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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One

For the Quarterly Period Ended March 31, 2003

OR

For the Transition Period from                 to                

Commission File Number 1-1657

CRANE CO.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (203) 363-7300

(Not Applicable)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    x            No    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes    x            No    ¨

The number of shares outstanding of the issuer’s classes of common stock, as of April 30, 2003:

Common stock, $1.00 Par Value – 59,278,225 shares

Part I – Financial Information

Item 1.    Financial Statements

Crane Co. and Subsidiaries

Consolidated Statements of Operations

(In Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements

2

Part I – Financial Information

Item 1.    Financial Statements

Crane Co. and Subsidiaries

Consolidated Balance Sheets

(In Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements

(Continued)

3

Part I – Financial Information

Item 1.    Financial Statements

Crane Co. and Subsidiaries

Consolidated Balance Sheets

(In Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements

4

Part I – Financial Information (Cont’d.)

Item 1.    Financial Statements

Crane Co. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and, therefore, reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period presented. These interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

1.    Segment Results

Net sales, gross profit and operating profit by segment are as follows:

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

2.    Stock-Based Compensation Plans

The Company has two stock-based compensation plans: the Stock Incentive Plan and the Non-Employee Director Stock Compensation Plan. In accounting for its stock-based compensation plans, the Company applies the intrinsic value method prescribed by APB No. 25, “Accounting for Stock Issued to Employees.” Intrinsic value is the amount by which the market price of the underlying stock exceeds the exercise price of the stock option or award on the measurement date, generally the date of grant. No stock-based employee compensation expense is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The pro forma net income and earnings per share listed below reflect the impact of measuring compensation expense for options granted in the three months ended March 31, 2003 and 2002 in accordance with the fair-value-based method prescribed by SFAS 123, “Accounting for Stock-Based Compensation” and amended by SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” These amounts may not be representative of future years’ amounts, as options vest over a three-year period and, generally, additional awards are made each year.

3.    Goodwill and Intangible Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets.” Under SFAS 142, goodwill and intangibles with indefinite useful lives are no longer amortized. SFAS 142 also requires, at a minimum, an annual assessment of the carrying value of goodwill and intangibles with indefinite useful lives. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. A discounted cash flow model was used to determine the fair value of the Company’s reporting units for purposes of testing goodwill for impairment.

The effects of adopting the new standard on net income (loss) and diluted earnings per share for the three-month periods ended March 31, 2003 and 2002 are as follows:

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

Basic and diluted net income (loss) per share:

The after-tax cumulative effect adjustment recognized upon adoption of SFAS No. 142 was $28,076. The reporting segments (units) in which the impairment loss was recognized are as follows:

Changes to goodwill and intangible assets during the three-month period ended March 31, 2003, follow.

Intangible assets totaled $45.3 million, net of accumulated amortization of $31.1 million at March 31, 2003. Of this amount, $7.5 million represents intangibles with indefinite useful lives, consisting of trade names which are not being amortized under SFAS No. 142.

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

A summary of intangible assets follows:

Amortization expense for these intangible assets is expected to be approximately $4.0 million each year between 2004 and 2008.

4.    Acquisitions & Divestitures

In March, 2003 the Company sold the assets of its Chempump unit to Teikoku USA, Inc. Chempump manufactures canned motor pumps primarily for use in the chemical processing industry.

5.    Comprehensive Income

Total comprehensive income for the three-month periods ended March 31, 2003 and 2002 is as follows:

6.    Asbestos Liability

As of March 31, 2003, the Company was a defendant, among a number of defendants, typically over 50 and frequently in the hundreds, in cases filed in various state and federal courts alleging injury or death as a result of exposure to asbestos. Activity related to asbestos claims was as follows:

Of the 62,097 pending claims as of March 31, 2003, approximately 21,000 were filed in New York by one firm and approximately 29,000 were filed by several firms in Mississippi. These filings typically do not identify any of the Company’s products as a source of asbestos exposure, and based on the Company’s past experience, it is expected that a substantial majority of such New York claims will be dismissed against the Company for lack of product identification.

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

The gross settlement costs (before insurance recoveries and tax effects) for the Company totaled $1.8 million in the quarter ended March 31, 2003. Total gross legal costs (before insurance recoveries and tax effects) incurred in connection with the claims were $.7 million for the quarter ended March 31, 2003. Costs per claim vary depending on a number of factors, including the nature of the alleged exposure, the injury alleged and the jurisdiction where the claim was filed. Total pre-tax cash payments by the Company for settlement and defense costs were $.4 million for the quarter ended March 31, 2003 reflecting the timing and terms of payments and insurance recoveries to date. These quarterly amounts are not necessarily indicative of future period amounts, which may be higher or lower than those reported in the quarter ended March 31, 2003.

It is the Company’s accounting practice to conduct a detailed analysis of its asbestos-related liabilities quarterly or sooner if circumstances change significantly. The liability recorded for asbestos claims constitutes management’s best estimate, based on the Company’s past experience, of claims filed and defense and settlement costs for pending and reasonably anticipated future claims through 2007. For claims that will be filed beyond 2007, management believes that the level of uncertainty is too great to provide for reasonable estimation of the number of future claims, the nature of such claims, or the cost to resolve them and, accordingly, no accrual has been recorded for any costs which may be incurred beyond 2007. A long-term liability is recorded to cover the estimated cost of asbestos claims through 2007 and a long-term asset is recorded representing the probable insurance reimbursement (approximately 40 percent of defense and settlement costs).

Estimation of the Company’s ultimate exposure for asbestos-related claims is subject to significant uncertainties, as there are multiple variables that can affect the timing, severity and quantity of claims. The Company cautions that its liability is based on assumptions with respect to future new claims, defense and settlement costs based on historical experience rates during the last few years that may not prove reliable as predictors.

The Company receives reimbursement of settlement and defense costs from its primary insurers up to the agreed available limits of the applicable policies. The Company has substantial excess coverage policies that are expected to respond to asbestos claims as settlements and other payments exhaust the primary policies, but there is no cost sharing or allocation agreement yet in place with the excess insurers. The same factors that affect developing estimates of probable defense and settlement costs for asbestos-related liabilities also affect estimates of the probable insurance reimbursement, as do a number of additional factors. These additional factors include the financial viability of the insurance companies, the method in which losses will be allocated to the various insurance policies and the years covered by those policies, how legal and defense costs will be covered by the insurance policies and interpretation of the effect on coverage of various policy terms and limits and their interrelationships.

The Company determined it is probable that approximately 40% of the estimated gross liability will be paid by the Company’s insurers. This determination was made after considering the terms of the available insurance coverage, the financial viability of the insurance companies, the status of negotiations with its insurers and consulting with legal counsel. This insurance receivable has been recorded in other long-term assets.

Since many uncertainties exist surrounding asbestos litigation, the Company will continue to evaluate its asbestos-related estimated liability and corresponding estimated insurance reimbursement as well as the underlying assumptions used to derive these amounts. These uncertainties may result in the Company incurring future charges to operations to adjust the carrying value of recorded liabilities and assets, particularly if escalation in the number of claims and defense and settlement costs occurs; however, the Company is currently unable to estimate such future changes. Although the resolution of these claims is anticipated to take many years, amounts recorded for the liability under generally accepted accounting principles are not discounted, and the effect on results of operations, cash flow and financial position in any given period from a revision to these estimates could be material.

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

7.    Subsequent Event

On April 16, 2003, the Company entered into an Agreement and Plan of Merger with Signal Technology Corporation (“Signal”), to purchase all of the issued and outstanding shares of Signal’s common stock at $13.25 per share net to the shareholder in cash, for total consideration (including the cash settlement of in-the-money options) of approximately $153 million, or approximately $135 million taking into account Signal’s net cash at December 31, 2002. Signal designs, manufactures and markets highly engineered state-of-the-art power management products and sophisticated electronic radio frequency components and subsystems for the defense, space and military communications markets. Signal had gross revenues of $87 million in 2002. The Company plans to finance the cash tender offer with borrowings under its $300 Million Multi-Currency Credit Agreement dated as of November 18, 1998.

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Part I – Financial Information (Cont’d.)

Notes to Consolidated Financial Statements (Unaudited)

This Form 10-Q contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements present management’s expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this 10-Q, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Such factors are detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed with the Securities and Exchange Commission which are incorporated by reference herein.

Results from Operations

First Quarter of 2003 Compared to First Quarter of 2002

Net income for the first quarter of 2003 was $16.5 million, or $.28 per share, compared to a net loss of $7.3 million, or $.12 per share in the first quarter of 2002. First quarter 2002 net income included the cumulative effect of a change in accounting principle for goodwill of $28.1 million, or $.47 per share, while 2002 income before the cumulative effect of a change in accounting principle was $20.8 million, or $.35 per share. Operating profit was $28.2 million on sales of $376.5 million for the first quarter 2003 compared to operating profit of $36.8 million on sales of $371.5 million for the first quarter 2002. The $8.6 million decline in operating profit in the quarter was primarily due to $5 million for severance costs. Additionally, lower operating profit in the Fluid Handling, Merchandising Systems and Controls segments more than offset improved operating profit in the Aerospace and Engineered Materials segments.

Net sales from domestic businesses were 71% of the quarter’s total net sales in both the 2003 and 2002 three-month periods. Operating profit from domestic businesses was 85% and 68% of total operating profit for 2003 and 2002, while operating profit from foreign businesses was 15% and 32%, respectively. The decline in foreign operating profit is principally due to difficult operating conditions at German-Based National Rejectors (“NRI”) as discussed in the Merchandising segment below. Operating profit margins for domestic businesses were 9.0% in 2003 compared with 9.5% in 2002. Operating profit margins for non-US businesses were 3.8% in 2003 versus 11.0% in 2002 principally due to NRI.

Market Conditions

There continue to be difficult conditions in the chemical process industry (“CPI”) and power industry. The Aerospace segment experienced solid aftermarket demand throughout the quarter. Demand for Euro coin changing equipment and U.S. vending equipment remained depressed. Orders for fiberglass reinforced plastic panels in the transportation and recreational vehicle (“RV”) markets were strong during the quarter, although RV orders weakened in March.

Segment Results

Aerospace sales of $87.4 million increased $1.9 million, or 2% in the quarter, compared to $85.5 million in the first quarter 2002. Operating profit of $16.9 million increased $1.3 million, or 8%, compared to $15.6 million in the first quarter 2002. Operating profit margins improved to 19.3% in the current year quarter from 18.3% in the prior year quarter. During the first quarter 2003, the Aerospace segment completed its internal reorganization to recognize the market uniqueness of commercial aerospace and electronics by organizing itself into these two focus areas to seek customer solutions for these discrete markets.

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Part I—Financial Information (Cont’d)

Sales in the commercial aerospace businesses (Hydro-Aire, Lear Romec, Eldec Aerospace and Resistoflex Aerospace) were down 4% in the quarter versus the prior year first quarter, while operating profit increased 2%. Operating margins improved to 21.0% from 19.8% in the prior year quarter principally due to favorable mix of high-margin aftermarket spare shipments, while OEM demand continued to decline. During the quarter, this business aggressively executed the change in its business model to manage its four businesses as one global business and to resize the business and cost structure to current market conditions, which included a previously announced reduction in workforce. The Company continues to invest in new product development in this business.

Sales in the electronics businesses (Interpoint, Eldec Power Supply and General Technology Corporation (“GTC”), which includes defense electronics, increased 20% to $25.3 million from $21.0 million in the prior year quarter principally reflecting the GTC acquisition. Operating profit margins improved to 15.1% during the quarter from 13.3% in the prior year quarter.

Backlog was $224.5 million at March 31, 2003, a 3% improvement compared to $217.6 million at December 31, 2002.

Engineered Materials sales of $62.9 million increased $8.6 million, or 16%, in the quarter compared to $54.2 million in the first quarter 2002. On a comparable basis, sales increased 6% excluding the May 2002 Lasco acquisition and the CorTec divestiture in the third quarter 2002. Segment operating profit of $13.0 million increased $2.3 million, or 22%, compared to $10.6 million in the first quarter 2002. Margins improved to 20.6% from 19.6% in the prior year quarter. Kemlite’s sales to the recreational vehicle (“RV”), truck trailer and industrial building markets were up strongly in the quarter, although RV demand softened towards the end of the quarter.

Backlog at March 31, 2003 was $9.8 million, a 12% decrease from $11.2 million at December 31, 2002.

Merchandising Systems sales of $37.6 million declined $5.4 million, or 12%, in the quarter compared to $43.0 million in the first quarter 2002. Operating profit decreased $6.5 million for an operating loss of $2.1 million in the quarter compared to an operating profit of $4.4 million in the first quarter 2002. The decrease was due to difficult operating conditions at NRI, reflecting weak demand for European coin changing equipment, and $2.7 million in severance costs to size this business appropriately to the market. This performance also reflects the anticipated continuation of soft market conditions for vending machines both in North America and Europe.

Backlog at March 31, 2003 was $10.5 million versus $12.9 million at December 31, 2002.

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Part I—Financial Information (Cont’d)

Fluid Handling sales were $173.5 million in the quarter essentially even with the first quarter of 2002. Operating profit of $7.4 million in the quarter compared to $12.4 million in the first quarter of 2002 declined $5.0 million, or 40%, primarily from continued end-market weakness in this segment’s valve businesses and severance costs and other costs associated with facility consolidations. Current quarter operating profit margins were 4.3% compared to 7.1% in the prior year first quarter. Valve sales were essentially flat quarter-over-quarter, however, margins declined sharply to 3.6% from 8.1% in the first quarter 2002, reflecting continued depressed Chemical Process Industry (“CPI”) demand, Venezuelan trade issues, delayed shipments in the power and marine businesses, severance costs and other costs associated with facility consolidations. Sales in the pump business were essentially flat while operating profit improved 16% and margins improved to 7.8% from 6.6% in the prior year quarter as this business began to benefit from its facility consolidation. Crane Supply sales increased 2% and operating profit improved 6% largely on strong sales of certain valves, favorable exchange impacts and strict margin control. Resistoflex Industrial sales increased 4% on strong orders from new hose distributors.

Backlog for the Fluid Handling segment at March 31, 2003 was $138.1 million, a 6% improvement compared to $130.2 million at December 31, 2002.

Controls sales were $15.2 million in the quarter versus $15.9 million in the prior year quarter. Operating profit of $0.4 million decreased $0.4 million, or 50%, from $0.8 million in the first quarter 2002. Azonix/Dynalco continues to experience significant weakness in the gas transmission industry which more than offset improved results at Barksdale.

Backlog was $14.7 million as of March 31, 2003, a 7% improvement compared to $13.8 million at December 31, 2002.

Corporate expenses were $7.4 million in the first quarter of 2003 versus $7.0 million in the first quarter of 2002.

Financial Position

Crane’s financial position remains strong. Net debt to capital was 24.2% at March 31, 2003 compared to 25.1% at December 31, 2002 and 29.8% at March 31, 2002. In the first quarter, Crane generated $22.6 million in cash flow from operating activities allowing the Company to invest $6 million in capital equipment, pay a $6 million dividend to shareholders and spend $6 million to repurchase shares.

Order backlog at March 31, 2003 totaled $397.8 million, a 3% improvement over backlog at December 31, 2002.

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Part I—Financial Information (Cont’d)

Liquidity and Capital Resources

For the three months ended March 31, 2003, the Company generated $22.6 million of cash flow from operating activities versus $27.1 million in 2002. Net debt totaled 24.2% of capital at March 31, 2003 compared with 25.1% at December 31, 2002. The current ratio at March 31, 2003 was 1.3 and working capital totaled $131.8 million compared with 1.8 and $221.8 million respectively, at December 31, 2002. The Company had unused credit lines of $386 million available at March 31, 2003.

Of the $205.3 million in debt outstanding at March 31, 2003 ($101.6 million classified as short-term and $103.7 million classified as long-term) $200 million was at fixed rates of interest ranging from 6.75% to 8.50%. The $100 million 8.50% debt issue is scheduled to mature March 15, 2004. This debt could be refinanced with new debt issued under the Company’s fully effective shelf registration for $300 million debt securities filed on Form S-3 with the Securities and Exchange Commission or with bank borrowings.

The Company’s $300 Million Multi-Currency Credit Agreement with its banks is scheduled to mature on November 18, 2003. The Company plans to enter into a new multi-year revolving credit facility later this year. The total amount outstanding under this agreement at March 31, 2003 was $45 million and was included in loans payable. The Company plans to finance its cash tender offer of Signal shares (See note 7) with borrowings under this agreement.

On April 17, 2003, Standard & Poor’s (“S&P”) affirmed the Company’s BBB+ senior unsecured debt rating citing the Company’s free cash flow generation and generally moderate financial profile. On April 21, 2003, Moody’s Investors Service (“Moody’s”) downgraded the Company’s senior unsecured debt to Baa2 from Baa1 reflecting the elevation of the Company’s risk profile due to uncertainties associated with asbestos-related claims combined with the expected increase in leverage from the pending acquisition of Signal Technology Corporation. The rating outlook for the Company from both S&P and Moody’s is Stable. Under prevailing market conditions, the Company believes that these ratings afford it adequate access to the public and private markets for debt.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes since the disclosure in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Item 4.    Controls and Procedures

(a)    Evaluation of disclosure controls and procedures.    The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports

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Part I—Financial Information (Cont’d)

that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on this evaluation, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer, have concluded that these controls are effective.

(b)    Change in Internal Controls.    There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the Company’s evaluation, including any corrective actions with regard to significant material deficiencies or material weaknesses.

Part II—Other Information

Item 1.    Legal Proceedings

The Company’s asbestos claims are discussed in note 6 to the financial statements and are incorporated herein by reference. There have been no other material developments in any legal proceedings described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Item 4.    Submission of Matters to a vote of Security Holders

A)    The Annual Meeting of shareholders was held on April 28, 2003.

B)    The following four Directors were re-elected to serve for three years until the Annual Meeting of 2006.

C)    The shareholders approved the selection of Deloitte & Touche LLP as independent auditors for the Company for 2003.

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Part II—Other Information (Cont’d)

D)    The shareholders rejected the adoption of the MacBride Principles in reference to the Company’s operations in Northern Ireland.

Item 6.    Exhibits and Reports on Form 8-K

(a)    Exhibits

(b)    Form 8-K

On January 23, 2003, the Company filed a Form 8-K containing the 2002 fourth quarter press release.

On April 16, 2003, the Company filed a Form 8-K containing the 2003 first quarter press release and the announcement of the commencement of a tender offer to acquire Signal Technology Corporation.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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CERTIFICATIONS

I, Eric C. Fast, President and Chief Executive Officer of Crane Co., certify that:

(1)    I have reviewed this Report on Form 10-Q of Crane Co.;

(2)    Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

(3)    Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report;

(4)    The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

(5)    The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of the Company’s board of directors:

(6)    The Company’s other certifying officers and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/S/    ERIC C. FAST

Eric C. Fast

President and Chief Executive Officer

May 14, 2003

I, George S. Scimone, Vice President Finance and Chief Financial Officer of Crane Co., certify that:

(1)    I have reviewed this Report on Form 10-Q of Crane Co.;

(2)    Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

(3)    Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report;

(4)    The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

(5)    The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of the Company’s board of directors:

(6)    The Company’s other certifying officers and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/    George S. Scimone

George S. Scimone

Vice President Finance and

Chief Financial Officer

May 14, 2003

Exhibit Index