SEQUA CORPORATION

FORM 10-K

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PART I

ITEM 1.  BUSINESS

     (a) General development of business. Sequa Corporation (Sequa), which was incorporated in 1929, is a diversified industrial company that produces a broad range of products through operating units in five business segments: Aerospace, Automotive, Metal Coating, Specialty Chemicals and Other Products.

     On October 17, 2003, Sequa, through its Atlantic Research Corporation subsidiary (ARC), completed the sale of substantially all of the assets -- including the shares of ARC UK Limited -- and certain of the liabilities related to the propulsion business of ARC (collectively referred to as the ARC propulsion business). The sale to GenCorp Inc.'s Aerojet-General Corporation subsidiary (Aerojet) was pursuant to an agreement entered into by ARC on May 2, 2003. ARC received $133.0 million in cash subject to certain adjustments. ARC Automotive, Inc. (ARC Automotive), Sequa's automotive airbag inflator operation, was not included in the sale to Aerojet. Aerojet has entered into a long-term supply contract and license agreement to provide propellant and propellant development to ARC Automotive. The Consolidated Financial Statements of this Annual Report on Form 10-K have been restated in prior periods to reflect the ARC propulsion business as a discontinued operation.

     Additional information with respect to material acquisitions and dispositions is included in Notes 5 and 18 to the Consolidated Financial Statements of this Annual Report on Form 10-K and is incorporated herein by reference.

     The classification of the ARC propulsion business as a discontinued operation has resulted in a realignment of Sequa's segment reporting. A new Automotive segment has been established, which is composed of ARC Automotive and Casco Products Corporation (Casco Products), Sequa's producer of automotive cigarette lighters, power outlets and electronic monitoring devices. ARC Automotive and the ARC propulsion business formerly made up Sequa's Propulsion segment. Casco Products was previously included in the Other Products segment.

     (b) Financial information about business segments. Segment information is included in Note 24 to the Consolidated Financial Statements of this Annual Report on Form 10-K and is incorporated herein by reference.

     (c) Narrative description of business. The following is a narrative description of the business segments of Sequa:

Aerospace

     The Aerospace segment consists solely of Sequa's largest operating unit, Chromalloy Gas Turbine Corporation (Chromalloy). Chromalloy repairs and manufactures components for commercial and US military jet aircraft engines. A major independent supplier in the repair market, Chromalloy provides domestic and international airlines, as well as the US military, with technologically advanced repairs and coatings for turbine airfoils and other critical engine components. In addition, the unit supplies components to the manufacturers of jet engines and repairs components for land-based aero derivative and industrial turbine engines used for power generation.

     Chromalloy has built on its metallurgical process technologies to develop procedures that permit the repair and reuse of turbine engine components. Management believes Chromalloy has played a key role in the development of the repair market for certain jet engine parts. Over the years, Chromalloy has continued to invest in research and development projects that have led to the development of ceramic coatings, vacuum plasma coatings, advanced laser drilling and welding, and diffused precious metal/aluminide coatings. Chromalloy has introduced a series of innovative and, in some cases, proprietary processes that allow engines to perform at improved efficiency levels, at higher operating temperatures and under severe environmental conditions.

     Chromalloy's strategy has included the active pursuit of joint venture opportunities aimed at strengthening its ties to certain original equipment manufacturers (OEMs) and to its customers, as well as ensuring close cooperation with respect to the dissemination of technical specifications and requirements.

Automotive

     This segment is composed of two businesses: Atlantic Research Corporation's Automotive Products operation (ARC Automotive) and Casco Products.

     ARC Automotive. ARC Automotive pioneered the development of hybrid inflators for use in automotive airbags. ARC Automotive produces inflators for driver, passenger, side impact and curtain model airbag modules.

     Casco Products. Casco Products, which has been serving the automotive products market since 1921, is the world's leading supplier of automotive cigarette lighters and power outlets. Casco Products also offers a growing line of automotive accessories, led by a series of electronic devices to monitor automotive air quality and fluid levels. These electronic devices are used for measurement and control of certain gases and for monitoring engine oil and engine coolant.

Metal Coating

     The Metal Coating segment consists solely of Precoat Metals (Precoat), which is a leader in the application of protective and decorative coatings to continuous steel and aluminum coil. Precoat's principal market is the building products industry, where coated steel is used for the construction of pre-engineered building systems and as components in the industrial, commercial, agricultural and residential sectors. Precoat also serves the container industry, where the division has established a position in the application of coatings to steel and aluminum stock used to fabricate metal cans and can lids. In addition, the division has established a presence in other product markets, including heating, ventilating and air conditioning units, truck trailer panels and office equipment.

Specialty Chemicals

     The Specialty Chemicals segment is composed solely of Warwick International Group Limited (Warwick), which is a leading producer and supplier of TAED, a bleach activator used primarily in laundry detergents. TAED is used in oxygen-based bleaching systems to increase the cleaning power of detergents at low wash temperatures. These bleaching systems are used in international markets, principally in Europe. In addition, Warwick produces TAED products for dishwasher detergents and for industrial uses, such as biocides and pulp and paper processing. Warwick has a network of European chemical distributors that supply specialty products for use in plastics, resins, paints and cosmetics.

Other Products

     This segment is composed of three businesses: MEGTEC Systems, Inc. (MEGTEC Systems), Sequa Can Machinery, Inc. (Sequa Can Machinery) and After Six, Inc. (After Six).

     MEGTEC Systems. MEGTEC Systems is a leading producer of air flotation dryers for the graphic arts and other markets and a supplier of emission control systems for industrial applications and auxiliary equipment for web offset printing.

     Sequa Can Machinery. Sequa Can Machinery is a leading global supplier of equipment for the two-piece can industry. Sequa Can Machinery manufactures high-speed equipment to coat, decorate and form the cup, body and end of two-piece food and beverage cans. With the largest installed base of equipment in the industry, Sequa Can Machinery also supplies upgrade kits and spare parts and maintains an extensive support service program. Sequa believes that Sequa Can Machinery's coaters, decorators, cuppers and bodymakers are among the fastest in the industry. Sequa Can Machinery also supplies specialty systems for non-round and non-food/beverage containers.

     After Six. After Six designs and markets men's formalwear and accessories under the After Six, Oscar de la Renta and Raffinati labels, all three of which are registered trademarks.

Markets and Methods of Distribution

     The Aerospace segment markets its engine component repair and manufacturing services primarily to the major airlines of the world, to the manufacturers of commercial jet engines and to the military. Chromalloy's products and services are marketed directly and through sales representatives working on a commission basis. A portion of Chromalloy's sales is made pursuant to contracts with various agencies of the United States Government, particularly the Air Force, with which Chromalloy has had a longstanding relationship. Further information with respect to Chromalloy is included in this Annual Report on Form 10-K under the heading "Risk/Concentration of Business," which is incorporated herein by reference.

     In the Automotive segment, ARC Automotive markets its automotive airbag inflators to tier-one automotive customers in the US and overseas. Further information with respect to ARC Automotive's major customers is included in this Annual Report on Form 10-K under the heading "Risk/Concentration of Business," which is incorporated herein by reference. Casco Products sells cigarette lighters, power outlets and various electronic monitoring devices directly to the automotive industry.

     The Metal Coating segment sells its coating services to regional steel and aluminum producers and distributors, building products manufacturers, merchant can makers and manufacturers of other diverse products. Further information with respect to Precoat's major customer is included in this Annual Report on Form 10-K under the heading "Risk/Concentration of Business," which is incorporated herein by reference.

     The Specialty Chemicals segment sells TAED-based chemical additives directly to major producers of household and industrial cleaning products and to paper manufacturers. Specialty products for use in plastics, resins, paints and cosmetics are sold through a network of wholly owned chemical distributors. Further information with respect to Warwick's major customers is included in this Annual Report on Form 10-K under the heading "Risk/Concentration of Business," which is incorporated herein by reference.

     Businesses in the Other Products segment serve distinct markets and have individual methods of distribution. MEGTEC Systems markets industrial drying systems and emission control equipment directly to customers in the coating, converting and metal finishing industries and sells auxiliary press equipment directly to international web printing press manufacturers and their customers. Sequa Can Machinery sells its equipment through agents, as well as directly to the international container manufacturing industry. After Six sells its formalwear to wholesalers and retailers, principally those serving the rental market, primarily through independent sales representatives.

Competition

     There is significant competition in the industries in which Sequa operates, and, in several cases, the competition consists of larger companies having substantially greater resources than Sequa.

     Sequa, through its Chromalloy operations, is a leader in the development and use of advanced metallurgical and other processes to repair, manufacture and coat blades, vanes and other components of gas turbine engines used for commercial and military jet aircraft. Chromalloy's divisions compete for turbine engine repair business with a number of other companies, including the manufacturers of jet engines (OEMs). The OEMs generally have obligations (contractual and otherwise) to approve vendors to perform repair services on their engines and components. Chromalloy has a number of such approvals, including licensing agreements, which allow it to repair certain components of engines. The loss of approval by one of the major OEMs to repair components for such OEM's engines could have an adverse effect on Chromalloy, although management believes it has certain actions available to it to mitigate this effect.

     ARC Automotive is a second tier automotive supplier that produces airbag inflators for first tier airbag module (airbag, inflator and covers) suppliers, certain of whom have their own inflator capabilities. The unit competes on the basis of product capability, quality and price. Casco Products is the world's leading producer of cigarette lighters for both the original equipment market and the auto aftermarket and competes on the basis of price, quality and customer service.

     Precoat is a leading independent domestic coater of coiled steel for metal building panels. Precoat competes in all its markets based on price, quality, customer service and technical capabilities.

     Warwick competes in each of its markets with several other manufacturers, one of which is larger and has greater resources. Warwick competes in the detergent additive market with its TAED products based on breadth of product offerings, performance, quality and price. The European chemical distribution units compete primarily on the technical expertise of the sales force and the breadth of product offerings.

     MEGTEC Systems is a major international supplier of air flotation dryers, emission control equipment and auxiliary press equipment. This operation has several major competitors (including certain press manufacturers in the graphic arts market) in each of its main product areas. It competes on the basis of price, quality and technical capabilities. Sequa Can Machinery has one or two major competitors in each major product area, and it competes on the basis of price, quality, technical capabilities and equipment speed. Sequa believes its cylindrical can decorating and can-forming equipment operations are world leaders in their markets. After Six competes on the basis of design, quality and price, and Sequa believes it is a leader in men's formalwear.

     Sequa's businesses use a wide variety of raw materials and supplies. Generally, these have been available in sufficient quantities to meet requirements, although occasional shortages have occurred.

     In early 2004, a shortage of domestic steel has occurred and steel prices have increased significantly in the first two months of the year due to: a weak US dollar, which makes imported products more expensive; consolidation among US steel manufacturers; and increased demand for steel, particularly in the Chinese market, which has also caused shortages of the raw materials used in steel production. Certain steel manufacturers have placed their customers on allocation schedules. The current situation will cause production volatility at Precoat and may impact those manufacturing units of Sequa that incorporate significant amounts of steel in their products - ARC Automotive and Casco Products of the Automotive segment and the MEGTEC Systems and Sequa Can Machinery operations of the Other Products segment.

     Precoat uses natural gas to fire the curing ovens used in the coating process as well as for emission control devices. In 2003 and 2002, natural gas costs for this unit approximated 2000 levels. In 2001, increases in the price paid for natural gas adversely affected operating income by approximately $2.8 million. Depending on the volatility of the market, Sequa utilizes natural gas swap agreements to convert a portion of Precoat's natural gas requirements to fixed rates. At December 31, 2003, a natural gas swap with a notional value of $1.5 million was in place to fix first quarter 2004 rates.

     Aerojet provides propellant and propellant development to ARC Automotive under the terms of a long-term supply contract and license agreement. Aerojet purchased ARC's propulsion business in October 2003.

Seasonal Factors

     With the exception of the After Six business, which has stronger sales in the first six months of the year, Sequa's businesses are not seasonal to any significant extent.

Patents and Trademarks

     Sequa owns and is licensed to manufacture and sell under a number of patents, including patents relating to its metallurgical processes. These patents and licenses were secured over a period of years and expire at various times. Sequa has also created and acquired a number of trade names and trademarks. While Sequa believes its patents, patent licenses, trade names and trademarks are valuable, it does not consider the businesses comprising its segments to be materially dependent upon any particular patent, license, trade name, or trademark. Sequa regards its technical and managerial knowledge and experience as more important to its business.

Major Customers

     No single commercial customer accounted for more than 10% of consolidated sales during the past three years. Prime and subcontracts with all US government agencies accounted for approximately 5% of sales in 2003, 2002 and 2001. Two customers accounted for approximately 71% of ARC Automotive's 2003 sales and 48% of the Automotive segment's 2003 sales. Further information with respect to annual sales to these customers is included in this Annual Report on Form 10-K under the heading "Risk/Concentration of Business," which is incorporated herein by reference. In the Metal Coating segment, one customer accounted for approximately 35% of 2003 sales. The customer is a major steel manufacturer, and information with respect to this customer is included in this Annual Report on Form 10-K under the heading "Risk/Concentration of Business," which is incorporated herein by reference. In the Specialty Chemicals segment, one customer accounted for approximately 32% of 2003 sales, and th e top three customers accounted for approximately 47% of the segment's 2003 sales. All these customers are well-known international consumer products companies with whom Warwick has been doing business for many years.

Backlog

     Backlog information is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form 10-K and is incorporated herein by reference.

Maintenance and Repairs

     Expenditures for maintenance and repairs of $44.5 million in 2003, $44.2 million in 2002 and $44.3 million in 2001 were expensed as incurred, while expenditures for betterments and replacements were capitalized.

     Research and development costs, charged to expense as incurred, amounted to $14.2 million in 2003 and in 2002 and $18.4 million in 2001.

Environmental Matters

     Sequa has been notified that it has been named as a potentially responsible party under Federal and State Superfund laws and/or has been named as a defendant in suits by private parties (or governmental suits including private parties as co-defendants) with respect to sites currently or previously owned or operated by Sequa or its predecessors or to which Sequa or its predecessors may have sent hazardous wastes. Sequa is not presently aware of other such lawsuits or notices contemplated or planned by any private parties or environmental enforcement agencies. The aggregate liability with respect to these matters, net of liabilities already accrued in the Consolidated Balance Sheet, will not, in the opinion of management, have a material adverse effect on the financial position of Sequa, although adjustments to estimates based on improved knowledge of site conditions and chemical interactions with humans or changes in environmental law could have a significant impact on Sequa's results of operations in a particular period. These environmental matters include the following:

     Two propellant manufacturing facilities of the divested ARC propulsion business have been identified to have soil and groundwater ammonium perchlorate (AP) contamination above the limit currently proposed by the US Environmental Protection Agency for groundwater. AP is a raw material used to produce missile and rocket fuel. In 2001, Sequa recorded an environmental charge that included $9.7 million of estimated costs to remediate soil and groundwater contamination from AP with respect to the discontinued operation of the ARC propulsion business. Aerojet, which purchased the ARC propulsion business in October 2003, has assumed financial responsibility for future AP remediation at one facility (Camden, Arkansas). ARC is responsible for AP remediation at the second facility (Gainesville, Virginia) and continues to use an emerging technology, biodegradation, to treat AP-affected soil and groundwater. Aerojet's exposure to acquired ARC propulsion environmental remediations costs - - AP and other contamination associated with ARC's prior operation of the business - is capped at $20.0 million,

after which ARC is responsible for such costs. Sequa believes its remediation costs were adequately reserved before the sale of the propulsion business. Based on its most recent estimates, Sequa believes that the costs to remediate the ARC propulsion contamination exposures will not exceed the $20.0 million cap of financial responsibility assumed by Aerojet.

     A number of claims have been filed in connection with alleged groundwater contamination in the vicinity of a predecessor corporation site which operated during the 1960s and early 1970s in Dublin, Pennsylvania. In October 1987, a class action was filed by residents of Dublin against Sequa and two other defendants. The Borough of Dublin also filed suit seeking remediation of alleged contamination of the Borough's water supply and damages in an unspecified amount. A settlement was reached in the class action in which Sequa paid $1.8 million in 1997. The Borough action was settled in 1998 when Sequa agreed to transfer to the Borough the water treatment system it constructed and paid $2.0 million to the Borough. The Pennsylvania Department of Environmental Protection entered into a Consent Decree with Sequa in 1990 providing for the performance of a remedial investigation and feasibility study with respect to the same alleged groundwater contamination in Dublin. The US Environ mental Protection Agency placed the site on the Superfund List in 1990 and, in conjunction therewith, entered into a Consent Agreement with Sequa on December 31, 1990. The negotiation for the final remedy is still in progress.

     The State of Florida issued an Administrative Order in 1988 requiring TurboCombustor Technology, Inc. (TCT), a subsidiary of Chromalloy, to investigate and to take appropriate corrective action in connection with alleged groundwater contamination in Stuart, Florida. The contamination is alleged to have arisen from a 1985 fire which occurred at TCT's former facility in Stuart. The City of Stuart subsequently constructed and is operating a groundwater remediation system. Sequa negotiated a conditional settlement with the City of Stuart in October 1994 whereby it would contribute its pro-rata share of the capital and operating costs for the groundwater treatment system. On February 14, 2000, the Stuart City Commission approved the execution of the settlement. Sequa estimates the amount to be paid in settlement, plus additional groundwater sampling and analysis, will be approximately $2 million to be paid over a ten-year period which began in the second quarter of 2000.

     In September 1993, 14 homeowners in West Nyack, New York served a complaint on Chromalloy and others alleging, among other things, that contamination from a former Chromalloy site caused damage to their property. All 14 homeowners agreed to dismiss the case with prejudice in November 2002. The case was subsequently dismissed by the court. Chromalloy entered into a Consent Order with the New York Department of Environmental Conservation on February 14, 1994 to undertake the remedial investigation and feasibility study relating to the contamination in the vicinity of the former Chromalloy site. Based on the findings of the study, a dual phase extraction remedial system was started up in January 2003. It is scheduled to operate for five years.

     Sequa's environmental department, under senior management's direction, manages all activities related to Sequa's involvement in environmental cleanup. This department establishes the projected range of expenditures for individual sites with respect to which Sequa may be considered a potentially responsible party under applicable federal or state laws. These projected expenditures, which are reviewed periodically, include: remedial investigation and feasibility studies; outside legal, consulting and remediation project management fees; the projected cost of remediation activities; and site closure and post-remediation monitoring costs. The assessments take into account currently available facts, existing technology, presently enacted laws, past expenditures, and other potentially responsible parties and their probable level of involvement. Outside technical, scientific and legal consulting services are used to support management's assessments of costs at significant individua l sites.

     It is Sequa's policy to accrue environmental remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In 2003, 2002 and 2001, Sequa recorded charges of $1.7 million, $0.3 million and $13.3 million, respectively, to increase its accruals for remediation costs. The 2001 charge included $9.7 million of estimated cost to remediate soil and groundwater contamination from ammonium perchlorate (AP), a raw material used in the manufacture of solid rocket propellant by the discontinued ARC propulsion business. Although no federal or state environmental standards have been finalized for AP, recent studies indicating that the chemical may interfere with human thyroid function prompted Sequa to begin cleanup actions at its solid propellant facilities. Aerojet, which purchased the ARC propulsion business in October 2003, assumed financial responsibility, subject to a $20.0 million cap, for the remediation liability associated with one of the two facilities affected by AP contamination, as well as financial responsibility for certain other remediation exposures. At December 31, 2003, the potential exposure for all remediation costs, excluding financial liabilities assumed by Aerojet, is estimated to range from $12 million to $21 million, and Sequa's Consolidated Balance Sheet includes accruals for remediation costs of $16.6 million. These accruals are at undiscounted amounts and are included in accrued expenses and other noncurrent liabilities. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures.

     With respect to all known environmental liabilities, Sequa's actual cash expenditures for remediation of previously contaminated sites were $3.0 million in 2003, $7.2 million in 2002 and $3.1 million in 2001. Sequa anticipates that remedial cash expenditures will be between $4 million and $6 million during 2004 and between $2 million and $4 million during 2005. Sequa's capital expenditures for projects to eliminate, control or dispose of pollutants were $1.1 million, $1.3 million and $2.2 million in 2003, 2002 and 2001, respectively. Sequa anticipates annual environment-related capital expenditures to be approximately $1 million per year in 2004 and 2005. Sequa's operating expenses to eliminate, control and dispose of pollutants were $9.5 million in 2003, $8.7 million in 2002 and $8.9 million in 2001. Sequa anticipates that environmental operating expenses will be approximately $9 million per year in 2004 and 2005.

Employment

     At December 31, 2003, Sequa employed approximately 9,000 people of whom approximately 2,500 were covered by union contracts.

     The approximate number of employees attributable to each reportable business segment as of December 31, 2003 and 2002 was:

Segment

     In 2003, restructuring activities in the Aerospace, Automotive and Other Products segments resulted in the termination of approximately 635 employees. Employment increases at the ARC Automotive operation more than offset reductions at Casco Products.

      Sequa considers its relations with employees to be generally satisfactory. Sequa maintains a number of employee benefit programs, including life, medical and dental insurance, pension and 401(k) plans.

     (d) Foreign Operations. Sequa's consolidated foreign operations include Chromalloy's operations in England, France, Israel, Mexico, Netherlands and Thailand within the Aerospace Segment; ARC Automotive's airbag inflator business in Italy and automotive inflator sales offices in Germany, Japan and Korea and Casco Products' operations in Germany, Italy, Brazil and Tunisia within the Automotive segment; detergent chemicals operations in Wales and chemical distribution operations in France, Italy, Spain, Portugal and Slovenia within the Specialty Chemicals segment; MEGTEC Systems' auxiliary press equipment operations in China, France, Germany, Singapore, Sweden and the United Kingdom; and the Sequa Can Machinery operations in Brazil in the Other Products segment. Sales and long-lived assets attributable to foreign countries are set forth in Note 24 to the Consolidated Financial Statements of this Annual Report on Form 10-K and are incorporated herein by reference.

     (e) Available Information. Sequa's Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to such reports, are available free of charge or through Sequa's web site (www.sequa.com) as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission.

ITEM 2.  PROPERTIES

Aerospace

     Chromalloy operates more than 40 plants and major warehouse facilities in 12 states and six foreign countries, which have aggregate floor space of 3,200,000 square feet, of which 1,900,000 square feet is owned and 1,300,000 square feet is leased. The leases covering facilities used in this business have various expiration dates, and some have renewal or purchase options.

     Facilities in this segment are adequate and suitable for the business being conducted and operate at a moderate level of utilization.

Automotive

     ARC Automotive operates manufacturing, research and office facilities in Tennessee and Arkansas and a manufacturing facility in Italy with aggregate floor space of 335,000 square feet. ARC Automotive owns 40,000 square feet and leases 295,000 square feet. Leased sales offices are located in Michigan, Germany, Japan and Korea.

     ARC Automotive facilities are adequate and suitable for the business being conducted and operate at a moderate to high level of utilization.

     Casco Products has a 168,000 square foot facility lease that expires in early 2004 with respect to both a closed manufacturing operation and administrative offices in Connecticut; a new 24,000 square foot lease for Connecticut office space which begins in April 2004; a 45,000 square foot manufacturing facility in Mississippi; a 2,300 square foot sales office in Michigan; a 38,000 square foot manufacturing facility in Italy; a 30,000 square foot facility in Tunisia; and a 9,900 square foot facility in Brazil. Casco owns an 81,000 square foot plant in Germany and a 39,000 square foot plant in Kentucky.

     Casco Products' facilities are adequate and suitable for the business being conducted. Casco Products' active facilities operated at a high utilization rate in 2003.

Metal Coating

     Precoat owns seven active manufacturing facilities in six states with a total of 1,300,000 square feet of manufacturing and office space. An additional 20,000 square feet of office space is leased in Missouri. A plant in Chicago, Illinois is currently mothballed, and management is endeavoring to sell the facility.

     The properties in this segment are suitable and adequate for the business presently being conducted. Facilities within this segment operate at a high utilization rate.

Specialty Chemicals

     Warwick owns a 203,000 square foot plant on 55 acres in the United Kingdom and a 26,000 square foot warehouse facility in France. The unit also leases 65,000 square feet of office and warehouse space in seven separate locations in Europe.

     Facilities in this segment are adequate and suitable for the business being conducted and operate at a high utilization rate.

Other Products

     MEGTEC Systems owns the following: manufacturing and office facilities in Wisconsin with aggregate floor space of 314,000 square feet; a facility in France with aggregate floor space of 62,000 square feet; and a facility in Sweden with aggregate floor space of 50,000 square feet. MEGTEC Systems leases the following: two manufacturing plants and four sales offices in Europe with a total of 100,000 square feet; 13,000 square feet of manufacturing and office space in China; and a 1,900 square foot sales office in Singapore.

     Sequa Can Machinery owns two plants in New Jersey and Ohio with aggregate floor space of 163,000 square feet and leases 72,000 square feet of manufacturing, warehouse and office space, primarily in Ohio, with a small sales office in California. Sequa Can Machinery also leases 16,000 square feet of manufacturing and office space in Brazil.

     After Six owns a warehouse and office facility in Georgia with aggregate floor space of 118,000 square feet.

     Facilities in this segment are adequate and suitable for the business being conducted. MEGTEC Systems facilities currently operate at a moderate to high utilization rate. Sequa Can Machinery facilities currently operate at a moderate to low utilization rate. After Six has outsourced its production requirements.

     Sequa leases 48,000 square feet of corporate office space in New York, New York and Hackensack, New Jersey.

ITEM 3.  LEGAL PROCEEDINGS

     Information with respect to Sequa's legal proceedings is included in Note 25 to the Consolidated Financial Statements of this Annual Report on Form 10-K and is incorporated herein by reference. Additional information on environmental matters is covered in the Environmental Matters section of this Annual Report on Form 10-K and is incorporated herein by reference.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

     The following information is furnished pursuant to General Instruction G (3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K with respect to the executive officers of Sequa:

     Sequa is not aware of any family relationship among any of the above-named executive officers. All of the above-named executive officers have been employed by Sequa in the same or a similar capacity for at least five years, except for Mr. Leitner, Mr. Dombek, Mr. Ellis and Ms. O'Sullivan. Mr. Leitner was elected Senior Vice President, Finance by the Board of Directors on December 16, 1999. Prior to joining Sequa, Mr. Leitner was Senior Vice President and Chief Financial Officer (1980-1986 and 1995-1999) and was President (1986-1995) of Chock Full O'Nuts Corporation (a beverage products manufacturing company). Mr. Dombek and Mr. Ellis were elected to Senior Vice President positions by the Board of Directors on February 27, 2003. Prior to his election, Mr. Dombek was a vice president of Sequa and President and General Manager of Precoat Metals, positions he has held since 1995. Prior to his election, Mr. Ellis was a vice president of Sequa since 2001 and managing director an d chief executive officer of Warwick International since 1999. Prior to 1999, Mr. Ellis was an executive vice president of Warwick International where he has held positions of increasing responsibility since 1980. Ms. O'Sullivan was elected Vice President and Controller by the Board of Directors in 2002. Prior to her election, Ms. O'Sullivan was Sequa's Director of Financial Reporting. Each of such officers holds office until his/her successor shall have been chosen and qualified by the Board of Directors at its annual meeting, subject to the provisions of Section 4 of Article IV of Sequa's By-laws relative to the resignation of officers and Section 5 of Article IV of Sequa's By-laws relative to the removal of officers.

PART II

(a)   Market Information.

     The following table sets forth the high and low sales prices of Sequa Class A common stock and Sequa Class B common stock for the calendar periods indicated on the Exchange Composite Tape, as reported by the National Quotation Bureau Incorporated:

2. Holders.

     Shares of Sequa Class A common stock and Sequa Class B common stock are listed on the New York Stock Exchange. There were approximately 1,964 holders of record of the Sequa Class A common stock and approximately 403 holders of record of the Sequa Class B common stock at March 1, 2004.

(c)  Dividends.

     During the years ended December 31, 2003 and 2002, no cash dividends were declared on Sequa Class A common shares or Class B common shares. Sequa has no present intention to pay cash dividends on its common shares.

(d)  Securities Authorized for Issuance Under Equity Compensation Plans.

     Information relating to securities authorized for issuance under equity compensation plans is included in Note 16 to the Consolidated Financial Statements of this Annual Report on Form 10-K and is incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected financial information for, and as of the end of, each of the five years in the period ended December 31, 2003. Prior period amounts have been restated to reflect the ARC propulsion business as a discontinued operation. Such information should be read in conjunction with Sequa's Consolidated Financial Statements and Notes thereto, filed herewith.

Operating Results 2003-2002

     Overall sales increased 8% in 2003, driven by advances in the Automotive, Metal Coating and Specialty Chemicals segments and the MEGTEC Systems and Sequa Can Machinery units of the Other Products segment, tempered by a small decline at the Aerospace segment. Sales benefited from the impact of exchange rate changes on translation of local currency results into US dollars (approximately $65.5 million) and $28.2 million of sales added through the addition of an acquired unit in the Aerospace segment. A detailed review of sales by operating segment follows.

     Sales of the Aerospace segment declined 2% in 2003. Excluding the $28.2 million of sales added by the September 30, 2002 acquisition of Pacific Gas Turbine (PGT), an engine overhaul unit that was formerly an equity affiliate, sales declined 6% in 2003. Engine component repair sales declined 9% as a result of intense pricing pressure and the continuing downturn in the commercial aviation market, and combined with a modest decline in sales to the US military more than offset increased sales to the industrial turbine market and the benefit of translating local currency sales into US dollars (approximately $15.2 million). Sales of units primarily engaged in manufacture of original equipment components posted a modest increase as the benefit of translating local currency sales into US dollars (approximately $6.5 million) bolstered a small increase in sales to the commercial aviation market, partially offset by lower sales to the US military. Chromalloy has recently moved to stren gthen its ties to certain airline customers by entering into several long-term maintenance contracts. In September 2003, Chromalloy signed a 10-year material by-the-hour contract with a major US airline. The contract represents new business growth of approximately 10% and is expected to begin to contribute repair revenues in the first quarter of 2004. Several other contracts with major international airlines have recently been signed. Management anticipates that these contracts will add significantly to revenue in 2004.

     Sales of the Automotive segment increased 16% in 2003 with both units in the segment showing advances. Sales of ARC Automotive advanced 20% led by three factors: a 15% increase in volume at the US operation, broader product line offerings at the Italian unit and the benefit of translating local currency sales into US dollars (approximately $9.0 million). The Casco Products unit posted a sales advance of 10% in 2003 driven by improvements at the international units and the benefit of translating those sales into US dollars (approximately $8.2 million).

     Sales of the Metal Coating segment increased 12% in 2003 due to increased sales under metal management programs and improved sales to the building and manufactured products markets, slightly offset by lower sales to the container products market. The improvement in metal management programs reflects new programs at several customers to provide inventory management services. The building and manufactured products sales increases reflect the impact of a price increase, increased market share, a modest improvement in the pre-engineered construction market and higher sales to the appliance and lighting fixture markets. The sales to the container products market were lower due to the absence of sales to a customer whose in-house coating line was temporarily shut down in 2002.

     Sales of the Specialty Chemicals segment increased 22% in the current year due to three main factors: the benefit of translating local currency sales into US dollars (approximately $15.4 million); improved sales at the specialty chemicals distribution units; and continued strength in demand for the detergent additive TAED. The specialty chemicals distribution units benefited from the strength of the Euro and increased product offerings, partially offset by softness in the European economy.

     Sales of the Other Products segment increased 12% in 2003, driven by improvements at two of the three units in the segment. Sales of the MEGTEC Systems unit increased 7% in 2003. The advance reflects improved sales at the unit's European operations, an 11% increase in worldwide sales of spare parts and customer service and the benefit of translating local currency sales into US dollars (approximately $11.2 million). The European sales reflect a slight pickup in sales to the graphic arts market and higher sales of emission control equipment. On an overall basis, this increase was offset by slightly lower equipment sales at both the US and Asian operations. Based on this unit's year-end backlog position, management anticipates that sales in the first half of 2004 will advance over the comparable 2003 period. Sales of the Sequa Can Machinery unit posted a 27% improvement driven by strong sales of can forming equipment in 2003. The unit also benefited from improved sales of can decorating kits and specialty can systems. Backlog, however, was down 62% at year-end at this unit, primarily reflecting weakness in the equipment market in the second half of 2003. As a result, management anticipates that sales for this unit will be weak in the first part of 2004. Sales of the After Six unit declined 2% in 2003, primarily the result of a consolidated formalwear market and intense pricing pressure. This unit's year-end backlog reflects a 30% decline from 2002. As a result, management anticipates that sales for this unit will be weak in the first half of 2004.

     Overall operating income increased 17% in 2003 as advances at the Automotive, Metal Coating and Specialty Chemicals segments and the MEGTEC Systems and Sequa Can Machinery units of the Other Products segment more than offset a sharp decline at the Aerospace segment, a $12.7 million increase in pension costs and increased restructuring and related asset impairment charges. Sequa's foreign operations contributed operating income of $43.8 million in 2003, compared with $29.2 million in 2002. The profitability of Sequa's foreign operations is driven by the results of the Specialty Chemicals operations, the overseas operations of the Casco Products unit of the Automotive segment and the foreign units of the Aerospace segment, some of which derive a large portion of their earnings from the heavy industrial gas turbine aftermarket. The advance in 2003 also reflects improvement at the foreign operations of ARC Automotive and the MEGTEC Systems unit. Results of foreign operations also benefited from the impact of exchange rate changes on the translation of local currency results into US dollars (approximately $3.0 million). A detailed review of operating income by segment follows.

     Operating income in the Aerospace segment (Chromalloy Gas Turbine) declined 38% in 2003 as a result of lower sales and continued pricing pressure in the aftermarket for commercial aviation engine component repair; losses recorded at the newly acquired engine overhaul unit; restructuring charges related to workforce reductions and a plant consolidation ($2.7 million in 2003, compared with $0.8 million in 2002); increased pension costs; and a $0.7 million charge to reserve receivables from a foreign airline that filed for bankruptcy protection. These factors were partially offset by $3.1 million of income relating to a dispute on contractual obligations in the commercial repair business and higher sales to the industrial turbine market. Results of units primarily engaged in the manufacture of original equipment components declined as a result of restructuring charges recorded in the second quarter and lower sales to the US military.

     The Automotive segment posted operating profit of $9.3 million in 2003, compared with a loss of $0.5 million in 2002. Both units in the segment contributed to the advance. Results of ARC Automotive advanced $6.9 million in 2003, moving from a loss in the year earlier period. The improvement reflects the higher level of sales and royalty payments in 2003, benefits derived from ongoing Six Sigma initiatives and the strengthening of the Euro. These improvements were partially offset by increased research and development and pension costs. Operating income advanced 68% at the Casco Products unit, driven by higher sales, improvements generated by restructuring activities and operating efficiencies at the international units, partially offset by restructuring and related asset impairment charges and increased pension costs at the U.S. operations. The restructuring charges related primarily to costs to transfer the unit's Connecticut manufacturing operation to other lower cost facilities.

     Operating income advanced 14% in the Metal Coating segment. The increase is driven by the higher level of sales and an improved mix; operating efficiencies obtained through ongoing Six Sigma initiatives; and profit added by the completion of an international consulting contract. These factors were mitigated by a $2.8 million charge related to legal disputes, and higher pension and insurance costs.

     The Specialty Chemicals segment posted a 34% increase in operating income in 2003. The advance was achieved as a result of the higher level of sales, the strengthening of the Euro and efficiencies obtained through the unit's Six Sigma program. These benefits were further bolstered by the impact of translating local currency results into US dollars (approximately $1.6 million). These factors were partially offset by an increase in pension expense, as well as increased raw material costs.

     The Other Products segment posted operating profit in 2003, whereas this segment recorded an operating loss in 2002. The improvement reflects a turnaround at the MEGTEC Systems unit, which posted a modest profit in the current year. The improvement reflects higher sales, the benefits of previous restructuring actions, and efficiencies and cost controls generated by ongoing Six Sigma initiatives. These factors were mitigated by $2.9 million of restructuring charges related to streamlining both European and US operations in response to the tight market environment ($2.3 million in 2002), and higher pension costs. The Sequa Can Machinery unit posted a 36% increase in profits in 2003, stemming from the higher level of sales and improved absorption, primarily in the first half of the year. The second half of the year was marked by a lower level of equipment sales and absorption. Management expects this trend to continue in the first half of 2004, as evidenced by a lower level o f year-end backlog in 2003. In addition, the unit was negatively impacted by a 67% increase in pension costs in 2003. The After Six unit posted a significant decline in profits in 2003, a reflection of the lower level of sales and the tight formalwear market, lower margins and a 57% increase in pension costs.

     Corporate expenses increased 6% in 2003, primarily a reflection of a $3.3 million increase in pension expense; higher environmental cleanup provisions ($1.7 million in 2003, $0.3 million in 2002); and higher insurance costs partially offset by a lower provision for incentive compensation and the absence of a restructuring charge recorded in 2002.

     In early 2004, a shortage of domestic steel has occurred and steel prices have increased significantly in the first two months of the year due to: a weak US dollar, which makes imported products more expensive; consolidation among US steel manufacturers; and increased demand for steel, particularly in the Chinese market, which has also caused shortages of the raw materials used in steel production. Certain steel manufacturers have placed their customers on allocation schedules. The current situation will cause production volatility at Precoat and may impact those

manufacturing units of Sequa that incorporate significant amounts of steel in their products - ARC Automotive and Casco Products of the Automotive segment and the MEGTEC Systems and Sequa Can Machinery operations of the Other Products segment.

     Operating income includes net periodic pension cost related to all significant domestic and foreign funded defined benefit plans of $23.7 million in 2003, compared with $11.0 million in 2002. On an annual basis Sequa reviews the assumptions used in accounting for these plans. In order to reflect current market conditions in the calculation of the net periodic pension cost, the long-term expected rate of return in 2003 was 8.3%, compared with 9.0% in 2002; and the discount rate used in 2003 was 6.75%, compared with 7.5% in 2002. As a result of these changes and the effect of a decline in the investment performance of its pension portfolios in 2002, net periodic pension cost more than doubled in 2003, compared with 2002.

     Interest expense increased by $4.7 million in 2003, compared with the prior year, primarily due to the June 5, 2003 issuance of $100 million of 8 7/8% Senior Notes due April 1, 2008.

     Interest income decreased by $0.9 million in 2003, compared with the prior year. The decrease reflects a combination of lower interest rates and lower average levels of cash and cash equivalents; the latter despite a large fourth-quarter 2003 net increase related to the October 17, 2003 receipt of $133.0 million of cash proceeds on the sale of the ARC propulsion business tempered by the December 3, 2003 payment of a $75.0 million contribution to one of Sequa's defined benefit pension plans.

Equity in Income (Loss) of Unconsolidated Joint Ventures

     Sequa has investments in a number of unconsolidated joint ventures, which amounted to $59.2 million and $42.5 million at December 31, 2003 and 2002, respectively. The combination of income and losses of these joint ventures was income of $9.7 million in 2003 and a loss of $0.1 million in 2002.

     Chromalloy is a partner in joint ventures aimed at strengthening its ties to certain original equipment manufacturers and airline customers, as well as ensuring close cooperation with respect to the dissemination of technical specifications and requirements. Sequa's investment in Chromalloy's joint ventures was $57.3 million and $40.6 million at December 31, 2003 and 2002, respectively. The combination of income and losses of Chromalloy's joint ventures was income of $9.7 million in 2003 and $0.3 million in 2002. The largest of the Chromalloy joint ventures are discussed in the following paragraphs.

     In the second quarter of 2003, Chromalloy and Siemens Westinghouse Power Corporation and Siemens Aktiengesellschaft (collectively referred to as Siemens) established a global cooperation consisting of joint ownership of three operating companies providing service and repairs for heavy industrial gas turbines manufactured by other companies, and for gas turbines based on the mature technologies of Siemens and its affiliates. The three operating companies are: TurboCare Gas Turbine Services LLC (TCGTS), Turbine Services Ltd (TS) and Gas Turbine Technologies, S.p.A. (GTT).

     Chromalloy has a 49% ownership interest in TCGTS. Chromalloy and Siemens contributed, at existing ownership levels, a division of their existing TACR joint venture. Siemens also contributed a US operation and a minority interest in a Venezuelan subsidiary to TCGTS. TCGTS serves the North, Central and South American markets. The remaining operations of TACR, of which Chromalloy owns 49%, continue to provide coating and component repair services on Siemens' advanced engines.

     Chromalloy has a 51% ownership interest in, and operating control over, TS. The financial statements of TS are consolidated with those of Sequa and a Siemens minority interest is reflected. Chromalloy contributed the assets of its UK and Thailand industrial gas turbine operations and its 49% ownership interest in its MJB joint venture to TS. MJB, a partnership with Mohammed Bin Masaood & Sons, provides repair and maintenance services for industrial gas turbines from a facility in the United Arab Emirates. Sequa has guaranteed up to $6.6 million of MJB's bank line of credit. At December 31, 2003 there were no amounts outstanding under this facility. TS serves Europe, the Far East and the Middle East.

     Chromalloy has a 20% ownership interest in GTT. Siemens contributed the assets of an Italian facility to GTT. GTT serves Italy and certain other countries.

     Chromalloy has a 52.6% ownership interest in a component manufacturing operation that produces new replacement parts for jet engines. The 52.6% ownership interest does not equate to a controlling interest, primarily due to a super majority vote requirement (at least 75% approval) on certain key operational decisions. While Chromalloy's partners in this joint venture are major commercial airlines, whose industry has been under significant pressures, management believes that the venture is adequately capitalized.

     Chromalloy has two 50/50 joint ventures with Rolls-Royce plc: Turbine Surface Technologies Ltd (TSTL), which provides advanced coatings for Rolls-Royce turbine components, and Turbine Repair Technologies Ltd (TRTL), which provides advanced component repair services for certain Rolls-Royce engines. Sequa has guaranteed 50% of TSTL's future lease payments under the terms of a capital lease as well as 50% of an overdraft facility. Total amounts subject to the guarantees, which were provided in early 2002 and in 2001, may not exceed 11.5 million British pounds. At December 31, 2003, 6.5 million British pounds were outstanding related to the guarantees.

     Advanced Coatings Technologies (ACT), a 50% owned joint venture with United Technologies Corporation, owns and operates an electron beam ceramic coater for the application of Pratt & Whitney coatings to jet engine parts.

     On September 30, 2002, Chromalloy acquired the remaining 50% ownership interest in Pacific Gas Turbine Center, LLC (PGT), which overhauls and tests certain jet engines. The acquired assets and liabilities of PGT and the results of operations have been consolidated with those of Sequa from the acquisition date.

     In 2003, Other, net included $4.4 million of gain relating to the sale of assets which included the sale of a can-forming machinery plant that was closed as part of the restructuring activities undertaken in 2001; $2.2 million of income on the cash surrender value of corporate-owned life insurance; $1.7 million of charges for the amortization of capitalized debt issuance costs; $1.6 million of charges for letters of credit and commitment fees; $1.2 million of expense related to a minority interest holder; $1.0 million of expense related to the re-audit of the 2001 consolidated financial statements, which had been audited by an accounting firm no longer in existence, and which re-audit was deemed required due to the classification of ARC propulsion as a discontinued operation as a result of its sale; and $0.6 million of discount expense on the sale of accounts receivable.

     In 2002, Other, net included $3.3 million of gain related to the change in the fair market value of a gas swap; $2.8 million of income related to insurance litigation settlements concerning certain product liability claims relating to the closed operations of a predecessor company; $0.9 million of gain on the fair market value of forward foreign exchange contracts that did not qualify for cash flow hedge accounting; $0.6 million of gain on the sale of stock received from the demutualization of an issuer of corporate-owned life insurance policies and pension annuities; $1.5 million of charges for the amortization of capitalized debt issuance costs; $1.3 million of discount expense on the sale of accounts receivable; $1.0 million of charges for letters of credit and commitment fees; and $0.7 million of expense on the cash surrender value of corporate-owned life insurance.

Income Tax Benefit

     The 2003 income tax benefit of $3.2 million related to continuing operations includes a $2.8 million reversal of income tax reserves no longer required based on a current analysis of probable exposures. The effect of this item was to increase basic earnings per share by $0.27.

     The 2002 income tax benefit of $9.6 million includes $4.1 million of tax benefit, related to an increase in domestic net operating loss carryforwards due to the resolution of issues and the related completion of an Internal Revenue Service audit, and $2.4 million of income relating to the reversal of income tax reserves no longer required, due to the completion of tax audits at two foreign units. The effect of these items was to increase basic earnings per share by $0.40 and $0.23, respectively.

     On January 1, 2002, Sequa adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). The statement changed the accounting for goodwill from an amortization method to an impairment only approach.

     SFAS No. 142 establishes specific guidelines for use in evaluating the impairment of goodwill. Under SFAS No. 142, goodwill is considered impaired and an impairment loss must be recognized if the implied fair value of a reporting unit's goodwill is less than its carrying amount. The implied fair value of goodwill is determined by subtracting the fair value of the recognized assets and liabilities of the reporting unit from the fair value of the reporting unit.

     Sequa completed the transitional impairment review required under SFAS No. 142 and recorded, effective January 1, 2002, a non-cash charge related to continuing operations of $13.0 million (net of a related tax benefit on deductible goodwill of $7.8 million) as the effect of a change in accounting principle in the Consolidated Statement of Operations. The transitional charge related to continuing operations was for the ARC Automotive ($3.1 million) reporting unit of the Automotive segment and the MEGTEC Systems ($9.1 million) and After Six ($0.8 million) reporting units of the Other Products segment. The effect of the change in accounting principle relating to continuing operations reduced basic earnings per share by $1.25 in 2002. A non-cash, after-tax charge of $101.8 million, relating to the ARC propulsion business, was

reclassified to the results of discontinued operations in the Consolidated Statement of Operations. The fair value of Sequa's reporting units was measured using an income approach based on a present value technique of estimated expected future cash flows.

     Pursuant to SFAS No. 142, goodwill is to be reviewed for impairment on an annual basis. Sequa has selected October 1 as the date for subsequent reviews. Sequa reviewed its goodwill as of October 1, 2003 and 2002 and determined that no further impairment of goodwill had occurred. Despite the difficult economic environment confronting the Aerospace segment, management believes that the absence of impairment on the segment's recorded goodwill of $111.6 million reflects the positive long-term outlook for the industry and Chromolloy's inherent value as the major independent aircraft engine repair alternative to the OEMs.

Income (Loss) from Discontinued Operations

     On October 17, 2003, Sequa, through its ARC subsidiary, completed the sale of substantially all of the assets -- including the shares of ARC UK Limited -- and certain of the liabilities related to the propulsion business of ARC (collectively referred to as the ARC propulsion business). The sale to Aerojet was pursuant to an agreement entered into by ARC on May 2, 2003. ARC received $133.0 million in cash subject to certain adjustments. ARC Automotive, Sequa's automotive airbag inflator operation, was not included in the sale to Aerojet. Aerojet has entered into a long-term supply contract and license agreement to provide propellant and propellant development to ARC Automotive.

     ARC propulsion income included in discontinued operations and per basic share amounts of $3.5 million or $0.33 in 2003 and $7.5 million or $0.72 in 2002. Income from discontinued operations also includes a $101.8 million after-tax charge for the 2002 effect of a change in accounting principle ($9.78 per basic share), related to the operations of the ARC propulsion business. The 2003 sale of the ARC propulsion business resulted in an additional preliminary after-tax gain of $3.1 million or $0.30 per basic share.

     Sequa's remaining investment in discontinued operations primarily relates to a leveraged lease portfolio that will be liquidated over the next 11 years as rentals are received and residual values are realized. The leveraged lease cash flow stream, including residual proceeds, services the payment of principal and interest on a non-recourse loan that securitized the lease portfolio and which will be repaid in 2004.

     Sequa's investment in the leveraged lease portfolio is subject to risks associated with the ultimate realizability of estimated residual values, as well as the continuing creditworthiness of the various lessees. Certain of the leases concern aircraft leased to major commercial airlines including one with United Airlines (UAL). In December 2002, UAL filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. In December 2002, Sequa recorded an $11.0 million after-tax charge, of which $6.3 million related to the write-off of the net investment in the UAL lease. The balance of the after-tax charge related to a permanent decline in the realizability of remaining aircraft residual values. The effect of this after-tax charge from discontinued operations reduced basic earnings per share by $1.05 in 2002.

     Sequa's largest operation, Chromalloy Gas Turbine Corporation (2003 sales and operating income of $664.1 million and $28.0 million, respectively, and total assets at December 31, 2003 of $849.2 million), has experienced significant difficulties in its operating environment since the terrorist attacks of September 11, 2001, which had a severe, and extended, impact on the airline industry compounded by the general economic slowdown. The downturn in air travel has had a significant impact on Chromalloy's repair and original equipment component manufacturing operations, which derived approximately 80% of their 2003 sales from the commercial aviation market. The large repair business is directly related to the number of hours jet engines are flown, and the original equipment component manufacturing business is related to the number of new jet engines placed in service. The economic impact on Chromalloy has been partially offset by cost-cutting measures. In light of the continuing difficulties and intense pricing pressures in the commercial airline market, a return to the pre-September 11, 2001 level of operating income is not expected in 2004.

     In March 2003, Standard & Poor's Ratings Services (S&P) placed its ratings on 12 airlines on "CreditWatch with negative implications." S&P cited the then impending war with Iraq and its estimation that already weak airlines would incur substantial losses and cash outflow, due to declines in air travel. While the duration of the war was short, the outbreak of severe acute respiratory syndrome (SARS) resulted in certain airlines temporarily reducing service to regions affected by the disease. The long-term effect on air travel from the Iraq war, SARS and continuing terror threats is uncertain at this time.

     On April 1, 2003, Air Canada filed for protection under Canada's Companies' Creditors Arrangements Act. Air Canada is continuing operations while it restructures. In 2003, Air Canada accounted for less than 1% of Chromalloy's sales. A first-quarter charge of $0.7 million was incurred to reserve the trade receivables balance with Air Canada.

     UAL, which filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in December 2002, accounted for approximately $29 million or 4% of Chromalloy's sales in 2003 (4% of annual sales in 2002). The pre-petition net trade accounts receivable balance is nominal, and the impact of the UAL filing on Chromalloy's operations has not been significant. In September 2003, Chromalloy signed a 10-year engine maintenance by the hour contract with UAL. The contract represents new business growth of approximately 10% in sales and is expected to begin to contribute repair revenues in the first quarter of 2004.

     At December 31, 2003, trade receivables due from major commercial airlines totaled approximately $45 million. The difficult business conditions in the airline industry and the possibility of bankruptcy filings by other carriers who are customers of Chromalloy could adversely affect the ability of Chromalloy to realize some of these receivables.

     Chromalloy competes for turbine engine repair business with a number of other companies, including the original equipment manufacturers (OEMs). The OEMs generally have obligations (contractual and otherwise) to approve vendors to perform repair services on their engines and components. Chromalloy has a number of such approvals, including licensing agreements, which allow it to repair certain components of engines. The loss of a major OEM's approval to repair components for its engines could have an adverse effect on Chromalloy, although management believes it has certain actions available to mitigate this effect.

     Sequa is engaged in the automotive airbag inflator business through ARC Automotive. ARC Automotive's largest customers for airbag inflators are Delphi Automotive Systems and its subsidiaries (Delphi) and Key Safety Systems, Inc. (formerly Breed Technologies, Inc.) and its subsidiaries (Key Safety). Delphi accounted for $67.2 million or 34% of ARC Automotive's sales in 2003 and $43.9 million or 27% of sales in 2002. Key Safety accounted for approximately $72.7 million or 37% of ARC Automotive's sales in 2003 and $76.1 million or 47% of sales in 2002.

     Precoat markets its coating services to steel and aluminum producers and distributors, building products manufacturers, merchant can makers, and manufacturers of other diverse products. The steel manufacturers have experienced difficult economic pressures, and the industry is undergoing a period of consolidation. Precoat has worked to insulate its accounts receivable exposure. While Precoat primarily acts as a toll coater for its steel mill customers, and therefore does not own significant stores of coil inventory to serve this market, the operation has become more active in offering steel inventory management programs.

     In April 2003, National Steel, Precoat's largest customer, was acquired by US Steel. The combination of National Steel and US Steel accounted for approximately $91.9 million or 35% of Precoat's 2003 sales (39% of 2002 annual sales). The acquisition of National Steel by US Steel has not significantly affected Precoat.

     In the Specialty Chemicals segment, one customer accounted for 32% of 2003 sales (30% of 2002 annual sales) and the top three customers accounted for 47% of 2003 sales (45% of 2002 annual sales). All of these customers are international consumer products companies with whom Warwick has been doing business for many years.

     Sequa's assets of discontinued operations includes a leveraged lease portfolio that is subject to risks associated with the ultimate realizability of estimated residual values, as well as the creditworthiness of the lessees. Several of the leases are for aircraft leased to major commercial airlines whose industry is experiencing difficult conditions. At December 31, 2003, Sequa's remaining net investment in aircraft leases with major commercial airlines totaled $35.8 million, of which $16.7 million relates to American Airlines, Inc.; $15.4 million relates to Delta Airlines, Inc.; and $3.7 million relates to Continental Airlines, Inc.

Derivative and Other Financial Instruments

     Sequa is exposed to market risk from changes in foreign currency exchange rates and from changes in the prices of certain commodities which impact its earnings, cash flows and financial condition. Sequa manages its exposure to this market risk through its regular operating and financial activities and, when appropriate, through the use of derivative financial instruments. Sequa has established a control environment which assigns senior executives and, in certain instances operational management, responsibility for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. Sequa does not buy, hold or sell derivative financial instruments for trading purposes. Sequa's primary foreign currency exposures relate to the British pound and to the Euro. To mitigate the short- and near-term effect of changes in currency exchange rates, Sequa utilizes forward foreign exchange contracts and derivatives thereof to manage its exposure to cert ain existing assets and liabilities and to hedge forecasted transactions and firm commitments denominated in currencies other than the functional currency. Depending on the volatility of the market, Sequa utilizes natural gas swap agreements to convert a portion of its natural gas requirements to fixed rates. Depending on the

use of a derivative and whether it has been designated and qualifies as an efficient hedge, gains and losses resulting from changes in the value of the derivative are recognized currently in earnings or reported in Accumulated Other Comprehensive Income (Loss), a separate component of shareholders' equity.

     A hypothetical 10% uniform decrease in all foreign currency exchange rates relative to the US dollar would have decreased the fair value of Sequa's financial instruments by approximately $8.6 million as of December 31, 2003 and $11.9 million as of December 31, 2002. The sensitivity analysis relates only to Sequa's exchange rate-sensitive financial instruments, which include cash and debt amounts denominated in foreign currencies and all open foreign forward exchange contracts at December 31, 2003 and 2002. The effect of this hypothetical change in exchange rates ignores the effect this movement may have on the value of net assets, other than financial instruments, denominated in foreign currencies and does not consider the effect this movement may have on anticipated foreign currency cash flows.

     At December 31, 2003 and 2002, substantially all of Sequa's debt was at fixed rates, and Sequa currently does not hold interest rate derivative contracts. Accordingly, a change in market interest rates would not materially affect Sequa's interest expense but would affect the fair value of Sequa's debt. Generally, the fair market value of fixed-rate debt increases as interest rates fall and decreases as interest rates rise. The fair value of Sequa's total debt was approximately $874 million at December 31, 2003 and $672 million at December 31, 2002. A hypothetical 1% increase in interest rates would have decreased the fair value of Sequa's total debt by approximately $34.7 million at December 31, 2003 and $29.6 million at December 31, 2002. A hypothetical 1% decrease in interest rates would have increased the fair value of Sequa's total debt by approximately $36.5 million at December 31, 2003 and $31.4 million at December 31, 2002. The fair value of Sequa's total debt is bas ed primarily upon quoted market prices of Sequa's publicly traded securities. The estimated changes in the fair values of Sequa's debt are based upon changes in the present value of future cash flows as derived from the hypothetical changes in market interest rates. The December 31, 2003 values include $100 million of 8 7/8% Senior Notes due April 1, 2008, which were issued on June 5, 2003.

Environmental Matters

     Sequa's environmental department, under senior management's direction, manages all activities related to Sequa's involvement in environmental cleanup. This department establishes the projected range of expenditures for individual sites with respect to which Sequa may be considered a potentially responsible party under applicable federal or state laws. These projected expenditures, which are reviewed periodically, include: remedial investigation and feasibility studies; outside legal, consulting and remediation project management fees; the projected cost of remediation activities; and site closure and post-remediation monitoring costs. The assessments take into account currently available facts, existing technology, presently enacted laws, past expenditures, and other potentially responsible parties and their probable level of involvement. Outside technical, scientific and legal consulting services are used to support management's assessments of costs at significant individual sites.

     It is Sequa's policy to accrue environmental remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In 2003, 2002 and 2001, Sequa recorded charges of $1.7 million, $0.3 million and $13.3 million, respectively, to increase its accruals for remediation costs. The 2001 charge included $9.7 million of estimated cost to remediate soil and groundwater contamination from ammonium perchlorate (AP), a raw material used in the manufacture of solid rocket propellant by the discontinued ARC propulsion business. Although no federal or state environmental standards have been finalized for AP, recent studies indicating that the chemical may interfere with human thyroid function prompted Sequa to begin cleanup actions at its solid propellant facilities. Aerojet, which purchased the ARC propulsion business in October 2003, assumed financial responsibility, subject to a $20.0 million cap, for the remedi ation liability associated with one of the two facilities affected by AP contamination, as well as financial responsibility for certain other ARC propulsion remediation exposures. Sequa believes its remediation costs were adequately reserved prior to the sale of the propulsion business. Based on its most recent estimates, Sequa believes that the costs to remediate the ARC propulsion contamination exposures will not exceed the $20.0 million cap of financial responsibility assumed by Aerojet. At December 31, 2003, the potential exposure for all remediation costs, excluding financial liabilities assumed by Aerojet, is estimated to range from $12 million to $21 million, and Sequa's Consolidated Balance Sheet includes accruals for remediation costs of $16.6 million. These accruals are at undiscounted amounts and are included in accrued expenses and other noncurrent liabilities. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in eval uating environmental exposures.

     With respect to all known environmental liabilities, Sequa's actual cash expenditures for remediation of previously contaminated sites were $3.0 million in 2003, $7.2 million in 2002, and $3.1 million in 2001. Sequa anticipates that remedial cash expenditures will be between $4 million and $6 million during 2004 and between $2 million and $4 million during 2005. Sequa's capital expenditures for projects to eliminate, control or dispose of pollutants were $1.1 million, $1.3 million and $2.2 million in 2003, 2002 and 2001, respectively. Sequa anticipates annual environment-related capital expenditures to be approximately $1 million per year in 2004 and 2005. Sequa's operating expenses to eliminate, control and dispose of pollutants were $9.5 million in 2003, $8.7 million in 2002 and $8.9 million in 2001. Sequa anticipates that environmental operating expenses will be approximately $9 million per year during 2004 and 2005.

Backlog

     The businesses of Sequa for which backlogs are significant are the Turbine Airfoils, TurboCombustor Technology, and Castings units of the Aerospace segment and the Sequa Can Machinery, MEGTEC Systems and After Six units of the Other Products segment. The aggregate dollar amount of backlog in these units was $187.7 million at December 31, 2003 and $163.0 million at December 31, 2002. Increases in backlog in the Aerospace segment and in the MEGTEC Systems unit were partially offset by decreases in backlog in the Sequa Can Machinery and After Six units. Sales of After Six are seasonal, with stronger sales in the first six months of the year; accordingly, this unit's backlog is normally higher at December 31 than at any other time of the year.

Liquidity and Capital Resources

     Net cash used for operating activities was $56.2 million in 2003, compared with cash provided by operating activities of $79.5 million in 2002. The $135.7 million decrease primarily reflects increased contributions to Sequa's defined benefit pension plans, higher working capital requirements, lower levels of cash provided by discontinued operations and an increase in taxes paid. Cash provided by investing activities was $86.1 million in 2003, compared with cash used of $86.7 million in 2002. The $172.8 million increase primarily reflects the $133.0 million of proceeds required from the sale of the ARC propulsion business; lower levels of capital spending; the absence of funds expended for the purchase of a business in 2002; and lower levels of cash collateral required by an insurance carrier. Cash provided by financing activities was $8.8 million in 2003, compared with $8.5 million in 2002. The 2003 period includes the receipt of $101.0 million of net proceeds from the June 5, 2003 issuance of $100 million of 8 7/8% Senior Notes due April 1, 2008, partially offset by the repurchase of receivables sold. The 2002 period primarily reflects an increase in accounts receivable sold.

     In 2003, Sequa contributed $102.7 million to its domestic qualified defined benefit pension plans. The total includes $75.0 million contributed on December 3, 2003 to Sequa's largest defined benefit plan. The December 3, 2003 contribution represented the estimated difference between the accumulated benefit obligation and the value of plan assets. Due to its pension contributions as well as a significant improvement in the equity markets, Sequa recorded $47.1 million of income, net of tax, through other comprehensive income, a component of stockholders' equity, representing a partial reversal of the minimum required pension liability recorded in prior years.

     On October 17, 2003, Sequa, through its ARC subsidiary, completed the sale of substantially all of the assets -- including the shares of ARC UK Limited -- and certain of the liabilities related to the propulsion business of ARC (collectively referred to as the ARC propulsion business). The sale to Aerojet was pursuant to an agreement entered into by ARC on May 2, 2003. ARC Automotive, Sequa's automotive airbag inflator operation, was not included in the sale to Aerojet. Aerojet has entered into a long-term supply contract and license agreement to provide propellant and propellant development to ARC Automotive. The sale price was $133.0 million in cash subject to certain adjustments. Management is utilizing the proceeds to strengthen Sequa's financial position.

     On June 5, 2003, Sequa completed an offering of $100 million of Series A 8 7/8% Senior Notes due April 1, 2008 through a private placement under Rule 144A of the Securities Act of 1933 as amended (the Securities Act). Net proceeds received on the 8 7/8% Senior Notes offering, which were sold at a premium of 102.5% for an effective yield of 8.23%, amounted to $101.0 million and are being used for general corporate purposes. The notes are part of a single series of 8 7/8% Senior Notes, of which $200 million were issued in 2001. On September 19, 2003, Sequa completed its offer to exchange all outstanding Series A 8 7/8% Senior Notes due April 1, 2008 that were issued on June 5, 2003, for up to $100 million of registered Series B 8 7/8% Senior Notes due April 1, 2008. All $100 million of outstanding notes were exchanged. The terms of the new Series B 8 7/8% Senior Notes -- including principal amount, interest rate, maturity, security and ranking -- are substantially the same as the terms of the original notes, with the principal exception that the new notes are registered under the Securities Act.

     In anticipation of Sequa's $100 million 8 7/8% Senior Notes offering, Moody's downgraded its ratings on Sequa debt from Ba3 to B1 and changed its rating outlook from negative to stable. S&P affirmed its BB- rating with a negative outlook but removed Sequa from CreditWatch, where it was placed in March 2003. Fitch Ratings downgraded its ratings on Sequa's debt from BB- to B+ and changed its rating outlook from negative to stable.

     Sequa's ability to obtain letters of credit and surety bonds for financial guarantees had been limited due both to debt ratings that are below investment grade and to the absence of a secured bank credit agreement. In September 2003, Sequa finalized a $50 million facility with a major global bank for the issuance of letters of credit. The facility, which is secured by assets of the Specialty Chemicals segment, is subject to a net worth covenant with respect to the segment. The facility requires an initial cash collateral balance of 5.0 million British pounds increasing to 15.0 million British pounds, by 2006. In late 2002, Sequa had deposited $8.4 million with an insurance carrier when the surety market for financial guarantees became extremely tight and Sequa was unable to renew a surety bond. The amount was returned to Sequa upon the issuance of a letter of credit under the new facility. In April 2003, Sequa deposited $4.7 million with an insurance car rier to guarantee certain environmental remediation costs. The policy can be canceled upon Sequa satisfying certain Environmental Protection Agency required financial ratios or the issuance of a letter of credit. However, this policy may be canceled only on an annual anniversary. Of the $4.7 million, $4.2 million, plus interest earned on the deposit less any claims paid, is refundable.

     At December 31, 2003, Sequa was contingently liable for $32.7 million of outstanding letters of credit and $3.8 million of surety bonds not reflected in the accompanying Consolidated Balance Sheet. In addition, Sequa has guaranteed up to $6.6 million of its MJB joint venture's bank line of credit and up to 11.5 million British pounds of its TSTL joint venture's capitalized lease payments and overdraft facility. At December 31, 2003, no amounts were outstanding under MJB's bank line of credit and 6.5 million British pounds were outstanding related to the TSTL guarantees. Sequa is not currently aware of any existing conditions that would cause risk of loss relative to the outstanding letters of credit, surety bonds or the guarantees.

     Sequa Receivables Corp. (SRC), a special purpose corporation wholly owned by Sequa, has a Receivables Purchase Agreement (RPA) which was extended from its original expiration date of November 13, 2003 through November 16, 2006. Under the RPA, SRC may sell an undivided percentage ownership interest up to a maximum participation of $75 million, in Sequa's eligible domestic trade receivables through a bank administered multi-seller commercial paper conduit. The maximum participation under the RPA is lower than the $120 million maximum provided at December 31, 2002, primarily due to the absence of receivables related to the ARC propulsion business which has been sold; a narrowing of eligible receivables to domestic customers; and fewer banks participating in this market as a whole. Back-up liquidity lines provided by two banks are annually renewable at the banks' option and contain a net worth covenant applicable to Sequa. The sale of receivables through the bank administered co nduit is funded through the sale of A1/P1 rated commercial paper. SRC's discount expense is 1.25% above the commercial paper rate. SRC's assets will be available to satisfy its obligations to its creditors, which have a security interest in SRC's assets, prior to distribution to Sequa. SRC is shielded from credit exposure related to Sequa and therefore the discount rate offered by the buyer of Sequa trade receivables is based on the highest rated (A1/P1) commercial paper. The structure employed provides Sequa a low cost source of funds that would not be available to Sequa outside of such an arrangement. In accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125," transactions under the RPA qualify as a sale of receivables. At December 31, 2003, no trade receivables were sold under the RPA as Sequa repurchased the undivided percentage ownership interest previously sold using cash collections o n its accounts receivable during the second quarter.

     Capital expenditures for continuing operations amounted to $53.4 million in 2003, with spending concentrated in the Aerospace and Automotive segments. These funds were primarily used to upgrade existing facilities and equipment. Sequa currently anticipates that capital spending in 2004 will be approximately $75 million and will be concentrated primarily in the Aerospace and Automotive segments.

     At December 31, 2003, Sequa's contractual obligations are as follows:

     Management currently anticipates that the following will provide sufficient funds to support Sequa's operations for the next 12 months: cash flow from operations; $184.3 million of non-restricted cash and cash equivalents on hand at December 31, 2003; $75.0 million available under the Receivables Purchase Agreement which extends through November 16, 2006; and amounts available under the $50 million facility with a major global bank for the issuance of letters of credit that is secured by assets of the Specialty Chemicals segment. Expected requirements include $71.4 million of interest payments due on the outstanding 9% and 8 7/8% Senior Notes; $75 million of estimated capital expenditures for continuing operations; the other contractual obligations summarized above; and any future requirements for letters of credit and surety bonds under the $50 million facility.

     Off-balance sheet arrangements include certain guarantees that may be a source of potential risk to a company's future liquidity, capital resources and results of operations, regardless of whether they are recorded as liabilities.

     Sequa's guarantees are primarily limited to the use of letters of credit and surety bonds that serve to guarantee Sequa's own performance with respect to insurance retention levels, liabilities owed or contractual deadlines. A discussion of Sequa's letters of credit and surety bonds is included in the Liquidity and Capital Resources section of this Annual Report on Form 10-K.

     Sequa Receivables Corp. (SRC), a special purpose corporation wholly owned by Sequa, has a Receivables Purchase Agreement (RPA) which was extended from its original expiration date of November 13, 2003 through November 16, 2006. Under the RPA, SRC may sell an undivided percentage ownership interest up to a maximum participation of $75 million, in Sequa's eligible domestic trade receivables through a bank administered multi-seller commercial paper conduit. A further discussion of the RPA is included in Note 2 to the Consolidated Financial Statements and in the Liquidity and Capital Resources section of this Annual Report on Form 10-K.

     At December 31, 2003, all minimum required capital contributions to Sequa's joint ventures were satisfied. Future contributions to the joint ventures require the approval of the respective joint venture's board of directors. Sequa believes that its joint ventures are adequately capitalized. Sequa has guaranteed up to $6.6 million of its MJB joint venture's bank line of credit. Sequa has also guaranteed 50% of its TSTL joint venture's future lease payments under the terms of a capital lease, as well as 50% of the entity's overdraft facility. Total amounts subject to the TSTL guarantees, which were provided in early 2002 and in 2001, may not exceed 11.5 million British pounds. At December 31, 2003, there were no amounts outstanding under the MJB credit line, and 6.5 million British pounds were outstanding related to the TSTL guarantees. Sequa is not currently aware of any existing conditions that would cause risk of loss relative to the guarantees .

Significant Accounting Policies and Estimates

     Sequa believes that the application of the following accounting policies is important to its financial position and results of operations and requires significant judgments and estimates on the part of management. For a summary of all of Sequa's significant accounting policies see Note 1 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

     Certain of Sequa's operating segments provide services to industries that are or have been experiencing difficult economic pressures. The Aerospace segment performs repair and other services for the commercial airline industry, and the Metal Coating segment counts major steel mills among its customers. See the Risk/Concentration of Business section of this MD&A of this Annual Report on Form 10-K for further discussion. Many of Sequa's customers are large, well-known companies, and the customer base is monitored through a review of account balance agings, an assessment of customer financial condition, and interactions with the customers. Reserves are established through a combination of specific identification of problem accounts and percentages of aging brackets.

     The Aerospace segment (Chromalloy Gas Turbine) maintains significant inventories of parts to serve the repair market. In order to ensure that any obsolete or slow-moving inventory is properly identified and valued, Chromalloy has in place a policy that mandates minimum write-down requirements based on usage. The policy provides for a consistent and systematic approach to valuing inventory at the lower of cost or market, with inventory values reassessed quarterly and at year-end for adequacy. The decline in air travel and the related reduction in the number of hours jet engines are flown have had an unfavorable impact on inventory valuations. A further decline in air travel would have an additional unfavorable impact. Management believes that, while demand for certain repair services and manufactured parts has been volatile during the past year and can remain volatile while the industry is disrupted, the long-term outlook for the industry is positive.< /P>

Goodwill

     SFAS No. 142 requires that goodwill and other intangible assets be tested for impairment on an annual basis. Sequa recorded a $13.0 million after-tax transitional impairment charge related to continuing operations effective with the January 1, 2002 adoption of SFAS No. 142. Sequa updated its review of goodwill on its selected annual test dates of October 1, 2003 and 2002 and noted no further impairment. In assessing the recoverability of goodwill, assumptions are made with respect to future business conditions and estimated expected future cash flows to determine the fair value of a reporting unit. If these estimates and assumptions change in the future due to such factors as a decline in general economic conditions; a long-term or permanent decline in air travel; competitive pressures on sales and margins; and other factors beyond management's control, an impairment charge may be required. Details of remaining goodwill balances by segment are include d in Note 24 to the Consolidated Financial Statements of this Annual Report on Form 10-K and are incorporated herein by reference.

Pensions

     Pension expense and pension liabilities are actuarially determined and are affected by management's assumptions with respect to the discount rate for obligations, the future rate of increase in compensation levels, and the expected long-term rate of return on plan assets. Pension expense and liabilities can also be affected by changes in plan benefits and the actual return on plan assets. The annual discount rate is based on a review of high- and medium-grade corporate long-term bond rates. The rate of increase in compensation levels is based on management's assessment of the current and future economic environment and overall salary trends. The expected long-term rate of return considers the allocation of plan assets, the historical performance of total plan assets and economic and other indicators of future performance. In addition, Sequa may consult with and consider the opinions of financial and other professionals in developing appropriate return benchmarks. Declines in the discount rate and the expected long-term rate of return on plan assets, as well as actual returns on plan assets that are below the expected return, can have a significant impact on pension expense and related liabilities.

     Sequa has significant domestic net operating loss carryforwards, as well as deferred tax assets established through other comprehensive income in recording a minimum required pension liability. Management believes that such carryforwards and deferred tax assets will be utilized before their expiration through future reversals of existing taxable temporary differences, future earnings and available tax planning strategies. Sequa's ability to generate the expected amounts of domestic taxable income from future operations is dependent upon general economic conditions; the state of the airline industry and other major markets; competitive pressures on sales and margins; and other factors beyond management's control. There can be no assurance that Sequa will meet its expectations for future domestic taxable income in the carryforward period or that available tax strategies can be enacted. However, management has considered the above factors in reaching the conclusion that it is more likely than not that future domestic taxable income and available tax strategies will be sufficient to fully realize the domestic operating loss carryforwards and deferred tax assets at December 31, 2003.

Environmental
     Sequa's environmental department, under senior management's direction, manages all activities related to Sequa's involvement in environmental cleanup. This department establishes the projected range of expenditures for individual sites with respect to which Sequa may be considered a potentially responsible party under applicable federal or state laws. These projected expenditures, which are reviewed periodically, include: remedial investigation and feasibility studies; outside legal, consulting and remediation project management fees; the projected cost of remediation activities; and site closure and post-remediation monitoring costs. The assessments take into account currently available facts, existing technology, presently enacted laws, past expenditures, and other potentially responsible parties and their probable level of involvement. Outside technical, scientific and legal consulting services are used to support management's assessments of costs at significant individua l sites. It is Sequa's policy to accrue environmental remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures.

Forward-Looking Statements

     This document includes forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. All statements other than statements of historical fact contained in this Annual Report on Form 10-K and other periodic reports filed by Sequa under the Securities Exchange Act of 1934, as amended, and other written or oral statements made by Sequa or on its behalf, are forward-looking statements. When used herein, the words "anticipates," "expects," "believes," "goals," "intends," "plans," or "projects" and similar expressions are intended to identify forward-looking statements. These include, among others, statements relating to:

• Future earnings and other measurements of financial performance
• The effect of economic downturns or growth in particular markets
• Future cash flows and uses of cash
• Pension plan assumptions and future contributions
• Restructuring costs and savings
• The outcome of contingencies
• Future levels of indebtedness and capital spending
• Product developments and new business opportunities

     It is important to note that forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and estimates expressed or implied in such forward-looking statements. Although Sequa believes that the assumptions on which any forward-looking statements in this Annual Report on Form 10-K and other periodic reports filed by Sequa are reasonable, no assurance can be given that such assumptions will prove correct. All forward-looking statements in this Annual Report on Form 10-K are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Annual Report on Form 10-K.

Ethics and Code of Business Conduct

     Sequa has adopted a Code of Business Conduct (the Code of Conduct) which is available in its entirety on the Sequa website at (www.sequa.com) and to any stockholder requesting a copy. All Sequa employees officers, and directors, including the Chairman and Chief Executive Officer and the Senior Vice President, Finance (the chief financial officer), are required to adhere to the Code of Conduct in discharging their work-related responsibilities. Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Conduct. Amendments to the Code of Conduct, and any waivers from the Code of Conduct granted to directors or executive officers, will be filed with the Securities and Exchange Commission in accordance with applicable rules and regulations and will also be made available through Sequa's website.

     Sequa has a confidential helpline through which employees may report concerns about Sequa's business practices. In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee has established procedures for the receipt and handling of complaints regarding accounting, internal accounting controls or auditing matters, and to allow for the confidential, anonymous submission by employees of concerns regarding auditing or accounting matters.

Operating Results 2002-2001

Sales

     Overall sales declined 5% in 2002 driven primarily by sharp declines at the large Aerospace segment and at the smaller MEGTEC Systems unit of the Other Products segment. The effect of these declines was tempered by advances in the Automotive and Specialty Chemicals segments. A detailed review of sales for each segment follows.

     The 10% decline in sales in the Aerospace segment was due primarily to the continuing downturn in the worldwide commercial aviation industry. Engine repair sales declined 11% (13% excluding $8.1 million of sales of Pacific Gas Turbine (PGT), a former equity affiliate which became wholly owned on September 30, 2002), as an increase in sales to the US military and the benefit of translating foreign currency sales into US dollars (approximately $4.8 million) was more than offset by the poor conditions in the worldwide commercial airline industry. The military sales advance was primarily driven by revenues from a contract to provide component repairs at Kelly Air Force Base. Sales of original equipment components declined 7% as increases in sales to the industrial turbine and US military markets and a favorable impact of approximately $2.6 million from translation of foreign currency results to US dollars was more than offset by the weak commercial aviation market.

     Sales of the Automotive segment advanced 6% in 2002 with similar increases at both ARC Automotive and Casco Products. Sales of automotive airbag inflators advanced, reflecting increased volumes and the benefit of translating foreign sales into US dollars (approximately $2.3 million), which more than offset an unfavorable shift to lower priced new products. Casco Products sales increased primarily due to advances at the unit's foreign operations.

     Sales of the Metal Coating segment declined 3% in 2002, with declines in building and manufactured products tempered by a modest advance in container products. The year-over-year decline primarily reflects a 13% decline in the fourth quarter, with sales in each of the three major market segments off from the prior year quarter. Sales to the building products market were down slightly in 2002 reflecting weakness in the pre-engineered sector of the commercial construction market partially offset by the impact of sales from a former equity affiliate, Midwest Metal Coatings, which was consolidated in mid-2001. Modest advances in sales to the container market were driven by increased demand from the beverage industry, while a small decline in sales to the manufactured products area primarily reflects weakness in transportation and lighting sectors.

     Sales of the Specialty Chemicals segment advanced 12% in 2002 (7% in local currency) due to three principal factors: stronger demand for the detergent additive TAED; sales added through the June 2001 acquisition of a specialty chemicals marketing unit; and the favorable effect of the weakening of the US dollar on the translation of local currency results (approximately $7.0 million).

     Sales of the Other Products segment declined 10% in 2002, as advances at the can machinery units were more than offset by declines at MEGTEC Systems and After Six. Sales of MEGTEC Systems declined 15% (24% excluding sales added by a September 2001 acquisition of the roll handling group). The decline reflects the continuing weak condition of the worldwide graphic arts market. Sales of the can machinery unit registered a 6% advance in 2002, with increased sales of the can-decorating and specialty can systems product lines more than offsetting lower sales of can-forming equipment. Fourth-quarter sales more than doubled, compared with 2001, with all product lines contributing to the advance, and the unit finished the year with a strong backlog position. Sales of the After Six formalwear unit declined 11% in 2002, reflecting a drop in demand. Sales in the fourth quarter advanced 41%, compared with an unusually low prior year quarter due to a post September 11 downturn in 2001.

     Overall operating income increased $15.3 million or 46% in 2002. On an operating basis, significant improvements at the Automotive and Specialty Chemicals segment and at two of the three units of the Other Products segment were partially offset by sharp declines at the large Aerospace segment and the smaller MEGTEC Systems unit of the Other Products segment, as well as increased expenses in the Corporate segment. Other major factors in the advance were: lower restructuring and related asset impairment charges ($4.5 million in 2002, compared with $22.4 million in 2001); the cessation of goodwill amortization as required by SFAS No. 142 ($7.7 million); and lower environmental cleanup provisions ($0.3 million in 2002, compared with $3.6 million in 2001). The amounts of restructuring and related asset impairment charges recorded in 2002 and 2001 and the goodwill amortization in 2001 are summarized as follows:

A detailed review of operating results by business segment follows:

     Operating income in the Aerospace segment declined 32% in 2002, as the impact of continuing intense pressure on the commercial airline industry in 2002 was tempered by the absence of goodwill amortization, lower restructuring and related asset impairment charges and the favorable effect of translating foreign currency results into US dollars (approximately $0.7 million). Excluding these factors, profits of the Chromalloy Gas Turbine units primarily engaged in engine component repair were unfavorably affected by the following factors: the decline in sales to the commercial aviation market; increased inventory provisions primarily related to slow-moving inventory; start-up costs related to a new unit offering repairs of auxiliary power units; and the absence of reserve reversals recorded in 2001. These factors were partially offset by the benefits of cost reductions and restructuring actions as well as higher sales to the US military. Results of units primarily engaged in the m anufacture of original equipment components were also negatively affected by lower volume, an unfavorable sales mix shift and the absence of reserve reversals recorded in 2001, partially offset by a sharp reduction in operating expenses.

     Operating loss in the Automotive segment was $0.5 million in 2002 and $17.3 million in 2001. ARC Automotive significantly narrowed its loss as a result of increased sales, lower general and administrative costs and the absence of a $2.2 million asset impairment charge recorded in 2001, tempered by lower margins. The Casco automotive products unit posted a profit improvement in 2002. The primary reasons for the advance are: the absence of restructuring and related asset impairment charges and goodwill amortization in 2002; improved sales at the foreign units; and

benefits gained from the 2001 restructuring program, including improved cost controls and the outsourcing of certain manufacturing processes.

     Operating income in the Metal Coating segment increased 51% in 2002, due primarily to the absence of restructuring and related asset impairment charges and goodwill amortization. Excluding these factors, operating income at the unit advanced 5% as the benefit of improved profitability from ongoing Six Sigma initiatives and the 2001 restructuring program combined with lower natural gas prices to offset the impact of lower sales.

     The Specialty Chemicals segment posted improved results in 2002 driven by higher sales, operating efficiencies generated from Six Sigma initiatives and cost-containment measures. The absence of restructuring charges and goodwill amortization and the benefit of favorable currency movements (approximately $0.8 million) boosted results further. The impacts of these factors were tempered by higher pension costs. Results of the specialty chemicals marketing units were ahead for the year primarily due to the June 2001 acquisition of a marketing unit.

     The Other Products segment posted an operating loss of $2.4 million in 2002, compared with an operating loss of $15.9 million in 2001. The improvement reflects three factors: strong recovery at two of the three operating units in the segment; decreased restructuring and related asset impairment charges; and the absence of goodwill amortization. Partially offsetting these factors was a widening of the loss recorded by the MEGTEC Systems unit (a $5.8 million swing excluding the impacts of restructuring and related asset impairment charges and goodwill amortization). MEGTEC Systems' results reflect the effect of the sharp decline in the worldwide graphic arts market, mitigated by the inclusion of profits from a business acquired in September 2001. Both years include substantial restructuring charges to curb costs in the tight market environment. The can machinery unit posted a profit in the current year, representing a favorable $13.1 million swing in operating results that w as driven by several key factors: improved absorption due to a higher level of production; the absence of 2001 restructuring charges; the benefits gained from the restructuring program and other cost-reduction efforts; the ongoing Six Sigma program; reduced provisions for slow-moving inventory; and improved results at the specialty can systems operations. After Six posted a profit in 2002 and a loss in the prior year. The improvement was driven by the benefits of operating efficiencies derived from the 2001 restructuring actions and also reflects reduced bad debt expense and an improved sales mix.

     A 19% increase in corporate expenses for 2002 reflects the addition of an accrual for incentive compensation, an increase in pension expense, and a restructuring charge to cover the costs of an early retirement program in 2002, partially offset by lower environmental cleanup provisions in 2002.

Interest Expense

     Interest expense increased $0.4 million from 2001 due to a first-quarter increase in average borrowings, as well as a higher first-quarter average interest rate. The increased rate resulted from the repayment of lower-rate revolving credit debt using a portion of the proceeds of the $200 million 8 7/8% Senior Notes issued on April 2, 2001.

Interest Income

     Interest income decreased $1.7 million from 2001, primarily due to lower interest rates and the absence of earnings on a portion of the proceeds of the $200 million 8 7/8% Senior Notes issued on April 2, 2001 that had been temporarily invested.

     Sequa has investments in a number of unconsolidated joint ventures, which amounted to $42.5 million and $46.4 million at December 31, 2002 and 2001, respectively. The combination of income and losses of these joint ventures was losses of $0.1 million in 2002 and $0.7 million in 2001.

     Chromalloy is a partner in joint ventures aimed at strengthening its ties to certain original equipment manufacturers and airline customers, as well as ensuring close cooperation with respect to the dissemination of technical specifications and requirements. Sequa's investment in Chromalloy's joint ventures was $40.6 million and $44.5 million at December 31, 2002 and 2001, respectively. The combination of income and losses of Chromalloy's joint ventures was income of $0.3 million in 2002 and $0.7 million in 2001.

     In 2002, Other, net included $3.3 million of gain related to the change in the fair market value of a gas swap; $2.8 million of income related to insurance litigation settlements concerning certain product liability claims relating to the closed operations of a predecessor company; $0.9 million of gain on the fair market value of forward foreign exchange contracts that did not qualify for cash flow hedge accounting; $0.6 million of gain on the sale of stock received from the demutualization of an issuer of corporate-owned life insurance policies and pension annuities; $1.5 million of charges for the amortization of capitalized debt issuance costs; $1.3 million of discount expense on the sale of accounts receivable; $1.0 million of charges for letters of credit and commitment fees; and $0.7 million of expense on the cash surrender value of corporate-owned life insurance.

     In 2001, Other, net included $4.6 million of income related to the demutualization of an issuer of corporate-owned life insurance policies and pension annuities; $4.3 million of gain on the sale of the Caval Tool Division of the Chromalloy Gas Turbine subsidiary; $4.1 million of discount expense related to the sale of accounts receivable; $3.6 million of expense on the fair market valuation of a natural gas swap and related option; $1.8 million of charges for the amortization of capitalized debt issuance costs; $1.2 million of expense on the cash surrender value of corporate-owned life insurance; and $1.0 million of charges for letters of credit and commitment fees.

     The 2002 income tax benefit of $9.6 million includes $4.1 million of tax benefit, related to an increase in domestic net operating loss carryforwards due to the resolution of issues and the related completion of an Internal Revenue Service audit, and $2.4 million of income relating to the reversal of income tax reserves no longer required, due to the completion of tax audits at two foreign units. The effect of these items was to increase basic earnings per share by $0.40 and $0.23, respectively.

Tax Settlement

     In 2001, the Internal Revenue Service notified Sequa that a settlement agreement concerning the 1989 restructuring of two subsidiaries was approved. As a result of the settlement, $36.0 million, representing the reversal of reserves no longer required, was recorded as income through a reduction of the income tax provision. The amount is separately identified in the Consolidated Statement of Operations. The impact of the settlement was to increase basic earnings per share by $3.47 in 2001.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     See discussion in this Annual Report on Form 10-K in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Derivative and Other Financial Instruments," and Note 13 to the Consolidated Financial Statements of this Annual Report on Form 10-K, which are incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF THE INDEPENDENT AUDITORS

     To the Shareholders and Board of Directors of Sequa Corporation

     We have audited the accompanying consolidated balance sheets of Sequa Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sequa Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     As described in Notes 1 and 7 to the consolidated financial statements, effective January 1, 2002 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.