SEQUA CORP /DE/ - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

(Mark one)
[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended	March 31, 2003

	OR
[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from__________ to__________


Commission File Number 1-804
SEQUA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware			13-1885030

(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification Number)

200 Park Avenue New York, New York			10166

(Address of principal executive offices)			(Zip code)

(212) 986-5500

(Registrant's telephone number, including area code)

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

Yes	X		No

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

Yes	X		No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding at April 30, 2003


Class A Common Stock, no par value	7,102,439
Class B Common Stock, no par value	3,329,772

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Sequa Corporation and Subsidiaries
Consolidated Statement of Operations
(Amounts in thousands, except per share)
(Unaudited)

			For the Three Months Ended March 31,

				2003			2002


Sales			$	424,443		$	396,912


Costs and expenses
	Cost of sales			357,679			335,663
	Selling, general and administrative			59,006			53,969

				416,685			389,632


Operating income				7,758			7,280

Other income (expense)
	Interest expense			(15,843	)		(15,954	)
	Interest income			779			879
	Equity in income (loss) of unconsolidated joint ventures			4,548			(590	)
	Other, net			(2,779	)		1,102


Loss before income taxes
	and the effect of a change
	in accounting principle			(5,537	)		(7,283	)

Income tax benefit				2,400			4,200


Loss before the effect
	of a change in accounting principle			(3,137	)		(3,083	)

Effect of a change in accounting principle,
	net of income taxes			-			(114,764	)


Net loss				(3,137	)		(117,847	)

Preferred dividends				(516	)		(516	)

Net loss available to common stock			$	(3,653	)	$	(118,363	)



Basic and diluted loss per share
	Loss before the effect of a change in accounting principle		$	(0.35	)	$	(0.35	)
	Effect of a change in accounting principle			-			(11.05	)

		Net loss	$	(0.35	)	$	(11.40	)



Dividends declared per share
Preferred			$	1.25		$	1.25

The accompanying notes are an integral part of the financial statements.

Sequa Corporation and Subsidiaries
Consolidated Balance Sheet
(Amounts in thousands)

ASSETS


		(Unaudited)
		March 31,		December 31,
		2003		2002

Current assets
	Cash and cash equivalents	$	113,181	$	138,814
	Trade receivables (less allowances of $16,026 and $15,623)		225,433		214,598
	Unbilled receivables (less allowances of $573 and $512)		24,221		31,736
	Inventories		400,894		380,900
	Deferred income taxes		56,891		56,785
	Other current assets		29,528		36,310

	Total current assets		850,148		859,143


Investments
	Investments and other receivables		71,395		66,496
	Assets of discontinued operations		116,149		119,098

			187,544		185,594


Property, plant and equipment, net			495,836		500,699


Other assets
	Goodwill		181,174		181,056
	Deferred income taxes		42,865		38,186
	Deferred charges and other assets		29,359		30,907

			253,398		250,149


Total assets		$	1,786,926	$	1,795,585





The accompanying notes are an integral part of the financial statements.

Sequa Corporation and Subsidiaries
Consolidated Balance Sheet
(Amounts in thousands, except share data)

LIABILITIES AND SHAREHOLDERS' EQUITY

		(Unaudited)
		March 31,			December 31,
		2003			2002

Current liabilities
	Current maturities of long-term debt	$	2,105		$	3,014
	Accounts payable		155,014			146,791
	Taxes on income		18,574			18,125
	Accrued expenses		193,138			210,104

	Total current liabilities		368,831			378,034


Noncurrent liabilities
	Long-term debt		704,405			704,335
	Other noncurrent liabilities		213,626			213,367

			918,031			917,702

Shareholders' equity
	Preferred stock--$1 par value, 1,825,000 shares authorized, 797,000 shares of $5 cumulative convertible stock issued at March 31, 2003 and December 31, 2002 (involuntary liquidation value--$17,181 at March 31, 2003)		797			797
	Class A common stock--no par value, 50,000,000 shares authorized, 7,321,000 shares issued at March 31, 2003 and December 31, 2002		7,321			7,321
	Class B common stock--no par value, 10,000,000 shares authorized, 3,727,000 shares issued at March 31, 2003 and December 31, 2002		3,727			3,727
	Capital in excess of par value		290,108			290,216
	Retained earnings		370,381			374,034
	Accumulated other comprehensive loss		(94,153	)		(97,940	)

			578,181			578,155
	Less: Cost of treasury stock		78,117			78,306

	Total shareholders' equity		500,064			499,849


Total liabilities and shareholders' equity		$	1,786,926		$	1,795,585




The accompanying notes are an integral part of the financial statements.

Sequa Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
			For the Three Months Ended March 31,

			2003				2002

Cash flows from operating activities:
	Loss before income taxes and the effect of a non-cash change in accounting principle		$	(5,537	)	$		(7,283	)

	Adjustments to reconcile loss to net cash (used for) provided by operating activities:
		Depreciation and amortization		22,160				20,467
		Provision for losses on receivables		1,074				1,031
		Equity in (income) loss of unconsolidated joint ventures		(4,548	)			590
		Other items not providing cash		(117	)			(2,524	)

	Changes in operating assets and liabilities, net of businesses purchased and sold:
		Receivables		(16,837	)			7,162
		Inventories		(18,854	)			3,766
		Other current assets		7,003				4,747
		Accounts payable and accrued expenses		(9,234	)			(14,740	)
		Other noncurrent liabilities		3,594				(209	)


	Net cash (used for) provided by continuing operations before income taxes			(21,296	)			13,007
	Net cash (used for) provided by discontinued operations before income taxes			(548	)			133
	Income taxes (paid) refunded, net			(1,630	)			2,407

	Net cash (used for) provided by operating activities			(23,474	)			15,547


Cash flows from investing activities:
	Purchase of property, plant and equipment			(16,088	)			(14,855	)
	Sale of property, plant and equipment			149				751
	Other investing activities			(508	)			(714	)

		Net cash used for investing activities		(16,447	)			(14,818	)


Cash flows from financing activities:
	Proceeds from sale of accounts receivable, net			14,000				11,000
	Proceeds from debt			-				934
	Payments of debt			(789	)			(863	)
	Other financing activities			(520	)			(681	)

		Net cash provided by financing activities		12,691				10,390


Effect of exchange rate changes on cash and cash equivalents				1,597				(2,136	)


Net (decrease) increase in cash and cash equivalents				(25,633	)			8,983

Cash and cash equivalents at beginning of period				138,814				127,103


Cash and cash equivalents at end of period			$	113,181		$		136,086



The accompanying notes are an integral part of the financial statements.

Sequa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Basis of presentation

The consolidated financial statements of Sequa Corporation ("Sequa") include the accounts of all majority-owned subsidiaries except for a 52.6% owned component manufacturing operation of which Sequa does not have effective control. This operation is accounted for under the equity method. Investments in 20% to 50% owned joint ventures are accounted for under the equity method. All material accounts and transactions between the consolidated subsidiaries have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The consolidated financial statements included herein have been prepared by Sequa, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to fairly present Sequa's results for the interim periods presented. Such adjustments consisted of normal recurring items with the exception of the following in the first quarter of 2003: $3,325,000 of restructuring and related assets impairment charges incurred at the Aerospace segment and the MEGTEC Systems and Casco Products units of the Other Products segment; $745,000 of expense to reserve receivables due from a foreign commercial airline that filed for protection under bankruptcy laws; $3,947,000 of gain from a settlement with a former partner in a component manufacturing operation; and $1,518,000 of loss on the fair market value of forward foreign exchange contracts that d id not qualify for cash flow hedge accounting. The first quarter of 2002 included $1,273,000 of restructuring charges incurred at Corporate and the MEGTEC Systems unit; $1,761,000 of gain related to the change in the fair value of a gas swap that included a written option and that did not qualify for cash flow hedge accounting; and $1,102,000 relating to the reversal of income tax reserves that were no longer required due to the completion of a tax audit at a foreign unit and which was recorded as a reduction of the tax provision.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although Sequa believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in Sequa's latest Annual Report on Form 10-K.

The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year.

Note 1. Basis of presentation (cont'd)

Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," was issued in December 2002 and amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to SFAS