This Quarterly Report on Form 10-Q contains information about Crane Co., 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.

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.

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 forecasted 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.

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 offer strategic fits 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.

Concerns about global economic growth for industrial businesses and disruptions in the financial markets have had a significant adverse impact on end markets as well as our operating results through the first nine months of 2009. Notwithstanding the 14% sales decline that we experienced during the third quarter 2009 when compared to the same quarter last year, operating profit remained flat reflecting the favorable impact of our cost reduction programs. We continue to pursue additional opportunities to ensure our cost structure is properly aligned to demand and to maximize cash flow. Based on the traction of our cost savings initiatives, we raised our cost reduction target from $75 million to in excess of $125 million in July and now project our savings will be more than $150 million for the full year. We continue to maintain a strong capital structure and liquidity position with $305 million in cash, a $300 million revolving credit agreement (of which $265 million is available) and no near-term debt maturities.

Our Aerospace and Electronics segment operating profit was up slightly during the third quarter when compared to the same period last year. Our Electronics Group experienced higher operating profit driven by stable demand in the Defense Electronics business, strong program execution and cost reduction efforts. In our Aerospace Group, volumes and profits are expected to be unfavorably impacted by further softening of long-cycle sales to commercial aerospace customers. Consistent with our expectations, we experienced a sequential decline in engineering expense in the Aerospace Group. We expect this trend to continue and despite further delays announced by Boeing related to first flight of its 787 aircraft, we have exceeded our previously announced $25 million year-over-year decline in engineering expenses. Boeing has communicated certain changed aircraft requirements that affect the brake control system, and we have been engaged in 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.

During the third quarter, our short-cycle Engineered Materials segment experienced higher profit when compared to the same period last year. Despite the 17% decline in sales volumes, operating profit increased 71% reflecting cost discipline, productivity savings, and strong market position. The sales decline in Engineered Materials reflects substantially lower volumes to our transportation-related and building products customers, partially offset by an increase in sales to our traditional recreational vehicle customers. We expect demand from our transportation-related customers to remain at current levels while demand from our building products customers will continue to decline which is consistent with the slow-down in non-residential construction.

Our Merchandising Systems segment experienced a 19% and 37% decline in sales and operating profit, respectively, when compared to the same period last year reflecting continued difficult end market conditions. Demand for Payment Solutions products was substantially lower as end-market applications, including retail, transportation, and non-U.S. gaming declined sharply. However, we experienced a sequential quarterly increase in sales for our Vending Solutions products. We expect continued market weakness for our Payment Solutions products and anticipate normal seasonality for our Vending Solutions products in the 2009 fourth quarter.

During the third quarter, operating profit in our Fluid Handling segment was flat when compared to the same period last year notwithstanding a 9% decline in sales. Sales continue to be weak in the longer-cycle energy, chemical and pharmaceutical businesses, as well as the short-cycle Maintenance, Overhaul and Repair ("MRO") business, which continue to be impacted by poor market conditions. We expect the chemical and pharmaceutical end markets to remain weak in the fourth quarter.

In response to all of the aforementioned outlook considerations, we have taken significant steps to reduce costs and improve cash flow across all of our businesses, which include significant headcount reductions and select facility consolidations. Excluding the effects of two acquisitions in the second half of 2008, headcount has been reduced by approximately 2,050 people, or 17%, since year-end 2007, of which 1,100 were in the first nine months of 2009.

Results from Operations

Third quarter of 2009 compared with third quarter of 2008



                                                         Third Quarter                Change
(dollars in millions)                                  2009         2008           $           %
Net sales                                             $ 550.7      $ 642.7      $ (92.0 )     (14.3 )
Operating profit                                         55.5         54.6          0.9         1.6
Restructuring charge*                                     0.5           -           0.5         n/a
Operating margin                                         10.1 %        8.5 %
Other income (expense):
Interest income                                           0.3          3.2         (2.9 )     (90.6 )
Interest expense                                         (6.8 )       (6.0 )       (0.8 )     (13.3 )
Miscellaneous - net                                        -          (0.2 )        0.2       100.0

                                                         (6.5 )       (3.0 )       (3.5 )    (116.7 )

Income before income taxes                               49.0         51.6         (2.6 )      (5.0 )
Provision for income taxes                               13.8         15.6         (1.8 )     (11.5 )

Net income before allocation to noncontrolling
interests                                                35.2         36.0         (0.8 )      (2.2 )
Less: Noncontrolling interest in subsidiaries
earnings (losses)                                         0.1         (0.1 )        0.2       192.6

Net income attributable to common shareholders        $  35.1      $  36.1      $  (1.0 )      (2.8 )

* The restructuring charge is included in operating profit and operating margin.

Third quarter 2009 sales decreased $92.0 million, or 14.3%, versus the third quarter of 2008. Core business sales for the third quarter declined approximately $100.5 million, or 15.6%. Acquired businesses (Friedrich Krombach GmbH & Company KG Armaturenwerke and Krombach International GmbH ("Krombach") and Delta Fluid Products Limited ("Delta")) contributed 4.1% growth, or $26.3 million. The impact of currency translation decreased reported sales by approximately $17.8 million, or 2.8%, as the U.S. dollar strengthened against other major currencies in the third quarter of 2009 compared to the third quarter of 2008. Net sales related to operations outside the U.S. were 40.9% and 41.9% of total net sales for the three month periods ended September 30, 2009 and 2008, respectively.

Operating profit was $55.5 million in the third quarter 2009 compared to $54.6 million in the comparable period of 2008. The slight increase in operating profit was largely attributable to improved performance in Aerospace & Electronics and Engineered Materials segments, partially offset by weaker performance in the Merchandising Systems and Controls segments. Operating profit margins were 10.1% in the third quarter 2009 compared to 8.5% in the comparable period of 2008. Operating profit in the third quarter of 2009 included restructuring charges of $0.5 million.

Our effective tax rate of 28.2% for the three months ended September 30, 2009 is lower than our effective tax rate of 30.3% for the three months ended September 30, 2008. A tax benefit for the U.S. federal research credit was included in 2009 and not in 2008 as the statutory reinstatement of the U.S. federal research tax credit retroactive to January 1, 2008 did not occur until October 3, 2008.

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

Aerospace & Electronics



                                      Third Quarter                Change
           (dollars in millions)    2009         2008
           Sales                   $ 136.9      $ 159.7      $ (22.8 )    (14.3 %)
           Operating profit        $  19.9      $  10.9      $   9.0       82.9 %
           Restructuring charge*   $   0.2      $    -       $   0.2        n/a
           Operating margin           14.6 %        6.8 %

* The restructuring charge is included in operating profit and operating margin.

The third quarter 2009 sales decrease of $22.8 million reflected a sales decrease of $20.6 million and $2.2 million in the Aerospace Group and Electronics Group, respectively. The segment's operating profit increased $9.0 million, or 82.9%, in the third quarter of 2009 when compared to the same period in the prior year. The increase in operating profit was driven by higher profits in both the Aerospace Group and Electronics Group.

Aerospace Group sales of $80.3 million decreased $20.6 million, or 20.4%, from $100.9 million in the prior year period. This was largely attributable to declines in original equipment manufacturer ("OEM") product sales of 26.6% and declines in commercial aftermarket product sales of 21.9%, partially offset by higher military product sales (OEM and spares) and aftermarket sales. During the third quarter of 2009, sales to OEMs and sales to aftermarket customers were 56.6% and 43.4%, respectively, of total sales, compared to 61.3% and 38.7%, respectively, in the same period last year. Operating profit increased by $6.2 million in the third quarter of 2009, compared to the third quarter of 2008 primarily reflecting a $17.9 million decline in engineering expenses and savings associated with cost reduction initiatives, partially offset by the unfavorable impact of the lower sales volumes. Total engineering expense for the Aerospace Group was $14.7 million in the third quarter of 2009 compared to $18.8 million in the second quarter of 2009, $21.0 million in the first quarter of 2009 and $28.3 million in the fourth quarter of 2008.

Electronics Group sales of $56.6 million decreased $2.2 million, or 3.7%, from $58.8 million in the prior period year primarily driven largely by a decline in the Custom and Standard Power businesses. Despite the sales decline, strong program execution, savings associated with cost reduction initiatives and lower engineering spending increased operating profit by $2.8 million in the third quarter of 2009, compared to the third quarter of 2008.

Engineered Materials



                                      Third Quarter               Change
            (dollars in millions)    2009        2008
            Sales                   $ 48.1      $ 58.2      $ (10.1 )    (17.4 %)
            Operating profit        $  7.5      $  4.4      $   3.1       70.8 %
            Restructuring charge*   $  0.2      $   -       $   0.2        n/a
            Operating margin          15.7 %       7.6 %

* The restructuring charge is included in operating profit and operating margin.

Third quarter 2009 sales decreased $10.1 million, or 17.4%, reflecting substantially lower volumes to our transportation and building products customers when compared to the prior year, partially offset by higher sales to our traditional recreation vehicle customers. Sales to our transportation-related customers declined 28.8%, in line with the reduced trailer build rates. We experienced a 26.9% decline to our building products customers, resulting from the soft non-residential construction market. Sales to our traditional recreational vehicle customers increased by 6.3%, reflecting market share gains and moderate improvement in industry sales. Operating profit in the third quarter of 2009 increased 70.8% reflecting savings associated with ongoing cost reduction initiatives and productivity improvements. We have reduced employment levels in this segment by 42% and 12%, respectively, compared to December 2007 and December 2008, and facility consolidation activities have been largely completed pursuant to our restructuring program.

Merchandising Systems



                                      Third Quarter               Change
            (dollars in millions)    2009        2008
            Sales                   $ 75.9      $ 93.6      $ (17.7 )    (18.9 %)
            Operating profit        $  6.9      $ 10.9      $  (4.0 )    (36.5 %)
            Restructuring gain*     $ (1.5 )    $   -       $  (1.5 )      n/a
            Operating margin           9.1 %      11.6 %

* The restructuring gain is included in operating profit and operating margin.

Third quarter 2009 sales decreased $17.7 million, or 18.9%, including a core sales decline of $15.5 million, or 16.6% and unfavorable foreign currency translation of $2.2 million, or 2.4%. The decline in core sales primarily reflects substantially lower demand for both Payments Solutions and Vending Solutions products. The global slowdown in the gaming (in part due to changes in gaming regulations), retail and transportation end markets was the primary driver for the decline in demand for our Payments Solutions products. The primary drivers of the end market softness for our Vending Solutions products are unchanged from the first half of 2009, as commercial office space vacancies remain high and factory employment levels continue to decline. Operating profit for the segment decreased by $4.0 million versus the third quarter of 2008, or 36.5%, due primarily to the deleverage on reduced sales, partially offset by savings associated with cost reduction initiatives, the favorable impact of a legal settlement and the reduction of a liability estimate associated with the restructuring program. In response to the lower levels of demand, general expense reduction programs continue to be implemented, we have reduced employment levels by 21% compared to year-end 2007 and, as previously disclosed, we are consolidating certain vending machine production facilities.

Fluid Handling



                                       Third Quarter               Change
            (dollars in millions)    2009         2008
            Sales                   $ 266.8      $ 293.6      $ (26.8 )    (9.1 %)
            Operating profit        $  34.9      $  34.9      $    -         -
            Restructuring charge*   $   1.6      $    -       $   1.6       n/a
            Operating margin           13.1 %       11.9 %

* The restructuring charge is included in operating profit and operating margin.

Third quarter 2009 sales decreased $26.8 million, or 9.1%, driven by a decline in core sales of $38.4 million, or 13.1%, and unfavorable foreign currency exchange of $14.7 million, or 5.0%, partially offset by a net increase in sales from two acquired businesses (Krombach and Delta) of $26.3 million, or 8.9%. The core sales performance was impacted by a broad-based volume decline across the majority of businesses and reflects unfavorable end markets which continue to impact many longer-cycle, project-based chemical and pharmaceutical businesses, as well as several of our short-cycle MRO businesses. Notwithstanding the unfavorable impact of lower core sales and foreign currency exchange, operating profit was flat compared to the same prior year period, primarily due to disciplined pricing, productivity improvements and savings associated with ongoing cost reduction initiatives. Operating profit in the third quarter of 2009 included restructuring charges of $1.6 million.

Controls



                                       Third Quarter               Change
          (dollars in millions)      2009         2008
          Sales                     $ 23.1       $ 37.6      $ (14.5 )     (38.7 %)
          Operating (loss) profit   $ (1.7 )     $  3.3      $  (4.9 )    (151.9 %)
          Operating margin            (7.2 %)       8.7 %

The third quarter 2009 sales decrease of $14.5 million and the $4.9 million operating profit decline reflects substantial volume declines to our oil and gas, and transportation end market customers, driven by depressed market conditions. The impact of the volume decline on operating profit was partially offset by savings associated with ongoing cost reduction initiatives. We have reduced employment levels in this segment by 24% compared to December 2007.

Results from Operations

Year-to-date period ended September 30, 2009 compared to year-to-date period
ended September 30, 2008



                                                         Year-to-Date                  Change
(dollars in millions)                                2009           2008            $            %
Net sales                                          $ 1,651.3      $ 2,015.0      $ (363.7 )    (18.0 )
Operating profit                                       138.8          216.2         (77.4 )    (35.8 )
Restructuring charge*                                    2.4             -            2.4        n/a
Operating margin                                         8.4 %         10.7 %
Other income (expense):
Interest income                                          1.6            8.4          (6.8 )    (81.0 )
Interest expense                                       (20.3 )        (19.2 )        (1.1 )     (5.7 )
Miscellaneous - net                                      2.3            1.6           0.7       43.8

                                                       (16.4 )         (9.2 )        (7.2 )    (78.3 )

Income before income taxes                             122.4          207.0         (84.6 )    (40.9 )
Provision for income taxes                              36.0           63.8         (27.8 )    (43.6 )

Net income before allocation to noncontrolling
interests                                               86.4          143.2         (56.8 )    (39.7 )
Less: Noncontrolling interest in subsidiaries
earnings (losses)                                        0.2           (0.3 )         0.5      165.6

Net income attributable to common shareholders     $    86.2      $   143.5      $  (57.3 )    (39.9 )

* The restructuring charge is included in operating profit and operating margin.

Year-to-date 2009 sales decreased $363.7 million, or 18.0%, over the same period in 2008. Core business year-to-date 2009 sales declined $354.2 million or 17.6%. The core decline was broad-based and attributable to significant volume declines resulting from very difficult end market conditions. Acquired businesses (Krombach and Delta), net of $1.4 million of lost sales resulting from divestures, contributed 4.7% growth, or $94.9 million. The impact of currency translation decreased reported sales by approximately $104.4 million or 5.2%, as the U.S. dollar strengthened against other major currencies in the first nine months of 2009 compared to the same period in 2008. Net sales related to operations outside the U.S. for the nine month periods ended September 30, 2009 and 2008 were 40.0% and 40.3% of total net sales, respectively.

Operating profit was $138.8 million in the first nine months of 2009 compared to $216.2 million in the comparable period of 2008. The decrease over the prior year period was broad-based, led by substantial declines in operating profit in our Merchandising Systems, Fluid Handling, Controls and Engineered Materials segments, and due largely to lower sales levels. Operating profit margins were 8.4% in the first nine months of 2009 compared to 10.7% in the comparable period of 2008. Operating profit in the first nine months of 2009 included restructuring charges of $2.4 million.

In addition, operating profit for the first nine months of 2009 included a charge of $7.3 million related to a settlement of a previously disclosed lawsuit. The operating profit for the first nine months of 2008 included $4.4 million of reimbursements related to our environmental remediation activities.

Our effective tax rate of 29.4% for the nine months ended September 30, 2009 is lower than our effective tax rate of 30.8% for the nine months ended September 30, 2008. A tax benefit for the U.S. federal research credit was included in 2009 and not in 2008 as the statutory reinstatement of the U.S. federal research tax credit retroactive to January 1, 2008 did not occur until October 3, 2008.

Order backlog at September 30, 2009 totaled $681.6 million, 2.2% lower than the backlog of $696.9 million at June 30, 2009, 5.9% lower than the backlog of $724.5 million at March 31, 2009, and 12.8% lower than $781.9 million at December 31, 2008, and 12.5% lower than the backlog of $778.8 million at September 30, 2008. Order backlog at

Segment Results

All comparisons below reference the year-to-date period ended September 30, 2009 versus the year-to-date period ended September 30, 2008 ("prior year"), unless otherwise specified.

Aerospace & Electronics



                                       Year-to-Date                Change
           (dollars in millions)    2009         2008
           Sales                   $ 435.8      $ 484.1      $ (48.3 )    (10.0 %)
           Operating profit        $  56.3      $  45.4      $  10.9       24.0 %
           Restructuring charge*   $   1.2      $    -       $   1.2        n/a
           Operating margin           12.9 %        9.4 %

* The restructuring charge is included in operating profit and operating margin.

The year-to-date 2009 sales decrease of $48.3 million, or 10.0%, reflected a sales decrease of $49.2 million in the Aerospace Group and an increase of $0.9 million in the Electronics Group. The segment's operating profit increased $10.9 million, or 24.0%, in the first nine months of 2009 when compared to the same period in the prior year. The increase in operating profit reflects a $2.0 million and $8.9 million increase in operating profit in the Aerospace Group and Electronics Group, respectively.

Aerospace Group sales of $261.2 million decreased $49.2 million, or 15.8%, from $310.4 million in the prior year period. This decrease was attributable to declines in OEM product sales of 21.9% and declines in commercial aftermarket product sales of 17.1%, partially offset by higher sales of military product sales (OEM and spares) and modernization and upgrade product sales. Operating profit increased $2.0 million, or 7.9%, in the first nine months of 2009 when compared to the same period in the prior year. This improvement reflected a $28.3 million decline in engineering expenses and savings associated with cost reduction initiatives, partially offset by the unfavorable impact of the aforementioned lower sales volumes. Total engineering expense for the Aerospace Group was $54.4 million in the first nine months of 2009 compared to $82.6 million in the first nine months of 2008.

Electronics Group sales of $174.6 million increased $0.9 million, or 0.5%. Operating profit increased by $8.9 million, or 43.5%, in the first nine months of 2009 when compared to the first nine months of 2008. The increase was due largely to savings associated with cost reduction initiatives and strong program execution.

The Aerospace & Electronics segment backlog was $369.9 million at September 30, . . .