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, 2017

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

Yes    ý        No     ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 (Do not check if a smaller reporting company)	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 $79.38 on June 30, 2017, 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 $4,728,455,211

The number of shares outstanding of the registrant’s common stock, par value $1.00, was 59,645,117 at January 31, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders’ meeting to be held on April 23, 2018

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

Index

		Page
Part I
Item 1.	Business	Page 2
Item 1A.	Risk Factors	Page 8
Item 1B.	Unresolved Staff Comments	Page 14
Item 2.	Properties	Page 15
Item 3.	Legal Proceedings	Page 15
Item 4.	Mine Safety Disclosures	Page 15
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	Page 16
Item 6.	Selected Financial Data	Page 18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	Page 39
Item 8.	Financial Statements and Supplementary Data	Page 40
Item 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	Page 90
Item 9A.	Controls and Procedures	Page 90
Item 9B.	Other Information	Page 92
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	Page 92
Item 11.	Executive Compensation	Page 92
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page 92
Item 13.	Certain Relationships and Related Transactions, and Director Independence	Page 92
Item 14.	Principal Accounting Fees and Services	Page 92
Part IV
Item 15.	Exhibits and Financial Statement Schedules	Page 93
Item 16.	Form 10-K Summary	Page 94
	Signatures	Page 95

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;

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

1

Part I

Reference herein to “Crane”, “we”, “us” and “our” refer to Crane Co. and its subsidiaries unless the context specifically states or implies otherwise. Amounts in the following discussion are presented in millions, except employee, 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, automated payment solutions, banknote design and production and aerospace & defense, along with a wide range of general industrial and 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 and cost.  An embedded intellectual capital development process ensures that we attract, develop, promote and retain talent to drive continuity and repeatable results.

Revenues from outside the United States were approximately 37% and 36% in 2017 and 2016, respectively. For more information regarding our sales and assets by geographical region, see Part II, Item 8 under Note 13, “Segment Information,” in the Notes to Consolidated Financial Statements.

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 13, “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.

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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.

Payment & Merchandising Technologies

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

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. CPI facilities are located in the United States, Mexico, Japan, Switzerland, Germany and the Ukraine, with additional sales offices across the world.

Merchandising Systems is primarily engaged in the design and manufacture of vending equipment and related solutions. Merchandising Systems’ 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 Co. 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.

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 69% and 31%, respectively, of total segment sales in 2017. Sales to original equipment manufacturers ("OEM") and aftermarket customers were 73% and 27%, respectively, in 2017.

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.

Acquisitions

On January 10, 2018, we completed the acquisition of Crane Currency, a supplier of banknotes and highly engineered banknote security features. See Part II, Item 8 under Note 16, “Subsequent Events,” in the Notes to Consolidated Financial Statements.

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In April 2017, we acquired all of the outstanding stock of Westlock Controls (“Westlock”) from Emerson Electric Co. for cash consideration of $40 million. Westlock is a global leader in the manufacturing and sale of switchboxes, position transmitters and other solutions for networking, monitoring and controlling process valves. With primary operations located in Saddle Brook, New Jersey, Westlock had 2016 sales of approximately $32 million. Allocation of the purchase price resulted in us recording goodwill of $23 million. This acquisition has been integrated into our Fluid Handling segment.

In June 2017, we acquired all of the outstanding stock of Microtronic AG (“Microtronic”) for cash consideration of approximately $18 million. With operations in Oensingen, Switzerland, Microtronic develops and manufactures closed electronic payment systems, primarily for the European vending market, strengthening our portfolio of cashless solutions. Allocation of the purchase price resulted in us recording goodwill of $9 million. This acquisition has been integrated into our Payment & Merchandising Technologies segment.

In December 2013, we completed the acquisition of MEI Conlux Holdings (U.S.), Inc. and its affiliate MEI Conlux Holdings (Japan), Inc. (together, “MEI”), a leading provider of payment solutions for unattended transaction systems, which serves customers in the transportation, gaming, retail, service payment and vending markets, for a purchase price of $804 million for all of the outstanding equity interests of MEI. Goodwill for this acquisition amounted to $438 million. MEI was integrated into our CPI business within our Payment & Merchandising Technologies segment.

Divestitures

In 2017, we sold a portion of an investment in a joint venture of which our ownership interest was 70%, within our Fluid Handling segment, for $14 million. As of December 31, 2017, our ownership interest in this joint venture was 4.9%. The sale resulted in the deconsolidation of such business and a gain in the amount of $1 million in the fourth quarter of 2017.

In 2014, we sold Crane Water, which was formerly part of our Fluid Handling segment, for $2 million and recorded a $1 million net loss. The business had sales of approximately $15 million in 2013.

In December 2013, as part of the execution of regulatory remedies associated with the MEI acquisition, we sold a product line, which was formerly part of our Payment & Merchandising Technologies segment, to Suzo-Happ Group for $7 million and recorded a $2 million gain. Sales of this product line were $15 million in 2013.

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.

Our products are sold into markets, including chemicals, oil & gas, power, automated payment solutions, banknote design and production and aerospace & defense, along with a wide range of general industrial and 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. Because 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 $59 million, $62 million and $63 million in 2017, 2016 and 2015, respectively, and were incurred primarily by our Aerospace & Electronics and Payment & Merchandising Technologies segments.

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Our Customers

No customer accounted for more than 10% of our consolidated revenues in 2017, 2016 or 2015.

Backlog

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

(in millions)	December 31, 2017		December 31, 2016
Fluid Handling	$	262	$	228
Payment & Merchandising Technologies	76		94
Aerospace & Electronics	374		353
Engineered Materials	14		16
Total Backlog	$	726	$	691

Our Employees

As of December 31, 2017, we employed approximately 10,600 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.

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 time. For a further discussion of risks related to compliance with government contracting requirements; 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, the date we completed the acquisition, we used $340 million under our existing commercial paper program (the "CP Program"), drew $100 million and $200 million from the 364-day Credit Agreement and 3-year Term Loan Credit Agreement, respectively, and used cash on hand to fund the acquisition. See Part II, Item 8 under Note 8, “Long-Term Debt,” and Note 16, “Subsequent Events,” in the Notes to Consolidated Financial Statements.

On February 5, 2018, we completed a public offering of $350 million aggregate principal amount of 4.20% Senior Notes due 2048 (the "Public Offering"). We used the net proceeds from the Public Offering, together with cash on hand, to repay all of the then outstanding $100 million under the 364-day Credit Agreement. We also issued a notice of redemption on February 7, 2018, with an effective date of March 7, 2018, for our 2.75% notes due in December 2018 with an outstanding principal value of $250 million. See Part II, Item 8 under Note 16, “Subsequent Events,” in the Notes to Consolidated Financial Statements.

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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.

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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.	54	2004
Curtis A. Baron, Jr.	Vice President, Controller	Vice President, Controller since 2011.	48	2011
Brendan J. Curran	President, Aerospace & Electronics	President, Aerospace & Electronics since February 2015. Group President, Aerospace from May 2013 through February 2015. Vice President, Business Development, Strategy & Partnerships, Commercial Engines, United Technologies Corporation from 2012 through June 2013.	55	2013
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.	54	2018
Bradley L. Ellis	Senior Vice President	Senior Vice President since December 2014. Group President, Merchandising Systems from 2003 through December 2014.	49	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.	51	2016
Richard A. Maue	Vice President - Finance and Chief Financial Officer	Vice President - Finance and Chief Financial Officer since January 2013. Principal Accounting Officer since 2007.	47	2007
Anthony D. Pantaleoni	Vice President, Environment, Health and Safety	Vice President, Environment, Health and Safety since 1989.	63	1989
Louis V. Pinkham	Senior Vice President	Senior Vice President since December 2014. Group President, Fluid Handling from 2012 through December 2014.	46	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.	57	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.	43	2011

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Item 1A. Risk Factors

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

Risks Relating to Our Business

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

We are subject to numerous lawsuits for asbestos-related personal injury. Estimation of our ultimate exposure for asbestos-related claims is subject to significant uncertainties, as there are multiple variables that can affect the timing, severity and quantity of claims. Our estimate of the future expense of these claims is derived from assumptions with respect to future claims, settlement and defense costs which are based on experience during the last few years and which may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would substantial adverse verdicts at trial or on appeal. A legislative solution or a structured settlement transaction could also change the estimated liability. These uncertainties may result in 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 results of operations, cash flow and financial position in any given period from a revision to these estimates could be material.

As of December 31, 2017, we were one of a number of defendants in cases involving 32,234 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 $605 million as of December 31, 2017.

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, 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”.

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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, which remains uncertain. 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 capacity constraints 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;

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

• Unplanned expenses associated with the integration efforts;

• Inability to achieve planned facility repositioning savings or related efficiencies from recent and ongoing investments in our Malta facility; 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 flow and reputation.

Our operations are subject to environmental laws and regulations in the jurisdictions in which they operate, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of solid and hazardous wastes. We must also comply with various health and safety regulations in the 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 flow. 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 $41 million as of December 31, 2017, of which we have recorded a receivable of $9 million for the expected reimbursements from the U.S. Government in respect of the aggregate liability as at that date.

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

We are subject to income taxes in the U.S. and various international jurisdictions.  Our future results of operations could be affected by changes in our effective tax rate and/or cash paid for income taxes as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and judicial rulings, including the recently enacted Tax Cuts and Jobs Act of 2017 (the “TCJA”). In addition, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently reinvested offshore, and 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 flow. 

Enactment of the TCJA on December 22, 2017 brought significant changes to existing U.S. federal corporate income tax laws, including the reduction of the federal corporate income tax rate from 35% to 21%, modifying how distributions from our foreign subsidiaries are taxed in the U.S., and imposing a one-time tax on cumulative undistributed foreign earnings. The ultimate impact of the TCJA may differ from our provisional estimates due to changes in interpretations and assumptions made by us, as well as the issuance of further regulations or guidance by U.S. regulatory and standard-setting bodies. In addition, uncertainty exists as to how U.S. states and other countries within which we operate will react to the changes brought about by the TCJA. Any significant changes to our provisional estimates resulting from these items may result in a material adverse effect on our business, financial condition, results of operations, or 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 flow and reputation.

We are required to comply with various import and export control laws, which may affect our transactions with certain customers, particularly in our Aerospace & Electronics, 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 negatively affected.

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

Our operations require significant amounts of necessary parts and raw materials. We are engaged in a continuous, company-wide effort 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 operating results and financial condition.

We could face potential product liability or warranty claims, we may not accurately estimate costs related to such claims, and we may not have sufficient insurance coverage available to cover such claims.

Our products are used in a wide variety of commercial applications and certain residential applications. We face an inherent business risk of exposure to product liability or other claims in the event our products are alleged to be defective or that the use of our products is alleged to have resulted in harm to others or to property. We may in the future incur liability if product liability lawsuits against us are successful. Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales to decline.

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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 materially and adversely impact our financial condition and results of operations.

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

We are committed to continuous productivity improvement, and 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 a pre-tax restructuring charge, net of gain on property sale, of $13 million in 2017 associated with broad-based repositioning actions designed to improve profitability. Together with additional restructuring costs of approximately $17 million, we expect to achieve $30 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 flow.

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

Our growth depends, in part, on continued sales of existing products, as well as the successful development and introduction of new products 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 results of operations and financial condition 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 a negative impact on our operations and financial results.

Pension expense 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 pension benefit and pension contributions were $8 million and $13 million, respectively, in 2017. 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 impact on our consolidated financial position, results of operations and cash flow.

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

While we are a principal competitor in most of our markets, all of our markets are highly competitive. The competitors in many of our business segments can be expected in the future to improve technologies, reduce costs and develop and introduce new products. The ability of our business segments to achieve similar advances will be important to our competitive positions. Competitive pressures, including those discussed above, could cause one or more of our business segments to lose market share or could result in significant price erosion, either of which could have an adverse effect on our results of operations.

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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 36% of our consolidated amounts, respectively, in 2017. 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 impact our results of operations in a materially adverse manner.

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

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

Failure to maintain the security of our information 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. The results of the UK’s June 2016 EU membership referendum (commonly referred to as "Brexit"),advising for the exit of the UK from the EU, 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.

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

As of December 31, 2017, we had goodwill and other intangible assets, net of accumulated amortization, of approximately $1,484 million, which represented approximately 41% 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

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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 adversely affect our results of operations and financial condition.

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.

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

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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 cannotaccurately 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, 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

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Item 2. Properties

The following is a summary of Crane Co.'s principal facilities as of December 31, 2017:

	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	6	784,000	2	568,000	6	708,000	4	644,000	—	—	18	2,704,000
Canada	—	—	—	—	—	—	—	—	—	—	—	—
Europe	7	1,081,000	3	338,000	—	—	—	—	—	—	10	1,419,000
Other international	5	469,000	2	295,000	—	—	—	—	—	—	7	764,000
	18	2,334,000	7	1,201,000	6	708,000	4	644,000	—	—	35	4,887,000
Non-Manufacturing:											—	—
United States	3	138,000	1	15,000	—	—	—	—	—	—	4	153,000
Canada	7	155,000	—	—	—	—	—	—	—	—	7	155,000
Europe	2	74,000	—	—	—	—	—	—	—	—	2	74,000
Other international	—	—	—	—	—	—	—	—	—	—	—	—
	12	367,000	1	15,000	—	—	—	—	—	—	13	382,000

	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	3	130,000	—	—	2	97,000	—	—	—	—	5	227,000
Canada	1	21,000	1	61,000	—	—	—	—	—	—	2	82,000
Europe	3	518,000	—	—	—	—	—	—	—	—	3	518,000
Other international	2	112,000	—	—	2	116,000	—	—	—	—	4	228,000
	9	781,000	1	61,000	4	213,000	—	—	—	—	14	1,055,000
Non-Manufacturing
United States	3	43,000	7	138,000	2	13,000	3	79,000	2	40,000	17	313,000
Canada	23	477,000	—	—	—	—	—	—	—	—	23	477,000
Europe	6	50,000	8	66,000	3	22,000	—	—	—	—	17	138,000
Other international	19	147,000	7	55,000	—	—	—	—	—	—	26	202,000
	51	717,000	22	259,000	5	35,000	3	79,000	2	40,000	83	1,130,000

In our opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes.

Item 3. Legal Proceedings.

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

Item 4. Mine Safety Disclosures.

Not applicable.

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Part II

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

Crane Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol CR. The following are the high and low sale prices as reported by the NYSE and the quarterly dividends declared per share for each quarter of 2017 and 2016.

MARKET AND DIVIDEND INFORMATION — CRANE CO. COMMON SHARES

	New York Stock Exchange Composite Price per Share								Dividends per Share
Quarter	2017 High		2017 Low		2016 High		2016 Low		2017		2016
First	$	75.36	$	71.55	$	54.91	$	43.14	$	0.33	$	0.33
Second	$	80.45	$	73.25	$	59.90	$	52.31	0.33		0.33
Third	$	84.22	$	72.19	$	65.44	$	55.65	0.33		0.33
Fourth	$	90.46	$	80.63	$	77.36	$	60.43	0.33		0.33
									$	1.32	$	1.32
On December 31, 2017, there were approximately 2,074 holders of record of Crane Co. common stock.

We did not make any open-market share repurchases of our common stock during the three months ended December 31, 2017. We receive shares of our common stock as payment for stock option exercises and the withholding taxes due on stock option exercises and the vesting of restricted stock awards from stock-based compensation program participants.

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Stock Performance Graph

The following chart compares the total stockholder returns (stock price increase plus reinvested dividends) on our common stock from December 31, 2012 through December 31, 2017 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, 2012 and that all dividends were reinvested.

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Item 6. Selected Financial Data.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

	For the year ended December 31,
(in millions, except per share data)	2017			2016			2015			2014			2013
Net sales	$	2,786.0		$	2,748.0		$	2,740.5		$	2,925.0		$	2,595.3
Operating profit (a)	401.9			200.3			372.9			316.3			347.9
Interest expense	(36.1		)	(36.5		)	(37.6		)	(39.2		)	(26.5		)
Income before taxes (a)	367.5			164.1			336.5			281.2			326.0
Provision for income taxes (b)	195.0			40.3			106.5			87.6			105.1
Net income before allocation to noncontrolling interests	172.5			123.8			230.0			193.6			220.9
Net income attributable to common shareholders (b)	$	171.8		$	122.8		$	228.9		$	192.7		$	219.5
Earnings per basic share (b)	$	2.89		$	2.10		$	3.94		$	3.28		$	3.79
Earnings per diluted share (b)	$	2.84		$	2.07		$	3.89		$	3.23		$	3.73
Cash dividends per common share	$	1.32		$	1.32		$	1.32		$	1.26		$	1.16
Total assets	$	3,593.5		$	3,428.0		$	3,336.9		$	3,445.5		$	3,555.2
Long-term debt and Current maturities of long-term debt	$	743.5		$	745.3		$	744.6		$	743.9		$	744.8
Accrued pension and postretirement benefits	$	240.5		$	249.1		$	235.4		$	278.3		$	151.1
Long-term asbestos liability	$	520.3		$	624.9		$	470.5		$	534.5		$	610.5
Long-term insurance receivable — asbestos	$	90.1		$	125.2		$	108.7		$	126.8		$	148.2

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

(b) Includes the tax effect of items cited in note (a) as well as i) the impact of the TCJA of $87.1 in 2017; ii) a gain of $1.0 related to the deconsolidation of a joint venture in 2017 iii) loss on divestiture of a small business of $1.1 in 2014; iv) gain on divestiture of real estate of $4.2 in 2014; v) withholding taxes related to acquisition funding of $2.9 in 2013; and vi) gain on the sale of a product line of $2.0 in 2013.

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

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

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

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

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

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

Results of Operations — For the Years Ended December 31, 2017, 2016 and 2015

	For the year ended December 31,									2017 vs 2016 Favorable / (Unfavorable) Change					2016 vs 2015 Favorable / (Unfavorable) Change
(in millions, except %)	2017			2016			2015			$			%		$			%
Net sales:
Fluid Handling	$	1,043		$	999		$	1,091		$	44		4	%	$	(92	)	(8	)%
Payment & Merchandising Technologies	777			746			703			31			4	%	43			6	%
Aerospace & Electronics	691			746			691			(55		)	(7	)%	55			8	%
Engineered Materials	275			257			255			18			7	%	2			1	%
Total net sales	$	2,786		$	2,748		$	2,741		$	38		1	%	$	8		—	%
Sales growth:
Core business										$	31		1	%	$	56		2	%
Foreign exchange										(7		)	—	%	(48		)	(2	)%
Acquisitions/dispositions										14			—	%	—			—	%
Total sales growth										$	38		1	%	$	8		—	%
Operating profit:
Fluid Handling	$	112		$	120		$	125		$	(8	)	(6	)%	$	(5	)	(5	)%
Payment & Merchandising Technologies	149			136			101			13			10	%	35			34	%
Aerospace & Electronics	160			150			145			10			7	%	5			3	%
Engineered Materials	50			49			48			1			1	%	1			1	%
Corporate expense	(68		)	(61		)	(48		)	(7		)	(11	)%	(13		)	(29	)%
Corporate expense — Asbestos	—			(192		)	—			192			NM		(192		)	NM
Total operating profit	$	402		$	200		$	373		$	202		101	%	$	(173	)	(46	)%
Operating margin a:
Fluid Handling	10.7		%	12.0		%	11.5		%
Payment & Merchandising Technologies	19.1		%	18.2		%	14.4		%
Aerospace & Electronics	23.2		%	20.1		%	21.0		%
Engineered Materials	18.0		%	19.1		%	19.0		%
Total operating margin b	14.4		%	7.3		%	13.6		%

^a Operating profit and margin for 2017 include restructuring charges/(gains) of $11, $12 and ($10) in our Fluid Handling, Payment and Merchandising Technologies and Aerospace and Electronics segments, respectively.

^b Total operating margin includes corporate and related charges, which include an asbestos charge of $192 recorded in 2016.

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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, 2017, 2016 and 2015 is affected by the following significant items:

Transaction Related Charges

During 2017, we recorded pre-tax transaction related charges of $8 million related to acquisition activity.

Restructuring and Related Charges

In 2017, we recorded pre-tax restructuring charges, net of gain on property sale, of $13 million related to repositioning activities in our Fluid Handling, Payment & Merchandising Technologies and Aerospace & Electronics segments. In 2015, we recorded pre-tax restructuring charges and related costs of $11 million, substantially all of which was related to the repositioning activities in our Fluid Handling and Aerospace & Electronics segments. See Part II, Item 8 under Note 15, “Restructuring Charges,” in the Notes to Consolidated Financial Statements.

Asbestos Charge

In 2016, we recorded a pre-tax charge of $192 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 million associated with settlement of a legal matter with Huttig Building Products, Inc. (“Huttig”).

Acquisition-Related Costs - MEI

During 2015, we recorded pre-tax acquisition and integration costs of $7 million related to our acquisition of MEI in 2013.

2017 compared with 2016

Sales increased by $38 million to $2,786 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 million, or 1%; and

• a net acquisition benefit of $14 million; partially offset by

• unfavorable foreign currency translation of $7 million.

Operating profit increased by $202 million, or 101%, to $402 million in 2017. The increase primarily related to the absence of a $192 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 million pre-tax restructuring charge, net of gain on property sale, and higher corporate costs.

2016 compared with 2015

Sales increased by $8 million to $2,748 million in 2016. Net sales related to operations outside the U.S. for the years ended December 31, 2016 and 2015 were 36% and 38% of total net sales, respectively. The year-over-year change in sales included:

• an increase in core sales of $56 million, or 2%; largely offset by

• unfavorable foreign currency translation of $48 million, or 2%.

Operating profit decreased by $173 million, or 46%, to $200 million in 2016. The decrease primarily related to the $192 million asbestos charge recorded in 2016, together with lower operating profit in our Fluid Handling segment and higher corporate costs, which included the $5 million Huttig legal settlement charge. These decreases were partially offset by increases in our Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials segments.

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

Comprehensive income

(in millions)	2017		2016			2015
Net income before allocation to noncontrolling interests	$	173	$	124		$	230
Other comprehensive income (loss), net of tax
Currency translation adjustment	87		(65		)	(70		)
Changes in pension and postretirement plan assets and benefit obligation, net of tax benefit	9		(35		)	(8		)
Other comprehensive income (loss), net of tax	96		(100		)	(79		)
Comprehensive income before allocation to noncontrolling interests	269		24			152
Less: Noncontrolling interests in comprehensive income	1		1			1
Comprehensive income attributable to common shareholders	$	268	$	23		$	150

2017 compared with 2016

For the year ended December 31, 2017, comprehensive income before allocations to noncontrolling interests was $269 million compared to $24 million in 2016. The $245 million increase was primarily driven by a $152 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 $49 million increase in net income before allocation to noncontrolling interests,

2016 compared with 2015

For the year ended December 31, 2016, comprehensive income before allocations to noncontrolling interests was $24 million compared to $152 million in 2015. The change was primarily driven by a $106 million decrease in net income before allocation to noncontrolling interests, which included a $125 million after-tax asbestos charge, and to a lesser extent, an increase in unamortized losses on pension plans. The unrealized loss on foreign currency translation adjustments of the balance sheets of foreign subsidiaries from local currencies to U.S. dollars was primarily due to weakening of the British pound and Canadian dollar against the U.S. dollar, partially offset by the strengthening of the Japanese yen against the U.S. dollar.

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

FLUID HANDLING

(in millions, except %)	2017			2016			2015
Net sales by product line:
Process Valves and Related Products	$	640		$	619		$	681
Commercial Valves	310			291			316
Other Products	93			89			94
Total net sales	$	1,043		$	999		$	1,091
Operating profit	$	112		$	120		$	125
Transaction related charges*	$	3		$	—		$	—
Restructuring and related charges*	$	11		$	—		$	10
Assets	$	942		$	846		$	888
Operating margin	10.7		%	12.0		%	11.5		%

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

2017 compared with 2016

Fluid Handling sales increased by $44 million, or 4%, to $1,043 million, driven by a core sales increase of $23 million, or 2%, a favorable net impact from acquisitions of $20 million, or 2%, and favorable foreign currency translation of $1 million.

• Sales of Process Valves and Related Products increased by $21 million, or 3%, to $640 million in 2017, primarily related to a $21 million, or 3%, increase in sales related to an acquisition and, to a lesser extent, favorable foreign currency translation of $4 million, or 1%. These increases were partially offset by a core sales decline of $4 million, or 1%, primarily related to weaker conventional power end markets.

• Sales of Commercial Valves increased by $19 million, or 7%, to $310 million in 2017, primarily driven by a core sales increase of $22 million, or 8%, partially offset by unfavorable foreign currency translation of $3 million, or 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 $4 million, or 3%, to $93 million in 2017, primarily reflecting a core sales increase of $5 million, or 5%, partially offset by the loss of sales due to the deconsolidation of a joint venture of $1 million, or 2%. The higher core sales were primarily a result of greater demand from U.S. municipal end markets.

Fluid Handling operating profit decreased by $8 million, or 6%, to $112 million in 2017. The decrease was driven by the impact of unfavorable mix, higher restructuring and related charges of $11 million, higher material costs and higher transaction related expenses of $3 million, partially offset by productivity, price increases and the impact of higher volumes.

2016 compared with 2015

Fluid Handling sales decreased by $92 million, or 8%, to $999 million, driven by a core sales decline of $61 million, or 6%, and unfavorable foreign currency translation of $31 million, or 2%.

• Sales of Process Valves and Related Products decreased by $62 million, or 9%, to $619 million in 2016, including a core sales decline of $55 million, or 8%, and unfavorable foreign currency translation of $7 million, or 1%. The decrease in core sales primarily reflected lower sales in oil & gas, chemical, power and general industrial end markets. The unfavorable foreign currency translation was primarily a result of the British pound weakening against the U.S. dollar.

• Sales of Commercial Valves decreased by $25 million, or 8%, to $291 million in 2016, primarily driven by unfavorable foreign currency translation of $23 million, or 7%, primarily reflecting the British pound weakening against the U.S. dollar, with an additional impact from the weakening of the Canadian dollar. Core sales decreased $2 million, or 1%, primarily reflecting lower sales in non-residential construction end markets in Canada.

• Sales of Other Products decreased by $5 million, or 5%, to $89 million in 2016, primarily reflecting a core sales decline of $4 million, or 4%, and unfavorable foreign currency translation of $1 million, or 1%. The lower core sales were primarily a result of lower sales to military customers following particularly strong sales to that market in 2015, as well as lower sales to non-residential construction markets.

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

Fluid Handling operating profit decreased by $5 million, or 5%, to $120 million in 2016. The decrease was primarily a result of lower volume, competitive pricing and unfavorable foreign exchange, largely offset by productivity, savings from repositioning actions, favorable mix, and lower restructuring and related charges.

PAYMENT & MERCHANDISING TECHNOLOGIES

(in millions, except %)	2017			2016			2015
Net sales by product line:
Payment Acceptance and Dispensing Products	$	576		$	512		$	496
Merchandising Equipment	201			234			207
Total net sales	$	777		$	746		$	703
Operating profit	$	149		$	136		$	101
Transaction related charges*	$	1		$	—		$	—
Acquisition and integration charges*	$	—		$	—		$	7
Restructuring and related charges*	$	12		$	—		$	—
Assets	$	1,216		$	1,189		$	1,178
Operating margin	19.1		%	18.2		%	14.4		%

* Transaction related charges, acquisition and integration charges and restructuring and related charges are included in operating profit and operating margin.

2017 compared with 2016  

Payment & Merchandising Technologies sales increased by $31 million, or 4%, to $777 million in 2017, reflecting a core sales increase of $44 million, or 6%, partially offset by unfavorable foreign currency translation of $7 million, or 1%, and a decrease in sales related to divestitures, net of acquisitions, of $6 million, or 1%.

• Sales of Payment Acceptance and Dispensing Products increased $64 million, or 13%, to $576 million in 2017, driven by a core sales increase of $76 million, or 15%, 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 million, or 1%, and a net divestiture/acquisition impact $6 million, or 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 million, or 14%, to $201 million in 2017, reflecting a core sales decrease of $32 million, or 14%, and unfavorable foreign currency translation of $1 million. 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 $13 million, or 10%, to $149 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 million in restructuring and related charges.

2016 compared with 2015  

Payment & Merchandising Technologies sales increased by $43 million, or 6%, to $746 million in 2016, reflecting a core sales increase of $60 million, or 8%, partially offset by unfavorable foreign currency translation of $17 million, or 2%.

• Sales of Payment Acceptance and Dispensing Products increased $16 million, or 3%, to $512 million in 2016, driven by a core sales increase of $28 million, or 6%, primarily reflecting strength in the retail vertical. Core sales were partially offset by unfavorable foreign currency translation of $12 million, or 3%, primarily as a result of the British pound weakening against the U.S. dollar, partially offset by the strengthening of the Japanese yen against the U.S. dollar.

• Sales of Merchandising Equipment increased $27 million, or 13%, to $234 million in 2016, reflecting a core sales increase of $32 million, or 15%, partially offset by unfavorable foreign currency translation of $5 million, or 2%, primarily as a result of the British pound weakening against the U.S. dollar. The increase in core sales was primarily related to stronger sales to large bottler customers as well as full-line operators.

Payment & Merchandising Technologies operating profit increased by $35 million, or 34%, to $136 million in 2016. The increase was primarily driven by the benefit from the higher core sales, the impact from MEI related synergy savings of $10 million and lower acquisition and integration charges of $7 million.

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

AEROSPACE & ELECTRONICS

(in millions, except %)	2017			2016			2015
Net sales by product line:
Commercial Original Equipment	$	346		$	355		$	349
Military Original Equipment	159			200			153
Commercial Aftermarket	134			133			132
Military Aftermarket	52			58			57
Total net sales	$	691		$	746		$	691
Operating profit	$	160		$	150		$	145
Gain on sale of property, net of restructuring charges*	$	10		$	—		$	—
Assets	$	573		$	556		$	559
Operating margin	23.2		%	20.1		%	21.0		%

* Gain on sale of property, net of restructuring charges, is included in operating profit and operating margin.

2017 compared with 2016

Aerospace & Electronics sales decreased $55 million, or 7%, to $691 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 $9 million, or 2%, to $346 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 million, or 21%, to $159 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 million or 1%, to $134 million in 2017.

• Sales of Military Aftermarket decreased by $6 million, or 9%, to $52 million in 2017. The sales decrease primarily reflected higher sales of modernization & upgrade programs in 2016.

Aerospace & Electronics operating profit increased by $10 million, or 7%, to $160 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.

2016 compared with 2015

Aerospace & Electronics sales increased $55 million, or 8%, to $746 million in 2016. The commercial market and military market accounted for 65% and 35%, respectively, of total segment sales in 2016. Sales to OEM and aftermarket customers in 2016 were 74% and 26% of total sales, respectively.

• Sales of Commercial Original Equipment increased by $6 million, or 2%, to $355 million in 2016. The increase was driven by strength from commercial transport markets, partially offset by weaker business jet related sales.

• Sales of Military Original Equipment increased by $47 million, or 31%, to $200 million in 2016. The increase primarily reflected shipments related to a large military program.

• Sales of Commercial Aftermarket increased by $1 million, or 1%, to $133 million in 2016.

• Sales of Military Aftermarket increased by $1 million, or 1%, to $58 million in 2016.

Aerospace & Electronics operating profit increased by $5 million, or 3%, to $150 million in 2016, primarily as a result of the impact from the higher volume and strong productivity, partially offset by unfavorable product mix associated with deliveries for the large military program which had lower relative margins.

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

ENGINEERED MATERIALS

(in millions, except %)	2017			2016			2015
Net sales by product line:
FRP- Recreational Vehicles	$	150		$	131		$	134
FRP- Building Products	95			90			83
FRP- Transportation	30			36			38
Total net sales	$	275		$	257		$	255
Operating profit	$	50		$	49		$	48
Assets	$	221		$	225		$	228
Operating margin	18.0		%	19.1		%	19.0		%

2017 compared with 2016

Engineered Materials sales increased by $18 million, or 7%, to $275 million in 2017.

• Sales of FRP panels to RV manufacturers increased by $19 million, or 15%, to $150 million in 2017, resulting primarily from market share gains and underlying market growth.

• Sales of FRP to building products customers increased $5 million, or 6%, to $95 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 million, or 18%, to $30 million in 2017, primarily reflecting lower sales of side skirts and tank cladding products.

Engineered Materials operating profit increased by $1 million, or 1%, to $50 million in 2017, reflecting higher volumes and strong productivity, partially offset by higher material costs.

2016 compared with 2015

Engineered Materials sales increased by $2 million, or 1%, to $257 million in 2016.

• Sales of FRP panels to RV manufacturers decreased by $3 million, or 2%, to $131 million, resulting from lower sales to RV manufacturers primarily due to competitive pricing.

• Sales of FRP to building products customers increased $7 million, or 8%, to $90 million in 2016, primarily reflecting higher sales in international markets and in the domestic retail channel.

• Sales of FRP to transportation customers decreased $2 million, or 4%, to $36 million in 2016, primarily reflecting lower sales of side skirts and tank cladding products.

Engineered Materials operating profit increased by $1 million, or 1%, to $49 million in 2016, reflecting strong productivity and higher volumes, partially offset by competitive pricing.

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

CORPORATE

(in millions)	2017			2016			2015
Corporate expense	$	(68	)	$	(61	)	$	(48	)
Corporate expense — Asbestos	—			(192		)	—
Total Corporate expense	$	(68	)	$	(254	)	$	(48	)
Interest income	$	3		$	2		$	2
Interest expense	$	(36	)	$	(37	)	$	(38	)
Miscellaneous expense	$	(1	)	$	(2	)	$	(1	)

2017 compared with 2016

Total Corporate expense was lower by $186 million in 2017 primarily due to the absence of a $192 million asbestos charge and a $5 million legal settlement charge, both recorded in 2016. This decline was partially offset by transaction costs of $4 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 16, “Subsequent Events,” in the Notes to Consolidated Financial Statements for further discussion on the acquisition of Crane Currency.

2016 compared with 2015

Total Corporate expense increased by $206 million in 2016, primarily due to an asbestos charge of $192 million and to a lesser extent, a $5 million legal settlement charge recorded in 2016, higher compensation costs and higher benefit costs.

Income Tax

(in millions, except %)	2017			2016			2015
Income before tax — U.S.	$	270		$	63		$	262
Income before tax — non-U.S.	97			101			75
Income before tax — worldwide	$	367		$	164		$	337
Provision for income taxes	$	195		$	40		$	107
Effective tax rate	53.1		%	24.6		%	31.7		%

Our effective tax rate is affected by a number of items, both recurring and discrete, including the amount of income we earn in different jurisdictions and their respective statutory tax rates, acquisitions and dispositions, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws, regulations and accounting principles, the continued availability of statutory tax credits and deductions, and examinations initiated by tax authorities around the world. See Application of Critical Accounting Policies included later in this Item 7 for additional information about our provision for income taxes. A reconciliation of the statutory U.S. federal tax rate to our effective tax rate is set forth in Part II, Item 8 under Note 3, "Income Taxes" in the Notes to Consolidated Financial Statements.

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 this filing.

On December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) which allows 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 provides a one year measurement period for registrants to complete their accounting for the TCJA. 

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

In accordance with SAB 118, we considered the entire $87 million charge to be a provisional estimate. During 2018, we will gather outstanding information (e.g., the effects of the TCJA on the tax bases of our non-U.S. subsidiaries), further analyze our computations (e.g., non-U.S. withholding, corporate income, and distribution taxes), and incorporate any new guidance issued by U.S. federal, U.S. state or non-U.S. regulatory authorities related to the TCJA. We will record any changes to our provisional estimate in the quarter in which we complete our analysis, but no later than the quarter ending December 31, 2018.

2016 compared with 2015

Our effective tax rate decreased from 2015 to 2016 largely due to proportionately more earnings realized in countries that have lower statutory tax rates, greater U.S. federal tax benefits from domestic manufacturing and R&D activities, and a discrete benefit recognized in 2016 as a result of the resolution of a tax examination. These items were partially offset by higher U.S. state taxes.

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

LIQUIDITY AND CAPITAL RESOURCES

(in millions)	2017			2016			2015
Net cash provided by (used in):
Operating activities	$	318		$	318		$	229
Investing activities	(87		)	(51		)	(35		)
Financing activities	(81		)	(100		)	(144		)
Effect of foreign currency exchange rate changes on cash and cash equivalents	47			(21		)	(33		)
Increase in cash and cash equivalents	$	197		$	146		$	17

Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will complement our portfolio of businesses, 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 CP 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. We had no borrowings outstanding under our CP Program as of December 31, 2017.

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"). 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 current CP Program, drew $100 million and $200 million from the 364-day Term Loan Credit Agreement and 3-year Term Loan Credit Agreement, respectively, and used cash on hand. See Part II, Item 8 under Note 8, “Long-Term Debt,” in the Notes to Consolidated Financial Statements.

On February 5, 2018, we completed a public offering of $350 million aggregate principal amount of 4.20% Senior Notes due 2048 (the "Public Offering"). We used the net proceeds from the Public Offering, together with cash on hand, to repay all of the $100 million outstanding under the 364-day Credit Agreement. We also issued a notice of redemption on February 7, 2018 for the $250 million of outstanding 2.75% notes due in December 2018 with an effective date of March 7, 2018. See Part II, Item 8 under Note 16, “Subsequent Events,” in the Notes to Consolidated Financial Statements.

As of December 31, 2017, our non-U.S. subsidiaries held approximately $559 million of cash. The TCJA significantly changed U.S. tax law by reducing the U.S. corporate income tax rate to 21%, imposing a one-time transition tax on previously deferred non-U.S. earnings, and instituting a 100% U.S. corporate income tax exemption on repatriations from certain non-U.S. subsidiaries occurring after December 31, 2017.

While our current plans do not forecast the need to use funds generated from our non-U.S. operations to fund our day-to-day U.S. operations, we provisionally determined that, based on this significant change in U.S. tax law, our non-U.S. earnings are no longer permanently reinvested offshore. As a result, we recorded a $4 million charge, increasing our deferred tax liability to $6 million, which represents our best estimate of the non-U.S. withholding, corporate income and distribution taxes due upon the repatriation of these earnings to the U.S. as of December 31, 2017.

In accordance with SAB 118, we will finalize our calculations and record any resulting adjustment to our year-end 2017 deferred tax liability no later than the fourth quarter of 2018.

Operating Activities

Cash provided by operating activities, a key source of our liquidity, was $318 million in both 2017 and 2016.  Increases in cash generated resulted primarily from lower working capital requirements and lower environmental payments. These increases were offset by higher income tax payments, higher net asbestos-related payments and higher defined benefit plan and postretirement plan contributions. Net asbestos-related payments in 2017 and 2016 were $63 million and $56 million, respectively. In 2018, we expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $60 million, environmental payments, net of reimbursements, of approximately $7 million and contributions to our defined benefit plans of approximately $25 million.

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

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 $87 million in 2017, compared to $51 million in 2016. The increase in cash used for investing activities was driven by amounts paid (net of cash acquired) of $55 million for the acquisitions of Westlock and Microtronic during 2017 and, to a lesser extent, a $5 million decrease in cash due to the deconsolidation of a joint venture. These reductions were partially offset by proceeds from dispositions of capital assets and slightly lower capital expenditures year over year. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. We expect our capital expenditures to approximate $125 million in 2018, reflecting $56 million of capital requirements resulting from the recently acquired Crane Currency business, as well as continued investments in new product development initiatives, primarily in our Aerospace & Electronics, Payment & Merchandising Technologies and Fluid Handling segments.

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 $81 million in 2017, compared to $100 million in 2016. The lower levels of cash used for financing activities was primarily due to the higher repayments of commercial paper in 2016, partially offset by an increase in cash used for open market share repurchases. We repurchased 331,632 shares of our common stock at a cost of $25 million in 2017.

Financing Arrangements

On February 5, 2018, we completed a Public Offering of $350 million aggregate principal amount of 4.20% Senior Notes due 2048. See Part II, Item 8 under Note 16, “Subsequent Events,” in the Notes to Consolidated Financial Statements.

In December 2017, we entered into a $550 million five year Revolving Credit Agreement (the “2017 Facility”), which replaced the 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 our senior unsecured long-term debt (the "Index Debt Rating"), or (2) an adjusted LIBOR for an interest period to be selected by us, plus a margin ranging from 0.805% to 1.50% depending upon the Index Debt Rating (such margin, the “Applicable LIBOR Margin”). 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 us. There were no outstanding borrowings under the 2017 Facility as of December 31, 2017.

In December 2017, we also entered into the $150 million 364-day credit agreement and the $200 million 3-year term loan credit agreement. Borrowings are available under each of the 364-day Credit Agreement and the 3-Year Term Loan Credit Agreement once certain conditions precedent have been satisfied, including consummation of our acquisition of Crane Currency. Interest on loans made under each of the 364-day Credit Agreement and the 3-Year Term Loan Credit Agreement accrues, at our option, at a rate per annum equal to (1) a base rate (determined in a customary manner), plus a margin ranging from 0.0% to 0.75% depending upon the Index Debt Rating or (2) an adjusted LIBOR (determined in a customary manner) for an interest period to be selected by us plus a margin ranging from 0.875% to 1.75% depending upon the Index Debt Rating. A commitment fee begins to accrue on March 5, 2018 (with respect to the 364-day Credit Agreement) and on January 19, 2018 (with respect to the 3-Year Term Loan Credit Agreement) on the daily unused portion of the commitments under each of the 364-day Credit Agreement and the 3-Year Term Loan Credit Agreement, respectively, at a rate per annum ranging from 0.07% to 0.25% depending on the Index Debt Rating. Each of the 364-day Credit Agreement and the 3-Year Term Loan Credit Agreement contain substantially the same affirmative and negative covenants, including the maximum debt to capitalization ratio, and events of default, as the 2017 Facility. There were no outstanding borrowings under the 364-day Credit Agreement and 3-Year Term Loan Credit Agreement as of December 31, 2017. In January 2018, we drew $100 million from our 364-day Credit Agreement and $200 million from our 3-Year Term Loan Credit Agreement to fund our acquisition of Crane Currency. In February 2018, we paid $100 million outstanding under the 364-day Credit Agreement after completion of the Public Offering.

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

Total debt was $744 million and $745 million as of December 31, 2017 and 2016, respectively. Our indebtedness as of December 31, 2017 was as follows:

• $249 million of 2.75% notes due 2018;

• $298 million of 4.45% notes due 2023;

• $198 million of 6.55% notes due 2036;

2.75% notes due December 2018 - In December 2013, we issued five year notes having an aggregate principal amount of $250 million. The notes are unsecured, senior obligations that mature on December 15, 2018 and bear interest at 2.75% 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 2.92%. We issued a notice of redemption on February 7, 2018 for the $250 million of outstanding 2.75% notes due in December 2018 with an effective date of March 7, 2018.

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 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%.

Commercial paper program - On March 2, 2015, we entered into the CP Program pursuant to 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. The Notes will have maturities of up to 397 days from date of issue. The Notes will rank at least pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds of the issuances of the Notes can be used to repay amounts under our revolving credit facility and for general corporate purposes. As of December 31, 2017, we had no amounts outstanding under the Notes. In January 2018, we issued $340 million under the CP Program to fund our acquisition of Crane Currency.

As of December 31, 2017, our total debt to total capitalization ratio was 36%, computed as follows:

(in millions)	December 31, 2017
Current maturities of long-term debt	$	249.4
Long-term debt	494.1
Total indebtedness	$	743.5
Total shareholders’ equity	1,345.2
Capitalization	$	2,088.7
Total indebtedness to capitalization	36		%

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

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

As of December 31, 2017, we had open standby letters of credit of $21 million issued pursuant to a $47 million uncommitted Letter of Credit Reimbursement Agreement, and certain other credit lines.

Credit Ratings

As of December 31, 2017, 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, 2017:

	Payment due by Period
(in millions)	Total		2018		2019 -2020		2021 -2022		2023 and after
Long-term debt (1)	$	750.0	$	250.0	$	—	$	—	$	500.0
Fixed interest payments	335.9		33.3		52.9		52.9		196.8
Operating lease payments	95.0		21.3		29.0		17.7		27.0
Purchase obligations	103.8		101.0		2.0		0.7		0.1
Pension benefits (2)	493.1		42.7		88.2		95.8		266.4
Other long-term liabilities reflected on Consolidated Balance Sheets (3)	—		—		—		—		—
Total	$	1,777.8	$	448.3	$	172.1	$	167.1	$	990.3

(1) Excludes original issue discount.

(2) Pension benefits are funded by the respective pension trusts. The postretirement benefit component of the obligation is approximately $1 million per year for which there is no trust and will be directly funded by us. Pension benefits are included through 2027.

(3) 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 ($520 million), long-term environmental liability ($32 million) and gross unrecognized tax benefits ($49 million) and related gross interest and penalties ($7 million).

Capital Structure

The following table sets forth our capitalization:

(in millions, except %) December 31,	2017			2016
Current maturities of long-term debt	$	249.4		$	—
Long-term debt	494.1			745.3
Total debt	743.5			745.3
Less cash and cash equivalents	706.2			509.7
Net debt *	37.3			235.6
Equity	1,348.5			1,145.7
Net capitalization*	$	1,385.8		$	1,381.3
Net debt to equity*	2.8		%	20.6		%
Net debt to net capitalization*	2.7		%	17.1		%

* 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 the 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 2017, equity increased $203 million as a result of net income attributable to common shareholders of $172 million, changes in currency translation adjustment of $87 million, changes in stock option exercises of $31 million, partially offset by cash dividends of $78 million and share repurchases of $25 million.

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

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.

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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 2018, we expect a total year-over-year sales increase of approximately 18.5%, driven by acquisition benefits of 15%, core sales growth of approximately 3%, and a 0.5% benefit from favorable foreign exchange. We expect an improvement in operating profit, driven primarily by improved productivity and benefits from repositioning actions, higher core sales volume, and operating profit contributed by acquisitions, partially offset by higher transaction, acquisition integration related costs and accelerated strategic growth investments.

Fluid Handling

In 2018, we expect Fluid Handling sales to increase in the mid single-digit range compared to 2017, driven by low to mid single-digit core sales growth and favorable foreign currency translation.

We expect Process Valves and Related Products sales to increase in the mid single-digit range compared to 2017, driven by a low to mid single-digit core sales increase, a low single-digit increase from an acquisition, and a modest benefit from favorable foreign currency translation. Excluding foreign exchange, we expect order rates in 2018 to improve compared to 2017 as our end markets continue to gradually improve.

We expect Commercial Valves sales to increase in the mid single-digit range compared to 2017, driven by both core sales growth and favorable foreign exchange, reflecting modest growth in our end markets.

We expect Other Products sales to decline in the mid to high single-digit range compared to 2017 with modest growth in the U.S. municipal market which are more than offset by lost sales related to the deconsolidation of a joint venture.

For the segment, we expect an improvement in both operating profit and operating margins compared to 2017, driven by benefits from core sales growth, strong productivity, and lower restructuring and related costs.

Payment & Merchandising Technologies

We expect Payment & Merchandising Technologies sales to increase more than 50%, driven primarily by the acquisition of Crane Currency, with a low single-digit improvement in core sales. We expect core sales to improve across both CPI and Merchandising Systems, with a higher core growth rate at Merchandising Systems. At CPI, we expect core sales growth to be slightly positive, with growth driven by several vertical end markets largely offset by very challenging comparisons in the gaming and retail vertical markets. At Merchandising Systems, we expect an improvement in core sales driven primarily by better demand from large bottler customers and full-line operators. We expect the segment’s operating profit to be comparable to 2017, with substantially higher acquisition integration costs and accelerated strategic growth investments approximately offset by lower repositioning and related charges, as well as benefits from higher core volumes and benefits from the Crane Currency acquisition.

Aerospace & Electronics

We expect Aerospace & Electronics core sales to increase in the mid single-digit range compared to 2017. For 2018, we expect that commercial market conditions will remain generally positive, and we expect sales growth from both our commercial and military OEM business. However, we expect aftermarket sales to decline, primarily as a result of lower modernization and upgrade sales. We expect segment operating profit in 2018 to decrease compared to 2017 driven primarily by the absence of the 2017 gain on the sale of a property and due to accelerated strategic growth investments, partially offset by higher volume and improved productivity and benefits from repositioning actions.

Engineered Materials

In 2018, we expect the Engineered Materials segment sales will increase slightly compared to the prior year. We expect modest growth in sales to RV manufacturers and to our building product customers, partially offset by a decline in sales to the Transportation market. Segment operating profit is expected to be relatively flat compared to 2017.

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are more fully described in Part II, Item 8 under Note 1, “Nature of Operations and Significant Accounting Policies” in the Notes to Consolidated Financial Statements. Certain accounting policies require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. The accounting policies described below are those that most frequently require us to make estimates and judgments and, therefore, are critical to understanding our results of operations. We have discussed the development and selection of these accounting estimates and the related disclosures with the Audit Committee of our Board of Directors.

Revenue Recognition. Revenue is recorded when title (risk of loss) passes to the customer and collection of the resulting receivable is reasonably assured. Revenue on long-term, fixed-price contracts is recorded on a percentage of completion basis using units of delivery as the measurement basis for progress toward completion. Sales under cost-reimbursement-type contracts are recorded as costs are incurred.

In May 2014, the Financial Accounting Standards Board (the "FASB") issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all current industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB agreed to a one-year deferral of the effective date; the new standard is now effective for reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Effective January 1, 2018, we adopted the new standard using the modified retrospective transition method. The adoption of the new guidance will not have a material impact to our consolidated financial statements (we expect the adjustment to retained earnings to be less than $10 million). The majority of our revenue will continue to be recognized at a point in time when the customer obtains control of the product. Revenue on certain contracts that were previously recognized at a point in time upon product delivery will now be recognized as costs are incurred. This change generally results in an acceleration of revenue as compared with our previous revenue recognition method for those contracts.

Inventories.Inventories include the costs of material, labor and overhead and are stated at the lower of cost and net realizable value. We regularly review inventory values on hand and record a provision for excess and obsolete inventory primarily based on historical performance and our forecast of product demand over the next two years. The reserve for excess and obsolete inventory was $58 million and $54 million as of December 31, 2017 and 2016, respectively.

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

Based on consideration of all available evidence regarding their utilization, we record net deferred tax assets to the extent that it is more likely than not that they will be realized. Where, based on the weight of all available evidence, it is more likely than not that some amount of a deferred tax asset will not be realized, we establish a valuation allowance for the amount that, in our judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized. The evidence we consider in reaching such conclusions includes, but is not limited to; (1) future reversals of existing taxable temporary differences, (2) future taxable income exclusive of reversing taxable temporary differences, (3) taxable income in prior carryback year(s) if carryback is permitted under the tax law, (4) cumulative losses in recent years, (5) a history of tax losses or credit carryforwards expiring unused, (6) a carryback or carryforward period that is so brief it limits realization of tax benefits, and (7) a strong earnings history exclusive of the loss that created the carryforward and support showing that the loss is an aberration rather than a continuing condition.

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

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

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

Goodwill and Other Long-Lived Assets.As of December 31, 2017, we had $1,207 million of goodwill. Our business acquisitions typically result in the generation of goodwill and other intangible assets. We follow the provisions under ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in our consolidated financial statements. These provisions require that we, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if impairment exists. Impairment testing takes place more often than annually if events or circumstances indicate a change in the impairment status. A reporting unit is an operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the reporting unit. As of December 31, 2017, we had seven reporting units.

When performing our annual impairment assessment, we compare the fair value of each of our reporting units to their respective carrying value. Goodwill is considered to be potentially impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are established primarily by discounting estimated future cash flows at an estimated cost of capital which varies for each reporting unit and which, as of our most recent annual impairment assessment, ranged between 10.0% and 13.0% (a weighted average of 11.0%), reflecting the respective inherent business risk of each of the reporting units tested. This methodology for valuing our reporting units (commonly referred to as the Income Method) has not changed from the prior year. The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent our best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis of goodwill impairment. In addition to the foregoing, for each reporting unit, market multiples are used to corroborate our discounted cash flow results where fair value is estimated based on earnings before income taxes, depreciation, and amortization ("EBITDA") and revenue multiples determined by available public information of comparable businesses. While we believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting units, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may be overstated and a charge would need to be taken against net earnings. Furthermore, in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied a hypothetical, reasonably possible 10% decrease to the fair values of each reporting unit. The effects of this hypothetical 10% decrease would still result in a fair value calculation exceeding our carrying value for each of our reporting units. No impairment charges have been required during 2017, 2016 or 2015.

As of December 31, 2017, we had $277 million of net intangible assets, of which $29 million were intangibles with indefinite useful lives, consisting of trade names. Intangibles with indefinite useful lives are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment. If the carrying amount of an indefinite lived intangible asset exceeds its fair value, the intangible asset is written down to its fair value. Fair value is calculated using relief of royalty method. We amortize the cost of definite-lived intangibles over their estimated useful lives.

In addition to annual testing for impairment of indefinite-lived intangible assets, we review all of our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of losses or a forecast of continuing losses associated with the use of an asset or asset group, or a current expectation that an asset or asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the definite-lived intangible asset (or asset group), as well as specific appraisal in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other long-lived assets or asset groups and include estimated future revenues, gross profit margins, operating profit margins and capital expenditures which are based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent our best estimates based on current and forecasted market conditions, and the profit margin assumptions are based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis. If the future undiscounted cash flows are less than the carrying value, then the definite-lived intangible asset is considered impaired and a charge would be taken against net earnings based on the amount by which the carrying amount exceeds the estimated recoverable amount. Judgments that we make which impact these assessments relate to the expected useful lives of definite-lived assets and our ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets, and are affected primarily by

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

changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Since judgment is involved in determining the recoverable amount of definite-lived intangible assets, there is risk that the carrying value of our definite-lived intangible assets may require adjustment in future periods. Historical results to date have generally approximated expected cash flows for the identifiable cash flow generating level. We believe there have been no events or circumstances which would more likely than not reduce the fair value of our indefinite-lived or definite-lived intangible assets below their carrying value.

Contingencies. The categories of claims for which we have estimated our liability, the amount of our liability accruals, and the estimates of our related insurance receivables are critical accounting estimates related to legal proceedings and other contingencies. Please refer to Part II, Item 8 under Note 11, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for further discussion.

Asbestos Liability and Related Insurance Coverage and Receivable.  As of December 31, 2017, we had an aggregate asbestos

liability of $605 million for pending claims and future claims projected to be filed against us through 2059. Estimation of our 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 and the manner of their resolution. We have retained the firm of Hamilton, Rabinovitz & Associates, Inc. (“HR&A”), a nationally recognized expert in the field, to assist management in estimating our asbestos liability in the tort system. HR&A reviews information provided by us concerning claims filed, settled and dismissed, amounts paid in settlements and relevant claim information such as the nature of the asbestos-related disease asserted by the claimant, the jurisdiction where filed and the time lag from filing to disposition of the claim. The methodology used by HR&A to project future asbestos costs is based on our recent historical experience for claims filed, settled and dismissed during a base reference period. Our experience is then compared to estimates of the number of individuals likely to develop asbestos-related diseases determined based on widely used previously conducted epidemiological studies augmented with current data inputs. Those studies were undertaken in connection with national analyses of the population of workers believed to have been exposed to asbestos. Using that information, HR&A estimates the number of future claims that would be filed against us and estimates the aggregate settlement or indemnity costs that would be incurred to resolve both pending and future claims based upon the average settlement costs by disease during the reference period. Our liability estimate is augmented for the costs of defending asbestos claims in the tort system using a forecast from us which is based upon discussions with its defense counsel. Based on this information, HR&A compiles an estimate of our asbestos liability for pending and future claims using a range of reference periods based on claim experience and covering claims expected to be filed through the indicated forecast period. The most significant factors affecting the liability estimate are (1) the number of new mesothelioma claims filed against us, (2) the average settlement costs for mesothelioma claims, (3) the percentage of mesothelioma claims dismissed against us and (4) the aggregate defense costs incurred by us. These factors are interdependent, and no one factor predominates in determining the liability estimate. These trend factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and the related best estimate of our asbestos liability, and these effects do not move in a linear fashion but rather change over multi-year periods. In our view, the forecast period used to provide the best estimate for asbestos claims and related liabilities and costs is a judgment based upon a number of trend factors, including the number and type of claims being filed each year; the jurisdictions where such claims are filed, and the effect of any legislation or judicial orders in such jurisdictions restricting the types of claims that can proceed to trial on the merits; and the likelihood of any comprehensive asbestos legislation at the federal level. Accordingly, we continue to monitor these trend factors over time and periodically assesses whether an alternative forecast period is appropriate.

With the assistance of HR&A, effective as of December 31, 2016, we extended our estimate of the asbestos liability, including the costs of settlement or indemnity payments and defense costs relating to currently pending claims and future claims projected to be filed against us through the generally accepted end point of such claims in 2059. Our previous estimate was for asbestos claims filed or projected to be filed through 2021. Our estimate of the asbestos liability for pending and future claims through 2059 is based on the projected future asbestos costs resulting from our experience using a range of reference periods for claims filed, settled and dismissed. Based on this estimate, we recorded an additional liability of $227 million (an aggregate asbestos liability of $696 million) as of December 31, 2016.

Management has made its best estimate of the costs through 2059 based on the analysis by HR&A completed in January 2017. Through December 31, 2017, our actual experience during the updated reference period for mesothelioma claims filed and dismissed generally approximated the assumptions in our liability estimate. In addition to this claims experience, we considered additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. Based on this evaluation, we determined that no change in the estimate was warranted for the period ended December 31, 2017.

In conjunction with developing the aggregate liability estimate referenced above, we also developed an estimate of probable insurance recoveries for our asbestos liabilities. As of December 31, 2016, we had an aggregate asbestos insurance receivable of

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$143 million. In developing this estimate, we considered our coverage-in-place and other settlement agreements, as well as a number of additional factors. These additional factors include the financial viability of the insurance companies, the method by which losses will be allocated to the various insurance policies and the years covered by those policies, how settlement and defense costs will be covered by the insurance policies and interpretation of the effect on coverage of various policy terms and limits and their interrelationships. The insurance receivable was $115 million as of December 31, 2017.

Environmental. For environmental matters, we record a liability for estimated remediation costs when it is probable that we will be responsible for such costs and they can be reasonably estimated. Generally, third party specialists assist in the estimation of remediation costs. The environmental remediation liability as of December 31, 2017 is substantially all for the Goodyear Site. Estimates of our environmental liabilities at the Goodyear Site are based on currently available facts, present laws and regulations and current technology available for remediation, and are recorded on an undiscounted basis. These estimates consider our prior experience in the Goodyear Site investigation and remediation, as well as available data from, and in consultation with, our environmental specialists. Estimates at the Goodyear Site are subject to significant uncertainties caused primarily by the dynamic nature of the Goodyear Site conditions, the range of remediation alternatives available, together with the corresponding estimates of cleanup methodology and costs, as well as ongoing, required regulatory approvals, primarily from the EPA. During the third quarter of 2014, the EPA issued a Record of Decision amendment requiring, among other things, additional source area remediation resulting in us recording a charge of $49 million, extending the accrued costs through 2022. As of December 31, 2017, the total estimated gross liability for the Goodyear Site was $41 million.

On July 31, 2006, we entered into a consent decree with the U.S. Department of Justice on behalf of the Department of Defense and the Department of Energy pursuant to which, among other things, the U.S. Government reimburses us for 21% of qualifying costs of investigation and remediation activities at the Goodyear Site.

Pension Plans. In the U.S., we sponsor a defined benefit pension plan that covers approximately 17% of all U.S. employees. The benefits are based on years of service and compensation on a final average pay basis, except for certain hourly employees where benefits are fixed per year of service. This plan is funded with a trustee in respect to past and current service. Charges to expense are based upon costs computed by an independent actuary. Contributions are intended to provide for future benefits earned to date. A number of our non-U.S. subsidiaries sponsor defined benefit pension plans that cover approximately 12% of all non-U.S. employees. The benefits are typically based upon years of service and compensation. These plans are generally funded with trustees in respect to past and current service.

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

The net periodic pension benefit was $8 million, $9 million and $11 million in 2017, 2016 and 2015, respectively. The net periodic pension benefit was $1 million less in 2017 compared to 2016, driven by lower discount rates for both U.S. and non U.S. plans. Employer cash contributions were $13 million, $8 million and $17 million in 2017, 2016 and 2015, respectively, to our U.S. defined benefit pension plan. We expect, based on current actuarial calculations, to contribute cash of approximately $25 million to our pension plans in 2018. Cash contributions in subsequent years will depend on a number of factors including the investment performance of plan assets.

Holding all other factors constant, a decrease in the expected long-term rate of return of plan assets by 0.25 percentage points would have increased 2017 pension expense by $1.0 million for U.S. pension plans and $1.2 million for non-U.S. pension plans. Also, holding all other factors constant, a decrease in the discount rate used to determine net periodic pension cost by 0.25 percentage points would have increased 2017 pension expense by $0.1 million for U.S. pension plans and $0.6 million for non-U.S. pension plans.

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The following key assumptions were used to calculate the benefit obligation and net periodic cost for the periods indicated: