repair and overhaul organizations.

Facilities are located in the United States, Taiwan, and France.

Engineered Materials

The Engineered Materials segment manufactures fiberglass-reinforced plastic ("FRP") panels and coils, primarily for use in the manufacturing of recreational vehicles ("RVs"), truck bodies, truck trailers, with additional applications in commercial and industrial buildings. Engineered Materials sells the majority of its products directly to RV, trailer, and truck manufacturers, and it uses distributors and retailers to serve the commercial and industrial construction markets. Manufacturing facilities are located in the United States.

Other Matters Relating to Our Business as a Whole

Competitive Conditions

Our businesses participate in markets that are highly competitive. Because of the diversity of products manufactured and sold, our businesses typically have a different set of competitors in each geographic area and end market in which they participate. Accordingly, it is not possible to estimate the number of competitors, or precise market share; however, we believe that we are a principal competitor in most of our markets. Our primary basis of competition is providing high quality products, with technological differentiation, at competitive prices, with superior customer service and timely delivery.

Page 3

Our products are sold into markets, including chemicals, oil & gas, power, non-residential construction, automated payment solutions, banknote design and production, and aerospace & defense, along with a wide range of general industrial and certain consumer related end markets. As such, our revenues depend on numerous unpredictable factors, including changes in market demand, general economic conditions, customer capital spending, timing and amount of contract awards and credit availability. Since our products are sold in such a wide variety of markets, we do not believe that we can reliably quantify or predict the potential effects of changes in any of the aforementioned factors.

Our engineering and product development activities are focused on improving existing products, customizing existing products for 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.

Research and Development

Research and development costs are expensed when incurred. These costs were $58.4 million, $58.5 million and $61.5 million in 2018, 2017 and 2016, respectively, and were incurred primarily by our Aerospace & Electronics and Payment & Merchandising Technologies segments.

Our Customers

No customer accounted for more than 10% of our consolidated revenues in 2018, 2017 or 2016.

Backlog

The following sets forth the unfulfilled orders attributable to each of our segments as of the indicated dates:



(in millions)	December 31, 2018		December 31, 2017
Fluid Handling	$	279.6	$	262.1
Payment & Merchandising Technologies	331.5		76.4
Aerospace & Electronics	446.6		373.6
Engineered Materials	14.9		13.6
Total Backlog	$	1,072.6	$	725.7

Our Employees

As of December 31, 2018, we employed approximately 12,000 people in the Americas, Europe, the Middle East, Asia and Australia. For a discussion of risks related to employee relations, please refer to Item 1A. “Risk Factors.”

Raw Materials

Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics, cotton, flax and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world. Although market forces have at times 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 acceptable costs. For a further discussion of risks related to raw materials; please refer to Item 1A. “Risk Factors.”

Seasonal Nature of Business

In aggregate, 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 and Payment & Merchandising Technologies segments and, to a lesser extent, 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

Page 4

time. For a further discussion of risks related to compliance with government contracting requirements; please refer to Item 1A. “Risk Factors.”

Environmental Compliance and Climate Change

We are regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts, including greenhouse gases, that would be considered hazardous waste or otherwise harmful to the environment. Accordingly, compliance with these existing laws has not had a material impact on our capital expenditures or earnings.

However, we occasionally engage in environmental remediation activities pursuant to federal and state laws. In addition, we may be exposed to other environmental costs including participation in superfund sites. When it is reasonably probable we will pay remediation costs at a site, and those costs can be reasonably estimated, we accrue a liability for such future costs with a related charge against our earnings. For a further discussion of environmental related risks; please refer to Item 1A. “Risk Factors.”

Recent Financing Arrangements

On December 20, 2017, we entered into a $150 million 364-day credit agreement (the "364-day Credit Agreement") and a $200 million 3-year term loan credit agreement (the "3-year Term Loan Credit Agreement") to fund our acquisition of Crane Currency. On January 10, 2018, we completed the acquisition of Crane Currency. To fund the acquisition, we issued $340 million of commercial paper under our commercial paper program, drew $100 million and $200 million from each of our 364-day Credit Agreement and 3-year Term Loan Credit Agreement, respectively, and used cash on hand.

On February 5, 2018, we completed a public offering of $350 million aggregate principal amount of 4.20% Senior Notes due March 2048 (the “Public Offering”). In March 2018, we used the net proceeds from the Public Offering, together with cash on hand, to repay all of the $100 million outstanding under our 364-day Credit Agreement as well as $250 million of outstanding 2.75% notes due in December 2018.

On October 23, 2018, we increased the size of our commercial paper program to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed $550 million at any time outstanding. Prior to this increase, the commercial paper program permitted us to issue commercial paper notes in an aggregate principal amount not to exceed $500 million at any time outstanding.

See Part II, Item 8 under Note 12, “Financing,” in the Notes to Consolidated Financial Statements.

Available Information

We file annual, quarterly and current reports and amendments to these reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). 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.

Page 5

Executive Officers of the Registrant



Name	Position	Business Experience During Past Five Years	Age	Executive Officer Since
Max H. Mitchell	President and Chief Executive Officer	Chief Executive Officer since January 2014. President since January 2013. Chief Operating Officer from 2011 through January 2013.	55	2004
Curtis A. Baron, Jr.	Vice President, Controller	Vice President, Controller since 2011.	49	2011
Anthony M. D'Iorio	Vice President, General Counsel and Secretary	Vice President, General Counsel and Secretary since February 2018. Deputy General Counsel from January 2014 through February 2018. Assistant General Counsel from 2005 through January 2014.	55	2018
Bradley L. Ellis	Senior Vice President	Senior Vice President since December 2014. Group President, Merchandising Systems from 2003 through December 2014.	50	1997 - 2003 2007 - present
James A. Lavish	Vice President, CBS, People & Performance	Vice President, CBS, People & Performance since January 2016. Vice President, Crane Business System from March 2013 through January 2016. President, Crane Pumps & Systems from 2008 to March 2013.	52	2016
Richard A. Maue	Senior Vice President and Chief Financial Officer	Senior Vice President since January 2019. Vice President - Finance from 2013 through January 2019. Chief Financial Officer since January 2013. Principal Accounting Officer since 2007.	48	2007
Louis V. Pinkham	Senior Vice President	Senior Vice President since December 2014. Group President, Fluid Handling from 2012 through December 2014.	47	2012
Kristian R. Salovaara	Vice President of Business Development and Strategy	Vice President of Business Development and Strategy since March 2014. Vice President, Business Development from 2011 to March 2014.	58	2011
Edward S. Switter	Vice President, Treasurer and Tax	Vice President, Treasurer and Tax since September 2016. Vice President, Tax from 2011 through September 2016.	44	2011

Page 6

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, results of operations and cash flows.

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 financial condition, results of operations and cash flows.

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 our 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 our financial condition, results of operations and cash flows in any given period from a revision to these estimates could be material.

As of December 31, 2018, we were one of a number of defendants in cases involving 29,089 pending claims filed in various state and federal courts that allege injury or death as a result of exposure to asbestos. See Part II, Item 8 under Note 11, “Commitments and Contingencies,” in 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 2059;


•	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.

In the fourth quarter of 2016, we updated and extended the estimate of our asbestos liability and recorded a pre-tax charge of $192 million ($125 million after tax). Our updated liability estimate is for pending and reasonably anticipated asbestos claims through the generally accepted end point of such claims in 2059. Due to uncertainties in the tort system, as well as uncertainties inherent in the estimation process, future reviews may result in adjustments to our total asbestos-related liability. The aggregate liability was $517.3 million as of December 31, 2018.

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

Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks, including credit market conditions, trade agreements, levels of consumer and business confidence, commodity prices, exchange rates, levels of government spending and deficits, political conditions and other challenges that could affect the global economy. These economic conditions could affect businesses such as ours in a number of ways. Such conditions could have an adverse impact on our flexibility to react to changing economic and business conditions and on our ability to fund our operations or refinance maturing debt balances at economically favorable interest rates. In addition, restrictions on credit availability could 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. See “Specific Risks Related to Our Business Segments”.

Page 7

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 demand by these industries would reduce the sales and profitability of the affected business segments. Our Fluid Handling business is dependent on global economic conditions, customer capital spending and commodity prices. Deterioration in any of these economic factors could result in sales and profits falling below our current outlook. Results at our Payment & Merchandising Technologies segment could be affected by sustained weakness in certain geographic markets such as China or certain end markets such as gaming, retail or banking, as well as low employment levels, office occupancy rates and factors affecting vending operator profitability such as higher fuel, food and equipment financing costs; results could also be impacted by unforeseen advances in payment processing technologies. In addition, our results in this segment are subject to significant variability due to the timing and size of contract awards by central banks for banknote production. In our Aerospace & Electronics segment, a significant decline in demand for air travel, or a decline in airline profitability generally, could result in reduced orders for aircraft and could also cause airlines to reduce their purchases of repair parts from our businesses. In addition, our Aerospace & Electronics segment 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 and/or extend payment terms; in addition, demand for military and defense products is dependent upon government spending in certain areas which can vary year to year. In our Engineered Materials segment, sales and profits could be affected by declines in demand for truck trailers, RVs, or building products; results could also be impacted by unforeseen changes in capacity or price increases related to certain raw materials, in particular, resin.

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 our 2018 acquisition of Crane Currency, involves significant risks and uncertainties, including:


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


•	Unplanned expenses associated with the integration efforts;


•	Inability to achieve planned facility repositioning savings or related efficiencies from recent and ongoing investments, such as those related to the transition of our print operations from Sweden to Malta; and


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

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.

Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations, cash flows and reputation.

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 U.S. and abroad in connection with our operations. Failure to comply with any of these laws could result in civil and criminal liability, 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 flows. For example, in 2014, the U.S. Environmental Protection Agency issued a Record of Decision amendment requiring, among other things, additional source area remediation resulting in us recording a charge of $49 million pertaining to the Phoenix-Goodyear Airport North Superfund Site (the "Goodyear Site"), extending the accrued costs through 2022. The total estimated gross liability was $33.1 million as of December 31, 2018, of which we have recorded a receivable of $6.7 million for the expected reimbursements from the U.S. Government in respect of the aggregate liability as at that date.

Page 8

Additional tax expense or exposures could affect our financial condition, results of operations and cash flows.

We are subject to income taxes in the U.S. and various international jurisdictions. Our financial condition, results of operations and cash flow could be affected by changes to any or all of the following: tax laws, regulations, accounting principles and judicial rulings, including the U.S. Tax Cuts and Jobs Act (the “TCJA”), the geographic mix of our earnings, the valuation of our deferred tax assets and liabilities, and the amount of our earnings permanently reinvested outside the U.S. In addition, the results of audits and examinations of previously filed tax returns could also have an effect on our financial conditions, results of operations and cash flows.

Enactment of the TCJA on December 22, 2017 brought significant changes to existing U.S. federal corporate income tax laws, including reducing the U.S. federal corporate income tax rate from 35% to 21%, modifying how distributions from and income earned by our non-U.S. subsidiaries are taxed in the U.S., and imposing a one-time tax on cumulative undistributed non-U.S. earnings. The U.S. Department of Treasury and Internal Revenue Service have issued proposed guidance on certain changes brought by the TCJA, while guidance in other areas remains pending. In addition, U.S. states’ responses to the TCJA are in various stages of finality. The actual impact of the TCJA may differ from our calculations due to the issuance of final and/or further regulations or guidance by the U.S. federal and state taxing authorities. Any significant changes to our calculations from these items could have an adverse effect on our financial condition, results of operations and cash flows.

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

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, Fluid Handling and Payment & Merchandising Technology segments, as discussed more fully under “Specific Risks Relating to Our Business Segments”. In certain circumstances, export control and economic sanctions 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, we are subject to the Foreign Corrupt Practices Act, which prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business, or securing any improper advantage. We are also subject to the anti-bribery laws of other jurisdictions. Failure to comply with any of these regulations could result in civil and criminal liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

The prices of our raw materials could 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. The costs in our Engineered Materials segment are affected by fluctuations in the price of resin, with lesser exposure to other input costs. The costs in our Fluid Handling, Payment & Merchandising Technologies and Aerospace & Electronics segments are affected by fluctuations in the price of cotton, flax and 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 adversely affected.

Our ability to source parts and raw materials from our suppliers could be disrupted or delayed in our supply chain which could adversely affect our results of operations.

Our operations require significant amounts of necessary parts and raw materials. We deploy a continuous, company-wide process to source our parts and raw materials from fewer suppliers, and to obtain parts from suppliers in low-cost countries where possible. If we are unable to source 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, increases in duties and tariff costs, price volatility or the unavailability of some raw materials could have an adverse effect on our financial condition, results of operations and cash flows.

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

Page 9

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 liabilities not covered by insurance or that exceed our established reserves could have an adverse effect on our financial condition, results of operations and cash flows.

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

We are committed to continuous productivity improvement, and we continue to evaluate opportunities to reduce costs, simplify or improve global processes, and increase the reliability of order fulfillment and satisfaction of customer needs. In order to operate more efficiently and control costs, from time to time we execute restructuring activities, which include workforce reductions and facility consolidations. For example, we recorded pre-tax restructuring charges of $7.2 million and $13.0 million in 2018 and 2017, respectively, associated with broad-based repositioning actions designed to improve profitability. Together with additional costs of approximately $15 million, we expect to achieve $53 million in annualized savings by 2020. While these are proactive actions to increase our productivity and operating effectiveness, our failure to respond to potential declines in global demand for our products and services and properly align our cost base could have an adverse effect on our financial condition, results of operations and cash flows.

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 or technologies, 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 financial condition, results of operations and cash flows could be adversely impacted.

Our business could be harmed if we are unable to protect our intellectual property.

We rely on a combination of trade secrets, patents, trademarks, copyrights and confidentiality procedures to protect our products and technology. Existing trade secret, patent, trademark and copyright laws offer only limited protection. Our patents could be invalidated or circumvented. In addition, others may develop substantially equivalent, or superseding proprietary technology, or competitors may offer equivalent non-infringing products in competition with our products, thereby substantially reducing the value of our proprietary rights. The laws of some foreign countries in which our products are or may be manufactured or sold may not protect our products or intellectual property rights to the same extent as do the laws of the U.S. We cannot assure that the steps we take to protect our intellectual property will be adequate to prevent misappropriation of our technology. Our inability to protect our intellectual property could have an adverse effect on our financial condition, results of operations and cash flows.

Pension benefit cost and pension contributions associated with our retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions and future market performance of plan assets.

Total net pension benefit cost and pension contributions were $15.3 million and $57.5 million (including a $28 million discretionary contribution), respectively, in 2018. The costs of our defined benefit pension plans are dependent upon various factors, including rates of return on investment assets, discount rates for future payment obligations, and expected mortality, among other things. In addition, funding requirements for benefit obligations of our pension plans are subject to legislative and other government regulatory actions. Variances in related estimates could have an adverse effect on our financial condition, results of operations and cash flows.

We face significant competition which may adversely impact our financial condition, results of operations, and cash flows 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

Page 10

products. 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 financial condition, results of operations and cash flows.

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

Net sales and assets related to our operations outside the U.S. were 37% and 47% of our consolidated amounts, respectively, in 2018. 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, fluctuations in foreign currency exchange rates, primarily the euro, the British pound, the Canadian dollar and the Japanese yen, could adversely affect our reported results, primarily in our Fluid Handling and Payment & Merchandising Technologies 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 have an adverse effect on our results of operations.

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, including processes related to newly acquired businesses; however, increased risk of internal control breakdowns generally exists in any business environment that is decentralized such as ours. 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 systems 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 our 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 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 theft, loss, fraudulent use or misuse of customer, stockholder, employee or our proprietary 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 can create system disruptions and shutdowns that could result in disruptions to our operations. We cannot be certain that advances in criminal capabilities, new vulnerabilities or other developments will not compromise or breach the security solutions protecting our information technology, networks and systems.

The results of the United Kingdom’s (“UK”) European Union (“EU”) membership referendum could adversely affect customer demand, our relationships with customers and suppliers and our business and financial statements.

Approximately 37% of our sales are conducted outside of the U.S., the majority of which is in the UK and the EU. We continue to evaluate the potential effect of the planned departure of the UK from the EU (commonly referred to as Brexit) on our business operations and financial results, including the impacts if the UK fails to reach an agreement with the EU on Brexit by the March 29, 2019 deadline. The political and economic instability created by Brexit has caused and may continue to cause volatility in global stock markets, currency exchange rate fluctuations and global economic uncertainty, which could adversely affect customer demand, our relationships with customers and suppliers and our business and financial statements.

Possible new tariffs could have a material adverse effect on our business.

The United States has recently announced the implementation of new tariffs on imported steel and aluminum, and is also reportedly considering tariffs on additional items. Items that may be impacted by these additional tariffs could include items

Page 11

imported by us from China or other countries. In addition, China has announced a plan to impose tariffs on a wide range of American products in retaliation for these new American tariffs. There is a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs by China and other countries as well. Any resulting escalation of trade tensions could negatively impact the global markets and could have an adverse effect on our financial condition, results of operations and cash flows.

Our future results of operations and financial condition could be adversely impacted by intangible asset impairment charges.

As of December 31, 2018, we had goodwill and other intangible assets, net of accumulated amortization, of approximately $1,886 million, which represented approximately 47% of our total assets. Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Any excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill) are generally amortized over the useful life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired assets. We may subsequently experience unforeseen issues with such business that adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have an adverse effect on our financial condition and results of operations.

Specific Risks Relating to Our Reportable Segments

Fluid Handling

Our Fluid Handling segment competes in markets that are fragmented and highly competitive. The business competes against large, well established global companies, as well as smaller regional and local companies. We compete based on our products’ quality, reliability and safety, our brand reputation, value-added technical expertise and customer support and consistent on-time delivery. However, pricing can be highly competitive, particularly in regions and end markets with weakening levels of demand, or in markets where our value proposition - quality, reliability, and safety - is not valued as highly.

Demand for our Fluid Handling products is heavily dependent on our customers’ level of new capital investment and planned maintenance expenditures. Customer spending typically depends on general economic conditions, availability of credit, and expectations of future demand. Slowing global economic growth, volatility in commodity prices, including continued weakness in oil prices could all contribute to lower levels of customer spending, and project delays or cancellations.

A portion of this segment’s business is subject to government contracting rules and regulations. Failure to comply with these requirements could result in suspension or debarment from government contracting or subcontracting, civil and criminal liability, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to export products and services, or damage to our reputation. At our foreign operations, results could also be adversely impacted by a weakening of local currencies against the U.S. dollar; our Fluid Handling business has the greatest exposure to the euro, British pound, and Canadian dollar, although there is lesser exposure to several other currencies.

Payment & Merchandising Technologies

Our Payment & Merchandising Technologies segment sales are dependent on capital spending in a variety of end markets and across numerous geographies. The level of capital expenditures by our customers depends on general economic conditions, availability of credit, and expectations of future demand. In addition, our results in this segment are subject to significant variability due to the timing and size of contract awards by central banks for banknote production. Our results in this segment could be adversely impacted if our recently acquired Crane Currency business is not integrated successfully, including achieving planned cost savings from ongoing repositioning actions.

This business regularly develops and markets new products. Delays in the product development process, or the inability of new products to meet targeted performance measures, could hurt future sales. This business is also directly and indirectly exposed to changes in government regulations; for example, changes in gaming regulations could influence the spending patterns of our casino operator customers, or changes in anti-money laundering regulations could result in additional technical requirements for our products. We are also subject to investigation and audit for compliance with the requirements governing government contracts, including requirements related to procurement integrity, manufacturing practices and quality procedures, export control, employment practices, the accuracy of records and the recording of costs and information security requirements. A failure to comply with these requirements could 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

Page 12

liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

At our foreign operations, results could also be adversely impacted by a weakening of local currencies against the U.S. dollar; the business has the greatest exposure to the euro, British pound, the Japanese yen, the Mexican peso, and the Canadian dollar, although there is lesser exposure to several other currencies. In addition, our facility in Mexico operates under the Mexican Maquiladora program. This program provides for reduced tariffs and eased import regulations; we could be adversely affected by changes in such program, or by our failure to comply with its requirements.

Aerospace & Electronics

Our Aerospace & Electronics segment sales are primarily affected by conditions in the commercial aerospace industry which is cyclical in nature, and by changes in defense spending by the U.S. government.

Commercial aircraft are procured primarily by airlines, and airline capital spending can be affected by a number of factors including credit availability, current and expected fuel prices, and current and forecast air traffic demand levels. Air traffic levels are affected by a different array of factors including general economic conditions and global corporate travel spending, although other non-economic events can also adversely impact airline traffic, including terrorism or pandemic health concerns. Our commercial business is also affected by the market for business jets where demand is typically tied to corporate profitability levels, and the freight markets which are most heavily influenced by general economic conditions. Demand for our commercial aftermarket business is closely tied to total aircraft flight hours. Any decrease in demand for new aircraft or equipment, or use of existing aircraft and equipment, would likely result in decreased sales of our products and services.

The defense portion of the segment’s business is dependent primarily on U.S. government spending, and to a lesser extent, foreign government spending, on the specific military platforms and programs where our business participates. Any reduction in appropriations for these platforms or programs could impact the performance of our business. Our sales to defense customers are also affected by the level of activity in military flight operations.

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, manufacturing practices and quality procedures, export control, employment practices, the accuracy of records and the recording of costs and information security requirements. A failure to comply with these requirements could 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 liability, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

Due to the lengthy research and development cycle involved in bringing commercial and military products to market, we cannot accurately predict the demand levels that will exist once a given new product is ready for market. In addition, if we are unable to develop and introduce new products in a cost-effective manner or otherwise effectively manage the introduction of new products and/or programs, our results of operations and financial condition could be adversely impacted. Demand for our products could also be adversely impacted by industry consolidation that could result in greater acceptance of competitors' products.

Engineered Materials

Our Engineered Materials segment manufactures and sells FRP panels and coils, primarily for use in the manufacturing of RVs, trucks, and trailers, with additional applications in commercial and industrial building construction. Demand in these end markets is dependent on general economic conditions, credit availability, and consumer and corporate spending levels. A decline in demand in any of these end markets, including a significant change in RV industry capacity; a loss of market share; or customer pricing pressure would result in lower sales and profits for this business. Profitability could also be adversely affected by an increase in the price of resin or fiberglass if we are unable to pass the incremental costs on to our customers. Additional risks include the loss of a principal supplier, and potential loss of market share to competing materials, such as wood or aluminum.

Item 1B. Unresolved Staff Comments

None

Page 13

Item 2. Properties

The following is a summary of our principal facilities as of December 31, 2018:



	Facilities - Owned
Location	Fluid Handling		Payment & Merchandising Technologies		Aerospace & Electronics		Engineered Materials		Corporate		Total
	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)
Manufacturing:
United States	7	798,509	9	1,391,552	6	724,240	4	644,333	—	—	26	3,558,634
Canada	—	—	—	—	—	—	—	—	—	—	—	—
Europe	7	1,081,454	4	828,766	—	—	—	—	—	—	11	1,910,220
Other international	5	468,972	2	294,666	—	—	—	—	—	—	7	763,638
	19	2,348,935	15	2,514,984	6	724,240	4	644,333	—	—	44	6,232,492
Non-Manufacturing:											—	—
United States	2	98,510	3	27,724	—	—	—	—	—	—	5	126,234
Canada	7	154,674	—	—	—	—	—	—	—	—	7	154,674
Europe	2	73,780	—	—	—	—	—	—	—	—	2	73,780
Other international	—	—	—	—	—	—	—	—	—	—	—	—
	11	326,964	3	27,724	—	—	—	—	—	—	14	354,688



	Facilities - Leased
Location	Fluid Handling		Payment & Merchandising Technologies		Aerospace & Electronics		Engineered Materials		Corporate		Total
	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)	Number	Area (sq. ft.)
Manufacturing
United States	2	97,220	1	141,049	2	97,723	—	—	—	—	5	335,992
Canada	1	20,572	1	61,183	—	—	—	—	—	—	2	81,755
Europe	3	517,890	1	20,053	—	—	—	—	—	—	4	537,943
Other international	2	111,659	—	—	1	63,653	—	—	—	—	3	175,312
	8	747,341	3	222,285	3	161,376	—	—	—	—	14	1,131,002
Non-Manufacturing
United States	4	76,555	8	336,460	2	12,911	3	78,950	2	39,875	19	544,751
Canada	22	472,554	—	—	—	—	—	—	—	—	22	472,554
Europe	7	51,648	5	50,570	3	21,962	—	—	—	—	15	124,180
Other international	19	145,044	5	18,324	—	—	—	—	—	—	24	163,368
	52	745,801	18	405,354	5	34,873	3	78,950	2	39,875	80	1,304,853

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 under Note 11, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements.

Item 4. Mine Safety Disclosures.

Not applicable.

Page 14

Part II

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

Market Information

Crane Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol "CR". As of December 31, 2018, there were 1,949 holders of record of Crane Co. common stock.

Stock Performance Graph

The following chart compares the total stockholder returns (stock price increase plus reinvested dividends) on our common stock from December 31, 2013 through December 31, 2018 with the total stockholder returns for the S&P 500 Index and the S&P MidCap Capital Goods Index. The graph assumes that the value of the investment in the common stock and each index was $100 on December 31, 2013 and that all dividends were reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

Among Crane Co., S&P 500, and S&P 400 Mid Cap Capital Goods

Fiscal Year Ending December 31,

Page 15

Purchases of Equity Securities

The following table summarizes our share repurchases during the three months ended December 31, 2018:



	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
October 1-31	290,955	$	85.92	—	—
November 1-30	—	—		—	—
December 1-31	—	—		—	—
Total October 1 — December 31, 2018	290,955	$	85.92	—	—

The table above only includes the open-market repurchases of our common stock during the three months ended December 31, 2018. We routinely receive shares of our common stock as payment for stock option exercises and the withholding taxes due on stock option exercises and the vesting of restricted share units from stock-based compensation program participants.

Equity Compensation Plans

For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.

Page 16

Item 6. Selected Financial Data

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA



	For the year ended December 31,
(in millions, except per share data)	2018			2017			2016			2015			2014
Net sales	$	3,345.5		$	2,786.0		$	2,748.0		$	2,740.5		$	2,925.0
Operating profit ^{(a) (c)}	441.3			388.4			186.7			356.3			299.9
Interest expense	(50.9		)	(36.1		)	(36.5		)	(37.6		)	(39.2		)
Income before taxes ^(a)	411.4			367.5			164.1			336.5			281.2
Provision for income taxes ^(b)	75.9			195.0			40.3			106.5			87.6
Net income before allocation to noncontrolling interests	335.5			172.5			123.8			230.0			193.6
Net income attributable to common shareholders ^(b)	$	335.6		$	171.8		$	122.8		$	228.9		$	192.7
Basic earnings per share ^(b)	$	5.63		$	2.89		$	2.10		$	3.94		$	3.28
Diluted earnings per share ^(b)	$	5.50		$	2.84		$	2.07		$	3.89		$	3.23
Cash dividends per common share	$	1.40		$	1.32		$	1.32		$	1.32		$	1.26
Total assets	$	4,042.7		$	3,593.5		$	3,428.0		$	3,336.9		$	3,445.5
Long-term debt and Current maturities of long-term debt	$	949.2		$	743.5		$	745.3		$	744.6		$	743.9
Accrued pension and postretirement benefits	$	244.0		$	240.5		$	249.1		$	235.4		$	278.3
Long-term asbestos liability	$	451.3		$	520.3		$	624.9		$	470.5		$	534.5
Long-term insurance receivable — asbestos	$	75.0		$	90.1		$	125.2		$	108.7		$	126.8

(a)

Includes i) acquisition-related and integration charges of $19.8 million in 2018 and $7.8 million in 2017; ii) restructuring charges of $7.2 million in 2018 and restructuring charges, net of gain on property sale of $13.0 million in 2017; iii) an asbestos provision, net of insurance recoveries of $192.4 million in 2016; iv) a legal settlement charge of $5.0 million in 2016; v) an environmental liability provision of $55.8 million in 2014; and vi) a lawsuit settlement of $6.5 million in 2014.


(b)	Includes the tax effect of items cited in note (a) as well as i) the impact of the TCJA of $87 million in 2017; ii) a gain of $1.0 million related to the deconsolidation of a joint venture in 2017; iii) loss on divestiture of a small business of $1.1 million in 2014; and iv) gain on divestiture of real estate of $4.2 million in 2014.

(c)

In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of of $21.1 million in 2018, $13.6 million in 2017, $13.6 million in 2016, $16.6 million in 2015 and $16.4 million in 2014.

Page 17

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 four segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Our primary markets are chemicals, oil & gas, power, non-residential construction, automated payment solutions, banknote design and production and aerospace & defense, along with a wide range of general industrial and certain consumer related end markets.

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

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

Page 18

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

Results of Operations — For the Years Ended December 31, 2018, 2017 and 2016



	For the year ended December 31,									2018 vs 2017 Favorable / (Unfavorable) Change					2017 vs 2016 Favorable / (Unfavorable) Change
(in millions, except %)	2018			2017			2016			$			%		$			%
Net sales:
Fluid Handling	$	1,101.8		$	1,042.5		$	999.5		$	59.3		5.7	%	$	43.0		4.3	%
Payment & Merchandising Technologies	1,257.0			776.7			745.8			480.3			61.8	%	30.9			4.1	%
Aerospace & Electronics	743.5			691.4			745.7			52.1			7.5	%	(54.3		)	(7.3	)%
Engineered Materials	243.2			275.4			257.0			(32.2		)	(11.7	)%	18.4			7.2	%
Total net sales	$	3,345.5		$	2,786.0		$	2,748.0		$	559.5		20.1	%	$	38.0		1.4	%
Sales growth:
Core business										$	76.7		2.8	%	$	31.0		1.1	%
Foreign exchange										11.9			0.4	%	(6.8		)	(0.2	)%
Acquisitions/dispositions										470.9			16.9	%	13.8			0.5	%
Total sales growth										$	559.5		20.1	%	$	38.0		1.4	%
Operating profit:
Fluid Handling	$	118.8		$	101.7		$	109.4		$	17.1		16.8	%	$	(7.7	)	(7.0	)%
Payment & Merchandising Technologies	186.0			145.9			133.2			40.1			27.5	%	12.7			9.5	%
Aerospace & Electronics	164.2			160.3			149.7			3.9			2.4	%	10.6			7.1	%
Engineered Materials	37.8			49.4			49.0			(11.6		)	(23.5	)%	0.4			0.8	%
Corporate expense	(65.5		)	(68.9		)	(62.2		)	3.4			4.9	%	(6.7		)	(10.8	)%
Corporate expense — Asbestos	—			—			(192.4		)	—			NM		192.4			NM
Total operating profit	$	441.3		$	388.4		$	186.7		$	52.9		13.6	%	$	201.7		108.0	%
Operating margin:
Fluid Handling	10.8		%	9.8		%	10.9		%
Payment & Merchandising Technologies	14.8		%	18.8		%	17.9		%
Aerospace & Electronics	22.1		%	23.2		%	20.1		%
Engineered Materials	15.5		%	17.9		%	19.1		%
Total operating margin	13.2		%	13.9		%	6.8		%
Acquisition-related and integration charges ^(a)	$	19.8		$	7.8		$	—
Restructuring and related charges ^(a)	$	14.7		$	13.0		$	—
Change in presentation of pension and postretirement costs ^(b)	$	21.1		$	13.6		$	13.6



(a)	Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.
(b)	In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of $21.1 million in 2018 and $13.6 million in each of 2017 and 2016.

Page 19

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

Items Affecting Comparability of Reported Results

The comparability of our results from operations for the years ended December 31, 2018, 2017 and 2016 is affected by the following significant items:

Acquisition-Related and Integration Charges

During 2018 and 2017, we recorded pre-tax acquisition-related and integration charges of $19.8 million and $7.8 million, respectively, related to acquisition activity.

Acquisition-Related Inventory Step-Up and Backlog Amortization

In 2018, we recorded pre-tax acquisition-related inventory step-up and backlog amortization of $9.1 million, primarily associated with the acquisition of Crane Currency.

Restructuring and Related Charges

In 2018, we recorded pre-tax restructuring and related charges of $14.7 million related to the acquisition of Crane Currency and the 2017 repositioning actions. In 2017, we recorded pre-tax restructuring charges, net of gain on property sale, of $13.0 million related to repositioning activities in our Fluid Handling, Payment & Merchandising Technologies and Aerospace & Electronics segments.

Asbestos Charge

In 2016, we recorded a pre-tax charge of $192.4 million associated with extending the time horizon of our estimated asbestos liability through the generally accepted end point in 2059. Please refer to Part II, Item 8 under Note 11, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further discussion of the asbestos charge.

Huttig Legal Settlement Charge

In 2016, we recorded a pre-tax charge of $5.0 million associated with settlement of a legal matter with Huttig Building Products, Inc.

2018 compared with 2017

Sales increased by $559.5 million, or 20.1%, to $3,345.5 million in 2018. Net sales related to operations outside the U.S. for the years ended December 31, 2018 and 2017 was 37% of total net sales. The year-over-year change in sales included:


•	an increase in sales related to acquisitions, net, of $470.9 million, or 16.9%;


•	an increase in core sales of $76.7 million, or 2.8%; and


•	favorable foreign currency translation of $11.9 million, or 0.4%.

Operating profit increased by $52.9 million, or 13.6%, to $441.3 million in 2018. The increase in operating profit reflected the higher operating profit in our Payment & Merchandising Technologies, Fluid Handling and Aerospace & Electronics segments and lower corporate costs, partially offset by lower operating profit in our Engineered Materials segment. Operating profit in 2018 included 1) acquisition-related and integration charges of $19.8 million in connection with the acquisition of Crane Currency; 2) acquisition-related inventory and backlog amortization of $9.1 million, primarily associated with the acquisition of Crane Currency; and 3) restructuring and related charges of $14.7 million.

2017 compared with 2016

Sales increased by $38.0 million to $2,786.0 million in 2017. Net sales related to operations outside the U.S. for the years ended December 31, 2017 and 2016 were 37% and 36% of total net sales, respectively. The year-over-year change in sales included:


•	an increase in core sales of $31.0 million, or 1.1%; and


•	a net acquisition benefit of $13.8 million, or 0.5%; partially offset by


•	unfavorable foreign currency translation of $6.8 million, or 0.2%.

Operating profit increased by $201.7 million, or 108.0%, to $388.4 million in 2017. The increase primarily related to the absence of a $192.4 million asbestos charge recorded in 2016, together with higher operating profit in our Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials segments. These increases were partially offset by lower operating profit in our Fluid Handling segment, a $13.0 million pre-tax restructuring charge, net of gain on property sale, and higher corporate costs.

Page 20

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

Comprehensive income



(in millions) For the year ended December 31,	2018			2017		2016
Net income before allocation to noncontrolling interests	$	335.5		$	172.5	$	123.8
Other comprehensive (loss) income, net of tax
Currency translation adjustment	(41.6		)	86.9		(64.7		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax	(26.2		)	9.2		(35.2		)
Other comprehensive (loss) income, net of tax	(67.8		)	96.1		(99.9		)
Comprehensive income before allocation to noncontrolling interests	267.7			268.6		23.9
Less: Noncontrolling interests in comprehensive income	(0.3		)	0.7		1.0
Comprehensive income attributable to common shareholders	$	268.0		$	267.9	$	22.9

2018 compared with 2017

For the year ended December 31, 2018, comprehensive income before allocations to noncontrolling interests was $267.7 million compared to $268.6 million in 2017. The $0.9 million decrease was primarily driven by a $128.5 million unfavorable impact of foreign currency translation adjustments year over year including fluctuations in the British pound, Canadian dollar, euro and Japanese yen, and a $35.4 million decrease due to changes in pension and postretirement plan assets and benefit obligations. These decreases were substantially offset by higher net income before allocation to noncontrolling interests of $163.0 million.

2017 compared with 2016

For the year ended December 31, 2017, comprehensive income before allocations to noncontrolling interests was $268.6 million compared to $23.9 million in 2016. The $244.7 million increase was primarily driven by a $151.6 million favorable impact of foreign currency translation adjustments year over year including fluctuations in the British pound, Canadian dollar, euro and Japanese yen. The change was also attributable to a $48.7 million increase in net income before allocation to noncontrolling interests.

Page 21

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

FLUID HANDLING



(in millions, except %) For the year ended December 31,	2018			2017			2016
Net sales by product line:
Process Valves and Related Products	$	685.4		$	640.1		$	619.2
Commercial Valves	325.4			310.1			290.9
Other Products	91.0			92.3			89.4
Total net sales	$	1,101.8		$	1,042.5		$	999.5
Operating profit	$	118.8		$	101.7		$	109.4
Acquisition-related and integration charges ^(a)	$	—		$	2.9		$	—
Restructuring and related charges ^(a)	$	10.0		$	10.6		$	—
Change in presentation of pension and postretirement costs ^(b)	$	15.3		$	10.1		$	10.1
Assets	$	878.2		$	941.6		$	845.9
Operating margin	10.8		%	9.8		%	10.9		%



(a)	Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.
(b)	In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of $15.3 million in 2018 and $10.1 million in each of 2017 and 2016.

2018 compared with 2017

Fluid Handling sales increased by $59.3 million, or 5.7%, to $1,101.8 million, driven by a core sales increase of $44.9 million, or 4.3%, favorable foreign currency translation of $12.2 million, or 1.2%, and a favorable net impact from acquisitions of $2.2 million, or 0.2%.

•

Sales of Process Valves and Related Products increased by $45.3 million, or 7.1%, to $685.4 million in 2018. The increase reflected a core sales increase of $26.8 million, or 4.2%, favorable foreign currency translation of $7.8 million, or 1.2%, as the euro strengthened against the U.S. dollar, and an increase in sales related to the Westlock acquisition of $10.7 million, or 1.7%. The core sales increase primarily reflects higher sales to the general industrial, chemical and oil & gas markets.


•	Sales of Commercial Valves increased by $15.3 million, or 4.9%, to $325.4 million in 2018, primarily driven by a core sales increase of $10.9 million, or 3.5%, and favorable foreign currency translation of $4.4 million, or 1.4%, as the British pound strengthened against the U.S. dollar. The core sales increase reflected higher sales in the Canadian non-residential construction market.


•	Sales of Other Products decreased by $1.3 million, or 1.4%, to $91.0 million in 2018, primarily reflecting a loss of sales due to the deconsolidation of a joint venture of $8.5 million, or 9.2%, partially offset by a core sales increase of $7.2 million, or 7.8%. The higher core sales were primarily a result of broad-based strength across primary end markets.

Fluid Handling operating profit increased by $17.1 million, or 16.8%, to $118.8 million in 2018. The increase was driven primarily by productivity and leverage on the higher sales volumes, partially offset by unfavorable mix.

2017 compared with 2016

Fluid Handling sales increased by $43.0 million, or 4.3%, to $1,042.5 million, driven by a core sales increase of $22.8 million, or 2.3%, a favorable net impact from acquisitions of $19.8 million, or 2.0%, and favorable foreign currency translation of $0.4 million.

•

Sales of Process Valves and Related Products increased by $20.9 million, or 3.4%, to $640.1 million in 2017, primarily related to a $21.5 million, or 3.5%, increase in sales related to an acquisition and, to a lesser extent, favorable foreign currency translation of $3.6 million, or 0.6%. These increases were partially offset by a core sales decline of $4.2 million, or 0.7%, primarily related to weaker conventional power end markets.


•	Sales of Commercial Valves increased by $19.2 million, or 6.6%, to $310.1 million in 2017, primarily driven by a core sales increase of $22.5 million, or 7.7%, partially offset by unfavorable foreign currency translation of $3.5 million, or

Page 22

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

1.1%. The core sales increase primarily reflected stronger sales to the U.K. gas market and Canadian non-residential construction markets.


•	Sales of Other Products increased by $2.9 million, or 3.2%, to $92.3 million in 2017, primarily reflecting a core sales increase of $4.5 million, or 5.0%, partially offset by the loss of sales due to the deconsolidation of a joint venture of $1.6 million, or 1.8%. The higher core sales were primarily a result of greater demand from U.S. municipal end markets.

Fluid Handling operating profit decreased by $7.7 million, or 7.0%, to $101.7 million in 2017. The decrease was driven by the impact of unfavorable mix, higher restructuring and related charges of $10.6 million, higher material costs and higher transaction related expenses of $2.9 million, partially offset by productivity, price increases and the impact of higher volumes.

PAYMENT & MERCHANDISING TECHNOLOGIES



(in millions, except %) For the year ended December 31,	2018			2017			2016
Net sales by product line:
Payment Acceptance and Dispensing Products	$	594.2		$	575.9		$	511.8
Banknotes and Security Products	458.2			—			—
Merchandising Equipment	204.6			200.8			234.0
Total net sales	$	1,257.0		$	776.7		$	745.8
Operating profit	$	186.0		$	145.9		$	133.2
Acquisition-related and integration charges ^(a)	$	19.8		$	0.7		$	—
Restructuring and related charges ^(a)	$	3.7		$	12.2		$	—
Change in presentation of pension and postretirement costs ^(b)	$	2.9		$	2.5		$	2.3
Assets	$	2,074.4		$	1,215.7		$	1,188.9
Operating margin	14.8		%	18.8		%	17.9		%



(a)	Acquisition-related and integration charges and restructuring and related charges are included in operating profit and operating margin.
(b)	In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of $2.9 million, $2.5 million and $2.3 million in 2018, 2017 and 2016, respectively.

2018 compared with 2017

Payment & Merchandising Technologies sales increased by $480.3 million, or 61.8%, to $1,257.0 million in 2018, reflecting an increase in sales related to acquisitions of $468.7 million, or 60.3%, and an increase in core sales of $12.2 million, or 1.6%, partially offset by unfavorable foreign currency translation of $0.6 million, or 0.1%.

•

Sales of Payment Acceptance and Dispensing Products increased $18.3 million, or 3.2%, to $594.2 million in 2018, reflecting a core sales increase of $9.4 million, or 1.6%, favorable foreign currency translation of $7.2 million, or 1.3%, as the British pound and euro strengthened against the U.S. dollar, and higher sales related to the 2017 Microtronic acquisition of $1.7 million, or 0.3%. The higher core sales were primarily related to higher sales to the financial services, gaming and vending vertical markets.


•	Sales of Banknotes and Security Products increased $458.2 million due to the acquisition of Crane Currency.


•	Sales of Merchandising Equipment increased $3.8 million, or 1.9%, to $204.6 million in 2018. The increase reflected a core sales increase of $2.8 million, or 1.4%, and favorable foreign currency of $1.0 million, or 0.5%.

Payment & Merchandising Technologies operating profit increased by $40.1 million, or 27.5%, to $186.0 million in 2018. The increase was driven by the contribution from the Crane Currency acquisition, leverage on higher core sales, strong productivity, restructuring savings, and lower restructuring and related charges. These increases were partially offset by an increase of $19.1 million of acquisition-related and integration charges and $8.7 million of acquisition-related inventory and backlog amortization associated with the Crane Currency acquisition, and to a lesser extent, accelerated strategic growth investments.

2017 compared with 2016

Payment & Merchandising Technologies sales increased by $30.9 million, or 4.1%, to $776.7 million in 2017, reflecting a core sales increase of $44.5 million, or 5.9%, partially offset by unfavorable foreign currency translation of $7.6 million, or 1.0%, and a decrease in sales related to divestitures, net of acquisitions, of $6.0 million, or 0.8%.

Page 23

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

•

Sales of Payment Acceptance and Dispensing Products increased $64.0 million, or 12.5%, to $575.9 million in 2017, driven by a core sales increase of $76.5 million, or 14.9%, reflecting strength across several end markets, but most notably in the retail vertical. Core sales were partially offset by unfavorable foreign currency translation of $6.5 million, or 1.3%, and a net divestiture/acquisition impact $6.0 million, or 1.1%. Unfavorable foreign currency translation was primarily a result of the British pound and, to a lesser extent, the Japanese yen weakening against the U.S. dollar.


•	Sales of Merchandising Equipment decreased $33.2 million, or 14.2%, to $200.8 million in 2017, reflecting a core sales decrease of $32.0 million, or 13.7%, and unfavorable foreign currency translation of $1.2 million, or 0.5%. The decrease in core sales was primarily related to lower capital spending by certain of our U.S. bottler customers.

Payment & Merchandising Technologies operating profit increased by $12.7 million, or 9.5%, to $145.9 million in 2017. The increase was primarily driven by the impact from the higher core sales and productivity, partially offset by unfavorable mix and an increase of $12.2 million in restructuring and related charges.

AEROSPACE & ELECTRONICS



(in millions, except %) For the year ended December 31,	2018			2017			2016
Net sales by product line:
Commercial Original Equipment	$	343.4		$	346.1		$	354.9
Military Original Equipment	195.7			159.0			200.3
Commercial Aftermarket	150.5			134.0			132.8
Military Aftermarket	53.9			52.3			57.7
Total net sales	$	743.5		$	691.4		$	745.7
Operating profit	$	164.2		$	160.3		$	149.7
Restructuring charges (gains), net ^(a)	$	1.0		$	(9.8	)	$	—
Change in presentation of pension and postretirement costs ^(b)	$	0.6		$	(0.1	)	$	0.1
Assets	$	603.9		$	573.0		$	555.5
Operating margin	22.1		%	23.2		%	20.1		%



(a)	Restructuring charges (gains), net are included in operating profit and operating margin.
(b)	In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of $0.6 million, $(0.1) million and $0.1 million in 2018, 2017 and 2016, respectively.

2018 compared with 2017

Aerospace & Electronics sales increased $52.1 million, or 7.5%, to $743.5 million in 2018. The commercial market and military market accounted for 66% and 34%, respectively, of total segment sales in 2018. Sales to OEM and aftermarket customers in 2018 were 73% and 27% of total sales, respectively.


•	Sales of Commercial Original Equipment decreased by $2.7 million, or 0.8%, to $343.4 million in 2018. The sales decrease was driven by lower funded engineering sales following the completion of several development projects, partially offset by higher sales for large commercial aircraft and business jets.


•	Sales of Military Original Equipment increased by $36.7 million, or 23.1%, to $195.7 million in 2018, primarily reflecting sales for a large ground-based radar program in our Microwave business, as well as higher funded engineering sales.


•	Sales of Commercial Aftermarket increased by $16.5 million, or 12.3%, to $150.5 million in 2018, primarily reflecting higher sales of commercial spares.


•	Sales of Military Aftermarket increased by $1.6 million, or 3.1%, to $53.9 million in 2018, primarily reflecting higher sales of military spares, partially offset by lower sales related to modernization and upgrade programs.

Aerospace & Electronics operating profit increased by $3.9 million, or 2.4%, to $164.2 million in 2018, primarily as a result of the impact from the higher sales volumes, partially offset by the absence of the gain on sale of property recognized in 2017.

Page 24

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

2017 compared with 2016

Aerospace & Electronics sales decreased $54.3 million, or 7.3%, to $691.4 million in 2017. The commercial market and military market accounted for 69% and 31%, respectively, of total segment sales in 2017. Sales to OEM and aftermarket customers in 2017 were 73% and 27% of total sales, respectively.


•	Sales of Commercial Original Equipment decreased by $8.8 million, or 2.5%, to $346.1 million in 2017. The sales decrease was primarily driven by weaker sales to business jet and wide body end markets.


•	Sales of Military Original Equipment decreased by $41.3 million, or 20.6%, to $159.0 million in 2017. The sales decrease primarily reflected the non-repeat of a large military program that shipped in 2016.


•	Sales of Commercial Aftermarket increased by $1.2 million or 0.9%, to $134.0 million in 2017.


•	Sales of Military Aftermarket decreased by $5.4 million, or 9.4%, to $52.3 million in 2017. The sales decrease primarily reflected higher sales of modernization & upgrade programs in 2016.

Aerospace & Electronics operating profit increased by $10.6 million, or 7.1%, to $160.3 million in 2017, primarily as a result of strong productivity and a gain on sale of property, net of restructuring charges, related to repositioning activities in the fourth quarter of 2017, partially offset by the impact of the lower sales volume.

ENGINEERED MATERIALS



(in millions, except %) For the year ended December 31,	2018			2017			2016
Net sales by product line:
FRP- Recreational Vehicles	$	119.0		$	150.5		$	131.2
FRP- Building Products	92.2			95.2			89.6
FRP- Transportation	32.0			29.7			36.2
Total net sales	$	243.2		$	275.4		$	257.0
Operating profit	$	37.8		$	49.4		$	49.0
Change in presentation of pension and postretirement costs ^(a)	$	0.2		$	—		$	—
Assets	$	222.1		$	220.8		$	224.7
Operating margin	15.5		%	17.9		%	19.1		%



(a)	In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of $0.2 million in 2018.

2018 compared with 2017

Engineered Materials sales decreased by $32.2 million, or 11.7%, to $243.2 million in 2018.


•	Sales of FRP panels to RV manufacturers decreased by $31.5 million, or 20.9%, to $119.0 million in 2018, reflecting lower RV industry production rates.


•	Sales of FRP to building products customers decreased $3.0 million, or 3.2%, to $92.2 million in 2018.


•	Sales of FRP to transportation customers increased $2.3 million, or 7.7%, to $32.0 million in 2018, primarily reflecting higher sales for trailer-related products.

Engineered Materials operating profit decreased by $11.6 million, or 23.5%, to $37.8 million in 2018, primarily reflecting the impact from the lower sales volumes and higher raw material costs, partially offset by higher pricing and productivity.

Page 25

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

2017 compared with 2016

Engineered Materials sales increased by $18.4 million, or 7.2%, to $275.4 million in 2017.


•	Sales of FRP panels to RV manufacturers increased by $19.3 million, or 14.7%, to $150.0 million in 2017, resulting primarily from market share gains and underlying market growth.


•	Sales of FRP to building products customers increased $5.6 million, or 6.3%, to $95.2 million in 2017, primarily reflecting higher sales in international markets and in the domestic retail channel, reflecting improved non-residential construction activity.


•	Sales of FRP to transportation customers decreased $6.5 million, or 18.0%, to $29.7 million in 2017, primarily reflecting lower sales of side skirts and tank cladding products.

Engineered Materials operating profit increased by $0.4 million, or 0.8%, to $49.4 million in 2017, reflecting higher volumes and strong productivity, partially offset by higher material costs.

CORPORATE



(in millions) For the year ended December 31,	2018			2017			2016
Corporate expense	$	(65.5	)	$	(68.9	)	$	(62.2	)
Corporate expense — Asbestos	—			—			(192.4		)
Total Corporate expense	$	(65.5	)	$	(68.9	)	$	(254.6	)
Interest income	$	2.3		$	2.5		$	1.9
Interest expense	$	(50.9	)	$	(36.1	)	$	(36.5	)
Miscellaneous income, net	$	18.7		$	12.7		$	12.0
Change in presentation of pension and postretirement costs ^(a)	$	2.1		$	1.1		$	1.1



(a)	In 2018, we adopted amended guidance related to the presentation of net periodic pension cost and net periodic postretirement cost which resulted in a reclassification of the non-service cost components of net benefit cost from selling, general and administrative expenses to miscellaneous income, net of $2.1 million in 2018 and $1.1 million in each of 2017 and 2016.

2018 compared with 2017

Total Corporate expense was lower by $3.4 million in 2018 primarily due to the absence of $4.2 million of transaction costs related to the acquisition of Crane Currency that were recorded in 2017.

Interest expense increased $14.8 million, or 41.0%. The increase was primarily related to additional debt associated with the acquisition of Crane Currency.

2017 compared with 2016

Total Corporate expense was lower by $185.7 million in 2017 primarily due to the absence of a $192.4 million asbestos charge and a $5.0 million legal settlement charge, both recorded in 2016. This decline was partially offset by transaction costs of $4.2 million related to the acquisition of Crane Currency. See Part II, Item 8 under Note 11, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further discussion on the 2016 asbestos and legal settlement charges. See Part II, Item 8 under Note 2 “Acquisitions and Divestitures,” in the Notes to Consolidated Financial Statements for further discussion on the acquisition of Crane Currency.

Income Tax



(in millions, except %) For the year ended December 31,	2018			2017			2016
Income before tax — U.S.	$	296.4		$	270.1		$	63.5
Income before tax — non-U.S.	115.0			97.4			100.6
Income before tax — worldwide	$	411.4		$	367.5		$	164.1
Provision for income taxes	$	75.9		$	195.0		$	40.3
Effective tax rate	18.4		%	53.1		%	24.6		%

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

Page 26

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

Policies included later in this Item 7 for additional information about our provision for income taxes. A reconciliation of the statutory U.S. federal tax rate to our effective tax rate is set forth in Part II, Item 8 under Note 7, "Income Taxes" in the Notes to Consolidated Financial Statements.

2018 compared with 2017

Enacted on December 22, 2017, the TCJA significantly changed U.S. corporate income tax law and caused us to:


•	Remeasure our net deferred tax assets to the reduced 21% corporate income tax rate effective January 1, 2018 (“Re-measurement”),


•	Record a one-time transition tax on our previously deferred non-U.S. earnings (“Toll Tax”), and


•	Reassess our assertion regarding the re-investment of our non-US undistributed earnings (“Assertion Tax”).

We availed ourselves of the one-year measurement period provided by Staff Accounting Bulletin No. 118 (“SAB 118”), as described below, and have now completed our accounting for the TCJA.

During the years ended December 31, 2018 and 2017, we recorded the following (benefit) provision related to the enactment of the TCJA:



(in millions) December 31,	2018			2017
Re-measurement	$	(5.1	)	$	75.0
Toll Tax	0.7			8.0
Assertion Tax	(0.4		)	4.0
Total (benefit) provision for income taxes	$	(4.8	)	$	87.0

2017 compared with 2016

On December 22, 2017, the TCJA significantly changed U.S. corporate income tax law by reducing federal statutory tax rates from 35% to 21%, instituting a territorial tax system that provides a 100% exemption on future repatriations from certain foreign subsidiaries, and imposing a one-time transition tax on previously deferred non-U.S. earnings. Our effective tax rate in 2017 was significantly affected by TCJA. Specifically, we recorded a one-time charge of $87 million primarily consisting of:


•	A re-measurement of our net deferred tax assets due to a reduction in U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, totaling $75 million; and


•	A one-time mandatory transition tax on previous deferred earnings of foreign subsidiaries and a reassessment of our assertion regarding re-investment of our non-US subsidiaries' undistributed earnings, together totaling $12 million.

We calculated this charge based on our understanding of both the TCJA as drafted and interpretative guidance issued as of the time of the filing of our Form 10-K last year.

On December 22, 2017, the SEC released SAB 118 which allowed registrants that do not have the necessary information available, prepared, or analyzed to complete the accounting for the TCJA to report provisional amounts in their SEC filings based on reasonable estimates. Further, it provided a one year measurement period for registrants to complete their accounting for the TCJA.

In accordance with SAB 118, we considered the entire $87 million charge to be a provisional estimate as of December 31, 2017.

Page 27

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

LIQUIDITY AND CAPITAL RESOURCES



(in millions) For the year ended December 31,	2018			2017			2016
Net cash provided by (used in):
Operating activities	$	413.8		$	317.5		$	318.1
Investing activities	(752.3		)	(86.7		)	(50.6		)
Financing activities	(7.9		)	(80.8		)	(100.4		)
Effect of exchange rates on cash and cash equivalents	(16.4		)	46.5			(20.9		)
(Decrease) increase in cash and cash equivalents	$	(362.8	)	$	196.5		$	146.2

Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will strengthen and complement our portfolio, by divesting businesses that are no longer strategic and by paying dividends and/or repurchasing shares.

Our current cash balance, together with cash we expect to generate from future operations along with our commercial paper program or borrowings available under our revolving credit facility, is expected to be sufficient to finance our short- and long-term capital requirements, as well as to fund payments associated with our asbestos and environmental liabilities and expected pension contributions. In addition, we believe our investment grade credit ratings afford us adequate access to public and private debt markets.

On January 10, 2018, we completed the acquisition of Crane Currency, a supplier of banknotes and highly engineered banknote security features. The base purchase price of the acquisition was $800 million on a cash-free and debt-free basis. To fund the acquisition, we issued $340 million of commercial paper under our commercial paper program, drew $100 million and $200 million from our 364-day Credit Agreement and 3-year Term Loan Credit Agreement, respectively, together with cash on hand.

On February 5, 2018, we completed a public offering of $350 million aggregate principal amount of 4.20% Senior Notes due March 2048. In March 2018, we used the net proceeds from the Public Offering, together with cash on hand, to repay all of the $100 million outstanding under our 364-day Credit Agreement as well as the $250 million of outstanding 2.75% notes due in December 2018.

As described in Note 7, "Income Taxes," the TCJA significantly changed U.S. tax law, eliminating the incremental U.S. taxes normally due upon repatriation. As a result, we distributed $357 million from our non-U.S. subsidiaries during the second quarter of 2018 to repay our $200 million 3-year Term Loan Credit Agreement and certain amounts outstanding under the commercial paper program. While our non-U.S. subsidiaries held $336 million as of December 31, 2018, we do not currently forecast the need to use to this cash to fund our day-to-day U.S. operations.

Operating Activities

Cash provided by operating activities, a key source of our liquidity, was $413.8 million in 2018, compared to $317.5 million in 2017. Increases in cash generated resulted primarily from higher cash earnings partially offset by higher defined benefit plan and postretirement contributions, which included a $28.0 million discretionary contribution in the third quarter of 2018. Net pre-tax asbestos-related payments in 2018 and 2017 were $63.9 million and $62.5 million, respectively. In 2019, we expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $50 million.

Investing Activities

Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures and cash provided by divestitures of businesses or assets. Cash used for investing activities was $752.3 million in 2018, compared to $86.7 million in 2017. The increase in cash used for investing activities was driven by net cash paid of $648.0 million for the acquisition of Crane Currency and, to a lesser extent, higher capital expenditures compared to the prior year. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. We expect capital expenditures of approximately $90 million in 2019, reflecting $30 million of capital requirements resulting from Crane Currency, as well as continued investments in new product development initiatives, primarily in our Aerospace & Electronics, Payment & Merchandising Technologies and Fluid Handling segments.

Page 28

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

Financing Activities

Financing cash flows consist primarily of dividend payments to shareholders, share repurchases, repayments of indebtedness, proceeds from the issuance of commercial paper and proceeds from the issuance of common stock. Cash used for financing activities was $7.9 million in 2018, compared to $80.8 million in 2017. The decrease in cash used was driven by $109.6 million of debt proceeds, net of repayments, partially offset by $25.1 million of additional cash used for the repurchase of shares and $9.1 million of lower proceeds from stock option exercises.

Financing Arrangements

On March 2, 2015, we entered into a commercial paper program (the “CP Program”) from which we may issue short-term, unsecured commercial paper notes (the “Notes”) pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the CP Program may be borrowed, repaid and re-borrowed from time to time, with the aggregate principal amount of the Notes outstanding under the CP Program at any time not to exceed $500 million under the original terms of the CP Program. The Notes have maturities of up to 397 days from date of issue. The Notes rank at least pari passu with all of our other unsecured and unsubordinated indebtedness. As of December 31, 2017, there were no outstanding borrowings. In January 2018, we issued $340 million under the CP Program to fund the acquisition of Crane Currency. On October 23, 2018, we increased the size of the CP Program to permit the issuance of Notes in an aggregate principal amount not to exceed $550 million at any time outstanding. As of December 31, 2018, there were no borrowings outstanding under the CP Program.

In December 2017, we entered into a $550 million five year Revolving Credit Agreement (the “2017 Facility”), which replaced an existing $500 million revolving credit facility. The 2017 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. The loan proceeds may be used for general corporate purposes including financing for acquisitions. Interest is based on, at our option, (1) a base rate, plus a margin ranging from 0.0% to 0.50% depending upon the ratings by S&P and Moody’s of its senior unsecured long-term debt (the "Index Debt Rating"), or (2) an adjusted LIBOR for an interest period to be selected by the Company, plus a margin ranging from 0.805% to 1.50% depending upon the Index Debt Rating. The 2017 Facility contains customary affirmative and negative covenants for credit facilities of this type, including 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. We must also maintain a debt to capitalization ratio not to exceed 0.65 to 1.00 at all times. The 2017 Facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by us or any of our material subsidiaries being false in any material respect, default under certain other material indebtedness, certain insolvency or receivership events affecting us and our material subsidiaries, certain ERISA events, material judgments and a change in control of the Company. As of December 31, 2018, there were no outstanding borrowings under the 2017 Facility.

Total debt was $949.2 million and $743.5 million as of December 31, 2018 and 2017, respectively. Our indebtedness as of December 31, 2018 was as follows:


•	$298.6 million of 4.45% notes due 2023;


•	$198.2 million of 6.55% notes due 2036;


•	$345.9 million of 4.20% notes due 2048;


•	$81.4 million of a Syndicated loan facility due through 2033; and


•	$26.7 million of a Building loan facility due through 2037.

4.45% notes due December 2023 - In December 2013, we issued 10 year notes having an aggregate principal amount of $300 million. The notes are unsecured, senior obligations that mature on December 15, 2023 and bear interest at 4.45% per annum, payable semi-annually on June 15 and December 15 of each year. 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. If there is a change in control of the Company, 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 long-term debt and are 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 4.56%.

6.55% notes due November 2036 - In November 2006, we issued 30 year 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

Page 29

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

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 of the Company, 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 long-term debt and are 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%.

4.20% notes due March 2048 - In February 2018, we completed a public offering of $350 million aggregate principal amount of 4.20% Senior Notes due 2048 (the "2048 Notes"). The 2048 Notes bear interest at a rate of 4.20% per annum and mature on March 15, 2048. Interest on the 2048 Notes is payable on March 15 and September 15 of each year, commencing on September 15, 2018. These notes do not contain any material debt covenants or cross default provisions. If there is a change in control of the Company, 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 long-term debt and are 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 4.29%

The 4.45% notes due December 2023 were issued under an indenture dated as of December 13, 2013. The 6.55% notes due November 2036 were issued under an indenture dated as of April 1, 1991. The 4.20% notes due December 2048 were issued under an indenture dated as of February 5, 2018. The indentures contain certain restrictions, including a limitation that restricts our ability and the ability of certain of our subsidiaries to create or incur secured indebtedness, enter into certain sale and leaseback transactions, and consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries.

Syndicated Loan and Building Loan Facilities - As part of the acquisition of Crane Currency, we assumed €59 million of borrowings under a €72 million Syndicated Loan Facility Agreement (the “Syndicated Loan Facility”) with the borrower being Crane Currency Malta. The Syndicated Loan Facility allows borrowings under two facilities in the amounts of €49 million (“Facility 1”) and €23 million (“Facility 2”). The proceeds from the Syndicated Loan Facility may be used to purchase equipment for a printing facility in Malta. As of December 31, 2018, there was €71.1 million (€48.1 million from Facility 1 and €23.0 million from Facility 2) of outstanding borrowings. The Syndicated Loan Facility requires monthly principal payments, after the facilities are fully drawn, of €0.3 million from October 2018 through March 2032 for Facility 1 and €0.1 million from June 2019 through January 2033 for Facility 2. Interest is based on EURIBOR, plus a margin of 3.5% and is payable on a monthly basis. The Syndicated Loan Facility contains customary affirmative and negative covenants, including limitations on the subsidiary with respect to indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of all or substantially all assets, transactions with affiliates and payment of dividends. Crane Currency Malta must also maintain a debt service cover ratio ranging from 1.2 to 1.5 over specified periods and a debt-to-equity ratio ranging from 2.5 to 1.5 over specified periods. The Syndicated Loan Facility provides for customary events of default. We also assumed €22.4 million of borrowings under a €27.0 million Building Loan Facility Agreement (the “Building Loan Facility”). The proceeds from the Building Loan Facility may be used to finance construction of the printing facility in Malta. As of December 31, 2018, there were €23.3 million of outstanding borrowings. The Building Loan Facility requires quarterly principal payments of €0.4 million from March 2018 through March 2037. Interest is 1.5% and is payable on a quarterly basis. The Building Loan Facility provides for customary events of default.

As of December 31, 2018, our total debt to total capitalization ratio was 38%, computed as follows:



(in millions)	December 31, 2018
Current maturities of long-term debt	$	6.9
Long-term debt	942.3
Total indebtedness	$	949.2
Total shareholders’ equity	1,524.2
Capitalization	$	2,473.4
Total indebtedness to capitalization	38		%

Other - As of December 31, 2018, we had open standby letters of credit of $57.9 million issued pursuant to a $165.5 million uncommitted Letter of Credit Reimbursement Agreement, and certain other credit lines.

Page 30

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

Credit Ratings

As of December 31, 2018, our senior unsecured debt was rated BBB by Standard & Poor’s with a Stable outlook and Baa2 with a Stable outlook by Moody’s Investors Service. We believe that these ratings afford us adequate access to the public and private debt markets.

Contractual Obligations

Under various agreements, we are obligated to make future cash payments in fixed amounts. 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, 2018:



	Payment due by Period
(in millions)	Total		2019		2020 -2021		2022 -2023		2024 and after
Debt ^(a)	$	958.1	$	6.9	$	15.5	$	315.5	$	620.2
Fixed interest payments ^(b)	757.2		44.8		88.9		87.3		536.2
Operating lease payments	147.3		23.4		36.6		26.6		60.7
Purchase obligations	123.5		118.9		4.0		0.5		0.1
Pension and postretirement benefits ^(c)	554.8		49.5		102.3		108.8		294.2
Other long-term liabilities reflected on Consolidated Balance Sheets ^(d)	—		—		—		—		—
Total	$	2,540.9	$	243.5	$	247.3	$	538.7	$	1,511.4

(a) Debt includes scheduled principal payments only.

(b) Variable interest payments under our Syndicated Loan Facility were estimated using EURIBOR plus 3.5% as of December 31, 2018.

(c) Pension benefits are funded by the respective pension trusts. The postretirement benefit component of the obligation is approximately $2 million per year for which there is no

trust and will be directly funded by us. Pension benefits are included through 2028.

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

($451.3 million), long-term environmental liability ($22.3 million) and gross unrecognized tax benefits ($38.1 million) and related gross interest and penalties ($7.2 million).

Capital Structure

The following table sets forth our capitalization:



(in millions, except %) December 31,	2018			2017
Current maturities of long-term debt	$	6.9		$	249.4
Long-term debt	942.3			494.1
Total debt	949.2			743.5
Less cash and cash equivalents	343.4			706.2
Net debt *	605.8			37.3
Equity	1,527.1			1,348.5
Net capitalization*	$	2,132.9		$	1,385.8
Net debt to equity*	39.7		%	2.8		%
Net debt to net capitalization*	28.4		%	2.7		%



*	Net debt, a non-GAAP measure, represents total debt less cash and cash equivalents. Net debt is comprised of components disclosed above which are presented on our Consolidated Balance Sheets. We report our financial results in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, management believes that certain non-GAAP financial measures, which include the presentation of net debt, provide useful information about our ability to satisfy our debt obligation with currently available funds. 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 the context of the definitions of the elements of such measures we provide and in addition to, and not as a substitute for, our reported results prepared and presented in accordance with U.S. GAAP.

In 2018, equity increased $178.6 million as a result of net income attributable to common shareholders of $335.5 million and changes in stock option exercises of $24.0 million, partially offset by cash dividends of $83.5 million, share repurchases of $50.1 million, changes in currency translation adjustment of $41.6 million and changes in pension and post retirement plan assets and benefit obligations, net of tax of $26.2 million

Off Balance Sheet Arrangements

We do not have any majority-owned subsidiaries that are not included in the consolidated financial statements, nor do we have any interests in or relationships with any special purpose off balance sheet financing entities.

Page 31

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

OUTLOOK

Overall

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

For 2019, we expect a total year-over-year sales decline of approximately 2%, driven by a slight core sales decline, and a 1% to 2% impact from unfavorable foreign exchange. We expect an improvement in operating profit, driven primarily by improved productivity and benefits from repositioning actions, and lower acquisition-related and integration charges and restructuring related costs.

Fluid Handling

In 2019, we expect Fluid Handling sales to increase in the low single-digit range compared to 2018, driven by mid single-digit core sales growth, largely offset by unfavorable foreign currency translation.

We expect Process Valves and Related Products sales to increase in the low single-digit range compared to 2018, driven by a mid single-digit core sales increase, partially offset by unfavorable foreign exchange. Excluding foreign exchange, we expect order rates in 2019 to improve compared to 2018 as our end markets continue to slowly recover.

We expect Commercial Valves sales to decrease in the low single-digit range compared to 2018, driven by a mid single-digit impact from unfavorable foreign exchange, partially offset b