This Quarterly Report on Form 10-Q 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," "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. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. For example, in response to a weakening global economy, we are critically reviewing our cost structure in an effort to better position our operations to accommodate a potential decline in demand for our products and services. Considering the current uncertainty in estimating both the potential costs related to such efforts as well as projected levels of efficiencies that we expect to achieve, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. There are a number of other factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. The factors that we currently believe to be material are detailed in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission and are incorporated by reference herein. Additional risks and uncertainties not currently known to us or that we currently do not deem to be material also may materially adversely affect our business, financial condition and operating results.

Reference herein to "Crane", "we", "us", and, "our" refer to Crane Co. and its subsidiaries unless the context specifically states or implies otherwise. References to "core business" or "core sales" in this report include sales from acquired businesses starting from and after the first anniversary of the acquisition, but exclude currency effects. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated.

Overview

We are a diversified manufacturer of highly engineered industrial products. Our business consists of five segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, Fluid Handling and Controls. Our primary markets are aerospace, defense electronics, recreational vehicle, transportation, automated merchandising, chemical, pharmaceutical, oil, gas and power, nuclear, building services and utilities.

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

Outlook

Recent disruptions in the credit markets and concerns about global economic growth for industrial businesses have had a significant adverse impact on financial markets and, to an extent, our operating results through the first nine months of 2008. For example, during the three and nine-month periods ending September 30, 2008, our Engineered Materials business segment has experienced significant declines in operating profit when compared to the same periods last year. This decline reflects substantially lower volumes to our traditional recreational vehicle customers, driven largely by the inability of consumers to obtain financing for RV purchases. Similarly, declining vending machine demand resulting from depressed conditions in the North American vending market has put pressure on our operating margins within our Merchandising segment. In response to these unfavorable market conditions, during the past six months, we have taken significant steps to reduce costs in both our Engineered Materials and Vending Solutions businesses, including reducing headcount by 32% and 16%, respectively. In our Fluid Handling segment, while demand from the global chemical, pharmaceutical and energy industries remained

Our Aerospace & Electronics segment has also experienced a significant decline in operating profit during the three and nine month periods ending September 30, 2008 when compared to the same periods last year. These declines were driven by substantially higher engineering expense in the Aerospace Group related to the development of new products for the Boeing 787 and Airbus A400M programs. Reflecting changes in certain requirements requested by our customers, there exist potential engineering cost recoveries to partially offset the unfavorable impact of continued development expenses (the timing and amounts of which are uncertain). Spending will likely remain at high levels until key test flights are completed in 2009. In addition, while the decline in operating profit for this segment is almost entirely due to the increase in engineering expenses, further deterioration in airline industry market conditions could have an unfavorable impact by, for example, reducing higher margin aftermarket product sales.

Reflecting on our operating results for the third quarter 2008 and our expectation of a potentially more difficult operating environment, we are taking further steps to reduce our cost structure across all business segments. These initiatives could result in a fourth quarter pretax charge of up to $25 million (primarily non-cash) related to reductions in headcount and consolidation of several plants. Although we currently expect the savings from these initiatives to exceed the amount of the potential charge, we will continue to review our estimates as we evaluate our cost structure and finalize our plans during the fourth quarter.

Results from Operations

Third quarter of 2008 compared with third quarter of 2007



                                               Third Quarter
     (In millions)                           2008         2007             Change
     Net sales                              $ 642.7     $  664.1      $ (21.4 )    (3.2 %)
     Operating profit (loss)                   54.6       (312.6 )      367.2     117.5 %
     Operating margin                           8.5 %      (47.1 )%
     Other income (expense):
     Interest income                            3.2          1.5          1.7     109.3 %
     Interest expense                          (6.1 )       (6.8 )        0.8      11.6
     Miscellaneous - net                       (0.1 )        0.8         (0.9 )    (109 %)

                                               (2.9 )       (4.5 )        1.5      34.5 %
     Income (loss) before income taxes         51.7       (317.1 )      368.8     116.3 %
     Provision (benefit) for income taxes      15.6       (120.1 )      135.7     113.0 %

     Net income (loss)                      $  36.1     $ (197.0 )    $ 233.0     118.3 %

Third quarter 2008 sales decreased $21.4 million, or 3.2%, over the third quarter of 2007. Core business sales for the third quarter declined approximately 4.2%, or $27.9 million. Acquired businesses (the Composite Panel business of Owens Corning and Mobile Rugged business of Kontron America, Inc.), net of $3.5 million of lost sales resulting from divestitures, contributed 0.6% growth, or $3.8 million. The impact of currency translation on sales increased reported sales by approximately 0.4%, or $2.7 million, as the U.S. dollar was weaker against other major currencies in the third quarter of 2008 compared to the third quarter of 2007. Net sales related to operations outside the United States were 41.9% and 39.0% of total net sales for the three-month periods ended September 30, 2008 and 2007, respectively.

Interest income increased $1.7 million over the third quarter of 2007, reflecting higher average cash balances.

Our effective tax rate of 30.2% for the three months ended September 30, 2008, which reflects a tax provision on pre-tax income, is lower than our effective tax rate of 37.9% for the three months ended September 30, 2007, which reflects a tax benefit on a pre-tax loss. Our effective tax rate for the three months ended September 30, 2008 reflects more tax expense when compared to the same period in 2007 primarily as a result of:

• the asbestos charge recorded in the third quarter of 2007,

• the exclusion of the U.S. federal research tax credit in the third quarter of 2008 due to its statutory expiration as of December 31, 2007,

• the impact of favorable tax legislation enacted in Germany and the United Kingdom during the third quarter of 2007 on our deferred taxes, and

• refunds of tax and interest received during the third quarter of 2007.

These items were partially offset by lower taxes resulting from higher 2008 earnings in jurisdictions with tax rates lower than the United States and decreased dividends from non-U.S. subsidiaries in 2008.

Segment Results

All comparisons below refer to the third quarter 2008 versus the third quarter 2007, unless otherwise specified.

Aerospace & Electronics



                                        Third Quarter
             (dollars in millions)    2008        2007            Change
             Sales                   $ 159.7     $ 159.0     $   0.7       0.5 %
             Operating Profit        $  10.9     $  23.1     $ (12.2 )   (52.8 %)
             Profit Margin               6.8 %      14.5 %

The third quarter 2008 sales increase of $0.7 million reflected a sales increase of $3.8 million in the Aerospace Group and a decrease of $3.1 million in the Electronics Group. The segment's operating profit decreased $12.2 million, or 52.8%, in the third quarter of 2008 when compared to the same period in the prior year. The decline in operating profit was driven by substantially higher engineering expense in the Aerospace Group, which was $32.5 million in the third quarter of 2008 compared to $17.8 million in the third quarter of 2007. The increase in engineering expense is related to our investments in the Boeing 787 and Airbus A400M programs. Aerospace Group sales of $100.9 million increased $3.8 million, or 4.0%, from $97.1 million in the prior year period. This increase is attributable to continued strong demand in the aerospace industry, and is related to original equipment manufacturer ("OEM") products. Operating profit declined by $12.9 million in the third quarter of 2008, compared to the third quarter of 2007 which was due to the aforementioned $14.7 million increase in engineering expenses and higher OEM sales mix.

Electronics Group sales of $58.8 million decreased $3.1 million, or 5.1%, due primarily to lower sales in the group's Custom Power business. Operating profit increased by $0.7 million in the third quarter of 2008 when compared to the third quarter of 2007 which was driven by favorable sales mix in the Standard Power business, offset by deleverage associated with the aforementioned volume decline in the Custom Power business.

Engineered Materials



                                        Third Quarter
              (dollars in millions)    2008        2007           Change
              Sales                   $  58.2     $ 80.7     $ (22.5 )   (27.9 %)
              Operating Profit        $   4.4     $ 15.7     $ (11.3 )   (72.0 %)
              Profit Margin               7.6 %     19.5 %

Third quarter 2008 sales decreased $22.5 million, or 27.9%, reflecting substantially lower volumes when compared to the same prior year period. Core business sales were down $26.0 million, or 32.3%, partially offset by $3.5 million, or 4.4% of sales related to the September 2007 acquisition of the composite panel business of Owens Corning. The substantial decline in core business sales was driven by a 49.3% decline in sales to our traditional recreational vehicle customers, in line with the continued softness in the recreational vehicle industry. This compares to a 25.2% decline that we experienced in the second quarter of 2008, over the same period in the prior year. In addition, we experienced a 21.9% decline in our sales to transportation-related customers, consistent with reduced trailer build rates and, further, a 7.0% decline to our building products customers.
Correspondingly, operating profit in third quarter 2008 decreased 72.0%, due to the substantially lower core business sales. Higher raw material costs incurred during the third quarter 2008 when compared to the same period in the prior year were offset by price increases, productivity gains and lower incentive compensation costs. During the quarter, we further reduced headcount by approximately 8% (which was incremental to the 24% reduction that occurred during the first six months of 2008).

Merchandising Systems



                                         Third Quarter
               (dollars in millions)    2008        2007          Change
               Sales                   $  93.6     $ 98.5     $ (4.9 )   (4.9 %)
               Operating Profit        $  10.9     $  9.8     $  1.1     11.6 %
               Profit Margin              11.6 %      9.9 %

Third quarter 2008 sales decreased $4.9 million, or 4.9%, including $5.7 million (5.8%) of core sales, representing a decline in the Vending Solutions product line which more than offset higher sales in the Payment Solutions business and favorable foreign currency translation of $0.8 million (0.9%). The Vending Solutions sales decrease resulted from a decline in volume as customers curtailed orders in response to unfavorable market conditions. Conversely, Payment Solutions sales increased due to further market penetration driven largely by new product introductions. Operating profit for the segment improved by $1.1 million over the third quarter of 2007, or 11.6%, due primarily to the improved mix of higher margin Payment Solutions sales and significant cost reduction initiatives in our North American Vending business.

Fluid Handling



                                         Third Quarter
              (dollars in millions)    2008        2007           Change
              Sales                   $ 293.6     $ 290.8     $  2.8      1.0 %
              Operating Profit        $  34.9     $  37.5     $ (2.6 )   (6.8 %)
              Profit Margin              11.9 %      12.9 %

Third quarter 2008 sales increased $2.8 million, or 1.0%, including $3.3 million (1.1%) of core sales and favorable foreign currency translation of $1.3 million (0.5%), offset by a decrease in sales from divested/acquired businesses, net, of $1.8 million (0.6%). Sales were adversely impacted during the third quarter by slowing orders of certain short-cycle North American businesses and delays of several large valve projects into the fourth quarter. Demand

On September 15, 2008, our UK subsidiary Crane Limited purchased all of the capital stock of Delta Fluid Products Limited ("Delta"), for approximately $28 million in cash. Delta designs and manufactures regulators and fire-safe valves for the gas industry and safety and air vent valves for the building services market. This acquisition is expected to broaden our product offering and, in turn, strengthen our existing business. Sales and operating profit related to this acquisition were not significant to the third quarter 2008.

Controls



                                           Third Quarter
                 (dollars in millions)    2008        2007        Change
                 Sales                   $  37.6     $ 35.1     $ 2.5   7.0 %
                 Operating Profit        $   3.3     $  3.1     $ 0.1   4.7 %
                 Profit Margin               8.7 %      8.9 %

Third quarter 2008 sales increased $2.5 million, or 7.0%, which was driven largely by $2.1 million of sales resulting from the August 2007 acquisition of the Mobile Rugged business of Kontron America, Inc.

Results from Operations

Year-to-date period ended September 30, 2008 compared to year-to-date period
ended September 30, 2007



                                               Year-to-Date
   (dollars in millions)                    2008          2007               Change
   Net sales                              $ 2,015.0     $ 1,953.2       $  61.8       3.2 %
   Operating profit (loss)                    216.2        (172.4 )       388.7     225.4 %
   Operating margin                            10.7 %        (8.8 ) %
   Interest income                              8.4           3.8           4.5     118.4 %
   Interest expense                           (19.2 )       (20.6 )         1.4       6.7
   Miscellaneous-net                            1.9           3.6          (1.7 )   (47.7 )

                                               (8.9 )       (13.2 )         4.2      31.9 %
   Income (loss) before income taxes          207.3        (185.6 )       392.9     211.7 %
   Provision (benefit) for income taxes        63.8         (78.0 )       141.8     181.7 %

   Net income (loss)                      $   143.6     $  (107.6 )     $ 251.0     233.4 %

Year to date 2008 sales increased $61.8 million, or 3.2%, over the same period in 2007. Core business year to date 2008 sales declined approximately 0.3%, or $5.4 million. Acquired businesses (the composite panel business of Owens Corning and Mobile Rugged business of Kontron America, Inc.), net of $12.1 million of lost sales resulting from various divestitures in the Fluid Handling segment, contributed 1.1% growth, or $21.1 million. The impact of currency translation on sales increased reported sales by approximately 2.4%, or $46.1 million, as the U.S. dollar was weaker against other major currencies in the first nine months of 2008 compared to the same period in 2007. Net sales related to operations outside the U.S. for the nine-month periods ended September 30, 2008 and 2007 were 40.3% and 37.5% of total net sales, respectively.

In addition, operating profit for the first nine months of 2008 included $4.4 million ($2.9 million after tax, or $0.05 per share) of reimbursements related to our environmental remediation activities. The operating profit for the first nine months of 2007 included a $7.6 million pretax charge ($5.4 million after tax, or $0.09 per share) for a settlement with the U.S. Government.

Interest income for the first nine months of 2008 increased $4.5 million over the same period in 2007, reflecting higher average cash balances.

Our effective tax rate of 30.8% for the nine months ended September 30, 2008, which reflects a tax provision on pre-tax income, is lower than our effective tax rate of 42.0% for the nine months ended September 30, 2007, which reflects a tax benefit on a pre-tax loss. Our effective tax rate for the nine months ended September 30, 2008 reflects more tax expense when compared to the same period in 2007 primarily as a result of:

• the asbestos charge recorded in 2007,

• the exclusion of the U.S. federal research tax credit in 2008 due to its statutory expiration as of December 31, 2007,

• the impact of favorable tax legislation enacted in Germany and the United Kingdom during 2007 on our deferred taxes, and

• refunds of tax and interest received during 2007.

These items were partially offset by lower taxes resulting from higher 2008 earnings in jurisdictions with tax rates lower than the U.S. and decreased dividends from non-U.S. subsidiaries in 2008.

Order backlog at September 30, 2008 totaled $778.8 million, 3.3% lower than the backlog of $805.1 million at June 30, 2008, 8.2% higher than $719.6 million at December 31, 2007 and 3.4% higher than the backlog of $753.2 million at September 30, 2007.

Segment Results

All comparisons below reference the year-to-date period ended September 30, 2008 versus the year-to-date period ended September 30, 2007 ("prior year"), unless otherwise specified.

Aerospace & Electronics



                                        Year-To-Date
             (dollars in millions)    2008        2007            Change
             Sales                   $ 484.1     $ 467.6     $  16.5       3.5 %
             Operating Profit        $  45.4     $  68.5     $ (23.1 )   (33.7 %)
             Profit Margin               9.4 %      14.6 %

The year to date 2008 sales increase of $16.5 million reflected a sales increase of $26.9 million in the Aerospace Group and a decrease of $10.4 million in the Electronics Group. The segment's operating profit decreased $23.1 million, or 33.7%, in the first nine months of 2008 when compared to the same period in the prior year. The decline in operating profit was driven by substantially higher engineering expense in the Aerospace Group, which was $82.6 million in the first nine months of 2008, compared to $48.3 million in the first nine months of 2007. The increase in engineering expense is related to our investments in the Boeing 787 and Airbus A400M programs.

Electronics Group sales of $173.7 million decreased $10.4 million, or 5.7%, due primarily to lower sales in our Custom Power and Microwave Solutions businesses. Operating profit declined by $1.8 million in the first nine months of 2008, compared to the first nine months of 2007 which was primarily due to deleverage associated with the aforementioned decline in volume in the Custom Power and Microwave Solutions businesses.

The Aerospace & Electronics segment backlog was $418.3 million at September 30, 2008, compared with $417.9 million at June 30, 2008, $392.8 million at December 31, 2007 and $398.7 million at September 30, 2007.

Engineered Materials



                                        Year-To-Date
             (dollars in millions)    2008        2007            Change
             Sales                   $ 213.9     $ 256.2     $ (42.3 )   (16.5 %)
             Operating Profit        $  24.2     $  49.7     $ (25.5 )   (51.4 %)
             Profit Margin              11.3 %      19.4 %

Year to date 2008 sales decreased $42.3 million, or 16.5%, reflecting substantially lower volumes when compared to the same prior year period. Core business sales were down $61.3 million, or 23.9%, related to lower volumes to our traditional recreational vehicle, transportation and building products customers, partially offset by $19.0 million, or 7.4% of sales related to the September 2007 acquisition of the composite panel business of Owens Corning. Correspondingly, operating profit in 2008 decreased 51.4%, resulting from the substantially lower core business sales. Higher raw material costs during the first nine months when compared to the same period last year were partially offset by price increases.

The Engineered Materials segment backlog was $11.0 million at September 30, 2008, compared with $11.9 million at June 30, 2008, $14.8 million at December 31, 2007 and $14.5 million at September 30, 2007.

Merchandising Systems



                                          Year-To-Date
               (dollars in millions)    2008        2007          Change
               Sales                   $ 323.3     $ 296.4     $ 27.0    9.1 %
               Operating Profit        $  42.4     $  31.3     $ 11.1   35.3 %
               Profit Margin              13.1 %      10.6 %

Year to date 2008 sales increased $27.0 million, or 9.1%, including $16.7 million (5.6%) of core sales, representing growth in both the Vending and Payment Solutions product lines, and favorable foreign currency translation of $10.3 million (3.5%). The Vending Solutions sales increase was led by the successful introduction of the BevMax III glass front vender in addition to strong global demand for coin and bill validation and our coin dispensing products in Payment Solutions. Operating profit for the segment for the first nine months improved by $11.1 million, or 35.3% over the same period in 2007, due primarily to the successful leverage gained from the comparable year to date . . .