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United States
Securities and Exchange Commission

FORM 10-K

Commission File Number 001-31225

ENPRO INDUSTRIES, INC.

5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
(704) 731-1500
(Address of principal executive offices)
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x Yes     o No

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    o Yes     x No

The aggregate market value of voting and nonvoting common stock of the registrant held by non-affiliates of the registrant as of June 28, 2002, was $107,185,586. As of March 3, 2003, there were 20,416,302 shares of common stock of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement, dated March 27, 2003, for the 2003 annual meeting of shareholders to be held on April 30, 2003, are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

Background

We maintain an Internet website at www.enproindustries.com. We will make this annual report, in addition to our other annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, available free of charge on our Internet site as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information included in our website is not incorporated by reference into this annual report.

Overview

Our sales by geographic region in 2002, 2001 and 2000 were as follows:

Operations

Sealing Products Segment

In many of these industries, performance and durability are vital for safety and environmental concerns. Many of our products are also used in applications that are demanding due to extreme temperatures and corrosive environments.

PRODUCTS. The primary product lines in our sealing products segment are described below.

This segment’s gasket products are used for sealing flange joints in chemical, petrochemical and pulp and paper processing facilities where high pressures, high temperatures and corrosive chemicals create the need for specialized and highly engineered sealing products. In addition to the Garlock^® brand name, these gasket products are sold under the GYLON^®, BLUE-GARD^®, STRESS-SAVER^®, EDGE^®, GRAPHONIC^® and FLEXSEAL^® brand names. These products have a long-standing reputation within the industries we serve for performance and reliability.

Rotary lip seals manufactured by this segment are used in rotating applications to contain the lubricants that protect the bearings from excessive friction and heat generation. Because these sealing products are utilized in dynamic applications, they are subject to wear. Durability, performance and reliability are, therefore, critical requirements of our customers. These rotary lip seals are used in demanding applications in the steel industry, mining

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and pulp and paper processing under well-known brand names, including KLOZURE^® and MODEL 64^®.

This segment’s compression packing is used to provide sealing in pressurized, rotating applications such as pumps and valves. Major markets for this segment’s compression packing product line are in the pulp and paper and chemical processing industries. Branded products for these markets include EVSP^® and SYNTHEPAK^®.

This segment’s resilient metal seals provide extremely tight sealing performance for highly demanding applications such as semiconductor fabrication facilities, specific chemical processing applications,nuclear power generation and race car engines. Branded products for these markets include HELICOFLEX^® and CEFILAC^®.

This segment also manufactures a variety of sealing products used by the heavy-duty trucking industry to reduce wear and improve the performance of wheel end components. Products for this market include hub seals, axle fasteners, hub caps, bearings and hub odometers. In addition to the STEMCO^® brand name, these sealing products are sold under the GRIT GUARD^®, GUARDIAN^®, GUARDIAN HP^®, VOYAGER^®, DISCOVER^®, PRO-TORQ^®, SENTINEL^® and DATATRAC^® brand names.

The sealing products segment manufactures PTFE thin tape, formed PTFE products and PTFE sheets and shapes as well. These PTFE products provide highly specialized and engineered solutions to our customers in the aircraft and fluid handling industries.

NEW PRODUCT DEVELOPMENT. Our sealing products segment utilizes a formal innovation system to seek opportunities for growth through innovative product development. The goal is to balance a product portfolio for traditional markets while simultaneously creating distinctive and breakthrough products and new applications for markets such as semiconductor, food and pharmaceuticals, biotech and industries that utilize mechanical seals. We also have established a structured standard operating procedure to move product innovations from concept to commercialization and to identify, analyze, develop and implement new product line concepts and opportunities aimed at business growth in this area.

CUSTOMERS. Our sealing products segment sells products to industrial agents and distributors, original equipment manufacturers (“OEMs”), engineering and construction firms and end users worldwide. Sealing products are offered to global customers, with more than 23% of sales originating from outside North America in 2002. Representative customers include The Dow Chemical Company, Morgan Construction Company, BASF Corporation, General Electric Company, Georgia-Pacific Corporation, Eastman Chemical Company, Exxon Mobil Corporation, AK Steel Corporation, Volvo Corporation, Wabash National Corporation, Great Dane, Mack Trucks, International Truck, PACCAR, United Parcel Services, Inc. and Southeastern Freight Lines, Inc. In 2002, no single customer accounted for more than 3% of segment revenues.

COMPETITION. Competition in the sealing markets in which we operate is based on proven product performance and reliability, as well as price, customer service, application expertise, delivery terms, breadth of product offering, reputation for quality and the availability of the product. Our leading brand names, including Garlock^® and Stemco^®, have been built upon our long-standing reputation for reliability and durability. In addition, the breadth, performance and quality of our product offerings allow us to achieve premium pricing and have made us a preferred supplier among our agents and distributors. We believe that our record of product performance in the major markets in which this segment operates is a significant competitive advantage for us. Major competitors include A.W. Chesterton Company, Richard Klinger Pty, The Flexitallic Group, Inc., SKF USA Inc., Freudenberg-NOK and Federal-Mogul Corporation.

RAW MATERIALS AND COMPONENTS. Our sealing products segment uses PTFE resins, aramid fibers, specialty elastomers, elastomeric compounds, graphite and carbon, common and exotic metals, cold-rolled steel, leather, aluminum die castings, nitrile rubber, powdered metal components and various fibers. We believe that all of these raw materials and components are readily available from enough suppliers to continue to operate the sealing products segment in the future.

Engineered Products Segment

PRODUCTS. Our engineered products segment includes the product lines described below, which are designed, manufactured and sold by Glacier Garlock Bearings (GGB), Quincy Compressor, France Compressor Products, Fairbanks Morse Engine and the Haber-Sterling Tool Group.

Glacier Garlock Bearings produces self-lubricating, non-rolling, metal polymer bearing products. The metal-backed or epoxy-backed bearing surfaces are made of PTFE, or a mixture that includes PTFE, to provide maintenance-free performance and reduced friction. These products typically perform as sleeve bearings or thrust washers under conditions of no lubrication, minimal lubrication or pre-lubrication. These products are used in a wide variety of markets such as the automotive, pump and compressor, construction, power generation and machine tool markets. We have over 20,000 bearing part numbers of different designs and physical dimensions. Glacier and Garlock are well recognized, leading brand names in this product area.

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Quincy Compressor designs and manufactures rotary screw and reciprocating air compressors and vacuum pumps, ranging from one-third to 500 horsepower, used in a variety of industrial applications, including plant air, pneumatic temperature and instrument control, automotive service and light construction. Quincy Compressor also performs comprehensive compressed air system audits under the Air Science brand name. France Compressor Products designs and manufactures sealing components for reciprocating compressors used in the refining, natural gas transmission and petrochemical industries.

Fairbanks Morse Engine manufactures heavy-duty diesel, natural gas and dual-fuel engines. These engines, which range in size from 640 to 29,320 horsepower and from four to 18 cylinders, are used by the government and the general industrial market. Fairbanks Morse engines are used for marine propulsion, power generation and pump and compressor applications. Fairbanks Morse Engine has been building engines for over 109 years under the Fairbanks Morse Engine brand name and has a large installed base of engines for which it supplies aftermarket parts and service. Additionally, Fairbanks Morse Engine has been the U.S. Navy’s supplier of choice for medium-speed diesel engines and has supplied engines to the U.S. Navy for over 60 years.

Haber-Sterling Tool Group manufactures specialized tooling such as cold-heading punches and thread-rolling dies used on machines that form nuts, bolts, screw heads and other fastener shapes, primarily for use in the automotive industry. They also perform precision machining of round and flat geometry print tooling, and are a specialist in cold extrusion tooling, which serves the high-speed header and forging markets. Additional market areas include carbide and jig and fixture tooling.

NEW PRODUCT DEVELOPMENT. Our engineered products segment, primarily through its Quincy Compressor and Glacier Garlock Bearings divisions, has an established track record in research and development and continues to develop proprietary materials and technologies for the next generation of products in our key markets. We continually seek to improve our existing products and develop new products. We have research and development facilities in the U.S., France and Germany, and our research and development departments in this segment employ numerous scientists, engineers and technicians.

CUSTOMERS. Our engineered products segment sells its products to a diverse customer base using a combination of direct sales and highly developed independent distribution networks. Glacier Garlock Bearings has customers worldwide in all major industrial sectors, and supplies products both directly to customers through their own local distribution systems and indirectly to the market through independent agents and distributors with their own local network. Quincy Compressor products are sold through a global network of independent agents and distributors, which are independent businesses that bring air expertise, customer dedication and Quincy Compressor products to their geographic areas. Quincy Compressor also sells directly to national accounts, OEMs and climate control houses. Fairbanks Morse Engine has sold its products to customers worldwide, including major shipyards, the U.S. Navy, U.S. Coast Guard, municipal utilities, institutional and industrial organizations, sewage treatment plants, nuclear power plants and offshore oil and gas platforms. Fairbanks Morse Engine markets its products through a direct sales force of engineers in North America and through independent agents worldwide. Fairbanks Morse Engine’s representative customers include Northrup-Grumman Ship Systems, YPF Ecuador, Inc., Ingersoll-Dresser Pumps, Arco Oriente Inc. and the U.S. Navy. In 2002, no single customer accounted for more than 6% of segment revenues.

COMPETITION. Glacier Garlock Bearings competes with a number of competitors, including Kolbenschmidt Pierburg Aktiengesellschaft, Norton Company and Federal-Mogul Corporation. However, no single competitor competes with Glacier Garlock Bearings across all of its bearing product lines or offers as complete a portfolio of products as Glacier Garlock Bearings does. In the markets in which Glacier Garlock Bearings competes, competition is based primarily on performance of the product for specific applications, product reliability, delivery and price. Quincy Compressor’s major competitors include Gardner Denver, Inc., Sullair Corporation, Ingersoll-Rand Company, Atlas Copco North America Inc. and Kaeser Compressors, Inc. In the markets in which Quincy Compressor competes, competition generally is based on reliability, quality, delivery times, energy efficiency and service. Fairbanks Morse Engine’s major competitors include Caterpillar Inc. and Wartsila Corporation. Price, delivery time, and engine efficiency relating to fuel consumption and emissions drive competition.

RAW MATERIALS AND COMPONENTS. Glacier Garlock Bearings’ major raw material purchases include steel coil, bronze powder and PTFE. Glacier Garlock Bearings sources components from a number of external suppliers, the most important being Deva F-M, Ltd., L&S Kunstoftechnologie GmbH and GKN Italia. Quincy Compressor’s primary raw materials are iron castings. Components used by Quincy Compressor are motors, coolers and accessories such as air dryers, filters and electronic controls. Fairbanks Morse Engine purchases multiple ferrous and non-ferrous castings, forgings, plate stock and bar stock for fabrication and machining of the engines. The majority of this material is pur- chased domestically. In addition, Fairbanks Morse Engine manufactures a considerable amount of precision-machined engine components. We believe that all of these raw materials and components are readily available from enough suppliers to continue to operate the engineered products segment in the future.

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Research and Development

Total research and development spending for continuing operations was $12.9 million in 2002, $12.7 million in 2001 and $12.3 million in 2000, and represented 1.8%, 2.0% and 1.9% of sales, respectively.

Backlog

Quality Assurance

As of December 31, 2002, 25 of our manufacturing facilities were ISO 9000 and/or QS 9000 certified, with the remaining facilities working towards obtaining ISO and/or QS certification. OEMs are increasingly requiring these standards in lieu of individual certification procedures and as a condition to awarding business.

Patents, Trademarks and Other Intellectual Property

We license certain intellectual property from third parties and we are dependent on the ability of these third parties to diligently protect their intellectual property rights. In several cases, such as Fairbanks Morse Engine’s technology license from MAN B&W for the S.E.M.T. Pielstick four-stroke engine and Quincy Compressor’s license from Svenska Rotor Maskiner AB of their rotary screw compressor design and technology, the intellectual property licenses are integral to the manufacture of our products. A loss of these licenses or a failure on the part of the third party to protect its own intellectual property could reduce our revenues. Although these licenses are all long-term and subject to renewal, it is possible that we may not successfully renegotiate these licenses or that they could be terminated for a material breach on any part. If this were to occur, our business, financial condition, results of operations and cash flows could be adversely affected.

Employees and Labor Relations

We believe that we generally have a satisfactory relationship with our employees throughout our operations and the unions that represent them. We have collective bargaining agreements in place at five of our facilities. The hourly employees who are unionized are covered by collective bargaining agreements with a number of labor unions and with varying contract termination dates ranging from May 2003 to October 2007. In addition, some of our employees located outside of the U.S. are subject to national collective bargaining agreements. The last significant strike or work stoppage experienced by any of our facilities was in 1996 and lasted approximately 10 weeks.

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ITEM 2. PROPERTIES

We are headquartered in Charlotte, North Carolina, and have 33 primary manufacturing facilities in 11 states within the U.S. and eight countries outside of the U.S. The following table outlines the location, business segment and size of our most significant facilities, along with whether such facilities are owned or leased by us:

Our manufacturing capabilities are flexible and allow us to customize the manufacturing process to increase performance and value for our customers and meet particular specifications. We also maintain numerous sales offices and warehouse facilities in strategic locations in the U.S., Canada and other countries. We believe that all of our facilities and equipment are in good condition and are well maintained and able to continue to operate at present levels and as anticipated by our present business strategy.

ITEM 3. LEGAL PROCEEDINGS

A description of legal, environmental and asbestos matters is included in Item 7 of this annual report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contingencies.”

In addition to the matters noted above, we are from time to time subject to, and are presently involved in, other litigation and legal proceedings arising out of the ordinary course of business. We believe that the outcome of such other litigation and legal proceedings will not have a material adverse affect on our financial condition, results of operations or cash flows.

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

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

PART II

ITEM 5. REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is publicly traded on the New York Stock Exchange under the symbol “NPO.”

As of March 3, 2003, there were approximately 8,387 holders of record of our common stock. The price range of our common stock since it began public trading on May 24, 2002, (on a “when issued” basis until June 3, 2002) is listed below by quarter:

EnPro did not declare any cash dividends to its shareholders during 2002. For a discussion of the restrictions on payment of dividends on our common stock, see Note 9 to our Consolidated Financial Statements.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following historical consolidated financial information as of and for each of the years ended December 31, 2002, 2001 and 2000, has been derived from, and should be read together with, our audited Consolidated Financial Statements and the related notes, which are included elsewhere in this report. The historical consolidated financial information as of December 31, 1999, and for the year ended December 31, 1998, has been derived from, and should be read together with, Coltec’s audited Consolidated Financial Statements and the related notes, which have not been included in this report. The historical consolidated financial information as of December 31, 1998, has been derived from Coltec’s unaudited Consolidated Financial Statements, which have not been included in this report. Total assets for all years presented have been reclassified to reflect the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires assets and liabilities of discontinued operations to be shown separately rather than net.

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During the periods presented, Coltec effected a number of acquisitions and divestitures, some of which were significant. As a result, Coltec’s and our historical financial results for the periods presented may not be directly comparable. The information presented below should also be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	(1)	The TIDES are convertible into the common stock of another registrant, Goodrich Corporation, and therefore are no longer deemed to be a convertible preferred security and are classified as long-term debt subsequent to the Distribution.
	(2)	Because our results were consolidated into the results of Goodrich prior to May 31, 2002, per share amounts do not apply to periods prior to 2002.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the Securities and Exchange Commission. The words “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. We believe that it is important to communicate our future expectations to our shareholders, and we therefore make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control, and our actual results may differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, general economic conditions in the markets served by our businesses, including inflation, recession, interest rates and other economic factors, casualty to or other disruption of our facilities and operations, and other factors that generally affect the business of industrial companies. We advise you to read further about certain of these and other risk factors set forth under the caption “Certain Risk Factors That May Affect Future Results.” We undertake no obligation to publicly update or revise any forward-looking statement, either as a result of new information, future events or otherwise. Whenever you read or hear any subsequent written or oral forward-looking statements attributed to us or any person acting on our behalf, you should keep in mind the cautionary statements contained or referred to in this section.

The following is management’s discussion and analysis of certain significant factors that have affected our consolidated financial condition and operating results during the periods included in the accompanying audited consolidated financial statements and the related notes. You should read the following discussion in conjunction with our audited Consolidated Financial Statements and the related notes, included elsewhere in this report.

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Overview

The following discusses our consolidated results of operations and financial condition after the Distribution and Coltec’s consolidated results of operations and financial condition as it operated as a wholly owned subsidiary of Goodrich prior to the Distribution, including the adjustments and allocations necessary for a fair presentation of the business. Prior to the Distribution, Coltec owned the EIP business as well as an aerospace business. The transfer of Coltec’s aerospace business to Goodrich prior to the Distribution constituted the disposal of a segment under APB Opinion No. 30. Accordingly, Coltec’s aerospace business has been accounted for as a discontinued operation and its revenues, costs and expenses, assets and liabilities and cash flows have been segregated in the historical consolidated financial statements included elsewhere in this report. Unless otherwise noted, the following discussion pertains only to continuing operations. Following the Distribution, Coltec became a wholly owned subsidiary of EnPro and Coltec’s aerospace business is owned by Goodrich.

The following discussion of the consolidated results of operations does not necessarily include all of the expenses that would have been incurred by Coltec prior to the Distribution had it been a separate, stand-alone entity and may not necessarily reflect what Coltec’s consolidated financial condition, results of operations and cash flows would have been had Coltec been a stand-alone entity prior to the Distribution or what our consolidated financial condition, results of operations and cash flows may be in the future.

We manage our business as two segments, a sealing products segment (sealing and PTFE products) and an engineered products segment (metal polymer bearings, air compressor systems, heavy-duty diesel and natural gas engines and specialized tooling), which encompass our primary product lines. On September 1, 2001, we acquired the Glacier metal polymer bearings business (“Glacier”), which is now part of our GGB operation. The results of Glacier’s operations have been included in our Consolidated Financial Statements since that date. The combination of our pre-existing bearings business and Glacier created the largest manufacturer of self-lubricating, non-rolling, metal polymer bearings in the world. The addition of Glacier has had a significant effect on our consolidated financial condition and results of operations.

Results of Operations

In 2002, we transferred operating responsibility for a business in the sealing products segment to the engineered products segment. Historical segment information has been reclassified to conform with this internal organization change. Segment profit is total segment revenue reduced by operating expenses and restructuring costs identifiable with the segment. We do not include income taxes, interest expense or interest income in the determination of segment profit. Corporate expenses include general corporate administrative costs. The accounting policies of the reportable segments are the same as those for EnPro.

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2002 Compared to 2001

Corporate expenses increased 61% to $16.1 million in 2002 from $10.0 million in 2001. Corporate expenses increased in 2002 primarily as a result of our becoming an independent public company. In 2001, corporate expenses consisted of an allocation of Goodrich headquarters expenses. We believe the level of corporate expenses in 2002 is more representative of our expected annual corporate expenses. However, these expenses may be higher during our first full year as an independent public company or may increase due to unforeseen events or circumstances.

Asbestos-related expenses were $18.0 million in 2002, which was 84% higher than the $9.8 million incurred in 2001. In 2002, we wrote off asbestos insurance receivables amounting to $6.2 million as a result of a bankruptcy filing by the parent company of one of Garlock’s insurers. In addition, asbestos-related expenses, exclusive of this receivable write-off, increased by $2.0 million in 2002 as compared to 2001 due to higher costs associated with managing and settling asbestos claims.

Interest expense declined 46% from $25.3 million in 2001 to $13.7 million in 2002 mainly due to the reduction in the outstanding principal amount of the 7½% Coltec Senior Notes. All but $3.1 million of the original $300 million of 7½% Coltec Senior Notes were exchanged for similar Goodrich senior notes prior to the Distribution. Goodrich retained the new Goodrich senior notes subsequent to the Distribution.

Other expenses were $44.3 million in 2002 compared to $4.2 million in 2001. The 2002 expenses increased mainly due to the following:

•		In connection with the Distribution, we conducted a review of our process for managing and estimating environmental liabilities. As a result of changes in our strategies growing out of this review, and in light of recent developments at a number of environmental sites associated with previously divested businesses, we increased our environmental liabilities by $12.0 million to reflect an increase in the estimated costs to remediate these sites. The increased costs will be paid over a number of years and therefore should not significantly impact our short-term liquidity.
•		Based on new information obtained during the year, we revised the estimated costs associated with an adverse court ruling during 2002 related to severance owed as a result of the closing of a plant in 1982. We increased our retained liabilities of previously owned businesses for this case by $11.0 million. In December 2002, $14.4 million was paid in connection with this liability.
•		In 2002, we purchased call options on Goodrich common stock to provide protection against the risk that the cash required to finance conversion of the convertible preferred securities of trust, or TIDES, into Goodrich common stock would exceed the liquidation value of the TIDES. The call options are a derivative instrument and are carried at fair value on our Consolidated Balance Sheets. Changes in fair value are reflected in income. The fair value of the call options declined by $16.7 million during the year.

The effective income tax rate from continuing operations was a 44.9% tax benefit in 2002 and a 37.5% tax expense in 2001. Because we had a loss in 2002, the tax benefit of the TIDES distributions increased the effective tax rate benefit. In 2001, the tax benefit of the TIDES distribution decreased the effective tax rate expense.

As mentioned above, we treat the TIDES distributions as interest expense after the Distribution. Therefore, only five months of the TIDES distributions, amounting to $3.3 million, are separately reported in the Consolidated Statements of Operations. The amount for the other seven months, $4.6 million, is included in interest expense in the Consolidated Statements of Operations. In 2001, Coltec separately reported the annual amount of the TIDES distributions, amounting to $7.9 million, in the Consolidated Statements of Operations.

In 2002, we completed our initial assessment of goodwill using the two-step approach described in Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets,” or SFAS 142. We tested goodwill for impairment by comparing the fair value of the reporting units to their carrying value, including goodwill. We determined the fair value based on the discounted present value of estimated future cash flows. Since the carrying value of the assets of certain reporting units in the sealing products segment exceeded their fair value, we then made a comparison between the implied fair value of the goodwill, as defined by SFAS 142, and the carrying value of the goodwill. We determined that goodwill related to the sealing products segment was impaired and, as required by SFAS 142,

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we reduced goodwill by $23.4 million ($14.6 million, net of tax) to its implied fair value. We recorded the reduction as a cumulative effect of a change in accounting principle. As required by SFAS 142, we restated the first quarter ending March 31, 2002, to reflect the cumulative effect of the adoption of this accounting principle. We previously evaluated goodwill for impairment by comparing the entity level unamortized goodwill balance to projected undiscounted cash flows, which did not result in an indicated impairment. We also completed our first required annual impairment test of goodwill as of October 1, 2002. The results of this assessment did not indicate any further impairment of our goodwill.

Following is a discussion of the operating results for each segment.

SEALING PRODUCTS. Sales decreased 4% to $314.0 million in 2002 compared to $327.5 million in 2001. Sales at Garlock Sealing Technologies were down 4% as this operation continues to experience weakness in most of the process industry markets that it serves in the Americas. Garlock Sealing Technologies’ sales in Europe and in certain industries, such as the U.S. steel industry, were flat. Stemco sales in 2002 were 6% higher than in 2001 due to a rebound in demand for new heavy-duty trucks as a result of pre-buying in advance of new EPA emissions standards in the latter part of 2002, and an increase in new heavy-duty trailer builds from historically low levels in 2001. Demand for Plastomer Technologies’ PTFE products, which declined 7% in 2002, was negatively impacted by weakness in the aerospace, semiconductor manufacturing and chemicals markets. Decreased sales of commercial rubber products at Garlock Rubber Technologies contributed to a 7% decrease in revenue from 2001 to 2002.

Segment profit fell 8% from $43.0 million in 2001 to $39.5 million in 2002. The decrease in segment profit was primarily a result of the lower sales volumes at certain businesses noted above, pricing pressure at Garlock Sealing Technologies and Plastomer Technologies, the recording of a reserve for a warranty claim, and increased pension and insurance costs. These unfavorable changes were partially offset by the elimination of goodwill amortization ($3.1 million), cost reductions from restructuring activities in late 2001 and throughout 2002, increased margins at Stemco, and improved operating performance at Garlock Rubber Technologies. Operating margins for the segment decreased from 13.1% in 2001 to 12.6% in 2002.

ENGINEERED PRODUCTS. Sales were $397.6 million, a 31% increase over the $303.6 million reported in 2001. Segment profit increased 21% from $29.5 million in 2001 to $35.8 million in 2002. Operating margins for the segment were 9.0% and 9.7% in 2002 and 2001, respectively. The decrease in operating margins was mainly due to increased volume in lower margin product lines and increased costs for pensions and insurance, partially offset by the elimination of goodwill amortization ($0.8 million). A 31% increase in sales volumes and cost reductions at Fairbanks Morse Engine contributed significantly to the segment results. A full year of results for Glacier, acquired in September 2001 and now part of our GGB operation, accounts for most of the increase in segment sales. On a pro forma basis as if the Glacier acquisition had occurred on January 1, 2001, segment sales in 2001 would have been $68.7 million higher, resulting in only a 7% increase in segment sales in 2002. GGB continues to experience pricing pressure in its key markets in the Americas and Europe, and weakness in its key European markets, partially offset by stronger demand in 2002 in its American markets. This has resulted in an overall decrease in GGB’s operating margins.

Improved demand from automotive programs boosted Haber-Sterling’s sales by 18%, which together with restructuring costs in 2001 that did not repeat in 2002 and cost reductions from these restructuring activities, led to significantly improved operating margins for this operation. Weak capital equipment and industrial markets in 2002 negatively impacted demand at Quincy Compressor, resulting in a sales decline. The decrease in volume and cost increases resulted in lower operating margins at Quincy Compressor. France Compressor Products’ sales and segment profit were essentially unchanged from a year ago.

Non-GAAP Supplemental Financial Measures Reconciliation — GAAP Net Income (Loss) to Non-GAAP “As Adjusted” Net Income (Unaudited)

As described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to the Consolidated Financial Statements, on May 31, 2002, Goodrich completed the Distribution. The financial results prior to the Distribution include the results of Coltec’s aerospace business and certain other assets and liabilities (and the associated income and expenses) that were retained by Goodrich and not distributed as part of the Distribution.

In addition, while a part of Goodrich, Coltec was allocated a portion of certain headquarters expenses. These expenses were not representative of the level that would have been incurred had Coltec operated as an independent public company during that period.

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Since May 31, 2002, we have operated as an independent public company. Between May 31, and December 31, 2002, we recorded a number of charges of a non-operating nature that are more fully described in Note 3 to the Consolidated Financial Statements.

With respect to these charges, we believe that:

	1. the magnitude of the items is such that it is important for readers of our Consolidated Financial Statements to be aware of these items and the effect that they had on net income (loss) during the periods presented; and,
	2. with respect to one of the charges, the mark-to-market adjustments on our call options on Goodrich common stock, the expense we recognized does not involve a cash outlay and is driven by changes in the Goodrich stock price that have no bearing on our normal operating activities.

Based on the factors cited above, we believe that it is helpful in understanding the ongoing operating results to provide non-GAAP supplemental financial measures showing the GAAP results adjusted to eliminate the impact of income and expenses associated with assets and liabilities retained by Goodrich that will have no bearing on our ongoing results in the future. In addition, we believe that the non-GAAP supplemental financial measures are more meaningful if the operating results are further adjusted to approximate what they would have been had we operated as an independent public company during all periods presented and if we exclude from the GAAP results those items that are not representative of our ongoing operational activities.

2001 Compared to 2000

Asbestos-related expenses increased 5% to $9.8 million in 2001 from $9.3 million in 2000. The increase was mainly due to the mix of insurance policies in 2001, which provided lower reimbursements from insurance carriers of fees and expenses incurred in the management of asbestos-related matters.

The effective income tax rate from continuing operations was 37.5% in 2001 and 2000.

Following is a discussion of the operating results for each segment.

SEALING PRODUCTS. Sales of $327.5 million in 2001 were 10% lower than the $363.7 million in 2000. The lower sales volumes were due to continued softness in all major markets, including chemical processing, heavy-duty truck and trailer assembly and pulp and paper production. The terrorist attacks on September 11, 2001, contributed further to the weakness in our major markets and caused a drop in orders to varying degrees by product line and market in the fourth quarter. This event and its negative impact contributed to our decision to take certain restructuring measures to reduce costs and personnel, to consolidate certain facilities and to write down certain assets. New truck and trailer production in 2001 was approximately half the levels of early 2000. In addition, capacity utilization in U.S. factories declined to levels well below the historical average in 2001 while U.S. industrial production fell nearly every month after mid-2000. These factors contributed to a decrease in capital spending and delays in scheduled maintenance programs throughout the process industries.

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Segment profit of $43.0 million in 2001 was 34% lower than the $65.3 million in 2000. The decline was principally attributable to lower sales volumes, particularly in some of our higher margin products. In addition, operating margins declined from 18.0% to 13.1% due to weaker pricing in certain market segments and an inability to reduce fixed costs at the same rate as sales declined. Increased expenses associated with the write-down of inventories and other assets, and severance and labor costs not associated with a formal restructuring plan also contributed to reduced margins.

ENGINEERED PRODUCTS. Sales of $303.6 million in 2001 were 4% higher than the $293.3 million in 2000. Lower bearings sales in North America in 2001 due, in part, to weak automotive markets and competitive pricing pressure were offset by the impact of the Glacier acquisition. Weak automotive markets also negatively impacted sales of tooling products. Sales of diesel engines increased slightly due to increased shipments of commercial engines in the fourth quarter. Weak capital spending in the industrial manufacturing sector adversely affected sales of air compressors. This segment also experienced a decline in orders after September 11, 2001.

Segment profit of $29.5 million in 2001 was 48% lower than the $57.1 million in 2000. In addition to the impact of lower sales volumes, operating margins declined from 19.5% in 2000 to 9.7% in 2001. Profitability of diesel engines declined due to a combination of reduced pricing in the commercial power generation market and increased warranty costs, and because 2000 results included the completion of a very profitable project. Lower sales volumes, competitive pricing pressures, wage and benefit costs increases and an inability to reduce fixed costs at the same rate as sales declined combined to reduce earnings in all other product lines as well.

Restructuring Costs

Critical Accounting Policies and Estimates

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. We believe that the following accounting policies and estimates are among the most critical because they involve significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions.

Revenue Recognition

Asbestos

In accordance with internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions progress to a stage where the cost to dispose of these actions can be reasonably estimated. These actions are classified as actions in advanced stages. With respect to outstanding actions that are in preliminary procedural stages, as well as any actions that may be filed in the future, insufficient information exists upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it impossible to estimate with any degree of accuracy or reasonableness what, if any, potential liability or costs may be incurred. Accordingly, no estimate of future liability has been included for such claims. See “Contingencies — Asbestos,” in this Management’s Discussion and Analysis and Note 16 in the Consolidated Financial Statements for additional discussion of asbestos matters.

TIDES, Derivative Instruments and Hedging Activities

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required to finance conversions of the TIDES would exceed the TIDES liquidation value.

We also have entered into a limited number of foreign currency forward exchange contracts to hedge forecasted transactions denominated in foreign currencies. These forward exchange contracts are accounted for as cash flow hedges. As cash flow hedges, the effective portion of the gain or loss on the forward exchange contracts is reported in other comprehensive loss and the ineffective portion is reported in income. Amounts in accumulated other comprehensive loss are reclassified into income in the period that the hedged transactions affect earnings.

Pensions and Post-Retirement Benefits

Lower market interest rates and plan asset returns have resulted in declines in pension plan asset performance and funded status. As a result, the discount rate was lowered to 7.0% and expected return on plan assets was lowered to 8.5%, reflecting current economic conditions. Pension expense in 2003 is expected to increase approximately 50% because of these changes. See Note 11 to the Consolidated Financial Statements for further discussion.

New Accounting Pronouncements

In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” was issued. This statement provides guidance on the recognition and measurement of liabilities associated with exit or disposal activities and requires that such liabilities be recognized when incurred. This statement is effective for exit or disposal activities initiated on or after January 1, 2003, and does not impact recognition of costs under any existing programs. Adoption of this standard may impact the timing of recognition of costs associated with future exit and disposal activities, depending upon the nature of the actions initiated. We do not expect the new guidance to have a material effect on our consolidated financial position, results of operations or cash flows.

In November 2002, FASB Interpretation, or FIN, No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” was issued. The interpretation provides guidance on the guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others. We adopted the disclosure requirements of the interpretation as of December 31, 2002. The accounting guidelines are applicable to guarantees issued or modified after December 31, 2002 and require that we record a liability for the fair value of such guarantees in our balance sheet. We do not expect the adoption of this portion of the interpretation will have a material effect on our consolidated financial condition, results of operations or cash flows.

In January 2003, FIN No. 46, “Consolidation of Variable Interest Entities,” was issued. The interpretation provides guidance on consolidating variable interest entities and applies immediately to variable interests created or obtained after January 31, 2003. The guidelines of the interpretation will become applicable for us in our third quarter 2003 financial statements for variable interest entities acquired before February 1, 2003. The interpretation requires variable interest entities to be consolidated if the equity investment at risk is not sufficient to permit an entity to finance its activities without support from other parties or the equity investors lack certain specified characteristics. We are reviewing FIN No. 46 to determine its impact, if any, on future reporting periods, and do not anticipate any material accounting or disclosure requirement under the provisions of the interpretation.

Liquidity and Capital Resources
Operating Cash Flows

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assessment and the related accrued interest. Goodrich, with the assistance of Coltec, is pursuing judicial remedies for a refund of this payment. If a refund is received, the refund will be remitted to Goodrich in accordance with the tax matters arrangements agreed to in connection with the Distribution. A reasonable estimate of the potential refund cannot be made at this time; accordingly, no receivable has been recorded. Also contributing to the trend in operating cash flows during these periods was the trend in asbestos-related expenditures and recoveries. In 2002, 2001 and 2000, asbestos-related expenditures exceeded proceeds from asbestos-related insurance by $52.4 million, $78.0 million and $38.7 million, respectively, as further discussed under “Contingencies - Asbestos,” included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Investing Cash Flows

The increase in capital expenditures in each year reflects a decision to increase investments in our businesses and to implement programs aimed at cost reductions and the restructuring of our operations.

Financing Cash Flows

Capital Resources

Prior to the Distribution, Goodrich offered to exchange new Goodrich securities for the outstanding 7 1/2% Coltec Senior Notes. Goodrich acquired $296.9 million of 7 1/2% Coltec Senior Notes, which was the entire amount tendered pursuant to the exchange offer. Coltec purchased all of these notes from Goodrich in exchange for a $201.9 million Coltec Debenture and $97.2 million in cash, after which such notes were cancelled. The cash portion of the purchase price was financed through an intercompany loan from Goodrich that was assumed by Coltec’s aerospace business. The Coltec Debenture was contributed by Goodrich to us and remains an outstanding obligation of Coltec to us, which, for accounting purposes, is eliminated upon consolidation in our Consolidated Financial Statements. The $3.1 million of 7 1/2% Coltec Senior Notes that remained outstanding following the completion of the exchange offer continue to be obligations of Coltec after the Distribution.

Our primary U.S. operating subsidiaries executed a credit agreement in 2002 for a new senior secured revolving credit facility. Borrowings under the senior secured revolving credit facility are secured by receivables, inventories, equipment, intellectual property, insurance receivables and all other personal property assets of EnPro and its U.S. subsidiaries and by a pledge of 65% of the capital stock of their direct foreign subsidiaries. The maximum available amount under the senior secured revolving credit facility is $60 million. The senior secured revolving credit facility contains customary restrictions, covenants and events of default for financings of this type, including without limitation, restrictions on the payment of dividends, the repurchase of shares, the incurrence of additional debt, and the acquisition of new businesses. We do not expect compliance with these restrictions and covenants to materially affect our operations. There were no borrowings against this facility in 2002.

In 2002, we executed a $4.7 million variable rate promissory note. The promissory note is collateralized by life insurance policies. The promissory note bears interest at LIBOR plus a margin of 1.75%, or 3.76% as of December 31, 2002, which is

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adjusted annually. The promissory note is payable at the earliest of termination of the policies, death of persons insured under the policies, or 60 days prior to the expiration of the policies. We anticipate that there will be two additional borrowings in the same amount and under similar terms and conditions that will occur in April 2003 and April 2004.

Our ability to make payments on and to refinance our indebtedness, including the debt retained or incurred pursuant to the new senior secured revolving credit facility as well as any future indebtedness, and to fund working capital, capital expenditures, asbestos claims against our subsidiaries and strategic acquisitions and investments, will depend on our ability to generate cash in the future from operations, financings and sales of assets. Our ability to raise capital through the issuance of additional equity is constrained as described later in this section. We cannot be certain that we will be successful in obtaining additional financing if needed or that, if obtained, any additional financing will be on terms favorable to us.

Subsequent to the Distribution, our primary sources of liquidity are operating cash flows and the availability of the senior secured revolving credit facility. Our principal sources of liquidity prior to the Distribution were intercompany loans and contributions from Goodrich.

Following the Distribution and until April 15, 2028, each TIDES is convertible, at the option of the holder, into a combination of 0.955248 of a share of Goodrich common stock and 0.1910496 of a share of EnPro common stock, subject to adjustment. Should the holders exercise their right to convert the TIDES, we would be required to deliver shares of Goodrich and EnPro common stock to the holders as promptly as practicable after the conversion date and in connection therewith would be required to purchase shares of Goodrich common stock on the open market, directly from Goodrich or by exercising our call options on Goodrich common stock discussed below. We may not have sufficient cash on hand or the ability to finance these transactions in the time period required by the TIDES agreements. Failure to honor conversion rights would be a default under those agreements.

Further, the value of Goodrich and EnPro common stock may increase to the level where our cost to acquire shares in a conversion could exceed, with no maximum, the aggregate liquidation value of the TIDES of $150 million. We purchased call options on 2,865,744 shares of Goodrich common stock with an exercise price of $52.34 per share (the conversion price), which represents the total Goodrich shares that would be required if all TIDES holders convert. The call options provide for either an adjustment to the exercise price or a cash payment, at our option, if there is a change in the cash dividends paid on Goodrich common stock. Until they expire in March 2007, the call options provide protection against our risk that the cash required to finance conversions of the TIDES would exceed the TIDES liquidation value. The call options are derivative instruments and are carried at fair value in the Consolidated Balance Sheets with changes in the fair value reflected currently in our earnings. Such changes may have a material effect on our results of operations in a given period, but will not result in a cash obligation. The fair value of the call options declined in 2002 by $16.7 million before tax, and a corresponding charge to earnings is included in other expenses in the Consolidated Statements of Operations. While we have hedged our exposure to conversion costs in excess of the aggregate liquidation value of the TIDES as described earlier, we cannot assure you that we will have the financial resources to redeem these securities or effectively hedge this exposure to potential conversion costs in excess of the aggregate liquidation value of the TIDES beyond the term of the call options.

If we are unable to obtain the capital we require to implement our business strategy, or to obtain the capital we will require on acceptable terms or in a timely manner, we would attempt to take appropriate responsive actions to tailor our activities to our available financing, including making revisions to our business strategies to accommodate the reduced financing. Our ability to raise capital through the issuance of additional equity is constrained because it may cause the Distribution to be taxable under Section 355(e) of the Internal Revenue Code and we indemnify Goodrich for any tax due as a result of such a transaction.

Dividends

Shareholders’ Equity

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Contingencies

General

Environmental

We have been notified that EnPro or one of its subsidiaries is among the potentially responsible parties under environmental laws for the cost of investigating and, in some cases, remediating contamination by hazardous materials at 17 sites at which the costs to it are expected to exceed $100 thousand at each site. The majority of these sites relate to remediation projects at former operating facilities that have been sold or closed and primarily deal with soil and groundwater remediation. Investigations have been completed for 14 sites and are in progress at three sites. The laws governing investigation and remediation of these sites can impose joint and several liability for the associated costs. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties that generated the wastes that contributed to the contamination. Our policy is to accrue environmental investigation and remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The measurement of the liability is based on an evaluation of currently available facts with respect to each individual situation and takes into consideration factors such as existing technology, presently enacted laws and regulations and prior experience in remediation of contaminated sites. Liabilities are provided for all sites based on the factors discussed above. As assessments and remediation progress at individual sites, these liabilities are reviewed periodically and adjusted to reflect additional technical data and legal information.

We initiate corrective and preventive environmental projects in an effort to ensure safe and lawful operations at our facilities. We also conduct comprehensive compliance and management system audits at our facilities to maintain compliance and improve operational efficiency.

In 2002, we conducted a review of our process for managing and estimating environmental liabilities. As a result of changes in our strategies growing out of this review, and in light of recent developments at a number of environmental sites associated with previously divested businesses, the accrued liability was increased by $12.0 million to reflect an increase in the estimated costs to remediate these sites. The increased costs will be paid over a number of years and therefore should not significantly impact short-term liquidity. As of December 31, 2002, EnPro had an accrued liability of $37.2 million for probable future expenditures relating to environmental contingencies. Although we are pursuing insurance recovery in connection with certain of these matters, no receivable has been recorded with respect to any potential recovery of costs in connection with any environmental matter.

Actual costs to be incurred for identified situations in future periods may vary from estimates because of the inherent uncertainties in evaluating environmental exposures due to unknown conditions, changing government regulations and legal standards regarding liability. Subject to the imprecision in estimating future environmental costs, we believe that maintaining compliance with current environmental laws and government regulations will not require significant capital expenditures or have a material adverse effect on our financial condition, but could be material to our results of operations and cash flows in a given period.

Other Contingent Liability Matters

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Asbestos

CLAIMS MIX. Of those claims resolved, approximately 2% have been claims of plaintiffs alleging the disease mesothelioma, approximately 6% have been claims of plaintiffs with lung or other cancers, and approximately 92% have been claims of plaintiffs alleging asbestosis, pleural plaques or other impairment of the respiratory system of varying degree. Because the more serious disease cases tend to work through the system more quickly than the non-malignancy cases and the cases filed by those who are not impaired, we believe that the disease mix in our current open caseload, on a percentage basis, is even more skewed toward pleural plaques and includes a large number of claims made by plaintiffs who have suffered no disease and have no measurable impairment of any kind. In fact, while there are many cases in our current open caseload about which we have no disease information, we are only aware of approximately 7,000 that involve a claimant with mesothelioma, lung cancer or some other cancer.

PRODUCT DEFENSES. We believe that Garlock and Anchor are in a favorable position compared to many other asbestos defendants because, among other things, the asbestos-containing products formerly sold by Garlock and Anchor were encapsulated, which means the asbestos fibers were incorporated into the product during the manufacturing process and sealed in a binder. They are also nonfriable, which means they cannot be crumbled by hand pressure. The Occupational Safety and Health Administration, which began generally requiring warnings on asbestos-containing products in 1972, has never required that a warning be placed on products such as Garlock’s gaskets. Notwithstanding that no warning label has been required, Garlock included one on all of its asbestos-containing products beginning in 1978. Further, gaskets such as those previously manufactured and sold by Garlock are one of the few asbestos-containing products still permitted to be manufactured under regulations of the Environmental Protection Agency. Since the mid-1980s, U.S. sales of asbestos-containing industrial sealing products have not been a material part of Garlock’s sales and sales of asbestos-containing products since the mid-1980s have been predominantly to sophisticated purchasers such as the U.S. Navy and large petro-chemical facilities. These purchasers generally have extensive health and safety procedures and are familiar with the risks associated with the use and handling of industrial sealing products that contain asbestos. Garlock discontinued distributing asbestos-containing products in the U.S. during 2000 and worldwide in mid-2001.

SETTLEMENTS. Garlock settles and disposes of actions on a regular basis. In addition, some actions are disposed of at trial. Garlock’s historical settlement strategy has been to try to match the timing of payments with recoveries received from insurance, which, as described later, are currently limited to $80 million per year. However, in 1999 and 2000, Garlock implemented a short-term aggressive settlement strategy. The purpose of this short-term strategy was to achieve a permanent reduction in the number of overall asbestos claims through the settlement of a larger than normal number of claims, including some claims not yet filed as lawsuits. Mainly due to this short-term aggressive settlement strategy, but also because of a significant overall increase in claims filings, the settlement amounts paid in each of the years 1999 through 2002 were greater than the amounts paid in any year prior to 1999. In 2001, Garlock resumed its historical settlement strategy. In fact, Garlock reduced new settlement commitments from $180 million in 2000, to $94 million in 2001, and to $86 million in 2002. However, because of commitments made in 1999 and 2000 that will be paid over a number of years, the settlement amounts that Garlock will pay in 2003 through 2005 will continue to include amounts for settlements made during 1999, 2000 and early 2001.

Settlements are made without any admission of liability and are generally made on a group basis with payments made to individual claimants over a period of one to four years. Settlement amounts vary depending upon a number of factors, including the jurisdiction where the action was brought, the nature and extent of the disease alleged and the associated medical evidence, the age and occupation of the plaintiff, the presence or absence of other possible causes of the plaintiff’s alleged illness, the availability of legal defenses, and whether the action is an individual one or part of a group. Garlock believes that its allocable portion of the total settlement amount for an action has typically ranged from 1% to 2% of the total amount paid by all defendants in the action.

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Before any payment on a settled claim is made, the claimant is required to submit a medical report acceptable to Garlock substantiating the asbestos-related illness and meeting specific criteria of disability. In addition, sworn testimony or other evidence that the claimant worked with or around Garlock asbestos-containing products is required. The claimant is also required to sign a full and unconditional release of Garlock, its subsidiaries, parent, officers, directors, affiliates and related parties from any liability for asbestos-related injuries or claims.

When a settlement demand is not reasonable given the totality of the circumstances, Garlock generally will try the case. Garlock has been successful in winning a substantial majority of the cases it has tried to verdict. Garlock’s share of adverse verdicts in these cases in the years 2000 through 2002 totaled approximately $6 million in the aggregate, and some of those verdicts are on appeal.

STATUS OF ANCHOR. Anchor is an inactive and insolvent indirect subsidiary of Coltec. The insurance coverage available to Anchor of approximately $9 million as of December 31, 2002, is fully committed. Anchor continues to pay settlement amounts covered by its insurance but has not committed to settle any further actions since 1998. As cases reach the trial stage, Anchor is typically dismissed without payment.

INSURANCE COVERAGE. The insurance coverage available to Garlock is substantial. As of December 31, 2002, Garlock had available $892 million of insurance coverage from carriers that it believes to be solvent. Garlock classifies $76 million of otherwise available insurance as insolvent. The amount of insurance classified as insolvent increased by $15 million during the year ended December 31, 2002, resulting from the filing of a petition under Chapter 11 of the United States Bankruptcy Code by the parent company of one of Garlock’s insurers. In 2002, we wrote off receivables from this insurer totaling $6.2 million. We believe Garlock will recover some of the insolvent insurance over time. In fact, Garlock recovered $2 million from an insolvent insurance carrier during 2002. Of the solvent insurance, $708 million (79%) is with U.S.-based carriers whose credit rating by S&P is investment grade (BBB) or better, and whose AM Best rating is excellent (A-) or better, $59 million (7%) is with other solvent U.S. carriers, and $126 million (14%) is with various solvent London market carriers. Of the $892 million, $151 million is allocated to claims that have been paid by Garlock and submitted to its insurance companies for reimbursement and $124 million has been committed to claim settlements not yet paid by Garlock. Thus, at December 31, 2002, $618 million remained available for future asbestos-related payments.

Arrangements with Garlock’s insurance carriers limit the amount that can be received by it in any one year. The amount of insurance available to cover asbestos-related payments by Garlock currently is limited to $80 million per year. This limit automatically increases by 8% every three years. The next scheduled increase will impact recoveries beginning in the third quarter of 2003.

Amounts paid by Garlock in excess of this annual limit that would otherwise be recoverable from insurance may be collected from the insurance companies in subsequent years so long as insurance is available, subject to the annual limit available in each subsequent year. As a result, Garlock is required to pay out of its own cash any amounts paid to settle or dispose of asbestos-related claims in excess of the annual limit and collect these amounts from its insurance carriers in subsequent years. To the extent that Garlock pays such amounts in a given year, these payments are recorded as a receivable. The amounts paid in excess of insurance recoveries in 2002 that were recorded as a receivable amounted to $34.4 million. Garlock is pursuing various options, such as raising the annual limit and commuting policies at discounted values, to ensure as close a match as possible between payments by Garlock and recoveries received from insurance carriers. There can be no assurance that Garlock will be successful as to any or all of these options.

Insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. Garlock and Anchor continue to be named as defendants in new actions, a few of which allege initial exposure after July 1, 1984. To date, no payments have been made with respect to these claims, pursuant to a settlement or otherwise. In addition, Garlock and Anchor believe that they have substantial defenses to these claims and therefore automatically reject them for settlement. However, there can be no assurance that any or all of these defenses will be successful in the future.

QUANTITATIVE CLAIMS INFORMATION. In accordance with internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions against Garlock have progressed to a stage where we believe we can reasonably estimate the cost to dispose of these actions. These actions are classified as actions in advanced stages and are included in the table as such below. With respect to outstanding actions against Garlock that are in preliminary procedural stages, as well as any actions that may be filed in the future, we believe that insufficient information exists upon which judgments can be made as to the validity or ultimate disposition of such actions. Therefore, we believe that it is impossible to estimate with any degree of accuracy or reasonableness what, if any, potential liability or costs may be incurred. Accordingly, we have not included any estimate of future liability for such claims in the table below.

We record an accrual for liabilities related to Garlock and Anchor asbestos-related matters that are deemed probable and can be reasonably estimated, which consist of settled claims and actions in advanced stages of processing. We also record an asset for the amount of those liabilities that we expect Garlock and Anchor to recover from insurance. A table is provided below depicting quantitatively the items discussed above.

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STRATEGY. Garlock’s current strategy is to focus on trial-listed cases and other cases in advanced stages of processing, to reduce new settlement commitments each year and to proactively support legislative and other efforts aimed at asbestos reform. Garlock believes that this strategy should continue to result in the reduction of the negative annual cash flow impact from asbestos claims (as it has in 2002 compared to 2001), as previous settlements work their way through the payment process. Garlock believes that, as predicted in various epidemiological studies that are publicly available, the incidence of asbestos-related disease should decline steadily over the next decade and thereafter, so that the level of claims activity against Garlock will eventually decline to a level that can be paid from the cash flow expected from Garlock’s operations even if Garlock exhausts its insurance coverage. There can be no assurance that epidemiological predictions about incidence of asbestos-related disease will prove to be accurate, or that, even if they are, there will be a commensurate decline in the number of asbestos-related claims filings. In fact, such studies indicate that asbestos-related disease should be in decline currently, yet asbestos-related claims filings continue to increase.

Considering the foregoing, as well as the experience of Coltec’s subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, recent bankruptcies of other defendants, and legislative efforts, and given the substantial amount of insurance coverage that Garlock expects to be available from its solvent carriers, we believe that pending actions against Garlock and Anchor are not likely to have a material adverse effect on our financial condition, but could be material to our results of operations or cash flows in a given period. We anticipate that asbestos-related actions will continue to be filed against Garlock. Because of the uncertainty as to the number and timing of potential future actions, as well as the amount that will have to be paid to settle or satisfy any such actions in the future, there can be no assurance that those future actions will not have a material adverse effect on our financial condition, results of operations and cash flows.

Transition to the Euro

Off Balance Sheet Arrangements
Lease Agreements

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utilized to secure the use of assets from time to time if the terms and conditions of the lease or the nature of the asset makes the lease arrangement more favorable than a purchase. As of December 31, 2002, approximately $42 million of future minimum lease payments were outstanding under these agreements. See Note 16, “Commitments and Contingencies — Other Commitments,” in the Notes to Consolidated Financial Statements for additional disclosure.

Sale of Receivables
At December 31, 2000, we had in place a trade receivables securitization program pursuant to which we could sell receivables up to a maximum of $95.0 million. Accounts receivable sold under this program as of December 31, 2000, were $81.5 million,of which $51 million were related to our discontinued operations and $30.5 million related to our continuing operations. In December 2001, this program was terminated. The termination of the program resulted in an increase of $30.5 million in our trade receivables.

Debt and Capital Lease Guarantees
At December 31, 2002, we have outstanding contingent liabilities for guaranteed debt and lease payments of $21.8 million related to previously divested businesses.

Letters of Credit
At December 31, 2002, we were contingently liable for $0.5 million of letters of credit under the senior secured revolving credit facility that were issued in the normal course of business.

Contractual Obligations
A summary of our contractual obligations and commitments at December 31, 2002, is as follows:

Payments for other long-term liabilities are estimates of amounts that will be paid for environmental and retained liabilities of previously owned businesses included in the Consolidated Balance Sheets at December 31, 2002. These estimated payments are based on information currently known to us. However, it is possible that these estimates will vary from actual results if new information becomes available in the future or if there are changes in the facts and circumstances related to these liabilities. Additional discussion regarding these liabilities is included earlier in this Management’s Discussion and Analysis of Financial Condition and Results of Operations in “Contingencies - Environmental, — Other Contingent Liability Matters,” and in Note 16 in the Notes to Consolidated Financial Statements.

Outlook
As we enter 2003, our strong liquidity and relatively conservative leverage give us the sound financial position we need to build a stronger EnPro. In the short time we have been an independent company, we have made progress in our strategy to improve operating efficiency and the management of asbestos settlements by our subsidiaries. Going forward, we remain focused on these issues as we seek to expand our product offerings and customer base and to strengthen the mix of our businesses to ensure our long-term viability.

We currently expect our markets to remain stable during 2003, but anticipate a modest increase in sales over 2002 as we accelerate new product introductions and expand our sales efforts. Higher sales volumes as well as the benefits of our Total Customer Value lean manufacturing program are expected to result in improved operating margins and increased profitability in 2003.

We anticipate that cash flow in 2003 will benefit from lower net asbestos payments and improved operating income. However, we expect capital spending to increase significantly over 2002 as we implement programs to reduce costs and improve market penetration.

Certain Risk Factors That May Affect Future Results
Set forth below are certain risk factors that we believe are material to our shareholders. If any of the following risks occur, our business, financial condition, results of operations, and reputation could be harmed. You should also consider these risk factors when you read “forward-looking statements” elsewhere in this report. You can identify forward-looking statements by terms such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” or “continue,” the negative of those terms or other comparable terminology. Those forward-looking statements are only predictions and can be adversely affected if any of the following risks occur.

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Risks Related to Our Recent Spin-off from Goodrich Corporation
Coltec’s historical consolidated financial information may not be representative of our historical results as an independent company; therefore, it may not be reliable as an indicator of historical or future results.

The historical consolidated financial information of our wholly owned subsidiary Coltec included in this report may not reflect what our financial condition, results of operations and cash flows would have been on a historical basis had we operated the EnPro business as an independent company during the periods presented or what our financial condition, results of operations and cash flows will be in the future. This is because Coltec’s historical consolidated financial statements include allocations for services provided or procured by Goodrich, which we may not be able to procure or provide ourselves on the same basis. In addition, we have not made adjustments to Coltec’s historical consolidated financial information to reflect other changes that will occur in our cost structure, financing and operations as a result of the Distribution. These changes could potentially include increased costs associated with reduced economies of scale and a higher cost of capital, and also changes in how we fund our operations, conduct research and development and pursue our strategic objectives. Finally, as a result of the Distribution, Goodrich, not EnPro, owns Coltec’s aerospace business, which is reflected in Coltec’s historical consolidated financial information as a discontinued operation. Therefore, Coltec’s historical consolidated financial statements may not be indicative of our future performance as an independent company.

We could incur significant indemnity obligations to Goodrich for U.S. federal income tax liability if acquisitions or issuances of EnPro stock cause the Distribution to be taxable.

The Distribution was intended to be tax-free to Goodrich and its shareholders under Section 355 of the Internal Revenue Code. Generally, Goodrich may recognize a taxable gain on the Distribution if there are one or more acquisitions or issuances of our capital stock representing 50% or more of our then-outstanding capital, measured by vote or value, and the acquisitions or issuances are deemed to be part of a plan or series of related transactions that include the Distribution. Any shares of our stock acquired or issued within two years before or after the Distribution will generally be presumed to be part of such a plan unless we can rebut that presumption. If the acquisition or issuance of our stock causes the Distribution to be taxable to Goodrich, we will be required to indemnify Goodrich against any tax payable under the tax matters arrangements we entered into with Goodrich as part of the Distribution. In addition, aside from the tax matters arrangements, under U.S. federal income tax laws, we and Goodrich would be severally liable for Goodrich’s federal income taxes from the Distribution being taxable. This means that even if we do not have to indemnify Goodrich for any tax liabilities if the Distribution fails to be tax-free, we may still be liable for any part of, including the whole amount of, these liabilities and expenses if Goodrich fails to pay them.

Risks Related to Our Business
Certain of our subsidiaries are defendants in asbestos litigation.

The historical business operations of two Coltec subsidiaries, Garlock Sealing Technologies LLC and The Anchor Packing Company, have resulted in a substantial volume of asbestos litigation in which plaintiffs have alleged personal injury or death as a result of exposure to asbestos fibers. Those subsidiaries manufactured and/or sold industrial sealing products, predominately gaskets, which contained encapsulated asbestos fibers. Although those subsidiaries actively manage their exposure to asbestos litigation and their relationships with insurance carriers through another Coltec subsidiary, Garrison Litigation Management Group, Ltd., several risks and uncertainties may result in potential liabilities to us in the future that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Those risks and uncertainties include the following:

	•		the potential for a large volume of future asbestos claims to the extent such claims are not covered by insurance because insurance coverage is, or will be, depleted;
	•		the uncertainty of the per claim value of pending and potential future asbestos claims;
	•		the timing of payout of claims relative to recoveries of amounts covered by insurance from our subsidiaries’ insurance carriers and limitations imposed on the amount that may be recovered in any given year;
	•		the financial viability of our subsidiaries’ insurance carriers and their reinsurance carriers, and our subsidiaries’ ability to collect on claims from them;
	•		an increase in litigation or other costs that are not covered by insurance;
	•		the unavailability of any insurance for claims alleging first exposure to asbestos after July 1, 1984; and
	•		bankruptcies of other defendants.

Potential liability for asbestos claims may adversely affect our ability to retain and attract customers and quality personnel. To the extent our subsidiaries’ insurance is depleted or the payments required in any given year exceed the annual limitations on insurance recoveries from our subsidiaries’ carriers, our subsidiaries would be required to fund these obligations from available cash, even if such amounts are recoverable under these insurance policies in later years. This could adversely affect our ability to use cash for other purposes, including growth of our business, and adversely affect our financial condition.

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Our business and some of the markets we serve are cyclical, and changes in general market conditions could have a material adverse effect on our business.

The markets in which we sell our products, particularly chemical companies, petroleum refineries and the automotive industry, are, to varying degrees, cyclical and have historically experienced periodic downturns. Prior downturns have been characterized by diminished product demand, excess manufacturing capacity and subsequent erosion of average selling prices in these markets resulting in negative effects on our net sales, gross margins and net income. Economic downturns or other material weakness in demand in any of these markets could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The markets that we serve in the U.S. and abroad have been affected by the recent economic downturn. As a result, our business and financial results have been adversely affected. If this economic slowdown were to continue for an extended period or if conditions were to worsen, the negative impact on our business and financial results could be further exacerbated.

We face intense competition that could have a material adverse effect on our business.

We encounter intense competition in almost all areas of our business. Additionally, customers for many of our products are attempting to reduce the number of vendors from which they purchase in order to reduce inventories. To remain competitive, we need to invest continuously in manufacturing, marketing, customer service and support and our distribution networks. We may not have sufficient resources to continue to make such investments or maintain our competitive position. Additionally, some of our competitors are larger than we are and have substantially greater financial resources than we do. As a result, they may be better able to withstand the effects of periodic economic downturns. Pricing and other competitive pressures could adversely affect our business, financial condition, results of operations and cash flows.

If we fail to retain the independent agents and distributors upon whom we rely to market our products, we may be unable to effectively market our products and our revenue and profitability may decline.

Our marketing success in the U.S. and abroad depends largely upon our independent agents’ and distributors’ sales and service expertise and relationships with customers in our markets. Many of these agents have developed strong ties to existing and potential customers because of their detailed knowledge of our products. A loss of a significant number of these agents or distributors, or of a particular agent or distributor in a key market or with key customer relationships, could significantly inhibit our ability to effectively market our products, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have exposure to some contingent liabilities relating to discontinued operations, which could have a material adverse effect on our financial condition, results of operations or cash flows in any fiscal period.

We have some contingent liabilities related to discontinued operations of our predecessors, including environmental liabilities and liabilities for certain products and other matters. In some instances, we have indemnified others against those liabilities, and in other instances, we have received indemnities from third parties against those liabilities.

Under federal and state environmental laws, Coltec or one of its subsidiaries has been named as a potentially responsible party at 17 sites at which the costs to it are expected to exceed $100 thousand at each site. Investigations have been completed or are near completion for 14 of these sites and are in progress at the other three sites. The majority of these sites relate to remediation projects at former operating facilities that have been sold or closed and primarily deal with soil and groundwater contamination. We believe that any liability incurred for cleanup at these sites will be satisfied over a number of years, and, in some cases, the costs will be shared with other potentially responsible parties.

In addition, there is the potential for claims to arise relating to products or other matters related to discontinued operations. Some of these claims could seek substantial monetary damages. Specifically, we may potentially be subject to the liabilities related to the firearms manufactured prior to March 1990 by Colt Firearms, a former operation of Coltec, and for electrical transformers manufactured prior to 1994 by Central Maloney, another former Coltec operation. Coltec also has ongoing obligations with regard to workers compensation, retiree medical and other retiree benefit matters associated with discontinued operations that relate to Coltec’s periods of ownership of those operations.

We have insurance and reserves to address these liabilities. However, if our insurance coverage is depleted or our reserves are not adequate, environmental and other liabilities relating to discontinued operations could have a material adverse effect on our financial condition, results of operations and cash flows.

We conduct a significant amount of our sales activities outside of the U.S., which subjects us to additional business risks that may cause our profitability to decline.

Because we sell our products in a number of foreign countries, we are subject to risks associated with doing business internationally. In 2002, we derived approximately 36% of our

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revenues from sales of our products outside of the U.S. Our international operations are, and will continue to be, subject to a number of risks, including:

	•		unfavorable fluctuations in foreign currency exchange rates;
	•		adverse changes in foreign tax, legal and regulatory requirements;
	•		difficulty in protecting intellectual property;
	•		trade protection measures and import or export licensing requirements;
	•		differing labor regulations;
	•		political and economic instability; and
	•		acts of hostility, terror or war.

Any of these factors, individually or together, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We intend to continue to pursue international growth opportunities, which could increase our exposure to risks associated with international sales and operations. As we expand our international operations, we may also encounter new risks that could adversely affect our revenues and profitability. For example, as we focus on building our international sales and distribution networks in new geographic regions, we must continue to develop relationships with qualified local agents, distributors and trading companies. If we are not successful in developing these relationships, we may not be able to increase sales in these regions. We could also face increased costs associated with staffing and managing foreign operations.

If we are unable to protect our intellectual property rights and knowledge relating to our products, our business and prospects may be negatively impacted.

We believe that proprietary products and technology are important to our success. If we are unable to adequately protect our intellectual property and know-how, our business and prospects could be negatively impacted. Our efforts to protect our intellectual property through patents, trademarks, service marks, domain names, trade secrets, copyrights, confidentiality, noncompete and nondisclosure agreements and other measures may not be adequate to protect our proprietary rights. Patents issued to third parties, whether before or after the issue date of our patents, could render our intellectual property less valuable. Our ownership of our intellectual property and questions as to whether our competitors’ products infringe our intellectual property rights may be disputed. In addition, intellectual property rights may be unavailable, limited or difficult to enforce in some jurisdictions, which could make it easier for competitors to capture market share in those jurisdictions.

Our competitors may capture market share from us by selling products that claim to mirror the capabilities of our products or technology without infringing upon our intellectual property rights. Without sufficient protection nationally and internationally for our intellectual property, our competitiveness worldwide could be impaired, which would negatively impact our growth and future revenue. As a result, we may be required to spend significant resources to monitor and police our intellectual property rights.

A loss of certain of our intellectual property licenses or failure on the part of our licensors to protect their own intellectual property under such license agreements may negatively impact our business and revenues.

We license certain intellectual property from third parties and we are dependent on the ability of these third parties to diligently protect their intellectual property rights. In several cases, such as Fairbanks Morse Engine’s technology license from MAN B&W for the S.E.M.T. Pielstick four-stroke engine and Quincy Compressor’s license from Svenska Rotor Maskiner AB for their rotary screw compressor design and technology, the intellectual property licenses are integral to the manufacture of our products. A loss of these licenses or a failure on the part of the third party to protect its own intellectual property could reduce our revenues. Although these licenses are all long-term and subject to renewal, it is possible that we may not successfully renegotiate these licenses or that they could be terminated for a material breach on our part. If this were to occur, our business, financial condition, results of operation and cash flows could be adversely affected.

Risks Related to Ownership of Our Common Stock
Because there has not long been a public market for our common stock, the market price and trading volume of our common stock may be volatile.

We have a limited trading history because there has been a public market for our common stock only since May 24, 2002. A relatively small number of shares traded in any one day could have a significant affect on the market price. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section and elsewhere in this report or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. For example, to the extent that other large companies within our industry experience declines in their stock price, our stock price may decline as well.

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Because our quarterly revenues and operating results may vary significantly in future periods, our stock price may fluctuate.

Our revenue and operating results may vary significantly from quarter to quarter. A high proportion of our costs are fixed, due in part to significant selling and manufacturing costs. Small declines in revenues could disproportionately affect operating results in a quarter and the price of our common stock may fall. Other factors that could affect quarterly operating results include, but are not limited to:

	•		demand for our products;
	•		the timing and execution of customer contracts;
	•		the timing of sales of our products;
	•		payments related to asbestos litigation or annual costs related to asbestos litigation that are not covered by insurance or that exceed the annual limits in place with our insurance;
	•		changes in the fair value of call options on Goodrich common stock purchased by Coltec to reduce the economic risk of the conversion feature of the convertible preferred securities;
	•		increases in manufacturing costs due to equipment or labor issues;
	•		changes in foreign currency exchange rates;
	•		unanticipated delays or problems in introducing new products;
	•		announcements by competitors of new products, services or technological innovations;
	•		changes in our pricing policies or the pricing policies of our competitors;
	•		increased expenses, whether related to sales and marketing, raw materials or supplies, product development or administration;
	•		major changes in the level of economic activity in the U.S., Canada, Europe and other major regions in which we do business;
	•		costs related to possible future acquisitions of technologies or businesses;
	•		an increase in the number or magnitude of product liability claims;
	•		our ability to expand our operations; and
	•		the amount and timing of expenditures related to expansion of our operations.

Various agreements and laws could delay or prevent a change of control that you may favor.

The terms of some of our agreements relating to the Distribution, particularly the tax matters arrangements with Goodrich, anti-takeover provisions of our articles of incorporation and bylaws, our shareholder rights plan and provisions of North Carolina law could delay or prevent a change of control that you may favor or may impede the ability of the holders of our common stock to change our management. An acquisition or further issuance of our stock in connection with a change-of-control transaction or otherwise could cause the Distribution and associated restructuring activities to be taxable to Goodrich and Coltec. Under the tax matters arrangements, we would be required to indemnify Goodrich for the resulting tax and this indemnity obligation might discourage, delay or prevent a change of control that you may favor.

In particular, the provisions of our articles of incorporation and bylaws, among other things, will:

	•		require a supermajority shareholder vote to approve any business combination transaction with an owner of 5% or more of our shares unless the transaction is recommended by disinterested directors;
	•		divide our board of directors into three classes, with members of each class to be elected for staggered three-year terms, if our board is expanded to nine members;
	•		limit the right of shareholders to remove directors and fill vacancies;
	•		regulate how shareholders may present proposals or nominate directors for election at shareholders’ meetings; and
	•		authorize our board of directors to issue preferred stock in one or more series, without shareholder approval.

Our shareholder rights plan will also make an acquisition of a controlling interest in EnPro in a transaction not approved by our board of directors more difficult.

Our debt agreements impose limitations on our operations, which could impede our ability to respond to market conditions, address unanticipated capital investments and/or pursue business opportunities.

The agreements relating to the TIDES and to $3.1 million of 7 1/2% Coltec Senior Notes due April 15, 2008 impose limitations on our operations. We also have a senior secured revolving credit facility. The agreements relating to the credit facility impose additional and, in some cases, more restrictive limitations including restrictions on our ability to pay dividends, to repurchase shares, to incur additional debt and to acquire new businesses. These limitations could impede our ability to respond to market conditions, address unanticipated capital investments and/or pursue business opportunities.

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We may not have adequate cash or the ability to finance conversions of the TIDES.

Until April 15, 2028, each TIDES is convertible at a conversion price of $52.34 per TIDES, at the option of the holder, into a combination of 0.955248 of a share of Goodrich common stock and 0.1910496 of a share of EnPro common stock. Should the holders of the TIDES exercise their right to convert the TIDES, Coltec would be required to deliver shares of Goodrich and EnPro common stock to the holders as promptly as practicable on or after the conversion date and in connection therewith would be required to purchase shares of Goodrich common stock on the open market, directly from Goodrich or by exercising its call options on Goodrich common stock discussed below. Coltec may not have sufficient cash on hand or the ability to finance these transactions in the time period required by the agreements relating to the TIDES. Failure to honor conversion rights would be a default under the TIDES agreements.

Further, the value of Goodrich and EnPro common stock may increase to a level where Coltec’s cost to acquire shares in a conversion could exceed, with no maximum, the aggregate liquidation value of the TIDES of $150 million. Coltec has purchased call options on 2,865,744 shares of Goodrich common stock with an exercise price of $52.34 per share (the conversion price), which represents the total Goodrich shares that would be required if all TIDES holders convert. Until they expire in March 2007, the call options provide protection against the risk that the cash required to finance conversions of the TIDES could exceed their liquidation value. While Coltec has hedged its exposure to conversion costs in excess of the aggregate liquidation value of the TIDES, as described earlier, we cannot be certain that Coltec will have the financial resources to redeem these securities or effectively hedge its exposure to potential conversion costs in excess of the aggregate liquidation value of the TIDES beyond the term of the call options.

EnPro, Goodrich, Coltec and Coltec Capital Trust have entered into an indemnification agreement with respect to the TIDES under which EnPro, Coltec and Coltec Capital Trust will indemnify Goodrich from any costs and liabilities that Goodrich incurs as a result of its earlier guarantee of Coltec and Coltec Capital Trust’s obligations under the TIDES. Such indemnification obligations may result in payments that could have a material adverse effect on our financial condition, results of operations and cash flows.

The call options on Goodrich common stock purchased by Coltec to mitigate its economic risk created by the conversion feature of the TIDES are derivative instruments and are carried at fair value in our balance sheet with changes in the fair value reflected in our earnings. Changes in the fair value of the call options will not result in a cash obligation to Coltec. However, the change in fair value of the derivatives could be material to our results of operations in a given period.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in interest rates and foreign currency exchange rates that could impact our financial condition, results of operations and cash flows. We plan to manage our exposure to these and other market risks through regular operating and financing activities, and on a limited basis, through the use of derivative financial instruments. We intend to use such derivative financial instruments as risk management tools and not for speculative investment purposes.

Interest Rate Risk

We are exposed to interest rate risk as a result of our outstanding debt obligations. The table below provides information about our debt obligations as of December 31, 2002. The table represents principal cash flows and related weighted average interest rates by expected (contractual) maturity dates.

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Foreign Currency Risk

We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through our normal operating activities and, where appropriate, through foreign currency forward contracts. At December 31, 2002, we had foreign currency forward contracts maturing in February 2003 through November 2003 to purchase 8.6 million Euro at rates of $0.9667 to $0.9725 to the Euro. In 2002, approximately 36% of our total sales consisted of sales outside the United States, with approximately 28% of total sales denominated in currencies other than the United States dollar.

Risk Due to Convertibility of TIDES

As described in the preceding Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources, we purchased call options that expire in March 2007 to provide protection against the risk that the cash required to finance conversions of the TIDES could exceed the TIDES liquidation value. While we have hedged our exposure to conversion costs in excess of the aggregate liquidation value of the TIDES, we cannot be certain that we will have the financial resources to redeem these securities or effectively hedge this exposure beyond the term of the call options.

The call options are derivative instruments and are carried at fair value in our Consolidated Balance Sheets with changes in the fair value reflected in our earnings. Such changes may have a material effect on our results of operations in a given period, but will not result in any cash obligation. If the call options expire unexercised and the market price of Goodrich common stock at that time is less than the exercise price per share, then the cumulative net charges to earnings over the life of the call options for financial reporting purposes will be limited to the original cost.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

ENPRO INDUSTRIES, INC.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning our directors and officers appearing under the captions “Nominees for Election” and “Legal Proceedings” and information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our Definitive Proxy Statement for the 2003 annual meeting of shareholders to be held on April 30, 2003 is incorporated herein by reference.

Information concerning our executive officers is set forth below:

Ernest F. Schaub is currently President, Chief Executive Officer and Director and has held this position since May 2002. From 1999 until joining the Company, he was Executive Vice President of Goodrich Corporation and President and Chief Operating Officer of Goodrich’s Engineered Industrial Products Segment. From 1990 to 1999, Mr. Schaub was Group President, Landing Systems of Goodrich. Mr. Schaub joined Goodrich in 1971, and held a variety of engineering, manufacturing and management positions.

William Dries is currently Senior Vice President and Chief Financial Officer and has held this position since May 2002. He served as a consultant to Goodrich Corporation from September 2001 through December 2001 and was an employee of Coltec Industries Inc from January 2002 through April 2002. Prior to that, Mr. Dries was employed by United Dominion Industries, Inc. He was Senior Vice President and Chief Financial Officer of United Dominion from December 1999 until May 2001, having served from 1998 to 1999 as Senior Vice President — Finance, and from 1990 to 1998 as Vice President and Controller. Mr. Dries, a certified public accountant, was with Ernst & Young LLP in New York prior to joining United Dominion in 1985.

Richard C. Driscoll is currently Senior Vice President — Human Resources and has held this position since May 2002. From 1990 until joining the Company, he was Vice President — Human Resources of Goodrich Corporation. Mr. Driscoll joined Goodrich in 1964 and held a number of human resources management positions in several different operations, at the corporate office and with the Aerospace Segment.

Michael J. Leslie is currently Senior Vice President and Chief Operating Officer and has held this position since May 2002. From July 2000 to May 2002, and also from July 1999 to February 2000, he was Group President of Goodrich Corporation’s Engineered Industrial Products Segment. Previously, he had served as Group President from June 1997 to June 1999 and as Division President — Stemco from September 1995 to May 1997 for Coltec Industries Inc. Mr. Leslie was Vice President, Strategic Planning for Arvin Industries, Inc. from March 2000 to June 2000.

Richard L. Magee is currently Senior Vice President, General Counsel and Secretary and has held this position since May 2002. He served as a consultant to Goodrich Corporation from October 2001 through December 2001, and was an employee of Coltec Industries Inc from January 2002 through April 2002. Prior to that, Mr. Magee was Senior Vice President, General Counsel and Secretary of United Dominion Industries, Inc. from April 2000 until July 2001, having served as Vice President since July 1996, Secretary since July 1997 and General Counsel since 1998. Mr. Magee was a partner in the Charlotte, North Carolina law firm Robinson, Bradshaw & Hinson, P.A. prior to joining United Dominion in 1989.

Donald G. Pomeroy II is currently Vice President and Controller and has held this position since May 2002. He was Vice President, Finance and Information Technology at Stemco for Coltec Industries Inc from August 1998 until October 2001, and an employee of Coltec Industries Inc from November 2001 through May 2002. From May 1995 to February 1996, Mr. Pomeroy was a financial analyst, and from February 1996 to August 1998, he was Controller — International Operations, at Garlock Sealing Technologies for Coltec Industries Inc. Prior to joining Garlock Sealing Technologies, Mr. Pomeroy, a certified public accountant, was a manager at Coopers & Lybrand LLP.

Robert D. Rehley is currently Vice President and Treasurer and has held this position since May 2002. He was an employee of Coltec Industries Inc from January 2002 through April 2002. Mr. Rehley was Assistant Treasurer of Metaldyne Corporation from October 2001 to January 2002, and was Executive Director — Corporate Tax for Metaldyne from December 2000 until October 2001. Previously, he was Treasurer of Simpson Industries from April 1998 until December 2000. Mr. Rehley was Director — Finance and Business Development for Cummins Engine Company, Inc. from October 1996 until April 1998.

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We have adopted a written Code of Business Conduct (the “Code”) that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller. The Code is available on our Internet site at www.enproindustries.com. We intend to disclose on our Internet site, www.enproindustries.com, any substantive changes to the Code and any waivers granted under the Code to the specified officers. Information concerning the determination by our Board of Directors that a financial expert serves on our Audit and Risk Management Committee, which appears under the caption “Governance of the Company — Determination With Respect to Audit Committee Financial Expert” in our Definitive Proxy Statement for the 2003 annual meeting of shareholders to be held on April 30, 2003, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

A description of the compensation of our executive officers is set forth under the caption “Executive Compensation” in our Definitive Proxy Statement for the 2003 annual meeting of shareholders to be held on April 30, 2003, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Security ownership data appearing under the captions “Holdings of Company Equity Securities by Directors and Executive Officers” and “Beneficial Ownership of Securities” in our Definitive Proxy Statement for the 2003 annual meeting of shareholders to be held April 30, 2003, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information appearing under the caption “Certain Relationships and Related Transactions” in our Definitive Proxy Statement for the 2003 annual meeting of shareholders to be held on April 30, 2003, is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports filed with the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of this evaluation.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

	(a)		The following documents are filed as part of this report:
	1.		Financial Statements

The financial statements filed as part of this report are listed in Part II, Item 8 of this report on the Index to Consolidated Financial Statements.

2.

Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2002, 2001 and 2000, appears on page 56.

Other schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the Consolidated Financial Statements or notes thereto.

3.

Exhibits

The exhibits to this report on Form 10-K are listed in the Exhibit Index appearing on pages 32 to 34.

(b)

Reports on Form 8-K

We filed no current reports on Form 8-K during the quarter ended December 31, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charlotte, North Carolina on this 18th day of March 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, or in their behalf by their duly appointed attorney-in-fact, on behalf of the registrant in the capacities and on the date indicated.

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CERTIFICATION

I, Ernest F. Schaub, President and Chief Executive Officer of EnPro Industries, Inc. (the “registrant”), certify that:

1.		I have reviewed this annual report on Form 10-K of the registrant;
2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	(a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	(b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	(c)  presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and;

6.

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

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CERTIFICATION

I, William Dries, Senior Vice President and Chief Financial Officer of EnPro Industries, Inc. (the “registrant”), certify that:

1.		I have reviewed this annual report on Form 10-K of the registrant;
2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	(a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	(b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	(c)  presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and;

6.

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

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CERTIFICATION

Each of the undersigned chief executive officer and chief financial officer of the registrant certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge this report fully complies with the requirements of section 13 (a) or 15(d) of the Securities Exchange Act of 1934 and that, to his knowledge, the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

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EXHIBIT INDEX

32

33