content_image/236323.jpg
## Capital Structure 

The following table sets forth our capitalization: 

<img src='content_image/236323.jpg'>

* Net debt (net cash), 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, provides 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. 

In 2012, equity increased $105 million, primarily as a result of net income attributable to common shareholders of $217 million and stock option exercises of $17 million, partially offset by changes in pension and postretirement plan assets and benefit obligations, net of tax, of $39 million, open-market share repurchases of $50 mil- lion and cash dividends of $62 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. 

## 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. 

The global economic outlook remains uncertain due, in part, to persistent high unemployment in the U.S. and Europe, a slow recovery in U.S. and European housing market and undetermined government budget reduction plans. Although a slow global economy is likely, we believe we are well positioned to achieve profitable growth in 2013. We expect a combination of reposition- ing savings (approximately $12 million expected in 2013), con- tinued cost management actions and gains in market share to drive profitable growth in 2013. Specifically, in 2013, we expect total year-over-year sales growth of 1% to 3% and growth in operating profit of 10% to 14%. 

## Aerospace & Electronics 

In 2013, we believe market conditions in the aerospace industry will remain generally positive and, accordingly, we expect sales growth in our Aerospace Group as we benefit from increasing OEM build rates across a broad range of platforms. We forecast slightly improved results for our Electronics Group despite reductions in overall defense spending. We believe our Aerospace & Electronics backlog, combined with orders we expect to receive in 2013, is supportive of a modest increase in sales for 2013, with an accom- panying increase in operating profit aided by strong productivity initiatives. 

## Engineered Materials 

In 2013, we expect nominal growth in sales volume with minor growth in our end markets overall. Operating profit in our Engineered Materials segment is expected to increase as we benefit from continued cost management initiatives and repositioning actions completed in 2012. 

## Merchandising Systems 

In 2013, we expect modest sales improvement for our Merchandis- ing Systems segment, reflecting slightly improved global demand for both vending and payment solution products and the impact of share gain initiatives and new product introductions. Operating profit is expected to improve led by continued strong productivity and the benefits of the repositioning actions completed in 2012. 

## Fluid Handling 

For 2013, in our Fluid Handling segment, we expect modest sales growth reflecting slow growing end use markets, particularly in Europe. We expect improvement in both operating profit and operating margins over 2012 levels, reflecting strong productivity and savings from previously announced repositioning actions (pre- tax savings from these actions are expected to approximate $10 mil- lion in 2013) and leverage of higher sales. Although chemical industry demand in North America slowed during the course of 2012, quote activity remains encouraging and chemical investments in the Middle East are generally moving forward. While refining quote activity also slowed in 2012, demand remains positive and we expect this trend to continue in 2013. In addition, we anticipate refinery turnaround activities will continue in 2013. Demand from global power markets is expected to remain soft although some project releases are expected in 2013. We remain cautious about power projects in China and India. In Canada, we expect stable to growing commercial construction and mining activity to continue to benefit our pipe, valve, and fitting distribution business. 

## 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 on-going basis, we 

