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 continue to critically review our cost structure in an effort to better position our operations to accommodate potential declines 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, 2008 filed with the Securities and Exchange Commission and are incorporated by reference herein.

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 ensure 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 financial markets and concerns about global economic growth for industrial businesses have had a significant adverse impact on end markets as well as our operating results and cash flow during the latter half of 2008 and through the first three months of 2009. By way of example, during the first three months of 2009, our short-cycle Engineered Materials and Merchandising Systems business segments experienced significant declines in sales and operating profit when compared to the same period last year. The decline in Engineered Materials reflects substantially lower volumes to our traditional recreational vehicle customers and, to a lesser extent, transportation-related and building products customers. The decline in Merchandising Systems is due to lower demand for both vending and payment systems products, resulting from the generally depressed economic environment. We have also experienced lower operating profit in our Fluid Handling segment, driven primarily by unfavorable foreign exchange and softness in most end markets. In addition, recent project deferrals in our Fluid Handling segment as well as rescheduling in the commercial aerospace business suggest continued difficult markets in 2009. Furthermore, engineering spending in our Aerospace Group will likely remain at high levels through the second quarter of 2009 which is when we expect to complete development of the brake control system for the Boeing 787 that meets the originally specified requirements, although engineering efforts at reduced levels will be needed to support test flights. Accordingly, we expect accelerating reductions in engineering expense throughout the balance of 2009.

Boeing has communicated certain changed aircraft requirements that affect the brake control system, and we have recently entered into discussions with our customer, GE Aviation Systems, regarding development of a new version of the 787 brake control system, including whether this additional development will be funded by the customer. Although it is our position that we are not required to undertake this additional development work without customer funding, if such customer funding is not obtained and we are required to develop a new version of the brake control system, it would have a significant impact on our results of operations and cash flow.

Reflecting on our operating results for the first quarter 2009 and our expectation of a difficult operating environment for the remainder of the year, we are pursuing further opportunities to ensure our cost structure is properly aligned to demand and to maximize cash flow and we expect to substantially exceed our previously announced cost savings goal of $75 million.

Results from Operations

First quarter of 2009 compared with first quarter of 2008



                                       Three Months Ended
                                            March 31,
        (dollars in millions)           2009          2008             Change
        Net sales                    $    555.1      $ 678.9     $ (123.7 )   (18.2 %)
        Operating profit             $     37.9      $  75.3     $  (37.4 )   (49.7 %)
        Operating margin                    6.8 %       11.1 %
        Other income (expense):
        Interest income              $      0.8      $   2.3     $   (1.5 )   (65.2 %)
        Interest expense                   (6.7 )       (6.5 )       (0.2 )    (3.1 )
        Miscellaneous - net                 1.6          0.3          1.3     433.3

                                     $     (4.3 )    $  (3.9 )   $   (0.4 )    10.3 %
        Provision for income taxes   $     10.2      $  23.1     $  (12.9 )   (55.8 %)

        Net income                   $     23.3      $  48.4     $  (25.1 )   (51.9 %)

First quarter 2009 sales decreased $123.7 million, or 18.2%, over the first quarter of 2008. Core business sales for the first quarter declined approximately 16%, or $107.8 million. This decline was largely due to lower sales levels in our short-cycle businesses, particularly Engineered Materials and Merchandising Systems, both of which have been impacted by very difficult end market conditions. Acquired businesses (Friedrich Krombach GmbH & Company KG Armaturenwerke and Krombach International GmbH ("Krombach") and Delta Fluid Products Limited ("Delta")), net of $1.2 million of lost sales resulting from divestures, contributed 5% growth, or $33.3 million. The impact of currency translation on sales decreased reported sales by approximately 7%, or $49.3 million, as the U.S. dollar strengthened against other major currencies in the first quarter of 2009 compared to the first quarter of 2008. Net sales related to operations outside the U.S. for the three-month periods were 39.3% and 39.2% of total net sales for the quarters ended March 31, 2009 and 2008, respectively.

Operating profit was $37.9 million in the first quarter 2009 compared to $75.3 million in the comparable period of 2008. We experienced significant declines in operating profit in our Engineered Materials and Merchandising Systems businesses due largely to the aforementioned lower sales levels and, to a lesser extent, unfavorable foreign exchange in our Fluid Handling business. We also recorded a charge of $7.8 million related to a settlement of a previously disclosed lawsuit. Operating profit margins were 6.8% in the first quarter 2009 compared to 11.1% in the comparable period of 2008.

Our effective tax rate of 30.5% for the three months ended March 31, 2009 is lower than the effective tax rate of 32.3% for the three months ended March 31, 2008 primarily as a result of the inclusion in 2009 of the U.S. research tax credit, which expired as of December 31, 2007 and had not been extended as of March 31, 2008.

Segment Results

All comparisons below refer to the first quarter 2009 versus the first quarter 2008, unless otherwise specified.

Aerospace & Electronics



                                         First Quarter
              (dollars in millions)    2009        2008           Change
              Sales                   $ 151.9     $ 158.5     $ (6.5 )   (4.1 %)
              Operating Profit        $  17.2     $  16.0     $  1.2      7.5 %
              Profit Margin              11.3 %      10.1 %

The first quarter 2009 sales decrease of $6.5 million reflected a sales decrease of $8.1 million in the Aerospace Group and an increase of $1.6 million in the Electronics Group. The segment's operating profit increased $1.2 million, or 7.5%, in the first quarter of 2009 when compared to the same period in the prior year. The increase in operating profit was driven by higher profits in the Electronics Group and a $3.3 million decline in engineering expense in the Aerospace Group; total engineering expense for the Aerospace Group was $21.0 million in the first quarter of 2009 compared to $24.3 million in the first quarter of 2008 and $28.0 million in the fourth quarter of 2008.

Aerospace Group sales of $93.2 million decreased $8.1 million, or 8%, from $101.5 million in the prior year period. This decrease was attributable to declines in both commercial OEM and aftermarket product sales, which declined 10% and 5%, respectively, from the same period last year; these declines were partially offset by higher sales of military product sales (OEM and spares) and modernization and upgrade product sales. During the first quarter of 2009, sales to OEMs and sales to aftermarket customers were 60% and 40%, respectively, of total sales, compared to 62% and 38%, respectively, in the same period last year. Operating profit declined by $1.4 million in the first quarter of 2009 when compared to the same period last year. This decline was due to the aforementioned lower sales volumes, partially offset by the decline in engineering expenses and savings associated with cost reduction initiatives.

Electronics Group sales of $58.7 million increased $1.6 million, or 2.8%. Operating profit increased by $2.6 million in the first quarter of 2009, compared to the first quarter of 2008 due largely to higher sales volumes and savings associated with cost reduction initiatives.

The Aerospace & Electronics segment backlog was $396.4 million at March 31, 2009, compared with $407.4 million at March 31, 2008 and $418.4 million at December 31, 2008.

Engineered Materials



                                        First Quarter
              (dollars in millions)    2009        2008           Change
              Sales                   $  38.2     $ 82.8     $ (44.6 )   (53.9 %)
              Operating Profit        $   1.5     $ 11.7     $ (10.2 )   (87.2 %)
              Profit Margin               3.9 %     14.1 %

First quarter 2009 sales decreased $44.6 million, or 53.9%, reflecting substantially lower volumes to our traditional recreational vehicle, transportation and building products customers when compared to the prior year. The substantial decline was driven by a 76% decline in sales to our traditional recreational vehicle customers, in line with the continued softness in the recreational vehicle industry. In addition, we experienced a 42% decline in our sales to transportation-related customers, consistent with reduced trailer build rates and, further, a 30% decline to our building products customers, resulting from the soft non-residential construction market. Correspondingly, due to the aforementioned lower sales volumes, operating profit in the first quarter of 2009 decreased 87.2%. Notwithstanding the unfavorable prior year comparison, operating performance in the first quarter of 2009 improved when compared to the fourth quarter of 2008, primarily reflecting savings associated with ongoing cost reduction initiatives, productivity improvements and lower raw material costs. We have reduced employment levels by 45% and 18%, respectively, compared to December 2007 and December 2008, and facility consolidation activities are being completed pursuant to our restructuring program.

The Engineered Materials segment backlog was $6.9 million at March 31, 2009, compared with $15.9 million at March 31, 2008 and $6.9 million at December 31, 2008.

Merchandising Systems



                                        First Quarter
              (dollars in millions)    2009       2008            Change
              Sales                   $ 71.7     $ 113.5     $ (41.8 )   (36.8 %)
              Operating Profit        $  3.0     $  14.1     $ (11.2 )   (79.4 %)
              Profit Margin              4.2 %      12.5 %

First quarter 2009 sales decreased $41.8 million, or 36.8%, including $34.6 million, or 30.5% of core sales decline and unfavorable foreign currency translation of $7.2 million, or 6.3%. The decline in core sales primarily reflects substantially lower new order demand for both Vending Solutions and Payments Solutions products which began in the second half of 2008 and continued through the first quarter of 2009. The primary drivers of the end market softness for our Vending Solutions products were 1) higher commercial office space vacancies, 2) declining factory employment levels and 3) continuing margin pressure on vending route operators. The global slowdown in gaming, retail and transportation end markets were the primary drivers for the decline in demand for our Payments Solutions products. Operating profit for the segment decreased by $11.2 million over the first quarter of 2008, or 79.4%, due primarily to the volume deleverage on reduced sales. In response to the lower levels of demand, general expense reduction programs have been implemented, we have reduced employment levels by approximately 21% compared to year-end 2007, and we will be consolidating certain vending machine production facilities during the second half of 2009.

The Merchandising Systems segment backlog was $18.8 million at March 31, 2009, compared with $42.6 million at March 31, 2008 and $23.4 million at December 31, 2008.

Fluid Handling



                                        First Quarter
             (dollars in millions)    2009        2008            Change
             Sales                   $ 266.5     $ 288.5     $ (22.0 )    (7.6 %)
             Operating Profit        $  36.8     $  44.8     $  (8.0 )   (17.9 %)
             Profit Margin              13.8 %      15.5 %

First quarter 2009 sales decreased $22.0 million, or 7.6%, driven by unfavorable foreign currency translation of $39.9 million, or 13.8%, and a $15.4 million, or 5.4% decline in core sales, partially offset by a net increase in sales from two acquired businesses (Krombach and Delta) of $33.3 million, or 11.6%. The core sales performance was impacted by a broad-based volume decline and reflected weakness in our short-cycle businesses, including the Building Services and Utilities business in the United Kingdom, commercial valves in North America, and lower sales of MRO products for chemical and pharmaceutical businesses. Segment operating profit decreased $8.0 million, or 17.9%, over the 2008 first quarter. The operating profit decrease was primarily due to the impact of unfavorable foreign exchange and the lower sales volumes, partially offset by productivity improvements and savings associated with ongoing cost reduction initiatives.

The Fluid Handling segment backlog was $275.7 million at March 31, 2009, compared with $268.3 million at March 31, 2008 and $302.7 million at December 31, 2008. Order backlog at March 31, 2009 and December 31, 2008 included $46.5 million and $56.9 million, respectively, related to the acquisitions of Delta and Krombach.

Controls



                                        First Quarter
              (dollars in millions)    2009        2008           Change
              Sales                   $  26.8     $ 35.6     $ (8.8 )   (24.7 %)
              Operating Profit        $   0.4     $  1.3     $ (0.9 )   (68.2 %)
              Profit Margin               1.5 %      3.6 %

The first quarter 2009 sales decrease of $8.8 million and the $0.9 million operating profit decline reflects substantial volume declines to our oil and gas, transportation and military end use applications.

The Controls segment backlog was $26.7 million at March 31, 2009, compared with $34.5 million at March 31, 2008 and $30.5 million at December 31, 2008.

Liquidity and Capital Resources

Cash and cash equivalents decreased $22 million to $210 million at March 31, 2009 compared with $232 million at December 31, 2008. Our operating philosophy is to use cash provided from operating activities to provide value to shareholders by paying dividends and/or repurchasing shares, by reinvesting in existing businesses and by making acquisitions that will complement our portfolio of businesses. Recent disruptions in the credit markets and concerns about global economic growth for industrial businesses have, however, had a significant and adverse impact on financial markets as well as our operating results during the latter half of 2008 and through the first three months of 2009. In response, we have initiated a variety of actions to conserve cash and maintain liquidity:

• In December 2008, we announced a series of actions to align our cost base to lower levels of demand expected in 2009 (see "Operating Activities", below). We anticipate these efforts to yield $37 million in savings in 2009.

• We expect to reduce engineering expenses associated with the development of the Boeing 787 brake control system by $25 million in 2009.

• We expect to reduce our level of capital expenditures in 2009 to approximately $35 million, which compares to $45 million in 2008.

• Our repurchase of shares, which is discretionary and flexible, may not occur in the same amount or at the same pace as in prior years.

• We have no borrowings outstanding under our five-year $300 million Amended and Restated Credit Agreement (which expires in September 2012) and we have no significant debt maturities coming due until the third quarter of 2013, when senior, unsecured notes having an aggregate principal amount of $200 million mature.

Notwithstanding the lower levels of demand forecasted in 2009, our current cash balance together with cash generated from future operations and $265 million available under our existing committed $300 million revolving credit facility are expected to be sufficient to finance our short- and long-term capital requirements, as well as fund cash payments associated with our asbestos and environmental exposures, Restructuring Program initiatives and expected increases in pension contributions.

Cash provided by operating activities, a key source of our liquidity, was $15.4 million for the first quarter of 2009, a decrease of $28.7 million, or 65%, as compared to the first quarter of 2008. This decrease was due substantially to lower earnings. Also contributing to the decline were higher environmental remediation payments and, to a lesser extent, higher pension contributions. These unfavorable changes were partially offset by $2.7 million of net asbestos receipts in the first quarter of 2009 compared to $2.1 million of net asbestos payments in the same period last year. The first quarter of 2009 included a $14.5 million insurance settlement receipt from the Highlands Insurance Company (there were no comparable policy settlements in the first quarter of 2008).

As referenced above, in order to align our cost base to current market conditions, conserve cash and maintain liquidity, during the fourth quarter of 2008, we initiated the Restructuring Program, resulting in a pre-tax charge of $40.7 million. We expect to incur additional restructuring charges of approximately $10.7 million during 2009 in connection with this program (total pre-tax charges, upon program completion, of approximately $51.4 million). Approximately 68% of the total expected charges, or $35 million, will be cash costs. Of this amount, approximately $28 million is expected to be paid in 2009 and which we will fund with cash provided by operations; however, we currently expect to achieve $37 million in savings in 2009 from this program. Reflecting on our operating results for the first quarter 2009 and our expectation of a difficult operating environment for the remainder of the year, we are pursuing further opportunities to ensure our cost structure is properly aligned to demand and we expect to substantially exceed our previously announced cost savings goal of $75 million. Although we believe our cost reduction programs will have a meaningful impact and are designed to align our cost structure and operating cash requirements to lower levels of demand expected in 2009, to the extent global demand for industrial products and services declines further, and/or if we are required to provide further unfunded engineering resources for the development of brake control systems for the Boeing 787, we will have lower operating profit than we currently expect, and we may need to implement additional restructuring initiatives, both of which would have an adverse impact on our 2009 operating cash flow.

Investing Activities

Cash flows relating to investing activities consist primarily of cash used for capital expenditures and cash flows from divestitures of businesses or assets. Cash used in investing activities was $8.3 million in the first quarter of 2009, compared to $8.0 million of net cash used by investing activities in the comparable period of 2008. Capital expenditures of $10.0 million for the first quarter of 2009 increased approximately $0.9 million from the first quarter of 2008. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information systems. We expect full-year 2009 capital expenditures to be $35 million, compared to $45 million in 2008.

Financing Activities

Financing cash flows consist primarily of repayments of indebtedness, share repurchases and payments of dividends to shareholders. Cash used in financing activities was $21.6 million during the first quarter of 2009, compared to $38.1 million used during the first quarter of 2008. The lower levels of cash flows used in financing activities during the first quarter of 2009 was driven by the absence of open-market share repurchases, which compares to $40.0 million of open-market share repurchases in the same period last year. Offsetting this favorable comparison, during the first quarter of 2009, $9.3 million of short-term debt was repaid.

Information regarding new accounting pronouncements is included in Note 2 to the Consolidated Financial Statements.