SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 20042005

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

6¾6 ³/4% Senior Notes due October 2006

5½5 ¹/2% Senior Notes due September 2013

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act    Yes  ¨    No  x

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.    Yesx    No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is an accelerated filera shell company (as defined in Rule 12b-2 of the Exchange Act).    Yesx No¨

    No  x

Based on the last saleclosing stock price of $31.22$26.30 on June 30, 2004,2005, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common equity held by nonaffiliates of the registrant was $1,438,515,979.

$1,316,301,982.

The number of shares outstanding of the registrant’s common stock, $1.00 par value was 59,551,87460,919,131 at February 28, 2005.

2006.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual report to shareholders for the year ended December 31, 20042005 and portions of the proxy statement for the annual shareholders’ meeting to be held on April 25, 200524, 2006 are incorporated by reference into Parts I, II, III and IV of this Form 10-K.

PART I

Crane Co. (“Crane” or the “Company”) is a diversified manufacturer of engineered industrial products. Founded in 1855, the Company employs over 10,50010,400 people in North America, South America, Europe, Asia and Australia.

STRATEGY

The Company’s strategy is to grow the earnings of niche businesses with high market share, acquire companies that offer strategic fits with existing businesses, aggressively pursue operational and strategic linkages among our businesses, build an aggressive and committed management team whose interests are directly aligned with those of the shareholders’shareholders and maintain a focused, efficient corporate structure. Crane has built a stronger company using established operating themes of leveraging intellectual capital, improving customer focus, striving for operational excellence and strategically linking existing businesses with acquisitions.

ACQUISITIONS

In the past five years, theThe Company has completed 21 acquisitions.22 acquisitions since the beginning of 2001.

In January 2006, the Company acquired CashCode Co. Inc. (“CashCode”), a privately held company specializing in niche applications for banknote validation, storage and recycling devices for use in vending, gaming, retail and transportation applications for $86 million in cash. CashCode had sales of approximately $48 million in 2005. CashCode is located in Concord, Ontario and employs approximately 350 people worldwide serving a global marketplace with 75% of its sales outside the United States, of which a majority are in Europe and Russia. CashCode will be integrated into the Company’s Merchandising Systems segment. The final purchase price allocation will be completed in 2006.

During 2005, the Company completed two acquisitions at a total cost of $9 million. In August 2005, the Company purchased the PSI division of Edlon, Inc. (“PSI”) for $7 million. PSI is a manufacturer of plastic-lined pipes, fittings and accessories. The business has been integrated into Resistoflex-Industrial, which is part of the Company’s Fluid Handling segment. In December 2005, the Company acquired In One Technologies, which is part of the Company’s Merchandising Systems segment, for approximately $2 million. The final purchase accounting for the acquisitions will be completed during 2006.

During 2004, the Company completed two acquisitions at a total cost of $50 million. Goodwill for the 2004 acquisitions amounted to approximately $37 million. In January 2004, the Company acquired P. L. Porter Co. (“Porter”) for a purchase price of $44 million. Porter is a leading manufacturer of motion control products for airline seating and is located in Woodland Hills, California.has been integrated into the Company’s Burbank, California Aerospace facility. Porter holds leading positions in both electromechanical actuation and hydraulic/mechanical actuation for aircraft seating, selling directly to seat manufacturers and to the airlines. Electrically powered seat actuation systems provide motive power and control features required by premium class passengers on competitive international routes. Porter products not only provide passenger comfort with seat back and foot rest adjustment, but also control advanced features such as lumbar support and in-seat massage. In addition to seats installed in new aircraft, airlines refurbish and replace seating several times during an aircraft’s life along with maintenance and repair requirements. Porter’s 2003 annual sales were approximately $32 million. The operations were integrated into the Company’s Aerospace & Electronics Segment.segment. Also in January 2004, the Company acquired the Hattersley valve brand and business together with certain related intellectual property and assets from Hattersley Newman Hender, Ltd., a subsidiary of Tomkins plc, for a purchase price of $6 million. Hattersley branded products include an array of valves for commercial, industrial and institutional construction projects. This business has been integrated into Crane Ltd., which is part of the Fluid Handling Segment.segment.

2

PART I

Item 1. Business (continued)

During 2003, the Company completed four acquisitions at a total cost of $168.8$169 million. Goodwill for these acquisitions amounted to $118 million. In May 2003, the Company acquired Signal Technology Corporation (“STC”) for a total purchase price of approximately $138 million (net of STC cash acquired). STC, with 2002 annual sales of approximately $87 million, is a leading manufacturer of highly engineered state-of-the-art power management products and electronic radio frequency (“RF”) and microwave frequency components and subsystems for the defense, space and military communications markets. STC supplies many U.S. Department of Defense prime contractors and foreign allied defense organizations with products designed into systems for missile, radar, aircraft, electronic warfare, intelligence and communication applications. The operations were integrated with the Company’s Aerospace & Electronics Segment.segment. In June 2003, the Company purchased certain pipe coupling and fittings businesses from Etex Group S.A. (“Etex”), for a purchase price of approximately $29 million. The 2002 annual sales for these Etex businesses were approximately $60 million. These businesses provide pipe jointing and repair solutions to the water, gas and industrial markets worldwide. Products include grooved pipe systems, pipeline couplings and transition fittings and pipeline equipment. The businesses were integrated into the Company’s subsidiary, Crane Ltd., a leading provider of pipe fittings, valves and related products to the building services, heating, ventilating“HVAC” (Heating, Ventilating and air conditioning (“HVAC”)Air Conditioning) and industrial markets in the United Kingdom and Europe. The Company also acquired two other entities in 2003 at a total purchase price of $1.7approximately $2 million. Goodwill for the 2003 acquisitions amounted to $118 million.

During 2002, the Company completed seven acquisitions at a total cost of $82.2$82 million. Goodwill for these acquisitions amounted to $56 million. In January 2002, the Company acquired the patents and other intellectual property of Trinity Airweighs, obtaining a system to measure aircraft weight and center of gravity.

2

PART I

Also in January 2002, the Company acquired Kavey Water Products which enhanced Crane Environmental’s capability to provide water treatment systems. In May 2002, the Company acquired the Lasco Composites business from Tomkins Industries, Inc. Lasco Composites is a manufacturer of fiberglass reinforced plastic (FRP)(“frp”) panels that further expands the Company’s Kemlite business in the transportation, building products and recreational vehicle markets and provided an entry into the industrial market. In July 2002, the Company acquired Corva Corporation, a privately held distributor of valves and actuators. In November 2002, the Company acquired all of the outstanding shares of General Technology Corporation (“GTC”) from an employee stock ownership plan trust for a purchase price of $25 million in cash and assumed debt. GTC provides high-reliability, customized-contract manufacturing services and products focused on military and defense applications. GTC has been integrated with the Electronics Group in the Company’s Aerospace & Electronics Segment.segment. Also in November 2002, the Company acquired Qualis Incorporated, a privately held provider of polyester film embossing services, which has been integrated into Kemlite. In November 2002, the Company entered into a joint venture in China furthering its low-cost pump manufacturing capabilities.

During 2001, the Company completed six acquisitions at a total cost of $191 million. Goodwill for these acquisitions amounted to $68 million. In February 2001, the Company acquired Ventech Controls, Inc., a valve repair business providing both shop repair and remanufacture of control valves and instruments. Also in February 2001, the Company acquired the fiberglass reinforced panel business of UK-based Laminated Profiles Ltd. as part of its strategic initiative to penetrate the European transportation and recreational vehicle markets. In April 2001, the Company acquired the

3

PART I

Item 1. Business (continued)

Industrial Flow Group of Alfa Laval Holding AB (renamed Crane Process Flow Technologies) which includes the Saunders brand of diaphragm valves manufactured in the UK and India and the DEPA brand of air operated diaphragm pumps manufactured in Germany. Crane Process Flow Technologies focuses on the development, production and distribution of valves, pumps and related components in high value-added applications. In June 2001, the Company acquired the Xomox valve business from Emerson Electric Co. for $145 million. Xomox supplies high-end, application-driven, sleeved-plug valves, lined valves, high performance butterfly valves and actuators to the chemical, pharmaceutical and other process industries. During the third quarter of 2001, the Company acquired the aerospace hose product line of Teleflex Fluid Systems and Resistoflex GmbH. Aerohose, based in Florida, is a leading supplier of Teflon^®Teflon®-braided, high- pressure hose assemblies utilized in both commercial and military aircraft as well as ground support systems. Resistoflex GmbH, based in Germany, is a leading manufacturer of Teflon^®Teflon®-lined, steel-piping products serving chemical and pharmaceutical markets in Europe.

During 2000, the Company completed two acquisitions at a total cost of $12 million. Goodwill for these two acquisitions amounted to $9 million. In March 2000, the Company acquired Streamware Corporation, a privately-held provider of business management software and market analysis tools for the vending and food service industry. In December 2000, the Company acquired the assets of the Valve Repair Division of Groth Corporation. With service centers located in Texas, the Valve Repair Division provides both shop and field testing and repair services for a broad range of valve types and is an authorized repair facility for many leading valve manufacturers.

DIVESTITURES

In the past five years, the Company has divested sevenfive businesses.

In December 2004, the Company sold the Victaulic trademark and UK-based business assets for $15.3$15 million in an all cash transaction. The Company realized an after-tax gain of $6.5 million, or $.11 per share, on the sale. The Victaulic trademark and business assets were acquired in connection with the acquisition of certain valve and fittings product lines from Etex S.A. in June 2003. In March 2003, the Company sold the assets of its Chempump unit to Teikoku USA, Inc. Chempump manufacturesmanufactured canned motor pumps primarily for use in the chemical processing industry. In September 2002, the Company sold its CorTec unit for approximately $3 million. In September 2001, the Company sold Powers Process Controls for its carrying value. In October 2001, the Company sold the Crane Plumbing business in Canada recording an after-tax loss of approximately $8.5 million. Proceeds from the salesales of these businesses in 2001 were approximately $20 million. During the

3

PART I

third quarter of 2001, the Company and Emerson Electric Co. announced the formation of a joint venture involving Emerson’s Commercial Cam unit and Crane’s Ferguson business unit. Crane and Emerson contributed their respective operations into a new company, Industrial Motion Control Holdings, LLC. Crane also contributed $12 million of cash into the venture. The Industrial Motion Control Holdings, LLC joint venture is being accounted for on the equity basis and the investment amounted to $27 million at year-end 20042005 and is included in other assets in the consolidated balance sheet. In May 2000, the Company sold its interest in Powec AS, a Norwegian manufacturer of power supplies for the telecommunications industry. In addition, the Company’s wholly-owned ELDEC Corporation subsidiary sold its related telecommunications power supply product line to the same purchaser. Total consideration for both transactions was $45.6 million.

FINANCING

On January 21, 2005, the Company entered into a $450 million credit facility consisting of a $300 million revolving credit component and a $150 million term loan component, which replaced a four-year, $300 million revolving credit facility the Company terminated on January 21, 2005. This contractually committed facility expires on January 21, 2010. The revolving credit allows the Company to borrow, repay or to the extent permitted by the agreement, prepay and re-borrow at any time prior to the stated maturity date, and the loan proceeds may be used for general corporate purposes including financing for acquisitions. The term loan component could only be drawn, under certain conditions, for the funding of a comprehensive asbestos settlement. In May 2005, the Company elected to irrevocably terminate the obligations of its lenders to make term loan(s) for up to $150 million under the Credit Agreement. Since the termination of the comprehensive master settlement agreement (“MSA”) for asbestos claims on January 24, 2005, the Company had no further need for the term loan component. The contractually committed facility was unused at February 27, 2006, and was not used throughout 2005. The agreement contains certain covenants including interest coverage and leverage ratio tests.

4

PART I

Item 1. Business (continued)

In September 2003, the Company soldissued $200 million of 5.50% notes that will mature on September 15, 2013. The interest is payable semi-annually on March 15 and September 15 of each year. The notes have no sinking fund requirement but may be redeemed, in whole or in part, at the option of the Company. In September 1998, the Company soldissued $100 million of 6.75% notes that will mature on October 1, 2006.

The interest is payable semi-annually on April 1 and October 1 of each year. The notes are not redeemable prior to maturity and are not subject to any sinking fund requirements. The Company has the intention and ability to refinance the $100 million obligation at maturity with long-term borrowings; therefore, it is classified as long-term at December 31, 2005.

BUSINESS SEGMENTS

See page 6050 of the Annual Report to Shareholders for the year ended December 31, 2004,2005, for sales, operating profit and assets employed by each business segment.

AEROSPACE & ELECTRONICS

The Aerospace & Electronics Segmentsegment has two business groups:groups, the Aerospace Group and Electronics.the Electronics Group. The Aerospace Group products are currently manufactured under the brand names Eldec, Hydro-Aire, ELDEC, Lear Romec, P.L. Porter and Resistoflex-Aerospace. The Aerospace Group’s products are organized into the following solution sets: Landing Systems, Solutions, Sensing and Controls, Solutions, Fluid Management, Solutions, Aircraft Electrical Power Solutions, and Cabin Solutions.Cabin. The Electronics Group products are currently manufactured under the brand names Interpoint, General Technology,ELDEC, Keltec, STC Microwave Systems, Keltec, Olektron, Eldec and Advanced Integrated Systems Division (“AISD”).General Technology. The Electronic Group’sGroup products are organized into the following solution sets: Power, Solutions, Microwave Systems, Solutions, Electronic Manufacturing SolutionServices and Microelectronics Solutions/AISD.

Eldec designs, manufactures and markets custom position indication and control systems, proximity sensors, pressure sensors, true mass fuel flowmeters and power conversion systems for the commercial transport, business, regional, general aviation, military, repair and overhaul and electronics markets. These products are custom designed for specific aircraft to meet technically demanding requirements of the aerospace industry. Eldec has facilities in Washington, England and France.

Microelectronics/Wireless Monitoring.

Hydro-Aire designs, manufactures and sells aircraft brake control and anti-skid systems, including electro-hydraulic servo valves and manifolds, embedded software and rugged electronic controls, hydraulic control valves, landing gear sensors and fuel pumps as original equipment to the commercial transport, business, regional, general aviation, military and government aerospace, repair and overhaul markets. In addition, Hydro-Aire designs and manufactures systems similar to those above for the retrofit of aircraft with improved systems and manufactures replacement parts for systems installed as original equipment by aircraft manufacturers. All of these products are largely proprietary to Hydro-Aire and, to some extent, are custom designed to the requirements and specifications of the aircraft manufacturer or program contractor. These systems and replacement parts are sold directly to aircraft manufacturers, airlines, governments and aircraft maintenance and overhaul companies. Hydro-Aire has a facility in Burbank, California.

Lear Romec designs, manufactures and sells lubrication and fuel pumps for aircraft and radar cooling systems for the commercial and military aerospace industries. Lear Romec also manufactures fuel boost and transfer pumps for commuter and business aircraft. Hydro-Aire has facilities in California and Kansas while Lear Romec has a facility in Elyria, Ohio.

4

PART I

ELDEC designs, manufactures and markets custom position indication and control systems, proximity sensors, pressure sensors, true mass fuel flow meters and power conversion systems for the commercial business, regional and general aviation, military, repair and overhaul and electronics markets. These products are custom designed for specific aircraft to meet technically demanding requirements of the aerospace industry. ELDEC has facilities in Lynnwood, Washington; Daventry, Northants, England; and Bron, France.

Porter is a leading manufacturer of motion control products for airline seating and is located in Woodland Hills, California.seating. Porter holds leading positions in both electromechanical actuation and hydraulic/mechanical actuation for aircraft seating, selling directly to seat manufacturers and to the airlines. The Porter facility is scheduled to bewas consolidated into the Hydro-Aire Burbank, California facility in 2005.

5

PART I

Item 1. Business (continued)

Resistoflex-Aerospace manufactures high-performance, separable fittings for operating pressures up to 8,000 pounds per square inch used primarily in the aerospace industry. Its products are sold directly to the aerospace industry. Resistoflex-Aerospace has a facility in Jacksonville, Florida.

Interpoint designs, manufactures and sells standard and custom miniature (hybrid) DC-to-DC power converters and custom miniature (hybrid) electronic circuits for applications in commercial, space and military aerospace, fiber optic and medical technology industries. Interpoint has facilities in the stateRedmond, Washington and Kaohsiung, Taiwan, Republic of Washington domestically and Taiwan.China.

STC designs, manufactures and markets power management products and sophisticated electronic radio frequency (“RF”) components and subsystems. Its products are used in broadband wireless equipment, digital cellular/PCS wireless infrastructure equipment and defense electronics. STC supplies many U.S. Department of Defense prime contractors and foreign allied defense organizations with products designed into systems for missile, radar, aircraft, electronic warfare, intelligence and communication applications. STC’s commercial customers integrate its products into wireless systems, which are then sold to wireless service providers globally and enable the transmission and reception of data signals in wireless systems worldwide. Applications for its commercial products include point-to-point transport, point-to-multipoint access, cellular backhaul and digital cellular/PCS base stations. STC has facilities in Florida, Massachusetts,Ft. Walton Beach, Florida; Beverly, Massachusetts; Chandler, Arizona and Plano,Texas. The California facility was closed in December 2003.

GTC provides high-reliability, customized-contract manufacturing services and products focused on military and defense applications. GTC services include the assembly and testing of printed circuit boards, electromechanical devices, customized integrated systems, cables and wire harnesses. GTC has a facility in Albuquerque, New Mexico.

The Aerospace & Electronic Segmentsegment employs 2,8502,976 people and had assets of $480.3$476 million at December 31, 2004.2005. The order backlog totaled $341.5$365.1 million and $277.2$341.5 million at December 31, 2005 and 2004, and 2003, respectively.

ENGINEERED MATERIALS

The Engineered Materials Segment consistssegment is largely made up of the Kemlite andfiberglass-reinforced plastic (“frp”) panel business, renamed Crane Composites, Inc. effective January 1, 2006, but it also includes Polyflon.

Kemlite manufactures FRPfrp panels for the transportation industry, in refrigerated and dry-van truck trailers, recreational vehicles, industrial markets and the commercial construction industry for food processing, fast-food restaurants and supermarket applications, as well as institutions where fire-rated materials with low-smoke generation and minimum toxicity are required, and for residential construction. Kemlite sells its products directly to truck trailer and recreational vehicle manufacturers and uses distributors to serve the commercial construction market and some segments of the recreational vehicle market. Kemlite’s manufacturing facilities are located in Illinois, Arkansas, Tennessee, Texas,Channahon, Illinois; Jonesboro, Arkansas; Grand Junction and Bolivar, Tennessee; Houston, Texas; Florence and Henderson, Kentucky and theAlton, Hampshire, United Kingdom.

Polyflon is a manufacturer of small specialty components, primarily substituteas substrate materials for antennas. Polyflon is located in Norwalk, Connecticut.

The Engineered Materials Segmentsegment employs 868860 people and had assets of $188.2$189 million at December 31, 2004.2005. The order backlog totaled $16.4$17.2 million and $11.8$16.4 million at December 31, 20042005 and 2003,2004, respectively.

56

PART I

MERCHANDISING SYSTEMS

The Merchandising Systems Segment consistssegment, in 2005 and 2004, consisted of Crane Merchandising Systems (“CMS”) and National Rejectors, Inc. GmbH (“NRI”).

CMS products include electronic vending merchandisers for refrigerated and frozen foods, hot and cold beverages, snack foods, single cup individually brewed hot drinks and combination vendors/merchandisers designed to vend both snack foods and hot/cold drinks or snacks and refrigerated/frozen foods in one machine. CMS products are marketed to customers in the United States and Europe by Company sales and marketing personnel as well as distributors and, in other international markets, through independent distributors. CMS launched new features, new products and updated technology in 2002, including its new guaranteed delivery system called SureVend. CMS also includes Streamware Corporation, a leading provider of business management software and market analysis tools for the vending and food service industry.industries. Streamware’s VendMAX is a fully-integrated software/software / hardware solution that offers operators cash accountability, inventory control and improved merchandising capabilities. CMS has manufacturing facilities in the state of Missouri domesticallyBridgeton, Missouri; Boston, Massachusetts and England.

Chippenham, Wiltshire, United Kingdom.

NRI manufactures electronic coin validators for the automated merchandising and gambling/amusement markets in Europe. NRI is among the relatively few makers of coin validators that supply European countries with validators programmed for the new euro coins that went into circulation at the start of 2002. NRI has a manufacturing facility in Buxtehude, Germany and distribution facilities in Germany,Barcelona, Spain and Horbourg-Wihr, France.

In January, 2006, the Company acquired CashCode for $86 million in cash. CashCode manufactures banknote validators for use in a variety of niche applications in the vending, gaming, retailing and transportation industries. Its bill-to-bill system has the capability to validate, store and recycle bills, allowing the cash taken in from one customer to be used for change to another customer. CashCode had sales of approximately $48 million in 2005 and serves a global marketplace with 75% of its sales outside the United States, of which the majority are in Europe and Russia. Located in Concord, Ontario, this acquisition is a strong complementary fit, as NRI is a leader in coin validation systems and CashCode is a leader in bill validation. The expanded customer base, geographic presence and product portfolio can be mutually leveraged by all three businesses.

The Merchandising Systems Segmentsegment employs 911849 people and had assets of $121.7$104 million at December 31, 2004.2005. Order backlog totaled $12.0$9.2 million and $10.3$12.0 million at December 31, 2005 and 2004, and 2003, respectively.

FLUID HANDLING

The Fluid Handling Segmentsegment consists of the Crane Valve Group, Crane Ltd., Resistoflex-Industrial, Crane Pumps & Systems, Crane Supply and Crane Environmental. The Crane Valve Group, with manufacturing facilities in the United States as well as operations in,in: Australia, Belgium, Canada, China, England, Finland, France, Ireland, Germany, Australia,Hungary, India, Indonesia, Italy, Japan, Korea, Mexico, Norway, India, Hungary, China, Indonesia, Mexico, Japan, Belgium, Korea, Taiwan, Finland, the Netherlands, Northern Ireland, Spain, Sweden, Switzerland and Switzerland,Wales, sells a wide variety of commodity and special purpose valves and fluid control products for the chemical and hydrocarbon processing, petrochemical, pharmaceutical, oil and gas, refining, power, generation, marine, mining, general industrial and commercial construction industries. Products are sold under the trade names Crane, Saunders, Jenkins, Pacific, Xomox, DEPA, ELRO, REVO, Westad, Flowseal, Centerline, Stockham and Duo-Chek.

7

PART I

Item 1. Business (continued)

Crane Ltd. manufactures pipe fittings, gate, globe and check valves, ball and butterfly valves, and static and automatic balancing valves.valves, couplings and connectors. Crane Ltd. has facilities in the United KingdomIpswich and Hitchin, England and Ningbo, China.

Resistoflex-Industrial is engaged in the design, manufacture and sale of corrosion-resistant, plastic-lined steel pipes, fittings, tanks, valves, expansion joints and hose used primarily by the pharmaceutical, chemical processing, pulp and paper, ultra pure water and waste management industries. Resistoflex-Industrial Products sells its industrial products through distributors who provide stocking and fabrication services to industrial users in the United States. Resistoflex-Industrial Products also manufactures plastic-lined pipe products at its Singapore plant serving the Asian chemical processing and pharmaceutical industries. Resistoflex-Industrial has facilities in the state ofMarion, North Carolina domestically, Singapore, GermanyCarolina; Singapore; Pforzheim, Germany; and Shanghai, China.

Crane Pumps & Systems has sevenfour manufacturing facilities, fivetwo of which are in the United States. Pumps are manufactured under the trade names Deming, Weinman, Burks, Chem/Meter, Barnes, Sellers and Process Systems. Pumps are sold to a broad customer base that includes chemical and hydrocarbon processing, automotive, municipal, industrial and commercial wastewater, power generation, commercial heating, ventilation and air-conditioning industries and original equipment manufacturers. Crane Pumps & Systems has facilities in Ohio, Michigan, Indiana, CanadaPiqua, Ohio; Warren, Michigan; Bramalea, Ontario, Canada; and Zhejiang, China.

Crane Supply, a distributor of plumbing supplies, valves and piping in Canada, maintains 3433 distribution facilities throughout Canada.

6

PART I

Crane Environmental is a leading supplier of specialized water purification solutions for the world’s industrial and commercial markets. Crane Environmental’s worldwide applications include government, pulp and paper, steel, oil, gas, petrochemical, power generation, wastewater treatment, carwash, bottling, beverage and agriculture. Its products are sold under the trade names Cochrane and Environmental Products. Crane Environmental has facilities in Venice, Florida and Trooper, Pennsylvania.

The Fluid Handling Segmentsegment employs 5,3735,218 people and had assets of $734.9$693 million at December 31, 2004.2005. Order backlog totaled $183.2$188.8 million and $140.2$183.2 million at December 31, 2005 and 2004, and 2003, respectively.

CONTROLS

The Controls Segmentsegment consists of Barksdale, Azonix and Azonix/Dynalco. These companies design, manufacture and market industrial and commercial products that control flows and processes in various industries including transportation, petroleum,oil and gas, chemical, construction, food and beverage and power generation.

Barksdale manufactures solid state and electromechanical pressure switches and transducers, level switches and continuous level indicators, temperature switches and directional control valves that serve a broad range of commercial and industrial applications. It has manufacturing and marketing facilities in the state of California domestically and Germany.

Azonix/Dynalco designs and manufactures rotational speed sensors, temperature and pressure instruments and monitors for rugged environments, and microprocessor-based engine and mechanism controls. Azonix/Dynalco’s products are used worldwide in a variety of applications for various industries including transportation, power generation, oil, gas, petrochemical, chemical, pharmaceutical, agriculture and metal processing. It also manufactures operator interfaces and measurement and control systems for hazardous and harsh applications, intelligent data acquisition products, high-precision thermometers and calibrators. Azonix/Dynalco has manufacturing facilities in Massachusetts, Florida and Texas.

The products in this segment are sold directly to end users and engineering contractors through the Company’s own sales force and cooperatively with sales representatives, stocking specialists and industrial distributors.

Barksdale manufactures ride-leveling, air-suspension control valves for heavy trucks and trailers, as well as pressure, temperature and level sensors used in a range of industrial machinery and equipment. It has manufacturing and marketing facilities in Los Angeles, California and Reichelsheim, Germany.

Azonix produces ultra-rugged computers, measurement and control systems and intelligent data acquisition products and has a manufacturing facility in Billerica, Massachusetts.

Dynalco is a manufacturer of engine compressors monitoring and diagnostic systems and has facilities in Ft. Lauderdale, Florida and Houston, Texas.

8

PART I

Item 1. Business (continued)

The Controls Segmentsegment employs 422424 people and had assets of $49.9$48 million at December 31, 2004.2005. Order backlog totaled $13.7$16.9 million and $12.2$13.7 million at December 31, 2005 and 2004, and 2003, respectively.

COMPETITIVE CONDITIONS

The Company’s lines of business are conducted under highly competitive conditions in each of the geographic and product areas they serve. Because of the diversity of the classes of products manufactured and sold, they do not compete with the same companies in all geographic or product areas. Accordingly, it is not possible to estimate the precise number of competitors or to identify the Company’s competitive position, although the Company believes that it is a principal competitor in most of its markets. The Company’s principal method of competition is production of quality products at competitive prices in a timely and efficient manner.

The Company’s products have primary application in the aerospace, defense electronics, hydrocarbon processing,recreational vehicle, transportation, automated merchandising, petrochemical, chemical and power generation automated merchandising, recreational vehicle and transportation industries. As such, they are dependent upon numerous unpredictable factors, including changes in market demand, general economic conditions and capital spending. Because these products are also sold in a wide variety of markets and applications, the Company does not believe it can reliably quantify or predict the possible effects upon its business resulting from such changes.

7

PART I

The Company’s engineering and product development activities are directed primarily toward improvement of existing products and adaptation of existing products to particular customer requirements as well as the development of new products. While the Company owns numerous patents and licenses, none are of such importance that termination would materially affect its business. Research and development costs are expensed when incurred. These costs were approximately $53.1 million in 2005, $52.4 million in 2004, and $46.8 million in 2003, and $46.0 million in 2002, incurred mostlyprimarily by the Aerospace & Electronics Segment.segment. Funds received from customer-sponsored research and development projects were approximately $7.0 million, $6.2 million, and $3.1 million in 2005, 2004 and $5.1 million in 2004, 2003, and 2002, respectively, and were recorded in net sales.

The Company is not dependent on any single customer nor are there any issues at this time regarding available raw materials for inventory that would be material to its operations.

CostsSee Item 3 “Legal Proceedings” regarding costs of compliance with federal, state and local laws and regulations involving the discharge of materials into the environment or otherwise relating to the protection of the environment are not expected to have a material effect upon the Company’s capital expenditures, earnings or competitive position.

environment.

AVAILABLE INFORMATION

Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, are available free of charge on the Company’s website atwww.craneco.com as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission.

Item 1A. Risk Factors.

The following is a description of what we consider the key challenges and risks confronting our business. This discussion should be considered in conjunction with the discussion under the caption “Forward-Looking Statements” immediately following, and with the discussion of risks and uncertainties of the business included in Item 7, “Management’s Discussion and Analysis.”

9

FORWARD LOOKING STATEMENTSPART I

Item 1A. Risk Factors. (continued)

We are subject to significant, continuing asbestos litigation. We are subject to numerous lawsuits for asbestos-related personal injury, as described more fully in Item 3, Legal Proceedings. 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. Our estimate of the future expense of these claims is derived from assumptions with respect to future claims, settlement and defense costs which are based on recent experience during the last few years and which may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would any substantial adverse verdict at trial. A legislative solution or a revised structured settlement transaction could also change the estimated liability. These uncertainties may result in our incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if the number of claims and settlement and defense costs escalates or if legislation or another alternative solution is implemented; however, we are currently unable to estimate such future changes. Although the resolution of these claims may take many years, the effect on results of operations, cash flow and financial position in any given period from a revision to these estimates could be material.

In addition to asbestos lawsuits, we are subject to claims and proceedings relating to the ordinary conduct of our business, such as those involving employment disputes, contract disputes, allegations of infringement on patents and trademarks, personal injuries, product liability and other types of claims. For more information with respect to the risks to Crane Co. associated with asbestos liability, see Item 3, Legal Proceedings.

Demand for our products is uncertain, and subject to factors beyond our control. In the Aerospace and Electronics segment, for example, a significant decline in demand for air travel, or a decline in airline profitability generally, could result in reduced orders for aircraft and could also cause airlines to reduce their purchases of repair parts from Crane’s businesses. The aerospace businesses could also be impacted if major aircraft manufacturers, such as Boeing (which represented approximately 11% of the segment’s revenue in 2005) encountered production problems, or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices. In the Engineered Materials segment, sales and profits could fall if there were a decline in demand for truck trailers, recreational vehicles, or industrial or building products. Results in the Controls segment could decline because of an unanticipated decline in demand for the businesses’ products from the oil and gas or heavy truck markets, or from unforeseen product obsolescence. Results at the Company’s Merchandising Systems business have been and will continue to be affected by employment levels, office occupancy rates and factors affecting vending operator profitability such as fuel, confection and borrowing costs.

The prices of our raw materials may increase. In the Engineered Materials segment, for example, profits could be adversely affected by unanticipated increases in resin and fiberglass material costs and by any inability on the part of the businesses to maintain their position in product cost and functionality against competing materials. The costs in the Company’s Fluid Handling and Merchandising Systems segments are affected by fluctuations in the price of metals such as steel.

Our ability to obtain parts and raw materials from our suppliers is uncertain. We are engaged in a continuous, company-wide effort to concentrate our purchases of parts and raw materials on fewer suppliers, and to obtain parts from low-cost countries where possible. As this effort progresses, we are exposed to an increased risk of disruptions to our supply chain, which could have a significant effect on our operating results.

10

PART I

Item 1A. Risk Factors. (continued)

We may be unable to identify or to complete acquisitions, or to successfully integrate the businesses we acquire. We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. Our acquisition program entails the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities and potential profitability of acquisition candidates; and in retaining the employees and integrating the operations of the businesses we acquire. There can be no assurance that suitable acquisition opportunities will be available in the future, that the Company will continue to acquire businesses or that any business acquired will be integrated successfully or prove profitable.

We face significant competition. All of our lines of business are conducted in highly competitive conditions in various geographic and product markets. In each of our businesses we face the risk that a competitor will introduce a product or technology that is more effective or less expensive than the competing product offered by Crane. See the discussion included in Item 1 above under the caption “Competitive Conditions.”

We conduct a substantial portion of our business outside the United States. Net sales and assets related to operations outside the United States were 36.4% and 26.3% in 2005, and 36.0% and 27.7% in 2004, respectively, of the Company’s consolidated amounts. Such operations and transactions entail the risks associated with conducting business internationally, including the risks of currency fluctuations, slower payment of invoices, adverse trade regulations and possible social, economic and political instability.

Our customers’ businesses are cyclical. A substantial portion of the sales of our business segments are concentrated in industries that are cyclical. Their results are subject to fluctuations in domestic and international economies as well as to currency fluctuations and unforeseen inflationary pressures. Reductions in the business levels of these industries would reduce the sales and profitability of the affected business segments.

FORWARD-LOOKING STATEMENTS

Throughout this Annual Report on Form 10-K and the Annual Report to Shareholders, particularly in the Letter to Shareholders and Management’s Discussion and Analysis of Operations, the Company makes numerous statements about expectations of future performance and market trends and statements about plans and objectives and other matters which because they are not historical fact, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

In addition, the Company and its representatives may, from time to time, make written or oral forward-looking statements including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders which can be identified by the use of forward-looking terminology such as “believes”, “contemplates”, “expects”, “may”, “will”, “could”, “should”, “would” or “anticipates” or the negative thereof or comparable terminology.

All forward-looking statements speak only as of the date on which such statements are made and involve risk and uncertainties that exist in the Company’s operations and business environment and are not guarantees of future performance. The Company assumes no obligation to update any of these forward-looking statements, whether as a result of new information or future events.

Because the Company wishes to take advantage of the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, readersReaders are cautioned to consider the following important risk factors that could affect the Company’s businesses and cause actual results to differ materially from those projected.

General

A substantial portion of the sales of the Company’s business segments are concentrated in industries which are cyclical in nature. Because of the cyclical nature of these businesses, their results are subject to fluctuations in domestic and international economies as well as to currency fluctuations and unforeseen inflationary pressures. Reductions in the business levels of these industries would negatively impact the sales and profitability of the affected business segments.

811

PART I

Item 1A. Risk Factors. (continued)

Forward Looking StatementsGeneral (continued)

While the Company is a principal competitor in most of its markets, all of its markets are highly competitive. The Company’s competitors in many of its business segments can be expected in the future to improve technologies, reduce costs and develop and introduce new products, and the ability of the Company’s business segments to achieve similar advances will be important to their competitive positions. Competitive pressures, including those discussed above, could cause one or more of the Company’s business segments to lose market share or could result in significant price erosion, either of which could have an adverse effect on the Company’s results of operations.

The Company’s acquisition program entails the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities and potential profitability of acquisition candidates and in integrating the operations of acquired companies. There can be no assurance that suitable acquisition opportunities will be available in the future, that the Company will continue to acquire businesses or that any business acquired will be integrated successfully or prove profitable.

Net sales and assets related to operations outside the United States were 46.4% and 27.7% in 2004, 44.4% and 29.6% in 2003, and 42.7% and 30.6% in 2002, respectively, of the Company’s consolidated amounts. Such operations and transactions entail the risks associated with conducting business internationally, including the risk of currency fluctuations, slower payment of invoices, adverse trade regulations and possible social, economic and political instability. While the full impact of this economic instability cannot be predicted, it could have a material adverse effect on the Company’s revenue and profitability.

Certain of the Company’s business segments are dependent upon highly qualified personnel, and the Company generally is dependent upon the continued efforts of key management employees.

New factors emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Asbestos Litigation

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 estimated liability is based on assumptions with respect to future claims, settlement and defense costs based on recent experience during the last few years that may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would any substantial adverse verdict at trial. A legislative solution or a revised structured settlement transaction could also change the estimated liability. These uncertainties may result in the Company incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if escalation in the number of claims and settlement and defense costs continues or if legislation or another alternative solution is implemented; however, the Company is currently unable to estimate such future changes. Although the resolution of these claims may take many years, the effect on results of operations, cash flow and financial position in any given period from a revision to these estimates could be material.

For more information with respect to the Company’s risks associated with its asbestos liability, see Item 3 Legal Proceedings.

Aerospace & Electronics

A significant fall off in demand for air travel or a decline in airline profitability generally could result in reduced aircraft orders and could also cause the airlines to scale back on more of their purchases of

9

PART I

Forward Looking Statements (continued)

repair parts from the Company’s businesses. The businesses could also be impacted if major aircraft manufacturers, such as Boeing (which represented approximately 10%11% and 11%10% of the segment’s revenue in 20042005 and 2003,2004, respectively) encountered production problems, or if pricing pressure from aircraft customers caused the manufacturers to press their suppliers to lower prices. Sales and profits could face erosion if pricing pressure from competitors increased, if planned new products were delayed, if finding new aerospace-qualified suppliers grew more difficult, or if required technical personnel became harder to hire and retain. The Aerospace & Electronics segment results could be below expectations if economic recovery begins to slow down or reverse,the economy slows, which could cause the U.S. customers to delay or cancel spare parts or aircraft orders.

With the addition of STC in 2003, aA portion of this segment’s business is conducted under United States government contracts and subcontracts. These contracts are either competitively bid or sole source contracts. Competitively bid contracts are awarded after a formal bid and proposal competition among suppliers. Sole source contracts are awarded when a single contractor is deemed to have an expertise or technology that is superior to that of competing contractors. A reduction in Congressional appropriations that affect defense spending or the ability of the United States government to terminate its contracts could impact the performance of this business.

During the third quarter of 2002, the Company’s Hydro-Aire unit identified a wire chafing situation relating to fuel pumps used on certain Boeing aircraft, and the Company recorded a $4 million charge for estimated costs of inspecting and repairing such pumps. Several additional pumps, from this same set of 35,000 pumps, were returned with a mechanical overheating issue, which was subsequently determined by Boeing and the Federal Aviation Administration (“FAA”) to require an aircraft systems level solution not chargeable to Hydro-Aire. In connection with these issues, the FAA issued an Emergency Airworthiness Directive to instruct airline carriers to comply with a precautionary step of carrying additional jet fuel to keep fuel pumps submerged at all times, until the pumps were inspected, to mitigate ignition risk and to ensure air safety. InspectionsThe required inspections have been completed on all affected pumps. Several airline carriers petitioned Hydro-Aire for reimbursement for additional costs, such as the cost of carrying additional jet fuel. The Company has disclaimed responsibility for these costs under applicable contract terms.terms and does not believe it has any liability for them.

12

PART I

Item 1A. Risk Factors. (continued)

Engineered Materials

In the Engineered Materials Segment,segment, sales and profits could fall if there were a decline in demand for truck trailers, recreational vehicles, industrial or building products for which the Company’s businesses produce fiberglass-reinforced panels. Profits could be adversely affected as well by unanticipated increases in resin and fiberglass material costs or product warranty awards as well as the loss of a principal supplier and by any inability on the part of the businesses to maintain their position in product cost and functionality against competing materials.

Merchandising Systems

Results at the Company’s U.S.-based vending machine business could be reduced by unfavorable economic or market conditions, delays in launching or supplying new products or an inability to achieve new product sales objectives. Results at the Company’s German-based coin validation machine business have been and will continue to be affected by changes in demand stemming from the advent of the euro, the new European currency, as well as by unforeseen fluctuations in the value of the euro or other European currencies versus the U.S. dollar.

Fluid Handling

The Company’s businesses could face increased price competition from larger competitors. Slowing or reversal of the U.S. economic recoveryeconomy or major markets could reduce sales and profits, particularly if projects for which these businesses are suppliers or bidders are cancelled or delayed. Furthermore, as the Company continues to outsource from international sources, particularly low-cost countries, the risk of supply chain issues increases. At the Company’s foreign operations, reported results in U.S. dollar terms could be eroded by an unanticipated weakening of currency of the respective operations.

10

PART I

Forward Looking Statements (continued)

Controls

A number of factors could affect the Controls Segment’ssegment’s results. Lower sales and earnings could result if the Company’s businesses cannot maintain their cost competitiveness, encounter delays in introducing new products or fail to achieve their new product sales objectives. Results could decline because of an unanticipated decline in demand for the businesses’ products from the industrial machinery, oil and gas or heavy equipment industries, or from unforeseen product obsolescence.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

13

Aerospace & Electronics operates one service center in the United States, which is leased.

Fluid HandlingEngineered Materials operates nineone service centerscenter outside the United States, which is leased. This segment operates eleven distribution centers; seven in the United States, of which sevensix are leased, and 30four outside the United States which are leased.

Merchandising Systems operates three leased service centers, two of which are in the United States and one outside the United States. This segment operates twelve distribution centers, five in the United States and seven outside the United States; all are leased except one.

Fluid Handling operates 37 service centers, 10 are in the United States, of which eight are leased, and 27 service centers outside the United States, of which 2522 are leased. This segment operates 4443 distribution centers, of which two are in the United States, of which one is leased; and 29 are leased.

Merchandising Systems operates six41 distribution centers in the United States and six internationally, of which 11 are leased. This segment operates two service centers, one of which is in the United States and is leased.

Engineered Materials operates seven distribution centers in the United States and four outside the United States, of which ten28 are leased. This segment operates one service center that is outside the United States and is leased.

In the opinion of management, these properties have been well maintained, are in sound operating condition and contain all necessary equipment and facilities for their intended purposes.

11

PART I

The Company becomes involved from time to time in various lawsuits, claims and proceedings relating to the conduct of its business, including those pertaining to environmental, government contracting, product liability, patent infringement, commercial, employment, employee benefits, and shareholder matters.

Asbestos Liability

Status of Comprehensive Asbestos Settlement

OnIn October 21, 2004, the Company reached an agreement in principle with attorneys representingrepresentatives of a majority of persons withthen current asbestos-related personal injury claims against the Company (the “Current Claimants”)claimants and an independent representative (the “FCR”) of potential future claimants with potential asbestos-related personal injury claims against the Company (the “Future Claimants”) to resolve all current and future asbestos-related personal injury claims against the Company. The comprehensive asbestos settlement had two components: first, a $280 million trust to pay settlements of asbestos claims by Current Claimants; and second, a $230 million trust to pay settlements of claims by Future Claimants,Company, to be structured and implemented pursuant to Section 524(g) of the U.S. Bankruptcy Code. On that date, MCC Holdings, Inc., an indirect wholly-owned subsidiary of the Company formerly known as Mark Controls Corporation (“MCC”), entered into a Master Settlement Agreement (the “MSA”(“MSA”) with representatives of a majority of Current Claimants who were diagnosed with asbestos-related personal injuries prior to June 9, 2004. At the same time, MCCthen current claimants and the representatives of Current Claimants entered into an MCCa Settlement Trust Agreement, which providesproviding for a $280 million trust (the “MCC Settlement Trust”) to be funded and administered to pay asbestos-related personal injury claims settled under the MSA. Through November 20, 2004 (the deadline for Current Claimants to indicate their desire to participate in the MCC Settlement Trust), a total of 109 law firms executed MSAs, directly or through Adoption Agreements, together with lists naming a total of approximately 196,000 participating claimants. Through December 20, 2004 (the deadline for Current Claimants to submit the required claim documentation to the independent claims reviewer), a total of approximately 171,000 claim packages were received subject to review for complianceIn connection with the terms of the MSA. While the numberMSA, which would have brought finality to this overall obligation, a third quarter 2004 asbestos charge of claimants submitting claims under the MSA exceeds the number of filed claims against the Company in the tort system (approximately 85,000 at December 31, 2004), the Company cannot predict whether, or when, any of such additional claims will be filed against the Company in the tort system.$322 million (pre-tax and after insurance) was recorded.

14

PART I

Item 3. Legal Proceedings (continued)

On December 2, 2004, the United States Court of Appeals for the Third Circuit issued its opinion and ruling in theCombustionEngineering case in which the Court reversed the District Court’sCourt order approving Combustion Engineering’s asbestos-related bankruptcy Planplan of Reorganizationreorganization and made a number of holdings regardingaddressed the scope of Section 524(g) and the appropriate structure of transactions to conferproviding relief for asbestos defendant companies under Section 524(g). The Court’s opinion, in the Company’s view, constituted a material change in the case law regarding Section 524(g) transactions, and accordingly, on January 24, 2005, the Company exercised its right to terminate the MSA. As a consequence of the Company’s notice of termination, the trustee of the MCC Settlement Trust has returned to the Company (i) the Company’s demand note in the principal amount of $270 million and (ii) the $10 million in cash that was paid on October 21, 2004 less certain fees and expenses of the trustee.

The termination of the MSA placesplaced the Company and asbestos claimants back into the tort system for resolution of claims,claims. In the fourth quarter of 2004, Crane Co. management, with the assistance of outside experts, made its best estimate of settlement and defense costs through 2011 (including certain related fees and expenses). The estimated asbestos liability was reviewed in light of these changes and resulted in a $14 million reduction to estimated cost after anticipated insurance recoveries but before taxes in the absencefourth quarter of a modified comprehensive2004.

In the fourth quarter of 2005, Crane Co. management, with the assistance of outside experts, updated its estimate of asbestos settlement transaction agreed to by the parties or a federal legislative solution. Althoughand defense costs through 2011 (including certain fees and expenses). Based on this review, the Company may continue its discussions with representatives of the asbestos claimants, there can bedetermined that no assurance that the issues presented by theCombustionEngineering opinion can be resolved such that agreement on a modified 524(g) transaction for the Company will be feasible. It is expected that a new bill will be introducedchange in the United States Senate early in 2005 that would, if enacted into law, establish a trust fund to compensate asbestos

12

PART I

claimants. While the Company believes that such federal legislation is the most appropriate solution to the asbestos litigation problem, there is substantial uncertainty regarding whether this will occur and, if so, when and on what terms. The Company remains committed to exploring all feasible alternatives available to resolve its asbestos liability in a manner consistent with the best interests of the Company’s shareholders.

was required.

Information Regarding Claims and Costs in the Tort System

As of December 31, 2004,2005, the Company was a defendant 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 during the periods indicated was as follows:

Of the 84,97789,017 pending claims as of December 31, 2004,2005, approximately 25,000 claims were pending in New York, approximately 33,000 claims were pending in Mississippi, and approximately 3,0009,000 claims were pending in Texas and approximately 4,000 claims were pending in Ohio, all jurisdictions in which recent legislation or judicial orders restrict the types of claims that can proceed to trial on the merits.

Since the termination of the comprehensive master settlement agreement (“MSA”) on January 24, 2005, the Company has been resolving claims filed against it in the tort system. The Company has not re-engaged in discussions with representatives of current or future asbestos claimants with respect to such a comprehensive settlement. While the Company believes that federal legislation to establish a trust fund to compensate asbestos claimants is the most appropriate solution to the asbestos litigation problem, there is substantial uncertainty regarding whether this will occur and, if so, when and on what terms. The Company remains committed to exploring all feasible alternatives available to resolve its asbestos liability in a manner consistent with the best interests of the Company’s shareholders.

15

PART I

Item 3. Legal Proceedings (continued)

The gross settlement and defense costs in the tort systemincurred (before insurance recoveries and tax effects) for the Company in the years ended December 31, 2005, 2004 and 2003 totaled $45.1 million, $40.9 million and $21.1 million, respectively. In contrast to the recognition of settlement and defense costs that reflect the current level of activity in the tort system, cash payments and receipts generally lag the tort system activity by several months or more. Cash payments of settlement amounts are not made until all releases and other required documentation are received by the Company, and payments of both settlement amounts and defense costs by insurers are subject to delays due to the transition from the Company’s primary insurers to its excess insurers. The Company’s total pre-tax cash payments for such settlement and defense costs, net of payments from insurers and including certain legal fees and expenses relating to the Company’s cost sharing arrangement with insurersterminated MSA in the years ended December 31, 2005, 2004 and 2003 amounted to $20.2totaled $45.3 million, $28.1 million and $7.9 million, respectively. Detailed below are the comparable amounts for the periods indicated.

The foregoing amounts do not include costs incurred by the Company relating to the comprehensive asbestos settlement announced on October 21, 2004. During the year ended December 31, 2004, the Company incurred costs of $11.5 million (before tax effects) for fees and expenses of attorneys, financial advisors and other special advisors for services relating to the comprehensive asbestos settlement. Total pre-tax cash payments for such fees and expenses through December 31, 2004

13

PART I

amounted to $7.9 million. In addition, the Company paid $10 million into the settlement trust for current asbestos claimants, which has been returned to the Company as described above, net of certain expenses of the trustee. Cash payments related to asbestos settlement and defense costs, and certain related fees and expenses are estimated to be in the range of $50 million to $70 million during 2005, which will be offset to some degree by reimbursements from insurers and tax benefits.

The amounts shown for settlement and defense costs incurred, and cash payments, are not necessarily indicative of future period amounts, which may be higher or lower than those reported. It is not possible

Reimbursements from insurers declined in 2005 as the Company’s cost sharing agreement with primary insurers has been essentially exhausted. The Company continues to forecast when cash payments related to the asbestos liability will be fully expended; however, it is expected such cash payments will continue for many years. Payment uncertainty results from the significant proportionnegotiate with various of future claims included in the estimated asbestos liability discussed below as well as variability of timing and terms of settlements and insurance reimbursement. In addition, there will be periods during which net cash flows increase because the Company’sits excess insurers whose policies provide substantial insurance coverage for asbestos liabilities. On July 22, 2005, the Company entered into an agreement to settle its insurance coverage claims involves multiplefor asbestos and other liabilities against certain underwriters at Lloyd’s of London reinsured by Equitas Limited (“Equitas”) for a total payment of $33 million. Under the agreement, $1.5 million was paid to the Company in the third quarter of 2005. The balance was placed into escrow for the payment of future asbestos claims and funds remaining in escrow will be paid to the Company on January 3, 2007, if no federal asbestos legislation is enacted by that date. If federal asbestos reform is enacted before January 3, 2007, the money then remaining in escrow would be paid to Equitas, subject to a payment of $1.5 million to the Company and a hold-back of certain funds in escrow for the payment of asbestos claims during the year following enactment of asbestos legislation. The Company’s settlement with Equitas resolves all its claims against pre-1993 policies issued to the Company by certain underwriters at Lloyd’s of London and reinsured by Equitas. On March 1, 2006, the Company entered into two agreements with Hartford Accident and Indemnity Company and certain affiliated companies (“Hartford”) settling all outstanding claims under the Company’s primary policies with Hartford for a final payment of $1.3 million and establishing a coverage-in-place arrangement for asbestos claims under the Company’s excess policies with Hartford, including a payment of $2.6 million for claims billed to Hartford through September 1, 2005. The agreements with Hartford also include provisions for mutual releases, indemnification of Hartford and claims handling procedures. The Company anticipates that one or more agreements with other excess insurers, such as coverage in place agreements, may be executed in 2006, and the Company believes that the payment terms of such agreements will be consistent with differentthe overall estimated future reimbursement rate of 40%, althoughthe actual reimbursement rate will vary from period to period due to policy terms and certain gaps in coverage and, consequently, the timing and amount of insurance reimbursement will vary.as described below.

16

PART I

Item 3. Legal Proceedings (continued)

Effects on the Consolidated Financial Statements

The Company has retained the firm of Hamilton, Rabinovitz & Alschuler, Inc. (“HR&A”), a nationally recognized expert in the field, to assist management in estimating the Company’s asbestos liability in the tort system and in view of the termination of the Master Settlement Agreement.system. HR&A reviewed information provided by the Company concerning claims filed, settled and dismissed, amounts paid in settlements and relevant claim information such as the nature of the asbestos-related disease asserted by the claimant, the jurisdiction where filed and the time lag from filing to disposition of the claim. The methodology used by HR&A to project future asbestos costs was based largely on the Company’s experience during the past two years2004 and 2005 for claims filed, settled and dismissed. The Company’s experience was compared to the results of previously conducted epidemiological studies estimating the number of people likely to develop asbestos relatedasbestos-related diseases. Those studies were undertaken in connection with national analyses of the population of workers believed to have been exposed to asbestos. Using that information, HR&A estimated the number of future claims that would be filed, as well as the related settlement or indemnity costs that would be incurred to resolve those claims. This methodology has been accepted by numerous courts and is the same methodology that is utilized by the expert who is routinely retained by the asbestos claimants committee in asbestos-related bankruptcies. After discussions with the Company, HR&A assumed that costs of defending asbestos claims in the tort system would increase to $35$37 million in 20052006 and remain at that level (with increases of 4%4.5% per year for inflation) indexed to the number of estimated pending claims in future years. Based on this information, HR&A compiled an estimate of the Company’s asbestos liability for pending and future claims, based on claim experience over the past two years and covering claims expected to be filed through the year 2011. Although the methodology used by HR&A will also show claims and costs for periods subsequent to 2011 (up to and including the endpoint of the asbestos studies referred to above), 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 for years beyond 2011, particularly given the possibility of federal legislation within that time frame. While it is reasonably possible that the Company will incur additional charges for asbestos liabilities and defense costs in excess of the amounts currently provided, the Company does not believe that any such amount can be reasonably estimated beyond 2011. Accordingly, no accrual has been recorded for any costs which may be incurred beyond 2011.

With the termination of the MSA and the return to the tort system for resolution of asbestos claims, managementManagement has made its best estimate of the costs through 2011 based on the analysis by HR&A. In making this estimate, the Company has adjusted the assumed rate of insurance recoveries from 30%&A completed in the context of the proposed comprehensive asbestos settlement back to 40% of the estimated liability

14

PART I

payable over time in the tort system.January 2006. A liability of $649.7$581.8 million has been recorded to cover the estimated cost of asbestos claims now pending or subsequently asserted through 2011, of which approximately 60%56% is attributable to settlement and defense costs for future claims projected to be filed through 2011. The liability is reduced when cash payments are made in respect of settled claims and defense costs. It is not possible to forecast when cash payments related to the asbestos liability will be fully expended; however, it is expected such cash payments will continue for many years, due to the significant proportion of future claims included in the estimated asbestos liability. An asset of $257.2$234.6 million has been recorded representing the probable insurance reimbursement for such claims. Underclaims using the tort system, the Company incurs not only settlement costs but substantial legal defense costs, and the Company’s best estimaterate of settlement and defense costs40% for both pending and future claims through 2011 (including certain related fees and expenses) amounted to $649.7 million at December 31, 2004. This compares to the MSA-based liability estimate of $565.9 million ($578 million at September 30, 2004) which represents the cost of the one-time settlement of all asbestos claims against the Company. The $83.8 million higher liability estimate under the tort system includes the added cost to defend claims against the Company. However, the higher insurance recovery rate in the tort system (40%), as compared with the MSA (30%), is expected to provide the Company with greater insurance recoveries of approximately $97.8 million. Thus, the net estimated cost after anticipated insurance recoveries was reduced by $14 million, which increased net income by $9.1 million, or $0.15 per share, in the fourth quarter of 2004. The principal factors affecting the liability estimates under the tort system versus the MSA are (i) the tort system estimate includes defense costs while the MSA estimate did not, (ii) under generally accepted accounting principles, the tort system estimate is presented in nominal dollars while the MSA estimate is discounted to present value, (iii) insurance recoveries under the tort system are estimated at 40% of settlement and defense costs, while the MSA estimate reduced anticipated insurance recoveries to 30% in the context of the proposed comprehensive asbestos settlement, and (iv) the tort system estimate covers the period through 2011, while the MSA estimate was a full and final settlement of the liability.

recoveries.

A significant portion of the Company’s settlement and defense costs have been paid by its primary insurers and one umbrella insurer up to the agreed available limits of the applicable policies. The Company has substantial excess coverage policies that are also expected to respond to asbestos claims as settlements and other payments exhaust the underlying policies, but there is no cost sharing or allocation agreement yet in place with the excess insurers.policies. The same factors that affect developing estimates of probable settlement and defense costs for asbestos-related liabilities also affect estimates of the probable insurance payment, as do a number of additional factors. These additional

17

PART I

Item 3. Legal Proceedings (continued)

factors include the financial viability of the insurance companies, the method inby which losses will be allocated to the various insurance policies and the years covered by those policies, how settlement 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. In addition, the timing and amount of reimbursements will vary because the Company’s insurance coverage for asbestos claims involves multiple insurers, with different policy terms and certain gaps in coverage. In addition to consulting with legal counsel on these insurance matters, the Company retained insurance consultants to assist management in the estimation of probable insurance recoveries based upon the aggregate liability estimate described above and assuming the continued viability of all solvent insurance carriers. After considering the foregoing factors and consulting with legal counsel and such insurance consultants, the Company determined its probable insurance reimbursement rate to be 40% under the tort system, as contrasted with 30% under the MSA. This insurance receivable is included in other assets.

On January 21, 2005, five of the Company’s insurers within two corporate insurer groups filed suit in Connecticut state court seeking injunctive relief against the Company and declaratory relief against the Company and dozens of the Company’s other insurers. The suit sought declaratory relief that (i) the plaintiff insurers are not obligated to pay any portion of the Company’s proposed global settlement or, at a minimum, that the plaintiff insurers are not obligated to pay any portion thereof that is unreasonable or alternatively (ii) the proposed global settlement is unreasonable in amount and therefore an improper basis on which to determine the coverage obligations that they may have to the Company. The suit also sought temporary and permanent injunctive relief restraining the Company from participating in any further settlement discussions with representatives of asbestos plaintiffs or agreeing to any settlement unless the Company permits the plaintiff insurers to both participate in such discussions and have a meaningful opportunity to consider whether to consent to any proposed settlement, or unless the Company elected to waive coverage under the insurers’ policies. The suit

15

PART I

sought additional declaratory relief on a number of issues relating to the Company’s rights under the insurance policies issued by the plaintiff insurers and the allocation of damages among the policies issued by the plaintiff and defendant insurers. The plaintiffs also sought expedited discovery on, among other things, the Company’s proposed global settlement. At a hearing on February 22, 2005, the Company (i) contested the application for temporary injunctive relief and expedited discovery, (ii) moved to dismiss the count of the complaint seeking permanent injunctive relief on the grounds that the count was moot insofar as it addressed the proposed global settlement terminated on January 24, 2005 and not appropriate for determination insofar as it sought relief regarding any future negotiations with representatives of asbestos claimants and (iii) moved to dismiss counts of the complaint seeking declaratory relief with respect to the proposed global settlement as moot. At the hearing, the court denied the plaintiff insurers’ application for temporary injunctive relief and expedited discovery. In denying temporary injunctive relief, the court stated that the plaintiffs could not show irreparable injury and that the plaintiff insurers would have an adequate remedy at law. In light of the court’s ruling and the Company’s motions to dismiss, the insurer plaintiffs sought and received leave to amend their complaint within 30-45 days from the date of the hearing to remove certain declaratory relief counts and to remove or restate the remaining allegations.

.

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 estimated liability is based on assumptions with respect to future claims, settlement and defense costs based on recent experience during the last few years that may not prove reliable as predictors. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed and the quality of the product identification, or a significant upward or downward trend in the costs of defending claims, could change the estimated liability, as would any substantial adverse verdict at trial. A legislative solution or a revised structured settlement transaction could also change the estimated liability.

Since many uncertainties exist surrounding asbestos litigation, the Company will continue to evaluate its estimated asbestos-related liability and corresponding estimated insurance reimbursement as well as the underlying assumptions and process used to derive these amounts. These uncertainties may result in the Company incurring future charges or increases to income to adjust the carrying value of recorded liabilities and assets, particularly if escalation in the number of claims and settlement and defense costs continuesescalates or if legislation or another alternative solution is implemented; however, the Company is currently unable to estimate such future changes. Although the resolution of these claims may take many years, the effect on results of operations, cash flow and financial position in any given period from a revision to these estimates could be material.

Certain Legal ProceedingsOn January 21, 2005, five of the Company’s insurers within two corporate insurer groups filed suit in Connecticut state court seeking injunctive relief against the Company and declaratory relief against the Company and dozens of the Company’s other insurers. The suit also sought temporary and permanent injunctive relief restraining the Company from participating in any further settlement discussions with representatives of asbestos plaintiffs or agreeing to any settlement unless the Company permitted the plaintiff insurers to both participate in such discussions and have a meaningful opportunity to consider whether to consent to any proposed settlement, or unless the Company elected to waive coverage under the insurers’ policies. The plaintiffs also sought expedited discovery on, among other things, the Company’s proposed global settlement. At a hearing on February 22, 2005, the Company: (i) contested the application for temporary injunctive relief and expedited discovery; (ii) moved to dismiss the count of the Complaint seeking injunctive relief on the grounds that the count was moot insofar as it addressed the proposed global settlement terminated on January 24, 2005 and not appropriate for determination insofar as it sought relief regarding any future negotiations with representatives of asbestos claimants; and (iii) moved to dismiss counts of the Complaint seeking declaratory relief with respect to the proposed global settlement as moot. At the hearing, the Court denied the plaintiff insurers’ application for temporary injunctive relief and expedited discovery. In denying temporary injunctive relief, the Court stated that the plaintiffs could

18

PART I

Item 3. Legal Proceedings (continued)

not show irreparable injury and that the plaintiff insurers would have an adequate remedy at law. In light of the Court’s ruling and the Company’s motions to dismiss, the insurer plaintiffs sought and received leave to amend their Complaint to remove certain declaratory relief counts and to remove or restate the remaining allegations.

On April 8, 2005, the insurer plaintiffs filed an Amended Complaint raising five counts against the Company.The Amended Complaint seeks: (i) declaratory relief regarding the Company’s rights to coverage, if any, under the policies; (ii) declaratory relief regarding the Company’s alleged breaches of the policies in connection with an alleged increase in asbestos claim counts; (iii) a declaration of no coverage in connection with allegedly time-barred claims; (iv) declaratory relief against the Company and the other insurer defendants for allocation of damages that may be covered under the insurance policies; and (v) preliminary and permanent injunctive relief. On April 18, 2005, the Company moved to dismiss the claims for injunctive relief on the grounds that the Court had no jurisdiction to consider the claims because they were speculative and unripe. On October 19, 2005, the Court denied the Company’s motion to dismiss, ruling that the injunctive claims were not unripe. Nonetheless, the Court noted that the Company later could seek summary judgment in connection with the injunctive claims if discovery shows them to be without factual basis. The Company continues to believe it has meritorious defenses to all the counts of the Amended Complaint and intends to defend this matter vigorously.

Other Contingencies

For environmental matters, the Company records a liability for estimated remediation costs when it is probable that the Company will be responsible for such costs and they can be reasonably estimated. Generally, third party specialists assist in the estimation of remediation costs. The environmental remediation liability at December 31, 20042005 is primarily for the former manufacturing site in Goodyear, Arizona (the “Site”) discussed below.

The Site was operated by UniDynamics/Phoenix, Inc. (“UPI”), which became an indirect subsidiary of the Company in 1985 when the Company acquired UPI’s parent company UniDynamics Corporation. UPI manufactured explosive and pyrotechnic compounds, including components for critical military programs, for the U.S. government at the Site from 1962 to 1993, under contracts with the Department of Defense and other government agencies and certain of their prime contractors. No manufacturing operations have been conducted at the Site since 1994. The Site was placed on the National Priorities List in 1983, and is now part of the Phoenix-Goodyear Airport North Superfund site. In 1990 the Environmental Protection Agency (“EPA”) issued administrative orders requiring UPI to design and

16

PART I

carry out certain remedial actions, which UPI has done. Groundwater extraction and treatment systems have been in operation at the Site since 1994. A soil vapor extraction system was in operation from 1994 to 1998, was restarted in 2004, and is currently in operation. Since 1994 the on-site groundwater treatment facility and soil vapor extraction system have removed approximately 36,000 pounds of trichloroethylene (“TCE”) from the soil and groundwater at the Site.

In September 2004, after extensive negotiations regarding the scope of work to be undertaken at the Site after discovery of additional TCEtrichloroethylene contamination and the detection of perchlorate during routine testing, the Company reached an agreement in principle with the EPA on a work plan for further investigation and remediation activities at the Site. This agreement is expected to be incorporated into a consent decree between the Company and the EPA in the near future. The Company recorded a before-taxpre-tax charge of $40 million in the third quarter 2004 for the estimated costs through 2014 of further environmental investigation and remediation at the Site, based on this agreement in principle with the EPA.

19

PART I

Item 3. Legal Proceedings (continued)

The investigation, monitoring and remediation activities undertaken by the Company at the Site have cost over $25$30 million since 1985. In November 2003, the Company and UPI brought suit under Section 113 of the Comprehensive Environmental Response, Compensation and Liability Act against the federal government and several of its agencies for contribution and indemnification for these costs. As investigation and clean-up activities at the Site are expected to continue for a number of years, the Company’s action against the governmentU.S. Government also seeks contribution with respect to future costs. Although the Company has been in discussions with the government concerning these claims, the government to date has not agreed to commit to paying any contribution to clean-up costs at the Site. In 2003, the EPA submitted to the Company a claim for approximately $2.8 million in past costs allegedly incurred at the Site, and theThe Company has requested andbeen engaged in settlement discussions with representatives of the U.S Government with the assistance of a neutral mediator pursuant to direction of the court. The Company is reviewing the EPA’s supporting documentation of these costs. not able to predict at this time whether a mutually acceptable settlement can be reached in mediation.

In January 2005, the EPA advised the Company that a formal demand for an additional $4.1 million in EPA past costs should be expected by the Company.

On July 8, 2004, the Environment & Natural Resources Division of the U.S. Department of Justice filed a lawsuit against the Company and UPI seeking reimbursement of costs allegedly incurred by the $2.8 million in alleged costs.EPA at the Site. The government’s action also seeks an injunction requiring UPI to comply with the terms of two earlier administrative orders; entry of a declaratory judgment regarding the Company’s and UPI’s liabilities; and both civil penalties and punitive damages. On February 22, 2005After extensive discussions regarding the Company’s actionnature and scope of such EPA costs and review of relevant documentation, the government’s action were consolidated into one case in U.S. District Court in Phoenix, Arizona. The Company has instructed its attorneys to continue to vigorously pursue the Company’s claim against the government, and to defend the counter-suit by the Department of Justice,reached agreement with the objectiveEPA to pay $6.7 million in past costs, a civil penalty of reaching$0.5 million and $1.0 million to fund a fair and reasonable allocationsupplemental environmental project for the city of liability for past and future costsGoodyear, Arizona. These payment terms are expected to be incorporated in the context of a prudent and scientifically sound plan forconsent decree mentioned above in the further investigation and clean-up of the Site.near future. The Company does not believe that the ultimate liability, for costs to be incurred in connection withexcess of the Site$32 million accrued at December 31, 2005, will have a material effect on the Company’s financial condition or cash flows; however, there can be no assurance that such costs will not have a material adverse effect on the Company’s results of operations in any given period.

A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its business, including those pertaining to product liability, patent infringement, commercial, employment, employee benefits, environmental and stockholder matters. While the outcome of litigation cannot be predicted with certainty, and some of these other lawsuits, claims or proceedings may be determined adversely to the Company, the Company does not believe that the disposition of any such other pending matters is likely to have a material adverse effect on its financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.

17

PART I

No matters were submitted to a vote of security holders during the fourth quarter of 2004.2005.

20

Part 1 (continued)

EXECUTIVE OFFICERS OF THE REGISTRANT

1821

EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)

PART II

The information required by Item 5(a) and 5(b) is hereby incorporated by reference to pages 72page 59 and 75inside the back cover, respectively, of the 20042005 Annual Report to Shareholders. The information required by Item 5(c) is not applicable as the Company did not repurchase any shares during the fourth quarter of 2004.2005.

The information required by Item 6 is hereby incorporated by reference to page 7259 of the 20042005 Annual Report to Shareholders.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information required by Item 7 is hereby incorporated by reference to pages 2218 through 4131 and pages 6453 through 6958 of the 20042005 Annual Report to Shareholders.

The information required by Item 7A is hereby incorporated by reference to page 4131 of the 20042005 Annual Report to Shareholders.

The information required by Item 8 is hereby incorporated by reference to pages 4232 through 6050 and page 7259 of the 20042005 Annual Report to Shareholders.

None

1922

PART II (Continued)

Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer (who currently serves as Actingand Chief Financial Officer)Officer evaluated the effectiveness of the design and operation of itsthe Company’s disclosure controls and procedures as of the end of the year covered by this annual report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports 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 hasand Chief Financial Officer have concluded that these controls are effective as of the end of the year covered by this annual report.

As previously disclosed, the Company’s Chief Executive Officer, Eric C. Fast, served as Acting Chief Financial Officer during the medical leave of absence of George S. Scimone, Vice President, Finance and Chief Financial Officer. Mr. Scimone passed away on February 22, 2005 and the Company plans to hire a new chief financial officer.

Change in Internal Controls.During the fiscal quarter ended December 31, 2004,2005, there have been no changes in the Company’s internal control over financial reporting, identified in connection with our evaluation thereof, that have materially affected, or are reasonably likely to materially affect, ourits internal control over financial reporting.

The remaining information required by Item 9A is hereby incorporated by reference to pages 6251 and 6352 of the 20042005 Annual Report to Shareholders.

None

PART III

The information required by Item 10 is incorporated by reference to the definitive proxy statement dated March 11, 2005,10, 2006, which the Company has filed with the Commission pursuant to Regulation l4A except that such information with respect to Executive Officers of the Registrant is included, pursuant to Instruction 3, paragraph (b) of Item 401 of Regulation S-K, under Part I.

The Company’s Corporate Governance Guidelines, its charters for its Management Organization and Compensation Committee, its Nominating and Governance Committee and its Audit Committee and its Code of Ethics are available atwww.craneco.com/investors/corporate_governance.cfm.corporate_governance.cfm.

The information required by Item 11 is incorporated by reference to the definitive proxy statement dated March 11, 2005,10, 2006, which the Company has filed with the Commission pursuant to Regulation 14A.

Except the information required by Section 201(d) of Regulation S-K which is set forth below, the information required by Item 12 is incorporated by reference to the definitive proxy statement dated March 11, 2005,10, 2006, which the Company has filed with the Commission pursuant to Regulation 14A.

2023

PART III (Continued)Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)

Equity Compensation Plan Information

The information required by Item 13 is incorporated by reference to the definitive proxy statement dated March 11, 2005,10, 2006, which the Company has filed with the Commission pursuant to Regulation 14A.

The information required by Item 14 is incorporated by reference to the definitive proxy statement dated March 11, 2005,10, 2006, which the Company has filed with the Commission pursuant to Regulation 14A.

PART IV

Item 15. Exhibits and Financial Statement Schedules

2124

PART IV

Item 15. Exhibits and Financial Statement Schedules (continued)

(3)Exhibits

There is(b)Exhibits to Form 10-K– Documents incorporated by reference herein::

Indentures:

22

PART IV

25

PART IV

Item 15. Exhibits and Financial Statement Schedules (continued)

There is incorporated by reference herein:

23

PART IV

All other exhibits are omitted because they are not applicable or the required information is shown elsewhere in this Annual Report on Form 10-K.

2426

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Crane Co.

We have audited the consolidated financial statements of Crane Co. and subsidiaries (the “Company”) as of December 31, 20042005 and 2003,2004, and for each of the three years in the period ended December 31, 2004,2005, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004,2005, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004,2005, and have issued our reports thereon dated February 18, 2005 (which report includes an explanatory paragraph regarding the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”);27, 2006; such consolidated financial statements and reports are included in your 20042005 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

Stamford, CT

February 18, 200527, 2006

2527

CRANE CO. AND SUBSIDIARIES

Annual Report for the Year Ended December 31, 2004

Schedule II - Schedule of Valuation and Qualifying Accounts

For the Years Ended December 31, 2004 and 2005

(in thousands)

2628

SIGNATURES

Pursuant to the requirements of Section 13l3 or 15l5 (d) of the Securities Exchange Act of 1934,l934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

OFFICERS

DIRECTORS

2729

Exhibit Index

2830