Management’s Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Operating Activities Investing Activities Financing Activities 24 The tax benefit associated with our 2011 charges for asbestos and environmental was the most significant reason our effective tax rate from continuing operations decreased in 2011. Further, these 2011 charges reduced our income before tax from continuing operations to such a level that all our 2011 tax adjustments had a larger impact on our 2011 effective tax rate from continuing operations than they otherwise would have. Taking this into account, a lower amount of non-U.S. taxes also reduced our 2011 effective tax rate from continuing operations. However, these benefits were partially off- set by a lower amount of tax credits and a higher amount of non- deductible expenses in 2011, and the absence of a tax benefit that was generated upon the reversal of a deferred tax liability related to the undistributed earnings of our non-U.S. subsidiaries in 2010. our U.S. operations. In the event we were to repatriate the cash balances of our non-U.S. subsidiaries, we would provide for and pay additional U.S. and non-U.S. taxes in connection with such repatriation. Operating results during 2012 met our expectations, but we con- tinue to monitor current market conditions and the impact on our business and continue to execute on our focused, disciplined approach to productivity to maintain a suitable liquidity position. In 2012, the Company recorded pre-tax restructuring and related charges of $20.6 million associated with repositioning actions designed to improve profitability beginning in 2013, primarily in the European portion of the Fluid Handling segment. Further, in the fourth quarter of 2012, we took further cost reduction actions including the announcement that pension eligible employees will no longer earn future benefits in our domestic defined benefit pension plan effective January 1, 2013. Cash provided by operating activities, a key source of our liquidity, was $235 million in 2012, an increase of $85 million, or 57%, com- pared to 2011. The increase resulted primarily from lower working capital requirements and lower defined benefit plan and postretirement contributions ($6 million in 2012 and $48 million in 2011), partially offset by higher environmental payments. We currently expect to make payments related to asbestos settlement and defense costs, net of related insurance recoveries, of approx- imately $60 million to $70 million and contributions to our defined benefit plans of approximately $15 million in 2013. Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will complement our portfolio of businesses and by paying dividends and/or repurchasing shares. Consistent with our philosophy of balanced capital deployment, in 2012, we paid dividends of $62 million (dividends per share increased 8% from $0.26 to $0.28 in July 2012); we repurchased stock for $50 million; and we announced our plans to acquire MEI for $820 million. Our current cash balance of $424 million, cash we expect to gen- erate from future operations, the $300 million available under our existing committed revolving credit facility, and the $600 million of bank loan commitments in support of our pending acquisition of MEI are expected to be sufficient to finance our short- and long- term capital requirements, as well as fund payments associated with our asbestos and environmental exposures and expected pension contributions. We have an estimated liability of $796 million for pending and reasonably anticipated asbestos claims through 2021, and while it is probable that this amount will change and we may incur additional liabilities for asbestos claims after 2021, which additional liabilities may be material, we cannot reasonably esti- mate the amount of such additional liabilities at this time. Sim- ilarly, we have an estimated liability of $50 million related to environmental remediation costs projected through 2016 related to our Superfund Site in Goodyear, Arizona. In addition, we believe our credit ratings afford us adequate access to public and private markets for debt. We have no borrowings outstanding under our $300 million Amended and Restated Credit Agreement which expires in May 2017. Senior unsecured notes having an aggregate principal amount of $200 million will mature in the third quarter of 2013. These notes have been presented in the accompanying con- solidated balance sheet as a long-term liability due to our intent and ability to refinance these notes on a long-term basis. There are no other significant debt maturities coming due until 2036. Our cash totaled $424 million as of December 31, 2012. Of this amount, approximately $321 million was held by our non-U.S. sub- sidiaries 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 Financing cash flows consist primarily of payments of dividends to shareholders, share repurchases, repayments of indebtedness and proceeds from the issuance of common stock. Cash used for financing activities was $95 million in 2012, compared to $109 mil- lion used in 2011. The lower levels of cash flows used in financing activities during 2012 was primarily related to a decrease in cash used to repurchase shares of our common stock (we repurchased 1,271,592 shares of our common stock at a cost of $50 million in 2012 and we repurchased of 1,706,903 shares of our common stock at a cost of $80 million in 2011), partially offset by lower net pro- ceeds received from stock option exercises of $10 million and an increase in dividend payments of $5 million. Cash flows relating to investing activities consist primarily of cash provided by divestitures of businesses or assets and cash used for acquisitions and capital expenditures. Cash provided by investing activities was $31 million in 2012, compared to cash used for inves- ting activities of $66 million in 2011. The increase in cash provided by investing activities primarily reflected proceeds of $54 million from divested businesses in our Fluid Handling and Controls segments, the absence of $37 million of payments we made for the acquisition of WTA in 2011 and, to a lesser extent, a decrease in capital spending of $5 million to $29 million in 2012 compared to $35 million in 2011. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. We expect our capital expenditures to approximate $35 million in 2013.