part iI / item 8 Notes to Consolidated Financial Statements Note 1 – Nature of Operations and Significant Accounting Policies Nature of Operations are reflected in the financial statements in the period in which they are determined to be necessary. Estimates are used when account- ing for such items as asset valuations, allowance for doubtful accounts, depreciation and amortization, impairment assessments, restructuring provisions, employee benefits, taxes, asbestos liability and related insurance receivable, environmental liability and contingencies. Crane Co. (the “Company”) is a diversified manufacturer of highly engineered industrial products. The Company’s business consists of five reporting segments: Aero- space & Electronics, Engineered Materials, Merchandising Sys- tems, Fluid Handling and Controls. The Aerospace & Electronics segment consists of two groups: the Aerospace Group and the Electronics Group. Aerospace products include pressure, fuel flow and position sensors and subsystems; brake control systems; coolant, lube and fuel pumps; and seat actuation. Electronics products include high-reliability power supplies and custom microelectronics for aerospace, defense, medical and other applications; and electrical power components, power management products, electronic radio frequency and microwave frequency components and subsystems for the defense, space and military communications markets. The Engineered Materials segment manufactures fiberglass- reinforced plastic panels for the truck trailer and recreational vehicle (“RV”) markets, industrial markets and the commercial construction industry. The Merchandising Systems segment consists of two groups: Vend- ing Solutions and Payment Solutions. Vending Solutions products include food, snack and beverage vending machines and vending machine software and online solutions. Payment Solutions prod- ucts include coin accepters and dispensers, coin hoppers, coin recyclers, bill validators and bill recyclers. The Fluid Handling segment manufactures and sells various types of industrial and commercial valves and actuators; provides valve testing, parts and services; manufactures and sells pumps and water purification solutions; distributes pipe, pipe fittings, couplings and connectors; and designs, manufactures and sells corrosion- resistant plastic-lined pipes and fittings. The Controls segment produces ride-leveling air-suspension con- trol valves for heavy trucks and trailers; Shear-Seal valves for the Oil & Gas market; pressure, temperature, and level sensors for Industrial markets; and water treatment equipment. See Note 14, “Segment Information” for the relative size of these segments in relation to the total Company (both net sales and total assets). Use of Estimates The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These accounting principles require management 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. Actual results may differ from those estimated. Estimates and assumptions are reviewed periodically, and the effects of revisions Based on consideration of all available evidence regarding their utilization, the Company records 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, the Company establishes a valuation allowance for the Income Taxes The Company accounts for income taxes in accord- ance with Accounting Standards Codification (“ASC”) 740 “Income Taxes” which requires an asset and liability approach for the finan- cial 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. Selling, General and Administrative Expenses Selling, general and administrative expense is charged to income as incurred. Such expenses include the costs of promoting and selling products and include such items as compensation, advertising, sales commis- sions and travel. In addition, compensation for other operating activities such as executive office administrative and engineering functions are included, as well as general operating expenses such as office supplies, non-income taxes, insurance and office equip- ment rentals. Cost of Goods Sold Cost of goods sold includes the costs of inventory sold and the related purchase and distribution costs. In addition to material, labor and direct overhead, inventoried cost and, accordingly, cost of goods sold include allocations of other expenses that are part of the production process, such as inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, amortization of production related intangible assets and depreciation expense. The Company also includes costs directly associated with products sold, such as warranty provisions. Revenue Recognition Sales revenue is recorded when title (risk of loss) passes to the customer and collection of the resulting receiv- able 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. Currency Translation Assets and liabilities of subsidiaries that prepare financial statements in currencies other than the U.S. dol- lar are translated at the rate of exchange in effect on the balance sheet date; results of operations are translated at the average rates of exchange prevailing during the year. The related translation adjustments are included in accumulated other comprehensive income (loss) in a separate component of equity. 38 Significant Accounting Policies