Edgar Filing: CRANE CO /DE/

CR-2014.12.31-10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 31, 2014

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

Commission file number 1-1657

CRANE CO.




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

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

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

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




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

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

None

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

Yes ý No ¨

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

Yes ¨ No ý

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

Yes ý No ¨

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

Yes ý No ¨

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

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



Large accelerated filer x		Accelerated filer o

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

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

Yes ¨ No ý

Based on the closing stock price of $74.36 on June 30, 2014, 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 $4,384,346,652

The number of shares outstanding of the registrant’s common stock, par value $1.00, was 58,179,987 at January 31, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders’ meeting to be held on April 27, 2015

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 9
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 17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	Page 38
Item 8.	Financial Statements and Supplementary Data	Page 40
Item 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	Page 87
Item 9A.	Controls and Procedures	Page 87
Item 9B.	Other Information	Page 89

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	Page 89
Item 11.	Executive Compensation	Page 89
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page 89
Item 13.	Certain Relationships and Related Transactions, and Director Independence	Page 89
Item 14.	Principal Accounting Fees and Services	Page 89

Part IV
Item 15.	Exhibits and Financial Statement Schedules	Page 91
	Signatures	Page 93

FORWARD-LOOKING INFORMATION

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

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


•	The effect of changes in economic conditions in the markets in which we operate, including financial market conditions, 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 acquisition candidates;


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


•	A reduction in congressional appropriations that affect defense spending;


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


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


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


•	The outcome of restructuring and other cost savings initiatives;


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


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


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

Part I

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

Item 1. Business.

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

Since our founding in 1855, when R.T. Crane resolved “to conduct my business in the strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees, and to put my whole mind upon the business,” we have been committed to the highest standards of business conduct.

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

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

We employ approximately 11,300 people in North and South America, Europe, the Middle East, Asia and Australia. Revenues from outside the United States were approximately 41% in both 2014 and 2013. For more information regarding our sales and assets by geographical region, see Part II, Item 8 under Note 14, “Segment Information,” to the Consolidated Financial Statements.

Business Segments

For additional information on recent business developments and other information about us and our business, you should refer to the information set forth under the captions, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7 of this report, as well as in Part II, Item 8 under Note 14, “Segment Information,” to the Consolidated Financial Statements for sales, operating profit and assets employed by each segment.

Fluid Handling

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

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

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Crane Pumps & Systems manufactures pumps under the trade names Deming, Weinman, Burks and Barnes. Pumps are sold to a broad customer base that includes the industrial, municipal, commercial water and wastewater and commercial heating, ventilation and air-conditioning industries as well as original equipment manufacturers and military applications. Crane Pumps & Systems has facilities in Piqua, Ohio; Bramalea, Ontario, Canada; and Zhejiang, China.

Crane Supply, a distributor of valves, fittings and piping, sells predominately to the non-residential construction and industrial markets and maintains 29 distribution facilities throughout Canada.

The Barksdale business provides valves and regulators with its ShearSeal technology for transportation applications and hazardous environments in the oil and gas vertical along with pressure, temperature and level sensors for industrial applications.

The Fluid Handling segment employed approximately 5,100 people and had assets of $963 million at December 31, 2014. Order backlog totaled $311 million and $334 million at December 31, 2014 and 2013, respectively. Backlog as of December 31, 2013 included $6 million pertaining to a business divested in 2014, .

Payment & Merchandising Technologies

The Payment & Merchandising Technologies segment is comprised of two businesses, Crane Payment Innovations and Merchandising Systems.

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.

Our Crane Payment Innovations ("CPI") business, which combines the former Payment Solutions business of Crane Co. and MEI, provides high technology products serving five global vertical markets: retail, vending, gaming, financial services and transportation. Our payment systems solutions for these markets include coin accepters and dispensers, coin hoppers, coin recyclers, bill validators and bill recyclers, and cashless systems. CPI facilities are located in Malvern, Pennsylvania; Queretaro, Mexico; Tokyo, Japan; Geneva, Switzerland; Reading and Manchester, England; Buxtehude, Germany; Concord, Ontario, Canada; Kiev, Ukraine; and Salem, New Hampshire.

Our Merchandising Systems business, which is primarily engaged in the design and manufacture of vending equipment and related solutions, creates customer value through innovation by improving consumer experience and store profitability. Our products, which include a full line of vending options, including those for food, snack, coffee and cold beverages, are sold to vending operators and food and beverage companies throughout the world. Our solutions include vending management software, cashless and online solutions to help customers operate their businesses more profitably, become more competitive and increase cash flow for continued business investment. Facilities are located in Williston, South Carolina and Chippenham, England.

The Payment & Merchandising Technologies segment employed approximately 2,800 people and had assets of $1,210 million at December 31, 2014. Order backlog totaled $68 million and $52 million at December 31, 2014 and 2013, respectively.

Aerospace & Electronics

The Aerospace & Electronics segment has two groups, the Aerospace Group and the Electronics Group. This segment supplies critical components and systems, including original equipment and aftermarket parts, for the commercial aerospace and military aerospace and defense electronics industries. The commercial market accounted for approximately 70% of segment sales in 2014, while sales to the military market were approximately 30% of total sales.

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

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

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program contractor. These systems and replacement parts are sold directly to aircraft manufacturers, Tier 1 integrators (companies which make products specifically for an aircraft manufacturer), airlines, governments and aircraft maintenance, repair and overhaul (“MRO”) organizations. Our Landing Systems facility is located in Burbank, California.

The Sensing and Utility Systems solution set includes custom landing gear control and indication systems, door control and indication systems, nose wheel steering systems, on-board and hand-held wireless tire pressure monitoring systems, proximity sensors and switches, and pressure sensors for the commercial business, regional and general aviation, military, MRO and electronics markets. Facilities are located in Lynwood, Washington and Lyon, France.

Our Fluid Management solution set includes lubrication pumps, fuel pumps, coolant/water pumps, and fuel flow transmitters for commercial and military aerospace applications. Facilities are located in Elyria, Ohio; Burbank, California; and Lynwood, Washington.

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

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

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

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

The Aerospace & Electronics segment employed approximately 2,640 people and had assets of $512 million at December 31, 2014. The order backlog totaled $422 million and $361 million at December 31, 2014 and 2013, respectively.

Engineered Materials

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

The Engineered Materials segment employed approximately 700 people and had assets of $229 million at December 31, 2014. The order backlog totaled $17 million and $15 million at December 31, 2014 and 2013, respectively.

Acquisitions

We have completed four acquisitions in the past five years.

In December 2013, we completed the acquisition of 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. MEI had sales of $399 million in 2012 and was integrated into our CPI business within our Payment & Merchandising Technologies segment. The amount allocated to goodwill reflects the benefits we expect to realize from the acquisition, as the acquisition is expected to strengthen and broaden our product offering and will allow us to strengthen our global position in all sectors of the market. Goodwill for this acquisition amounted to $438 million.

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

In December 2010, we completed the acquisition of Money Controls, a leading producer of a broad range of payment systems and associated products for the gaming, amusement, transportation and retail markets. Money Controls’ 2010 full-year sales were approximately $64 million, and the purchase price was approximately $90 million, net of cash acquired of $3 million. Money Controls has been integrated into the Crane Payment Innovations business within our Payment & Merchandising Technologies segment. Goodwill for this acquisition amounted to $33 million.

In February 2010, we completed the acquisition of Merrimac Industries, Inc. (“Merrimac”), a designer and manufacturer of radio frequency Microwave components, subsystem assemblies and micro-multifunction modules. Merrimac’s 2009 sales were approximately $32 million, and the aggregate purchase price was $54 million in cash, including $3 million of assumed debt. Merrimac has been integrated into the Electronics Group within our Aerospace & Electronics segment. Goodwill for this acquisition amounted to $18 million.

Divestitures

We have completed five divestitures in the past five years.

In 2014, we sold Crane Water which was formerly part of our Fluid Handling segment for $2.1 million. 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 $6.8 million and recorded a $2 million gain. Sales of this product line were $15.1 million in 2013.

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

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

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

Competitive Conditions

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

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

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

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Research and Development

Research and development costs are expensed when incurred. These costs were $68.0 million, $52.7 million and $66.9 million in 2014, 2013 and 2012, respectively, and were incurred primarily by the Aerospace & Electronics and Payment & Merchandising Technologies segments.

Our Customers

No customer accounted for more than 10% of our consolidated revenues in 2014, 2013 or 2012.

Raw Materials

Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics and various petroleum-based products. We purchase raw materials from a large number of independent sources around the world. Although market forces have 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 reasonable costs.

Seasonal Nature of Business

Our business does not experience significant seasonality.

Government Contracts

We have agreements relating to the sale of products to government entities, primarily involving products in our Aerospace & Electronics segment and our Fluid Handling segment. As a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws and regulations governing government contracts differ from those governing private contracts. For example, some government contracts require disclosure of cost and pricing data and impose certain sourcing conditions that are not applicable to private contracts. Our failure to comply with these laws could result in suspension of these contracts, criminal or civil sanctions, administrative penalties and fines or suspension or debarment from government contracting or subcontracting for a period of time. For a further discussion of risks related to compliance with government contracting requirements; please refer to “Item 1A. Risk Factors.”

Financing

In December 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 Crane, and if as a consequence, the notes are rated below investment grade by both Moody’s Investors Service and Standard & Poor’s, then holders of the notes may require us to repurchase them, in whole or in part, for 101% of the principal amount plus accrued and unpaid interest. Debt issuance costs are deferred and included in Other assets and then amortized as a component of interest expense over the term of the notes. Including debt issuance cost amortization, these notes have an effective annualized interest rate of 4.56%.

Also 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 Crane, and if as a consequence, the notes are rated below investment grade by both Moody’s Investors Service and Standard & Poor’s, then holders of the notes may require us to repurchase them, in whole or in part, for 101% of the principal amount plus accrued and unpaid interest. Debt issuance costs are deferred and included in Other assets and then amortized as a component of interest expense over the term of the notes. Including debt issuance cost amortization, these notes have an effective annualized interest rate of 2.92%.

In December 2012, we obtained $600 million of bank loan commitments in support of our acquisition of MEI. The commitments included a $200 million expansion of the $300 million credit facility as further described below, and an additional $400 million 364 day credit facility. The 364 day credit facility was terminated on December 13, 2013 after being used to fund the MEI acquisition.

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In May 2012, we entered into a five year, $300 million Amended and Restated Credit Agreement (as subsequently amended, and increased to $500 million, the “facility”), which is due to expire in May 2017. The facility allows us to borrow, repay, or to the extent permitted by the agreement, prepay and re-borrow funds at any time prior to the stated maturity date, and the loan proceeds may be used for general corporate purposes including financing for acquisitions. Interest is based on, at our option, (1) a LIBOR-based formula that is dependent in part on the Company's credit rating (LIBOR plus 105 basis points as of the date of this Report; up to a maximum of LIBOR plus 147.5 basis points), or (2) the greatest of (i) the JPMorgan Chase Bank, N.A.'s prime rate, (ii) the Federal Funds rate plus 50 basis points, or (iii) an adjusted LIBOR rate plus 100 basis points, plus a spread dependent on the Company’s credit rating (5 basis points as of the date of this Report; up to a maximum of 47.5 basis points). At December 31, 2014, outstanding borrowings under the facility totaled $100 million. The facility contains customary affirmative and negative covenants for credit facilities of this type, including the absence of a material adverse effect and limitations on us and our subsidiaries with respect to indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of all or substantially all assets, transactions with affiliates and hedging arrangements. The facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, the fact that any representation or warranty made by us is false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting us and our subsidiaries, certain ERISA events, material judgments and a change in control of Crane. The facility contains a leverage ratio covenant requiring a ratio of total debt to total capitalization of less than or equal to 65%. At December 31, 2014, our ratio was 45%.

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 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 Crane, 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.

Available Information

We file annual, quarterly and current reports and amendments to these reports, proxy statements and other information with the United States Securities and Exchange Commission (“SEC”). You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. The address of the SEC’s website is www.sec.gov.

We also make our filings available free of charge through our Internet website, as soon as reasonably practicable after filing such material electronically with, or furnishing such material to the SEC. Also posted on our website are our Corporate Governance Guidelines, Standards for Director Independence, Crane Co. Code of Ethics and the charters and a brief description of each of the Audit Committee, the Management Organization and Compensation Committee and the Nominating and Governance Committee. These items are available in the “Investors – Corporate Governance” section of our website at www.craneco.com. The content of our website is not part of this report.

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Executive Officers of the Registrant



Name	Position	Business Experience During Past Five Years	Age	Executive Officer Since
Max H. Mitchell	President and Chief Executive Officer	Chief Executive Officer since January 2014. President since January 2013. Chief Operating Officer from May 2011 through January 2013. Group President, Fluid Handling from 2005 to October 2012.	51	2004
Curtis A. Baron, Jr.	Vice President, Controller	Vice President, Controller since December 2011. Assistant Controller from 2007 to December 2011.	45	2011
Thomas J. Craney	Group President, Engineered Materials	Group President, Engineered Materials since 2007.	59	2007
Brendan J. Curran	President, Aerospace & Electronics	President, Aerospace & Electronics since February 2015. Group President, Aerospace of Aerospace & Electronics from May 2013 through February 2015. Pratt Whitney: Vice President, Business Development, Strategy & Partnerships, Commercial Engines from July 2012 through June 2013 and Vice President, Commercial Engines & Global Services from April 2011 through June 2012. Hamilton Sundstrand, United Technologies Corporation: VP and General Manager, Repair & Supply Chain from May 2009 through March 2011.	52	2013
Augustus I. duPont	Vice President, General Counsel and Secretary	Vice President, General Counsel and Secretary since 1996.	63	1996
Bradley L. Ellis	Senior Vice President	Senior Vice President since December 2014. Group President, Merchandising Systems from 2003 through December 2014. Vice President, Crane Business System from 2009 to December 2011.	46	2000
Andrea L. Frohning	Vice President, Human Resources	Vice President, Human Resources since November 2013. Vice President, Human Resources at Hubbell Inc. from 2006 through October 2013.	45	2013
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 and Vice President, Controller from 2007 to December 2011.	44	2007
Anthony D. Pantaleoni	Vice President, Environment, Health and Safety	Vice President, Environment, Health and Safety since 1989.	60	1989
Louis V. Pinkham	Senior Vice President	Senior Vice President since December 2014. Group President, Fluid Handling from October 2012 through December 2014. Senior Vice President, General Manager at Eaton Corp. (diversified power management company) from June 2011 to October 2012. Vice President, General Manager Eaton Corp. from 2008 to 2011.	43	2012
Tazewell S. Rowe	Vice President, Treasurer	Vice President, Treasurer since August 2013. Assistant Treasurer, ITT Corporation from January 2010 through August 2013. Managing Director, Corporate Strategy, Ally Financial from 2006 through January 2010.	43	2013
Kristian R. Salovaara	Vice President of Business Development and Strategy	Vice President of Business Development and Strategy since March 214. Vice President, Business Development from May 2011 to March 2014. Managing Director at FBR Capital Markets & Co. from 2009 to May 2011.	54	2011
Edward S. Switter	Vice President, Tax	Vice President, Tax since 2011. Director Global Tax from 2010 to 2011. Director of Tax from 2006 to 2010.	40	2011

Page 8

Item 1A. Risk Factors.

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

Risks Relating to Our Business

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

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

As of December 31, 2014, we were one of a number of defendants in cases involving 47,507 pending claims filed in various state and federal courts that allege injury or death as a result of exposure to asbestos. See Note 11, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements for additional information on:


•	Our pending claims;


•	Our historical settlement and defense costs for asbestos claims;


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


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


•	Uncertainties related to our net asbestos liability.

We have recorded a liability for pending and reasonably anticipated asbestos claims through 2021, and while it is probable that this amount will change and that we may incur additional liabilities for asbestos claims after 2021, which additional liabilities may be significant, we cannot reasonably estimate the amount of such additional liabilities at this time. The liability was $614 million as of December 31, 2014.

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

Our operations are subject to environmental laws and regulations in the jurisdictions in which they operate, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of solid and hazardous wastes. We must also comply with various health and safety regulations in the United States and abroad in connection with our operations. Failure to comply with any of these laws could result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. In addition, we cannot provide assurance that our costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices will not exceed our estimates or adversely affect our financial condition, results of operations and cash flow. For example, in 2014, the U.S. Environmental Protection Agency ("EPA") issued a Record of Decision amendment requiring, among other things, additional source area remediation resulting in us recording a charge of $49.0 million pertaining to the Phoenix-Goodyear Airport North Superfund Site, extending the accrued costs through 2022. In addition, also in 2014, we recorded a $6.8 million charge for expected remediation costs associated with an environmental site in Roseland, New Jersey (the "Roseland Site").

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

We are required to comply with various import and export control laws, which may affect our transactions with certain customers, particularly in our Aerospace & Electronics and Fluid Handling segments, as discussed more fully under “Specific Risks Relating to Our Business Segments”. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. A failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting. In addition, we are subject to the Foreign Corrupt Practices Act, which generally 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 and the anti-bribery laws of other jurisdictions. Failure to comply with any of these regulations could result in civil and criminal, monetary and non-monetary penalties, fines, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation.

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

We are subject to income taxes in the United States and various international jurisdictions. Our future results of operations could be adversely affected by changes in our effective tax rate 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, changes in generally accepted accounting principles, 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 file tax returns.

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

The costs of certain raw materials that are critical to our profitability are volatile. This volatility can have a significant impact on our profitability. In our Engineered Materials segment, for example, profits were adversely impacted by increased resin and styrene material costs in 2014. The costs in our Fluid Handling and Payment & Merchandising Technologies segments similarly are affected by fluctuations in the price of metals such as steel and copper. While we have taken actions aimed at securing an

Page 10

adequate supply of raw materials at prices which are favorable to us, if the prices of critical raw materials increase, our operating costs could be negatively affected.

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

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

Demand for our products is variable and subject to factors beyond our control, which could result in unanticipated events significantly impacting our results of operations.

A substantial portion of our sales is concentrated in industries that are cyclical in nature or subject to market conditions which may cause customer demand for our products to be volatile. These industries often are subject to fluctuations in domestic and international economies as well as to currency fluctuations and inflationary pressures. Reductions in demand by these industries would reduce the sales and profitability of the affected business segments. In our Fluid Handling segment, a slower recovery of the economy or major markets could reduce sales and profits, particularly if projects for which these businesses are suppliers or bidders are canceled or delayed. Results at our Payment & Merchandising Technologies segment could be affected by sustained low employment levels, office occupancy rates and factors affecting vending operator profitability such as higher fuel, food and equipment financing costs; results could also be impacted by unforeseen advances in payment processing technologies.

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. Our Aerospace businesses could also be impacted to the extent that major aircraft manufacturers encountered production problems, or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices; in 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.

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

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

In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs of warranty or breach of contract claims if our products have defects in manufacture or design or they do not meet contractual specifications. We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them.

We maintain insurance coverage to protect us against product liability claims, but that coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liability not covered by insurance or that exceeds our established reserves could materially and adversely impact our financial condition and results of operations.

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

We are committed to continuous productivity improvement and continue to evaluate opportunities to reduce costs, simplify or improve global processes, and increase the reliability of order fulfillment and satisfaction of customer needs. In order to operate more efficiently and control costs, from time to time we execute restructuring activities, which include workforce reductions and facility consolidations. For example, in 2014, we recorded pre-tax restructuring and related charges of $22.7 million associated with repositioning actions intended to improve profitability in our Fluid Handling and Aerospace & Electronics segments. In addition, also in 2014, the Company recorded $10.3 million associated with incremental MEI integration synergies in Payment & Merchandising Technologies. However, our failure to respond to potential declines in global demand for our products and services and properly align our cost base would have an adverse effect on our financial condition, results of operations and cash flow.

Page 11

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

Our growth depends, in part, on continued sales of existing products, as well as the successful development and introduction of new products, which face the uncertainty of customer acceptance and reaction from competitors. Any delay in the development or launch of a new product could result in our not being the first to market, which could compromise our competitive position. Further, the development and introduction of new products may require us to make investments in specialized personnel and capital equipment, increase marketing efforts and reallocate resources away from other uses. We also may need to modify our systems and strategy in light of new products that we develop. If we are unable to develop and introduce new products in a cost-effective manner or otherwise manage effectively the operations related to new products, our results of operations and financial condition could be adversely impacted.

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

A significant portion of our current and retired employee population is covered by pension and post-retirement benefit plans, the costs of which are dependent upon various assumptions, including estimates of rates of return on benefit related assets, discount rates for future payment obligations, rates of future cost growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension and post-retirement benefit plans are subject to legislative and other government regulatory actions. Variances from these estimates could have 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, and the ability of our business segments to achieve similar advances will be important to our competitive positions. Competitive pressures, including those discussed above, could cause one or more of our business segments to lose market share or could result in significant price erosion, either of which could have an adverse effect on our results of operations.

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

Net sales and assets related to our operations outside the United States were 41% of our consolidated amounts in both 2014 and 2013. 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 the Company’s privacy and security policies with respect to such information, could adversely affect us.

We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and, in the normal course of our business, we collect and retain certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. The legal, regulatory and contractual

Page 12

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 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 the systems that access our products and services.

Specific Risks Relating to Our Business Segments

Fluid Handling

The markets for our Fluid Handling businesses’ products and services are fragmented and highly competitive. We compete against large and well established global companies, as well as smaller regional and local companies. While we compete based on technical expertise, timeliness of delivery, quality and reliability, the competitive influence of pricing has broadened as a result of sustained weakness in the European economy and general uncertainty in other major economies, such as China. Demand for most of our products and services depends on the level of new capital investment and planned maintenance expenditures by our customers. The level of capital expenditures by our customers depends in turn on general economic conditions, availability of credit and expectation of future market behavior. Additionally, a global economic slowdown and continued volatility in commodity prices, most importantly oil, could negatively affect the level of these activities and result in continued postponement of capital spending decisions or the delay or cancellation of projects. While we experienced a generally strong first half of 2014, order rates slowed considerably through the third and fourth quarters due to project delays and uncertainty with oil prices.

A portion of this segment’s business is subject to government rules and regulations. Failure to comply with these requirements might result in suspension or debarment from government contracting or subcontracting. Failure to comply with any of these regulations could result in civil and criminal, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to export products and services, and damage to our reputation. In addition, at our foreign operations, reported results in U.S. dollar terms could be eroded by a weakening of the local currency of the respective businesses, particularly where we operate using the euro, British pound, Canadian dollar and Indian rupee.

Payment & Merchandising Technologies

Results at our Payment & Merchandising Technologies businesses could be reduced by sustained weakness in the European economy and general uncertainty in other major economies such as China and Russia. Our results could also be affected by sustained or increased levels of manufacturing unemployment and office vacancies and inflation for key raw materials. Demand for most of our products and services depend on the level of new capital investment and planned maintenance expenditures by our customers. The level of capital expenditures by our customers depends in turn on general economic conditions, availability of credit and expectation of future market behavior. In addition, delays in launching or supplying new products or an inability to achieve new product sales objectives, or unfavorable changes in gaming regulations affecting certain of our CPI customers would adversely affect our profitability. Results at our foreign locations have been and will continue to be affected by fluctuations in the value of the euro, the British pound, the Japanese yen, the Mexican peso and the Canadian dollar versus the U.S. dollar. We also may not be able to successfully integrate and realize the expected benefits of our recent acquisition of MEI.

Aerospace & Electronics

Our Aerospace & Electronics segment is particularly affected by economic conditions in the commercial and military aerospace industries which are cyclical in nature and affected by periodic downturns that are beyond our control. The principal markets for manufacturers of commercial aircraft are large commercial airlines, which could be adversely affected by a number of factors, including current and predicted traffic levels, load factors, aircraft fuel pricing, worldwide airline profits, terrorism, pandemic health issues and general economic conditions. Our commercial business is also affected by the market for business jets which could be adversely impacted by a decline in business travel due to lower corporate profitability. In addition, a portion of this segment’s business is conducted under U.S. government contracts and subcontracts; therefore, a reduction in Congressional appropriations that affect defense spending or the ability of the U.S. government to terminate our contracts could impact the performance of this business. Any decrease in demand for new aircraft or equipment or use of existing aircraft and equipment will likely result in a decrease in demand of our products and services, and correspondingly, our revenues, thereby adversely affecting our business, financial condition and results of operation. Our sales to military customers are also affected by continued pressure on U.S. and global defense spending and the level of activity in military flight operations. Furthermore, due to the lengthy research and development cycle involved in bringing commercial and military products to market, we cannot

Page 13

predict the economic conditions that will exist when any new product is complete. In addition, if we are unable to develop and introduce new products in a cost-effective manner or otherwise manage effectively the operations related to new products and/or programs, our results of operations and financial condition could be adversely impacted.

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

Engineered Materials

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

Item 1B. Unresolved Staff Comments.

None

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Item 2. Properties.



	Number of Facilities - Owned
Location	Aerospace & Electronics		Engineered Materials		Payment & Merchandising Technologies		Fluid Handling		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	8	829,000	4	644,000	2	568,000	6	784,000	—	—	20	2,825,000
Canada	—	—	—	—	—	—	—		—	—	—	—
Europe	—	—	—	—	3	338,000	9	1,556,000	—	—	12	1,894,000
Other international	—	—	—	—	2	295,000	6	850,000	—	—	8	1,145,000
	8	829,000	4	644,000	7	1,201,000	21	3,190,000	—	—	40	5,864,000
Non-Manufacturing
United States	—	—	—	—	1	15,000	3	138,000	—	—	4	153,000
Canada	—	—	—	—	—	—	7	155,000	—	—	7	155,000
Europe	—	—	—	—	—	—	2	78,000	—	—	2	78,000
Other international	—	—	—	—	—	—	—	—	—	—	—	—
	—	—	—	—	1	15,000	12	371,000	—	—	13	386,000



	Number of Facilities - Leased
Location	Aerospace & Electronics		Engineered Materials		Payment & Merchandising Technologies		Fluid Handling		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	1	16,000	1	19,000	1	15,000	2	105,000	—	—	5	155,000
Canada	—	—	—	—	1	61,000	1	21,000	—	—	2	82,000
Europe	1	12,000	—	—	1	10,000	4	686,000	—	—	6	708,000
Other international	2	89,000	—	—	—	—	2	112,000	—	—	4	201,000
	4	117,000	1	19,000	3	86,000	9	924,000	—	—	17	1,146,000
Non-Manufacturing
United States	1	4,000	2	59,000	10	205,000	4	42,000	3	42,000	20	352,000
Canada	—	—	—	—	—	—	23	436,000	—	—	23	436,000
Europe	4	7,000	—	—	6	80,000	8	52,000	—	—	18	139,000
Other international	—	—	—	—	7	33,000	19	186,000	—	—	26	219,000
	5	11,000	2	59,000	23	318,000	54	716,000	3	42,000	87	1,146,000

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

Item 3. Legal Proceedings.

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

Item 4. Mine Safety Disclosures.

Not applicable.

Page 15

Part II

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

Crane Co. common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol CR. The following are the high and low sale prices as reported on the NYSE Composite Tape and the quarterly dividends declared per share for each quarter of 2014 and 2013.

MARKET AND DIVIDEND INFORMATION — CRANE CO. COMMON SHARES



	New York Stock Exchange Composite Price per Share								Dividends per Share
Quarter	2014 High		2014 Low		2013 High		2013 Low		2014		2013
First	$	73.08	$	60.14	$	55.94	$	46.00	$	0.30	$	0.28
Second	$	76.33	$	68.43	$	59.51	$	51.43	0.30		0.28
Third	$	74.72	$	63.21	$	63.41	$	57.10	0.33		0.30
Fourth	$	63.11	$	53.63	$	67.25	$	58.72	0.33		0.30
									$	1.26	$	1.16
On December 31, 2014, there were approximately 2,424 holders of record of Crane Co. common stock.

The following table summarizes our share repurchases during the year ended December 31, 2014:



	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
October 1-31	96,581	$	61.72	—	—
November 1-30	716,212	$	61.49	—	—
December 1-31	—	—		—	—
Total October 1 — December 31, 2014	812,793	$	61.52	—	—

The table above only includes the open-market repurchases of our common stock during the year ended December 31, 2014. We routinely receive shares of our common stock as payment for stock option exercises and the withholding taxes due on stock option exercises and the vesting of restricted stock awards from stock-based compensation program participants.

Due to administrative error, we inadvertently failed to timely file a registration statement on Form S-8 with the Securities and Exchange Commission (“SEC”) regarding the issuance of shares of our common stock pursuant to the Crane Co. 2013 Stock Incentive Plan (the “Plan”). We intend to file a registration statement on Form S-8 with the SEC as promptly as practicable to register shares issuable pursuant to the Plan. From the date of the adoption of the Plan in April 2013 through December 31, 2014, a total of 310 shares of our common stock were issued upon exercise of stock options granted pursuant to the Plan, a total of 4,309 shares of our common stock were issued pursuant to the Plan upon vesting of restricted share units, and 2,888 shares of our common stock were issued pursuant to the Plan upon vesting of deferred stock units. We believe that any potential liability resulting from the failure to timely register shares of common stock issuable pursuant to the Plan is not material to our financial condition or results of operations.

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Item 6. Selected Financial Data.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA



	For the year ended December 31,
(in thousands, except per share data)	2014			2013			2012			2011			2010
Net sales	$	2,924,997		$	2,595,281		$	2,579,068		$	2,500,369		$	2,179,319
Operating profit from continuing operations(a)	316,290			347,876			310,441			36,571			233,300
Interest expense	(39,222		)	(26,460		)	(26,831		)	(26,255		)	(26,841		)
Income from continuing operations before taxes(a)	281,156			326,016			284,605			14,761			209,067
Provision (benefit) for income taxes(b)	87,587			105,065			88,416			(8,055		)	56,087
Income from continuing operations	193,569			220,951			196,189			22,816			152,980
Discontinued operations, net of tax (c)	—			—			21,632			3,700			1,210
Net income attributable to common shareholders(b)	$	192,672		$	219,502		$	216,993		$	26,315		$	154,170
Earnings per basic share(b)
Income from continuing operations attributable to common shareholders	$	3.28		$	3.79		$	3.40		$	0.39		$	2.61
Discontinued operations, net of tax	—			—			0.38			0.06			0.02
Net income attributable to common shareholders	$	3.28		$	3.79		$	3.78		$	0.45		$	2.63
Earnings per diluted share(b)
Income from continuing operations attributable to common shareholders	$	3.23		$	3.73		$	3.35		$	0.38		$	2.57
Discontinued operations, net of tax	—			—			0.37			0.06			0.02
Net income attributable to common shareholders	$	3.23		$	3.73		$	3.72		$	0.44		$	2.59
Cash dividends per common share	$	1.26		$	1.16		$	1.08		$	0.98		$	0.86
Total assets	$	3,450,785		$	3,559,607		$	2,889,878		$	2,843,531		$	2,706,697
Long-term debt	$	749,213		$	749,170		$	399,092		$	398,914		$	398,736
Accrued pension and postretirement benefits	$	278,253		$	151,133		$	233,603		$	178,382		$	98,324
Long-term asbestos liability	$	534,515		$	610,530		$	704,195		$	792,701		$	619,666
Long-term insurance receivable — asbestos	$	126,750		$	148,222		$	171,752		$	208,952		$	180,689

(a)

Includes i) acquisition related inventory and backlog amortization of $4,790 and $4,654 in 2014 and 2013, respectively ii) acquisition related integration costs of $9,753 in 2014; iii) acquisition related transaction costs of $22,765, $3,874 and $1,276 in 2013, 2012 and 2010, respectively, iv) restructuring and related charges of $22,687, $20,632 and $6,676 in 2014, 2012, and 2010, respectively, v) acquisition related restructuring costs of $10,322 in 2014, vi) an asbestos provision, net of insurance recoveries, of $241,647 in 2011, vii) environmental liability provisions of $55,800 and $30,327 in 2014 and 2011, respectively, and viii) a lawsuit settlement of $6,500 in 2014.


(b)	Includes the tax effect of items cited in note (a) as well as $2,892 withholding taxes related to acquisition funding and a $2,006 gain on sale of product line in 2013, a $5,625 tax benefit caused by the reinvestment of non-U.S. earnings associated with the acquisition of Money Controls in 2010.


(c)	Includes a $19,176 gain on divestiture, net of tax, in 2012.

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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 chemical & pharmaceutical processing, oil and gas refining, power, nuclear, building services and utilities, automated payment and merchandising, aerospace, defense electronics, recreational vehicle (“RV”), non-residential construction and transportation.

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

Items Affecting Comparability of Reported Results

The comparability of our operating results from continuing operations for the years ended December 31, 2014, 2013 and 2012 is affected by the following significant items:

Acquisition-Related Costs

During 2014, we recorded the following costs associated with the acquisition of MEI: 1) pre-tax integration costs of $9.8 million and 2) pre-tax acquisition related inventory and backlog amortization of $4.8 million. During 2013, we recorded the following costs associated with the acquisition of MEI: 1) pre-tax transaction costs of $22.8 million, 2) pre-tax inventory step-up and backlog amortization of $4.7 million and 3) withholding taxes of $2.9 million related to cash marshaling activities supporting payment for the acquisition. During 2012, we recorded pre-tax transaction costs associated with the acquisition of MEI of $3.9 million.

Gain on Sale of Product Line

In 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 $6.8 million and recorded a $2 million gain. Sales of this product line were $15.1 million in 2013.

Divestiture Loss

In 2014, we sold Crane Water which was formerly part of our Fluid Handling segment for $2.1 million and recorded $1.6 million pre-tax loss. The business had sales of approximately $15 million in 2013.

Restructuring and Related Costs

In 2014, we recorded pre-tax restructuring charges and related costs of $33.0 million, of which $22.7 million was related to the repositioning activities in our Fluid Handling and Aerospace & Electronics segments and $10.3 million was related to the acquisition of MEI. In 2012, we recorded pre-tax restructuring charges and related costs of $20.6 million, of which $18.5 million was associated with repositioning actions designed to improve profitability beginning in 2013, primarily in the European portion of the Fluid Handling segment. Included in the repositioning actions are $2.0 million of non-cash charges related to the completion of previous restructuring actions.

Lawsuit Settlement

The Roseland Site was operated by Resistoflex Corporation (“Resistoflex”), which became an indirect subsidiary of the Company in 1985 when the Company acquired Resistoflex’s parent company, UniDynamics Corporation. Resistoflex manufactured specialty lined pipe and fittings at the site from the 1950s until it was closed in the mid-1980s. In 2009, at the request of the New Jersey Department of Environmental Protection (“NJDEP”), the Company performed certain tests of the indoor air quality of approximately 40 homes in a residential area surrounding the Roseland Site to determine if any contaminants (volatile organic compound vapors from groundwater) from the Roseland Site were present in those homes. The test results showed that three homes had volatile organic compound vapors above NJ DEP's recommended concentration levels, and the Company installed vapor mitigation equipment in those homes. On April 15, 2011, those three homeowners, and the tenants in one of those homes, filed separate suits against the Company seeking unspecified compensatory and punitive damages for their lost property value and nuisance. In addition, a homeowner in the testing area, whose home tested negative for the presence of contaminants, filed a class action suit against the Company on behalf of himself and 138 other homeowners in the surrounding area, claiming damages in the nature of loss of value on their homes due to their proximity to the Roseland Site. The plaintiffs in these cases amended their complaints to assert claims under New Jersey's Environmental Rights Act for

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

the Company's alleged failure to properly report its waste discharge practices in the late 1960s and early 1970s, and for natural resource damages. In late December 2013, the plaintiffs moved to have a class of 139 homeowners certified, and the motion was granted in early February 2014. At the same time the Court also entered partial summary judgment on liability for the three homes where the Company had installed vapor mitigation equipment. The Company reached an agreement to settle all current claims with the class and individual plaintiffs for a one-time payment of $6.5 million. This agreement was approved by the Court on July 23, 2014 and the Company completed all obligations required of it to complete the settlement on October 10, 2014.

Environmental Charge

For environmental matters, the Company records a liability for estimated remediation costs when it is probable that the Company will be responsible for such costs and they can be reasonably estimated. Generally, third party specialists assist in the estimation of remediation costs. The environmental remediation liability as of December 31, 2014 and 2013 is substantially related to the former manufacturing site in Goodyear, Arizona (the “Goodyear Site”) discussed below.

The Goodyear Site was operated by UniDynamics/Phoenix, Inc. (“UPI”), which became an indirect subsidiary of the Company in 1985 when the Company acquired UPI’s parent company, UniDynamics Corporation. UPI manufactured explosive and pyrotechnic compounds at the Goodyear Site, including components for critical military programs, from 1962 to 1993, under contracts with the U.S. Department of Defense and other government agencies and certain of their prime contractors. No manufacturing operations have been conducted at the Goodyear Site since 1994. The Goodyear Site was placed on the National Priorities List in 1983, and is now part of the Phoenix-Goodyear Airport North Superfund Goodyear Site. In 1990, the EPA issued administrative orders requiring UPI to design and carry out certain remedial actions, which UPI has done. On July 26, 2006, the Company entered into a consent decree with the EPA with respect to the Goodyear Site providing for, among other things, a work plan for further investigation and remediation activities at the Goodyear Site. The remediation activities have changed over time due in part to the changing groundwater flow rates and contaminant plume direction, and required changes and upgrades to the remediation equipment in operation at the Goodyear Site. These changes have resulted in the Company revising its liability estimate from time to time. During the third quarter of 2014, the EPA issued a Record of Decision amendment requiring, among other things, additional source area remediation resulting in the Company recording a charge of $49.0 million, extending the accrued costs through 2022.

The Company undertook an extensive soil remediation effort at the Goodyear Site following its closure, and had been monitoring the Goodyear Site’s condition in the years that followed. In response to changes in remediation standards, the Company has conducted further site characterization and delineation studies. In September 2014, the Company, in consultation with its advisors, substantially completed its assessment of soil and groundwater contaminants at the Roseland Site, and developed an enhanced remediation plan for the site, which includes further soil removal, groundwater treatment, and soil vapor extraction, resulting in a charge of $6.8 million for remediation activities which are expected to be completed by 2017.

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

Results From Continuing Operations — For the Years Ended December 31, 2014, 2013 and 2012



	For the year ended December 31,									2014 vs 2013 Favorable / (Unfavorable) Change					2013 vs 2012 Favorable / (Unfavorable) Change
(in millions, except %)	2014			2013			2012			$			%		$			%
Net Sales
Fluid Handling	$	1,264		$	1,289		$	1,289		(25		)	(2	)%	(1		)	—	%
Payment & Merchandising Technologies	712			381			372			331			87	%	9			2	%
Aerospace & Electronics	696			694			701			$	2		—	%	$	(7	)	(1	)%
Engineered Materials	253			232			217			21			9	%	16			7	%
Total Net Sales	$	2,925		$	2,595		$	2,579		$	330		13	%	$	16		1	%
Sales Growth:
Core business										$	9		—	%	$	1		—	%
Acquisitions/dispositions										332			13	%	25			1	%
Foreign exchange										(11		)	—	%	(9		)	—	%
Total Sales Growth										$	330		13	%	$	16		1	%
Operating Profit from Continuing Operations
Fluid Handling	$	182		$	195		$	161		$	(13	)	(7	)%	$	34		21	%
Payment & Merchandising Technologies	69			35			34			34			98	%	1			3	%
Aerospace & Electronics	138			160			156			(22		)	(14	)%	4			3	%
Engineered Materials	37			34			25			2			7	%	10			40	%
Total Segment Operating Profit from Continuing Operations*	$	426		$	424		$	375		$	2		—	%	$	49		13	%
Corporate Expense	$	(54	)	$	(76	)	$	(65	)	$	23		(30	)%	$	(11	)	(17	)%
Corporate — Environmental charge	(56		)	—			—			(56		)	NM		—			—
Total Operating Profit from Continuing Operations	$	316		$	348		$	310		$	(32	)	(9	)%	$	37		12	%
Operating Margin %
Fluid Handling	14.4		%	15.1		%	12.5		%
Payment & Merchandising Technologies	9.7		%	9.1		%	9.1		%
Aerospace & Electronics	19.9		%	23.1		%	22.2		%
Engineered Materials	14.5		%	14.8		%	11.3		%
Total Segment Operating Profit Margin % from Continuing Operations*	14.6		%	16.3		%	14.6		%
Total Operating Margin % from Continuing Operations	10.8		%	13.4		%	12.0		%



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

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

2014 compared with 2013

Sales in 2014 increased $330 million, or 13%, to $2.925 billion compared with $2.595 billion. The sales increase was driven by a net increase in revenue from acquisitions and dispositions of $332 million and an increase in core business sales of $9 million, partially offset by unfavorable foreign exchange of $11 million. Payment & Merchandising Technologies segment revenue increased $331 million, or 87%, in 2014 reflecting an increase in sales of $340 million related to the acquisition of MEI and $18 million of higher sales from our Merchandising Systems group, partially offset by a core sales decline of $4 million and $4 million of unfavorable foreign exchange. In our Engineered Materials segment, sales increased $21 million, reflecting $20 million of higher sales to RV manufacturers and $2 million of higher sales to our transportation-related customers, partially offset by $2 million of lower sales to our building product customers. Our Aerospace & Electronics segment reported a sales increase of $2 million, or 0.3%. Our Aerospace Group had a 3% sales increase in 2014 compared to the prior year, reflecting $13 million of higher original equipment manufacturer (“OEM”) sales and $2 million of higher aftermarket product sales. The Electronics Group experienced a $13 million sales decrease, or 5%, due to weaker sales of defense-related products. Our Fluid Handling segment reported a sales decrease of $25 million, primarily reflecting a decrease of $16 million in our Crane Valve Group and a $13 million sales decrease in Crane Supply driven by unfavorable foreign exchange. These declines were partially offset by an $11 million sales increase in our Barksdale business and a $2 million sales increase in our Crane Pumps and Systems business.

Total segment operating profit increased $2 million, or 0.4%, to $426 million in 2014 compared to $424 million in 2013. The increase in segment operating profit was driven by increases in our Payment & Merchandising Technologies and Engineered Materials segments, partially offset by decreases in our Aerospace & Electronics and Fluid Handling segments. Our Payment & Merchandising Technologies segment operating profit was $34 million, or 98%, higher in 2014 compared to the prior year and our Engineered Materials segment operating profit was $2 million, or 7%, higher in 2014 compared to the prior year; our Aerospace & Electronics segment operating profit was $22 million, or 14%, lower in 2014 compared to the prior year and our Fluid Handling segment operating profit was $13 million, or 7%, lower in 2014 compared to the prior year. The operating profit increase in our Payment & Merchandising Technologies was primarily driven by the impact of the MEI acquisition, partially offset by an $18 million increase in acquisition, integration and restructuring-related charges in 2014 compared to 2013. The primary drivers of the increase in our Engineered Materials segment operating profit were a $6 million impact from the higher sales and strong productivity gains, partially offset by an unfavorable product mix and higher raw material costs (primarily resin and substrates). The Aerospace & Electronics segment operating profit decrease primarily reflected an increase in engineering and new product development spending supporting new program wins and higher costs associated with new product launches in our cabin business. The decrease also reflected restructuring charges of $8 million recorded in 2014 associated with repositioning actions designed to improve profitability in 2015 and 2016. The Fluid Handling operating profit decrease reflected an unfavorable sales mix, a restructuring charge of $15 million recorded in 2014 and a $2 million impact from the lower sales, partially offset by productivity gains and lower pension expense. Total segment operating margins decreased to 14.6% in 2014 compared to 16.3% in 2013.

2013 compared with 2012

Sales in 2013 increased $16 million, or 1%, to $2.595 billion compared with $2.579 billion. The sales increase was driven by an increase in core business sales of $1 million and a net increase in revenue from acquisitions and dispositions of $25 million, partially offset by unfavorable foreign exchange of $9 million. In our Engineered Materials segment, sales increased $16 million, reflecting $20 million of higher sales to RV manufacturers, partially offset by $2 million of lower sales to our transportation-related customers, $1 million of lower sales to our international customers and $1 million of lower sales to our building product customers. Merchandising Systems segment revenue increased $9 million, or 2%, in 2013 reflecting an increase in sales of $25 million related to the acquisition of MEI and $12 million of higher sales from our Payment Solution business, partially offset by $27 million of lower sales from our Vending Solutions business and $2 million of unfavorable foreign exchange. Our Aerospace & Electronics segment reported a sales decrease of $7 million, or 1%. Our Aerospace Group had a 1% sales decrease in 2013 compared to the prior year, reflecting $12 million of lower aftermarket product sales, partially offset by $10 million of higher OEM sales. The Electronics Group experienced a $5 million sales decrease, or 2%, due to lower sales of our Microwave and Power Solutions products for military and defense applications. Our Fluid Handling segment reported a sales decrease of $0.8 million, primarily reflecting a $19 million decrease in Crane Supply, partially offset by an increase of $16 million in our Crane Valve Group driven by strength in the power and nuclear end markets, partially offset by weakness in our chemical business. In addition, sales in our Crane Pumps and Systems business increased by $5 million driven by share gains.

Total segment operating profit increased $49 million, or 13%, to $424 million in 2013 compared to $375 million in 2012. The increase in segment operating profit over the prior year was driven by increases in operating profit in all segments. Our Fluid Handling segment operating profit was $34 million, or 21% higher in 2013 compared to the prior year; our Engineered Materials segment operating profit was $10 million, or 40% higher in 2013 compared to the prior year; our Aerospace & Electronics segment operating profit was $4 million, or 3% higher in 2013 compared to the prior year and our Merchandising Systems segment was $1 million, or 3.1%, higher in 2013 compared to prior year. The Fluid Handling operating profit increase primarily reflects the absence

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

of repositioning charges of $13 million recorded in 2012 and $10 million of repositioning savings realized in 2013. The primary drivers of the increase in our Engineered Materials segment operating profit were $5 million from higher sales, the absence of a $2 million repositioning charge taken in 2012 and $4 million of repositioning savings realized in 2013. Productivity gains related to improving material yield coupled with targeted pricing actions offset higher raw material costs (primarily resin and styrene). The improvement in the Aerospace & Electronics segment operating profit primarily reflected productivity gains and solid cost management. The operating profit increase in our Merchandising Systems segment is primarily due to the impact of the higher sales in our legacy Payment Solutions business, productivity gains of $8 million driven by focused efforts to reduce material costs across the business, the absence of repositioning charges recorded in 2012 of $4 million and $2 million of repositioning savings realized in 2013. These favorable changes were partially offset by a $6 million impact from the lower sales volume, acquisition and transaction related costs and unfavorable mix in our Vending business. Total segment operating margins increased to 16.3% in 2013 compared to 14.6% in 2012.

Results From Discontinued Operations — For the Years Ended December 31, 2014, 2013 and 2012



(in millions)	2014		2013		2012
Income from Continuing Operations	$	194	$	221	$	196
Discontinued Operations:
Income from Discontinued Operations, net of tax	—		—		2
Gain from Sales of Discontinued Operations, net of tax	—		—		19
Discontinued Operations, net of tax	—		—		22
Net income before allocation to noncontrolling interests	$	194	$	221	$	218
Net income attributable to common shareholders	$	193	$	220	$	217

For the years 2014, 2013 and 2012, we reported two divested businesses as discontinued operations in our Statements of Operations. The sale of Azonix in 2012 resulted in an after-tax gain of $14.5 million. Azonix had sales of $17.1 million and pre-tax profit from operations of $2.4 million in 2012. The sale of our valve service center in Houston, Texas in 2012 resulted in an after-tax gain of $4.6 million. Our valve service center in Houston, Texas, had sales of $8.4 million and pre-tax profit from operations of $1.3 million in 2012. There were no sales reported in 2013 and 2014 for Azonix or our valve service center in Houston, Texas.

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

FLUID HANDLING



(in millions, except %)	2014			2013			2012
Net Sales	$	1,264		$	1,289		$	1,289
Operating Profit	182			195			161
Restructuring and Related Charges*	15			—			13
Assets	963			996			993
Operating Margin	14.4		%	15.1		%	12.5		%



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

2014 compared with 2013. Fluid Handling sales were lower by $25 million compared to the prior year. Operating profit decreased by $13 million from $195 million in 2013 to $182 million in 2014. Operating profit in 2014 included restructuring and related charges of $15 million. Operating margins were 14.4% in 2014 compared with 15.1% in 2013.

Sales decreased $25 million, or 1.9%, driven by a core sales decrease of $10 million, or 0.8%, unfavorable foreign currency translation of $7 million, or 0.5%, and the impact of the divestiture of Crane Water of $8 million, or 0.6%. Backlog was $311 million at December 31, 2014, a decrease of 7% from $334 million at December 31, 2013. Backlog at December 31, 2013 included $5.5 million pertaining to a business divested in 2014.

Crane Valve Group (“Valve Group”) includes the following businesses: Crane ChemPharma & Energy Flow Solutions, Building Services & Utilities and Valve Services. Valve Group sales decreased 2% to $888 million in 2014 from $904 million in 2013, including a core sales decrease of $23 million, or 3%, partially offset by favorable foreign currency translation of $7 million, 0.8%, as both the British pound and euro strengthened against the U.S. dollar. The decrease in core sales was primarily driven by lower sales in our Crane ChemPharma & Energy Flow Solutions business, primarily driven by project delays and lower investments in chemical and refining applications for our severe service valves; and a decrease in our Valve Services business reflecting a decreased number of planned maintenance shutdowns at U.S. nuclear plants compared to 2013. The Building Services & Utilities business experienced a slight increase primarily reflecting modest improvement in the commercial building construction end market in the United Kingdom.

Crane Pumps & Systems sales increased 3% to $91 million in 2014 from $89 million in 2013, with market growth and share gains in the municipal, residential and industrial markets.

Crane Supply revenue decreased 6% to $192 million in 2014 from $205 million in 2013 due to $13 million of unfavorable foreign exchange as the Canadian dollar weakened against the U.S. dollar.

Barksdale sales increased $11 million reflecting an increase in demand for our oil and gas and transportation products, driven by stronger end market conditions and increased North American market share.

Fluid Handling operating profit decreased $13 million, or 7%, compared to 2013 reflecting an unfavorable sales mix, the restructuring charge of $15 million recorded in 2014 and a $2 million impact from the lower sales, partially offset by productivity gains and lower pension expense.

2013 compared with 2012. Fluid Handling sales were lower by $0.8 million compared to the prior year. Operating profit increased by $34 million from $161 million in 2012 to $195 million in 2013. Operating profit in 2012 included restructuring charges of $13 million. Operating margins were 15.1% in 2013 compared with 12.5% in 2012.

Sales decreased $0.8 million, driven by unfavorable foreign currency translation of $7.6 million, partially offset by a core sales increase of $6.8 million. Backlog was $334 million at December 31, 2013, a decrease of 3% from $343 million at December 31, 2012.

Valve Group sales increased 2% to $904 million in 2013 from $888 million in 2012, including a core sales increase of $17 million, or 2%, partially offset by unfavorable foreign currency translation of $2 million, as both the British pound and Indian rupee weakened against the U.S. dollar. The increase in core sales was driven by higher sales in our Valve Services business, reflecting an increased number of nuclear outages when compared to 2012, and moderately higher volumes in our Building Services & Utilities business, primarily reflecting an improving commercial building construction end market in the United Kingdom. The Crane ChemPharma & Energy Flow Solutions business experienced a slight decrease in core sales, primarily driven by project delays and lower investments in downstream chemical applications for our severe service valves.

Crane Pumps & Systems sales increased 6% to $89 million in 2013 from $83 million in 2012, with market growth and share gains in the municipal, residential and industrial markets. Share gains were driven by new product introductions as well as expanding channel access for existing products.

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

Crane Supply revenue decreased 9% to $205 million in 2013 from $224 million in 2012 due to $13 million of lower sales volume reflecting softer commercial construction and mining markets in Canada and $6 million of unfavorable foreign exchange as the Canadian dollar weakened against the U.S. dollar.

Barksdale sales decreased $2 million, or 2%, reflecting a decline in demand for our industrial and hazardous products, driven by weaker end market conditions.

Fluid Handling operating profit increased $34 million, or 21%, compared to 2012, primarily reflecting the absence of repositioning charges of $13 million recorded in 2012, $10 million of repositioning savings realized in 2013, and the impact of higher pricing.

PAYMENT & MERCHANDISING TECHNOLOGIES



(in millions, except %)	2014			2013			2012
Net Sales	$	712		$	381		$	372
Operating Profit	69			35			34
Acquisition, integration and restructuring related charges*	24			6			4
Assets	1,210			1,383			409
Operating Margin	9.7		%	9.1		%	9.1		%



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

2014 compared with 2013. Payment & Merchandising Technologies sales increased by $331 million from $381 million in 2013 to $712 million in 2014. Operating profit increased by $34 million from $35 million in 2013 to $69 million in 2014. Operating margins were 9.7% in 2014 compared to 9.1% in 2013.

Sales increased $331 million, or 87%, reflecting sales related to the acquisition of MEI of $340 million, or 89%, partially offset by a core sales decline of $4 million, or 1%, and unfavorable foreign currency translation of $4 million, or 1%. The decrease in core sales reflected lower sales in our legacy Payment Solutions business, partially offset by higher sales in our Merchandising Systems group. Sales decreased in our legacy Payment Solutions business reflecting lower sales in the retail and gaming end markets, partially offset by higher sales in the financial services vertical market. Sales increased in our Merchandising Systems group reflecting strong sales to certain large bottler customers and full-line operator customers.

Operating profit of $69 million increased 98% in 2014 compared to 2013. The operating profit increase was primarily driven by the impact of the MEI acquisition, partially offset by an $18 million increase in acquisition, integration and restructuring-related charges in 2014 compared to 2013.

2013 compared with 2012. Merchandising Systems sales increased by $9 million from $372 million in 2012 to $381 million in 2013. Operating profit increased by $1 million from $34 million in 2012 to $35 million in 2013. Operating margins were 9.1% in both 2013 and 2012.

Sales increased $9 million, or 2%, including sales from the acquisition of MEI of $25 million, or 7%, partially offset by a core sales decline of $14 million, or 4%, and unfavorable foreign currency translation of $2 million, or 1%. The decrease in core sales reflected lower sales in our Vending Solutions businesses, partially offset by higher sales in our legacy Payment Solutions business. Sales decreased in our Vending Solutions business reflecting lower capital spending by certain U.S. bottler customers, as well as, continued weak market conditions in Europe. Sales increased in our legacy Payment Solutions business reflecting higher sales in the retail, vending, transportation and casino gaming vertical markets. The increase in the retail market was driven by higher sales to self check-out OEM customers. The increase in the vending market was driven primarily by share gains, particularly in Europe and Asia. The increase in the transportation market was driven by share gains in the mass transit market. The increase in casino gaming was due to higher sales to key gaming OEM customers resulting from improving casino operations, primarily in the U.S.

Operating profit of $35 million increased 3% in 2013 compared to 2012. The operating profit increase was primarily driven by productivity gains of $8 million, the absence of repositioning charges recorded in 2012 of $4 million and $2 million of repositioning savings realized in 2013. These favorable changes were partially offset by a $6 million impact from the lower core sales, acquisition-related costs, which included inventory step-up and backlog amortization of $5 million and transaction-related costs of $1 million, and unfavorable mix in our Vending business.

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

AEROSPACE & ELECTRONICS



(in millions, except %)	2014			2013			2012
Net Sales	$	696		$	694		$	701
Operating Profit	138			160			156
Restructuring and Related Charges *	8			—			—
Assets	512			512			510
Operating Margin	19.9		%	23.1		%	22.2		%



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

2014 compared with 2013. Sales of our Aerospace & Electronics segment increased $2 million, or 0.3%, in 2014 to $696 million, reflecting a sales increase of $15 million in the Aerospace Group, partially offset by a sales decrease of $13 million in the Electronics Group. The Aerospace & Electronics segment’s operating profit decreased $22 million, or 14%, in 2014. The decrease in operating profit was due to a $7 million decrease in operating profit in the Aerospace Group and a $15 million decrease in the Electronics Group. The operating margin for the segment was 19.9% in 2014 compared to 23.1% in 2013. Backlog was $422 million at December 31, 2014, an increase of 17% from $361 million at December 31, 2013.

Aerospace Group sales in 2014 by the four solution sets were as follows: Landing Systems, 34%; Sensing and Utility Systems, 34%; Fluid Management, 22%; and Cabin Systems, 10%. The commercial market accounted for 81% of Aerospace Group sales in 2014, while sales to the military market were 19% of total Aerospace Group sales. During 2014, sales to OEMs and aftermarket customers were 63% and 37%, respectively.

Aerospace Group sales increased $15 million, or 3%, from $435 million in 2013 to $450 million in 2014. OEM product sales increased $13 million, or 5%, primarily reflecting an increase in commercial and military OEM sales. The increase in commercial OEM sales was driven by strong sales to large aircraft manufacturers as passenger air travel continues to increase causing OEMs to increase build rates in response to demand for more aircraft. Aftermarket sales increased $2 million, or 1%, compared to the prior year driven by an increase in sales of commercial and military spares and commercial repair and overhaul ("R&O") sales, partially offset by weaker modernization and upgrade ("M&U") sales. Commercial aftermarket sales increased $1 million, or 1%, reflecting higher spares and R&O sales, partially offset by a decrease in M&U sales. The increase in military aftermarket sales of $1 million, or 1%, was primarily driven by higher spares sales.

Aerospace Group operating profit decreased $7 million, or 5%, over the prior year, primarily due to an increase in engineering and new product development spending supporting new program wins and higher costs associated with new product launches in our cabin business. Engineering expense will increase or decrease depending on the nature and timing of program wins requiring engineering resources. Aerospace engineering expense was $41 million, or 9% of sales in 2014 compared to $32 million, or 7%, in 2013.

Electronics Group sales by market in 2014 were as follows: military/defense, 51% and commercial aerospace, 49%. Sales in 2014 by the Group’s solution sets were as follows: Power, 70%; Microwave Systems, 21%; and Microelectronics, 9%.

Electronics Group sales decreased 5% from $259 million in 2013 to $246 million in 2014. The decrease in core sales primarily reflects lower sales of our Microwave Solutions products primarily due to delays in defense-related programs. This decrease was partially offset by an increase in Power Solutions product sales primarily due to higher demand from commercial customers.

Electronics Group operating profit decreased $15 million, or 42%, driven primarily by restructuring and related charges of $8 million recorded in 2014 associated with repositioning actions designed to improve profitability in 2015 and 2016. These charges are related to our decision to consolidate two facilities in response to lower defense spending by the U.S. government. The lower operating profit also reflects the impact of the lower sales and an unfavorable sales mix driven by stronger demand in early commercial programs which tend to carry lower margins as well as increased engineering investments in bid and proposal efforts, partially offset by productivity gains and other cost savings.

2013 compared with 2012. Sales of our Aerospace & Electronics segment decreased $7 million, or 1%, in 2013 to $694 million, reflecting sales decreases of $2 million and $5 million in our Aerospace Group and Electronics Group, respectively. The Aerospace & Electronics segment’s operating profit increased $4 million, or 3%, in 2013. The increase in operating profit was due to a $5 million increase in operating profit in the Aerospace Group, partially offset by a $1 million decrease in the Electronics Group. The operating margin for the segment was 23.1% in 2013 compared to 22.2% in 2012. Backlog was $361 million at December 31, 2013, a decrease of 4% from $378 million at December 31, 2012.

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

Aerospace Group sales in 2013 by the four solution sets were as follows: Landing Systems, 33%; Sensing and Utility Systems, 35%; Fluid Management, 22%; and Cabin Systems, 10%. The commercial market accounted for 81% of Aerospace Group sales in 2013, while sales to the military market were 19% of total Aerospace Group sales. During 2013, sales to OEMs and aftermarket customers were 62% and 38%, respectively.

Aerospace Group sales decreased $2 million, or 1%, from $437 million in 2012 to $435 million in 2013. The decrease was largely attributable to a $12 million, or 7%, decline in aftermarket product sales, partially offset by a $10 million, or 4%, increase in OEM product sales. The aftermarket product sales decrease primarily reflects a decline in military aftermarket sales of $13 million, or 25%, partially offset by an increase in commercial aftermarket sales of $1 million, or 1%. The decrease in military aftermarket sales was primarily driven by lower M&U product sales reflecting the completion in 2012 of a carbon brake control upgrade program for the U.S. Air Force C-130 aircraft which accounted for $12 million of sales in 2012. The higher OEM sales were primarily due to the higher commercial product sales associated with large commercial transport and business jets, both of which have benefited from increased passenger air travel and higher air cargo volumes.

Aerospace Group operating profit increased $5 million, or 4%, over the prior year, primarily due to productivity gains and solid cost management including $4 million of lower pension expense, as well as $5 million of lower engineering spending resulting in part from the timing of certain development programs, partially offset by the impact of the lower sales volume and the unfavorable OEM and aftermarket product mix. Engineering expense will increase or decrease depending on the nature and timing of program wins requiring engineering resources. Aerospace engineering expense was $32 million, or 7% of sales in 2013 compared to 8% in 2012.

Electronics Group sales by market in 2013 were as follows: military/defense, 53% and commercial aerospace, 47%. Sales in 2013 by the Group’s solution sets were as follows: Power, 64%; Microwave Systems, 26%; and Microelectronics, 10%.

Electronics Group sales decreased 2% from $264 million in 2012 to $259 million in 2013. The decrease in core sales reflects lower sales of our Microwave and Power Solutions products, partially offset by an increase in Microelectronic product sales. The decrease in Microwave and Power Solutions product sales primarily reflects delays and lower demand in defense-related programs. The increase in Microelectronics product sales reflects higher sales to medical device customers, driven by increased end user demand for implantable devices.

Electronics Group operating profit decreased $1 million, or 3%, over the prior year reflecting a $3 million unfavorable sales mix shift toward engineering sales targeted on new programs and medical device sales, both of which are sold at lower margins, and a $2 million impact on the lower sales volume, partially offset by certain cost reductions.

ENGINEERED MATERIALS



(in millions, except %)	2014			2013			2012
Net Sales	$	253		$	232		$	217
Operating Profit	37			34			25
Restructuring and Related Charges*	—			—			4
Assets	229			233			237
Operating Margin	14.5		%	14.8		%	11.3		%



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

2014 compared with 2013. Engineered Materials sales increased by $21 million to $253 million in 2014, from $232 million in 2013. Operating profit of $37 million increased $2 million in 2014 compared to 2013. Operating margins were 14.5% in 2014 compared with 14.8% in 2013.

Sales increased $21 million, or 9%, reflecting higher sales to our RV and transportation-related customers, partially offset by lower sales to our building products customers. We experienced a $20 million, or 18%, sales increase to our traditional RV manufacturers, reflecting higher demand for our RV-related applications as RV OEM build rates remained strong, with both dealer and retail demand continuing through 2014. Sales to our transportation-related customers increased by $2 million, or 8%, reflecting higher sales in Latin America, timing of a large fleet build with one customer in North America and higher sales of aerodynamic side skirts for trailers. Sales to our building products customers decreased $2 million, or 2%, reflecting a slow recovery in commercial construction end markets in the United States. Sales to our international customers remained relatively flat.

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

Operating profit in our Engineered Materials segment increased $2 million, or 7%. The primary drivers of this increase were a $6 million impact from the higher sales and strong productivity gains, partially offset by an unfavorable product mix and higher raw material costs (primarily resin and substrates).

2013 compared with 2012. Engineered Materials sales increased by $16 million to $232 million in 2013, from $217 million in 2012. Operating profit of $34 million in 2013 increased $10 million in 2013 compared to 2012. Operating margins were 14.8% in 2013 compared with 11.3% in 2012.

Sales increased $16 million, or 7%, reflecting higher sales to our RV customers, partially offset by lower sales to our transportation-related, international and building products customers. We experienced a $20 million, or 22%, sales increase to our traditional RV manufacturers reflecting higher demand for our RV-related applications as RV OEM build rates remained strong throughout 2013, with strength in both dealer and retail demand. We believe this to be in direct response to increased consumer confidence in North America as the U.S. economy continues to recover. Sales to our building product customers decreased $1 million, or 1%, reflecting continued soft commercial construction markets. Sales to our transportation-related customers decreased by $2 million, or 6%, reflecting soft markets and difficult competitive conditions. Sales to our international customers decreased by $1 million, or 10%, primarily due to softness in Europe.

Operating profit in our Engineered Materials segment increased $10 million, or 40%. The primary drivers of this increase were $5 million from the higher sales, the absence of a $4 million repositioning charge taken in 2012 and $2 million of repositioning savings realized in 2013. Productivity gains related to improving material yield coupled with targeted pricing actions offset higher raw material costs (primarily resin and styrene).

CORPORATE



(in millions, except %)	2014			2013			2012
Corporate expense	$	(54	)	$	(76	)	$	(65	)
Corporate expense — Asbestos	—			—
Corporate expense — Environmental	(56		)	—			—
Total Corporate	(109		)	(76		)	(65		)
Interest income	2			2			2
Interest expense	(39		)	(26		)	(27		)
Miscellaneous	2			3			(1		)

2014 compared with 2013. Total Corporate expenses increased by $33 million in 2014 primarily due to a $49 million charge related to an increase in the Company's liability at its Goodyear Site, a $6.8 million charge for expected remediation costs associated with our environmental site in Roseland, New Jersey and a $6.5 million charge related to a lawsuit settlement. These increases were partially offset by $20.4 million lower MEI acquisition related costs in 2014 compared to 2013.

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

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

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

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



(in millions, except %)	2014			2013			2012
Income before tax — U.S.	$	142		$	177		$	175
Income before tax — non-U.S.	139			149			110
Income before tax — worldwide	281			326			285
Provision for income taxes	88			105			88
Effective tax rate	31.2		%	32.2		%	31.1		%

Our effective tax rate from continuing operations was lower in 2014 than in 2013 primarily because our 2013 effective tax rate included the unfavorable effects of non-deductible transaction costs and withholding taxes related to the MEI acquisition. However, this was partially offset by less benefit from the U.S. federal research credit in 2014. While our 2014 effective tax rate includes one year’s worth of benefit for the credit because it was extended during 2014 with retroactive effect to January 1, 2014, our 2013 effective tax rate included two years’ worth of credit because it was extended during 2013 with retroactive effect to January 1, 2012.

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

2013 compared with 2012. Total Corporate expense increased $11 million in 2013, which included $22 million of acquisition related transaction costs recorded in 2013 compared to $4 million of acquisition related transaction costs recorded in 2012. This increase was partially offset by $6 million of lower pension expense resulting from the freezing of our domestic pension plan effective January 1, 2013. The transaction costs were primarily comprised of professional fees associated with obtaining various regulatory approvals and, to a lesser extent, fees and costs associated with financing arrangements.

Our effective tax rate from continuing operations was higher in 2013 than in 2012 primarily due to non-deductible transaction costs and withholding taxes related to the MEI acquisition, partially offset by the U.S. federal research credit, which lapsed during 2012 and was retroactively extended in January 2013.

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

LIQUIDITY AND CAPITAL RESOURCES

Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will complement our portfolio of businesses and by paying dividends and/or repurchasing shares. Consistent with our philosophy of balanced capital deployment, in 2014, we repurchased shares for $50 million and paid dividends of $74 million (quarterly dividends per share increased 10% from $0.30 to $0.33 in July 2014).

Our current cash balance of $346 million, together with cash we expect to generate from future operations and the $400 million available under our existing committed 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, restructuring and acquisition integration activities and expected pension contributions. In addition, we believe our credit ratings afford us adequate access to public and private markets for debt. We have borrowings totaling $100 million outstanding under our $500 million Amended and Restated Credit Agreement which expires in May 2017. There are no other significant debt maturities coming due until 2018.

We have an estimated liability of $637 million for pending and reasonably anticipated asbestos claims through 2021, and while it is probable that this amount will change and we may incur additional liabilities for asbestos claims after 2021, which additional liabilities may be material, we cannot reasonably estimate the amount of such additional liabilities at this time. Similarly, we have an estimated liability of $83 million related to environmental remediation costs projected through 2022 related to our Goodyear Site and a $6.8 million liability related to environmental remediation costs at our Roseland Site. In the third quarter of 2014, we paid $6.5 million to settle all current claims by class and individual plaintiff homeowners adjacent to the Roseland Site.

Our cash totaled $346 million as of December 31, 2014. Of this amount, approximately $330 million is held by our non-U.S. subsidiaries and is subject to additional tax upon repatriation to the U.S. Our intent is to permanently reinvest the earnings of our non-U.S. operations, and current plans do not anticipate that we will need funds generated from our non-U.S. operations to fund our U.S. operations. In the event we were to repatriate the cash balances of our non-U.S. subsidiaries, we would provide for and pay additional U.S. and non-U.S. taxes in connection with such repatriation.

Operating Activities

Cash provided by operating activities, a key source of our liquidity, was $264 million in 2014, an increase of $25 million, or 10%, compared to 2013. The increase resulted primarily from lower working capital requirements, partially offset by higher defined benefit plan and postretirement contributions. Net asbestos-related payments in 2014 and 2013 were $61 million and $63 million, respectively. In 2015, we expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approximately $59 million, and contributions to our defined benefit plans of approximately $17 million.

Investing Activities

Cash flows relating to investing activities consist primarily of cash provided by divestitures of businesses or assets and cash used for acquisitions and capital expenditures. Cash used for investing activities was $26 million in 2014, compared to cash used for investing activities of $824 million in 2013. The decrease in cash used for investing activities was primarily related to the absence of cash paid in 2013 for the acquisition of MEI of $802 million, and to a lesser extent, proceeds received from the disposition of capital assets, partially offset by an increase in cash used for capital expenditures. Capital expenditures were $44 million in 2014 compared to $29 million in 2013 primarily related to incremental spending associated with the newly acquired MEI business as well as incremental investments for new product development, in particular, in our Fluid Handling and Aerospace & Electronics segments. Capital expenditures are made primarily for replacing equipment, supporting new product development, improving information systems and increasing capacity. We expect our capital expenditures to approximate $50 million in 2015, reflecting anticipated increases in new product development initiatives, primarily in our Aerospace & Electronics and Fluid Handling segments.

Financing Activities

Financing cash flows consist primarily of payments of dividends to shareholders, share repurchases, repayments of indebtedness and proceeds from the issuance of common stock. Cash used by financing activities was $133 million in 2014, compared to cash provided by financing activities of $433 million in 2013. The higher levels of cash used for financial activities was primarily due to the absence of proceeds received in 2013 from the issuance of long-term notes of $550 million related to the acquisition of MEI, the absence of proceeds received from a credit facility of $125 million, the increase in cash used for open market share repurchases (we repurchased 812,793 shares of our common stock at a cost of $50 million in

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

2014) and $17 million of lower net proceeds received from employee stock option exercises during the period, an increase in dividend payments of $7 million and a net decrease in short-term debt.

Financing Arrangements

At December 31, 2014 and 2013, we had total debt of $850 million and $875 million, respectively. Net debt decreased by $101 million to $504 million at December 31, 2014, primarily reflecting strong cash flow from operations. The net debt to net capitalization ratio was 32.0% at December 31, 2014, compared to 33.2% at December 31, 2013.

Also 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 Crane, and if as a consequence, the notes are rated below investment grade by both Moody’s Investors Service and Standard & Poor’s, then holders of the notes may require us to repurchase them, in whole or in part, for 101% of the principal amount plus accrued and unpaid interest. Debt issuance costs are deferred and included in Other assets and then amortized as a component of interest expense over the term of the notes. Including debt issuance cost amortization, these notes have an effective annualized interest rate of 2.92%.

In December 2012, we obtained $600 million of bank loan commitments in support of our acquisition of MEI. The commitments supported a $200 million expansion of the $300 million credit facility referred to in the next paragraph, and an additional $400 million 364 day credit facility. The 364 day credit facility was terminated on December 13, 2013 after being used to fund the MEI acquisition.

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 Crane, and if as a consequence the notes are rated below investment grade by both Moody’s Investors Service and Standard & Poor’s, then holders of the notes may require us to repurchase them, in whole or in part, for 101% of the principal amount plus accrued and unpaid interest. Debt issuance costs are deferred and included in Other assets and then amortized as a component of interest expense over the term of the notes. Including debt issuance cost amortization, these notes have an effective annualized interest rate of 6.67%.

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

The 2018 and 2023 notes were issued under an indenture dated as of December 13, 2013. The 2036 notes were issued under an indenture dated as of April 1, 1991. Both indentures contain certain limitations on liens and sale and lease-back transactions.

At December 31, 2014, we had open standby letters of credit of $28 million issued pursuant to $125 million uncommitted Letter of Credit Reimbursement Agreements and certain other credit lines.

Credit Ratings

As of December 31, 2014, 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 markets for debt.

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, 2014:



	Payment due by Period
(in thousands)	Total		2015		2016 -2017		2018 -2019		After 2020
Long-term debt(1)	$	750,000	$	—	$	—	$	250,000	$	500,000
Fixed interest payments	435,850		33,325		66,650		59,775		276,100
Operating lease payments	65,915		18,146		26,921		14,251		6,597
Purchase obligations	103,366		97,234		5,313		782		37
Pension and postretirement benefits(2)	492,474		42,474		87,489		94,225		268,286
Other long-term liabilities reflected on Consolidated Balance Sheets(3)	—		—		—		—		—
Total	$	1,847,605	$	191,179	$	186,373	$	419,033	$	1,051,020


(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 and postretirement benefits are included through 2023.


(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 ($535 million), long-term environmental liability ($64 million) and gross unrecognized tax benefits ($41 million) and related gross interest and penalties ($5 million).

Capital Structure

The following table sets forth our capitalization:



(in millions, except %) December 31,	2014			2013
Short-term borrowings	$	100,806		$	125,826
Long-term debt	$	749,213		$	749,170
Total debt	850,019			874,996
Less cash and cash equivalents	346,266			270,643
Net debt *	503,753			604,353
Equity	1,070,601			1,214,673
Net capitalization*	$	1,574,354		$	1,819,026
Net debt to Equity*	47.1		%	49.8		%
Net debt to net capitalization*	32.0		%	33.2		%



*	Net debt, a non-GAAP measure, represents total debt less cash and cash equivalents. 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 the Company’s 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.

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

In 2014, equity decreased $144 million, primarily as a result of changes in pension and postretirement plan assets and benefit obligations, net of tax, of $136 million, changes in currency translation adjustment of $114 million, cash dividends of $74 million and open-market share repurchases of $50 million, partially offset by net income attributable to common shareholders of $193 million and stock option exercises of $16 million.

Off Balance Sheet Arrangements

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

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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. These industries are subject to fluctuations in domestic and international economies as well as to currency fluctuations, inflationary pressures, and commodity costs.

While there are signs of continued strength in the North American economy, we remain cautious about the global economic outlook and the impact on demand for our products, particularly in our Fluid Handling segment. Specifically, in 2015, we expect a total year-over-year sales decline of 2.5%, based on a 2% to 4% adverse impact from foreign exchange and a 0.5% adverse impact from divestitures, partially offset by organic sales growth of 0% to 2%.

Reflecting on our continued focus on productivity, we undertook certain repositioning actions at our Fluid Handling segment and Aerospace & Electronics segments in 2014. We expect to complete additional repositioning actions in our Fluid Handling segment in 2015. The costs associated with these repositioning actions were $22.7 million in 2014 and are expected to be an additional $4 million to $6 million in 2015. Savings associated with these repositioning actions are estimated to be $10 million in 2015 and to increase to $19 million on an annual basis in 2016.

In connection with the acquisition of MEI, we recorded $20.1 million of integration and restructuring costs in 2014 and we expect to incur $6 million to $8 million of integration and restructuring costs in 2015. We realized approximately $10 million of acquisition-related synergies in 2014, and we expect an incremental $9 million of synergies with a $33 million annualized run rate by the end of 2016.

Fluid Handling

In 2015, in our Fluid Handling segment, we expect a sales decline driven primarily by unfavorable foreign currency translation and, to a lesser extent, a modest core sales decline. The expected core sales decline is primarily driven by weakening end market conditions for our core process valve business across the power, refining and chemical vertical end markets. This decline is partially offset by expected improvement in our general industrial process valve end markets, particularly in the United States, although we expect continued softness in Europe. With respect to our commercial valve businesses, we expect modest improvement in the Canadian, United Kingdom and Middle East non- residential construction end markets as well as improvement in the municipal markets in United States and United Kingdom. We expect a modest decline in operating profit, driven by the impact of lower sales, including the impact of unfavorable foreign exchange, partially offset by our productivity, savings from our repositioning initiatives and lower repositioning costs.

Payment & Merchandising Technologies

In 2015, we anticipate Payment & Merchandising Technologies sales to decrease modestly as a result of unfavorable foreign currency translation which is expected to more than offset an increase in core sales. We expect core sales to increase modestly from increased volume in both the Crane Payment Innovations and Merchandising Systems businesses, partially offset by the impact of the conclusion of a transition services agreement related to a divested product line. We expect an increase in operating profit primarily as a result of the impact of higher core sales, integration synergies and lower integration related costs partially offset by the impact of unfavorable foreign exchange.

Aerospace & Electronics

In 2015, we expect market conditions in the aerospace industry will remain generally positive. Accordingly, we expect an increase in Aerospace group sales as a result of OEM sales growth as we benefit from increasing build rates across a broad range of platforms, primarily for large aircraft manufacturers. We remain cautiously optimistic about the aerospace aftermarket. Although we expect defense markets to remain relatively flat, we expect our military sales to increase as a result of initial sales related to a large multi-year contract. Considering all of the foregoing, we expect total segment sales to be modestly higher in 2015. We expect segment operating profit in 2015 to increase reflecting the impact of the higher core sales and savings from 2014 repositioning actions.

Engineered Materials

In 2015, we expect the Engineered Materials segment will show continued improvement in sales, driven by modest growth in RV-related applications and a gradual improvement in building products shipments over the course of the year, partially offset by a decline in sales of our transportation-related products. We expect to be able to leverage this growth together with additional productivity initiatives to drive operating profit and margin improvement.

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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 Note 1, “Nature of Operations and Significant Accounting Policies” to the Notes to the 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. Sales 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.

Accounts Receivable. We continually monitor collections from customers, and in addition to providing an allowance for uncollectible accounts based upon a customer’s financial condition, we record a provision for estimated credit losses when customer accounts exceed 90 days past due. We aggressively pursue collection on these overdue accounts. The allowance for doubtful accounts was $4.9 million and $4.8 million at December 31, 2014 and 2013, respectively.

Inventories. Inventories include the costs of material, labor and overhead and are stated at the lower of cost or market. 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. As actual future demand or market conditions vary from those projected by us, adjustments will be required. Domestic inventories are stated at either the lower of cost or market using the last-in, first-out (“LIFO”) method or the lower of cost or market using the first-in, first-out (“FIFO”) method. Inventories held in foreign locations are primarily stated at the lower of cost or market using the FIFO method. The LIFO method is not being used at our foreign locations as such a method is not allowable for tax purposes. Changes in the levels of LIFO inventories have reduced costs of sales by $0.7 million, increased cost of sales by $1.1 million and reduced cost of sales by $3.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. The portion of inventories costed using the LIFO method was 28% and 29% of consolidated inventories at December 31, 2014 and 2013, respectively. If inventories that were valued using the LIFO method had been valued under the FIFO method, they would have been higher by $15.0 million and $14.3 million at December 31, 2014 and 2013, respectively.

Valuation of Long-Lived Assets. We review our long-lived 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 long-lived 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. If the future undiscounted cash flows are less than the carrying value, then the long-lived asset is considered impaired and a loss is recognized based on the amount by which the carrying amount exceeds the estimated fair value. Judgments we make which impact these assessments relate to the expected useful lives of long-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 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 fair value of long-lived assets, there is risk that the carrying value of our long-lived assets may require adjustment in future periods due to either changing assumptions or changing facts and circumstances.

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.

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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.

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.

In determining whether the earnings of our non-U.S. subsidiaries are permanently reinvested overseas, we consider the following:


•	Our history of utilizing non-U.S. cash to acquire non-U.S. businesses,


•	Our current and future needs for cash outside the U.S. (e.g., to fund capital expenditures, business operations, potential acquisitions, etc.),


•	Our ability to satisfy U.S.-based cash needs (e.g., domestic pension contributions, interest payment on external debt, dividends to shareholders, etc.) with cash generated by our U.S. businesses, and


•	The effect U.S. tax reform proposals calling for reduced corporate income tax rates and/or “repatriation” tax holidays would have on the amount of the tax liability.

Goodwill and Other Intangible Assets. As of December 31, 2014, we had $1.191 billion of goodwill. Our business acquisitions typically result in the acquisition 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. At December 31, 2014, we had eight 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 9.5% and 13.5% (a weighted average of 10.7%), reflecting the respective inherent business risk of each of the reporting units tested. This methodology for valuing the Company’s reporting units (commonly referred to as the Income Method) has not changed since 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) 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

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

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 results 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 2014, 2013 and 2012.

As of December 31, 2014, we had $353 million of net intangible assets, of which $29 million were intangibles with indefinite useful lives, consisting of trade names. We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefinite. Indefinite lived intangibles are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment. If the carrying amount of the indefinite lived intangible exceeds the fair value, the intangible asset is written down to its fair value. Fair value is calculated using discounted cash flows.

In addition to annual testing for impairment of indefinite-lived intangible assets, we review all of our long-lived assets, including intangible assets subject to amortization, 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 long-lived asset (or asset group), as well as specific asset 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 consideration of 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 long-lived asset is considered impaired and a charge would be taken against net earnings based on the amount by which the carrying amount exceeds the estimated fair value. Judgments that we make which impact these assessments relate to the expected useful lives of long-lived assets and our ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets. Such judgments are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Since judgment is involved in determining the fair value of long-lived assets, there is risk that the carrying value of our long-lived 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 that there have been no events or circumstances which would more likely than not reduce the fair value of our indefinite-lived and amortizable 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 Note 11, “Commitments and Contingencies”, of the Notes to the Consolidated Financial Statements.

Asbestos Liability and Related Insurance Coverage and Receivable. As of December 31, 2014, we had an aggregate asbestos liability of $614 million for pending claims and future claims projected to be filed against us through December 31, 2021. 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 largely on our experience during a base reference period of eleven quarterly periods (consisting of the two full preceding calendar years and three additional quarterly periods to the estimate date) for claims filed, settled and dismissed. Our experience is then compared to the results of widely used previously conducted epidemiological studies estimating the number of individuals likely to develop asbestos-related diseases. Using that information, HR&A estimates the number of future claims that would be filed against us through our forecast period 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. After discussions with us, HR&A augments our liability estimate for the costs of defending asbestos claims in the tort system using a forecast from us which is based upon discussions with our defense counsel. Based on this information, HR&A compiles an estimate of our asbestos liability for pending and future claims

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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. Although the methodology used by HR&A can be applied to show claims and costs for periods subsequent to the indicated period (up to and including the endpoint of the epidemiological studies referred to above), management believes that the level of uncertainty regarding the various factors used in estimating future asbestos costs is too great to provide for reasonable estimation of the number of future claims, the nature of such claims or the cost to resolve them for years beyond the indicated estimate. Through December 31, 2014, 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, 2014. Nevertheless, if certain factors show a pattern of sustained increase or decrease, the liability could change materially; however, all the assumptions used in estimating the asbestos liability are interdependent and no single factor predominates in determining the liability estimate. Because of the uncertainty with regard to and the interdependency of such factors used in the calculation of our asbestos liability, and since no one factor predominates, we believe that a range of potential liability estimates beyond the indicated forecast period cannot be reasonably estimated.

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, 2014, we had an aggregate asbestos receivable of $147 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.

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 at December 31, 2014 is substantially all for the Goodyear Site. As of December 31, 2014, the total estimated gross liability for the Goodyear Site was $79 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. As of December 31, 2014, the total estimated receivable from the U.S. Government related to the environmental remediation liabilities of the Goodyear Site was $17 million.

Pension Plans. In the United States, we sponsor a defined benefit pension plan that covers approximately 21% of all U.S. employees. In the fourth quarter of 2012, we announced that pension eligible employees will no longer earn future benefits in the domestic defined benefit pension plan effective January 1, 2013. 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 11% 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 net periodic pension (benefit) cost was $(12) million, $5 million and $20 million in 2014, 2013 and 2012, respectively. Employer cash contributions were $24 million, $15 million and $4 million in 2014, 2013 and 2012, respectively, to our U.S. defined benefit pension plan. We expect, based on current actuarial calculations, to contribute cash of approximately $17 million to our pension plans in 2015. Cash contributions in subsequent years will depend on a number of factors including the investment performance of plan assets.

For the pension plan, 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 U.S. 2014 pension expense by $1.0 million for U.S. pension plans and $1.1 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 2014 pension expense by $0.2 million for U.S. pension plans and $0.8 million for non-U.S. pension plans.

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

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



	Pension Benefits
December 31,	2014		2013		2012
Benefit Obligations
U.S. Plans:
Discount rate	4.10	%	4.90	%	4.20	%
Rate of compensation increase	N/A		3.50	%	3.50	%
Non-U.S. Plans:
Discount rate	3.01	%	4.05	%	3.93	%
Rate of compensation increase	2.40	%