COLTEC INDUSTRIES INC, S-3, 1994-03-22

COLTEC INDUSTRIES INC
S-3, 1994-03-22
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1994

REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------

FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
COLTEC INDUSTRIES INC
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
PENNSYLVANIA 3714 13-1846375
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
</TABLE>

-------------------
430 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 940-0400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------
ANTHONY J. DIBUONO, ESQ.
COLTEC INDUSTRIES INC
430 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 940-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------

COPIES TO:

<TABLE>
<S> <C>
John S. Herbert, Esq. John M. Brandow, Esq.
Shearman & Sterling Davis Polk & Wardwell
599 Lexington Avenue 450 Lexington Avenue
New York, New York 10022 New York, New York 10017
(212) 848-4000 (212) 450-4000
</TABLE>

-------------------

Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
-------------------

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
-------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (A) OFFERING PRICE (A) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share 23,211,084 shares $21.0625 $488,883,457 $168,582
<FN>
(a) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
</TABLE>

-------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one (the "U.S.
Prospectus") to be used in connection with a United States and Canadian offering
and one (the "International Prospectus") to be used in connection with a
concurrent international offering outside the United States and Canada. The U.S.
Prospectus and the International Prospectus are identical except that they
contain different front cover pages. The form of U.S. Prospectus is included
herein and is followed by the front cover page to be used in the International
Prospectus. The front cover page for the International Prospectus included
herein is labeled "Alternate Page for International Prospectus".
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH 22, 1994
23,211,084 SHARES
COLTEC INDUSTRIES INC
COMMON STOCK
-----------------

OF THE 23,211,084 SHARES OF COMMON STOCK OFFERED HEREBY, 18,611,084 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 4,600,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS". ALL THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
OFFERED BY THE SELLING STOCKHOLDERS. SEE "SELLING STOCKHOLDERS". COLTEC
WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF THE SHARES BEING
OFFERED HEREBY. THE COMMON STOCK IS TRADED ON THE NEW YORK STOCK
EXCHANGE AND THE PACIFIC STOCK EXCHANGE UNDER THE SYMBOL "COT".
ON MARCH 21, 1994, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NEW YORK STOCK EXCHANGE WAS $21 PER SHARE.

------------------------

INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "CERTAIN
SIGNIFICANT CONSIDERATIONS".

-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

-------------------

PRICE $ A SHARE
-------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS (1) STOCKHOLDERS (2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
<FN>
- ---------
(1) COLTEC AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS".
(2) COLTEC HAS AGREED TO PAY, OR REIMBURSE THE SELLING STOCKHOLDERS FOR,
CERTAIN EXPENSES OF THE OFFERING, WHICH ARE ESTIMATED AT $ .
</TABLE>

-------------------

THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS BY DAVIS POLK
& WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE
SHARES WILL BE MADE ON OR ABOUT , 1994 AT THE OFFICE OF MORGAN STANLEY &
CO. INCORPORATED, NEW YORK, NEW YORK, AGAINST PAYMENT THEREFOR IN NEW YORK
FUNDS.

-------------------

MORGAN STANLEY & CO.
INCORPORATED

CS FIRST BOSTON

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MERRILL LYNCH & CO.

WERTHEIM SCHRODER & CO.
INCORPORATED

, 1994
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY COLTEC, BY ANY SELLING STOCKHOLDER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

No action has been or will be taken in any jurisdiction by Coltec, any
Selling Stockholder or any Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the United
States. Persons into whose possession this Prospectus comes are required by
Coltec, the Selling Stockholders and the Underwriters to inform themselves about
and to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
---------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary............................. 3
The Company.................................... 7
Certain Significant Considerations............. 8
Price Range of Common Stock and Dividend
Policy........................................ 10
Consolidated Capitalization.................... 11
Selected Financial Data........................ 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 13
Business....................................... 23

<CAPTION>
PAGE
---------
<S> <C>
Management..................................... 37
Selling Stockholders........................... 40
Description of Capital Stock................... 41
Description of Certain Indebtedness............ 43
Certain United States Federal Tax
Considerations for Non-U.S. Holders of Common
Stock......................................... 46
Underwriters................................... 48
Legal Matters.................................. 50
Experts........................................ 50
Additional Information......................... 50
Index to Financial Statements.................. F-1
</TABLE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Securities and Exchange Commission
(the "Commission") (File No. 1-7568) by Coltec pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are hereby incorporated
by reference in this Prospectus:

(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1993.

In addition, all documents filed by Coltec pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering (the "Offering") shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

Copies of all documents which are incorporated by reference (not including
the exhibits to such information, unless such exhibits are specifically
incorporated by reference in such information) will be provided without charge
to each person, including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request. Requests should be directed to Coltec,
Attention: Secretary, 430 Park Avenue, New York, New York 10022; telephone (212)
940-0400.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE ("NYSE"), ON THE
PACIFIC STOCK EXCHANGE ("PSE") OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS
THE CONTEXT INDICATES OTHERWISE, "COLTEC" MEANS COLTEC INDUSTRIES INC AND ITS
SUBSIDIARIES.

THE COMPANY

Coltec manufactures and sells a diversified range of highly engineered
aerospace, automotive and industrial products in the United States and, to a
lesser extent, abroad. Through its Aerospace/Government segment, Coltec is a
leading manufacturer of landing gear systems, engine fuel controls, turbine
blades, fuel injectors, nozzles and related components for commercial and
military aircraft, and also produces high-horsepower diesel engines for naval
ships and diesel, gas and dual-fuel engines for electric power plants. Coltec's
Automotive segment manufactures and markets a selected line of high value-added
products, including fuel injection system assemblies and components,
transmission controls, suspension controls, emission control air pumps, oil
pumps and seals for domestic original equipment manufacturers and the
replacement parts market. Coltec's Industrial segment is a leading manufacturer
of industrial seals, gaskets, packing products and self-lubricating bearings and
also produces technologically advanced spray nozzles for agricultural, home
heating and industrial applications and air compressors for manufacturers. Each
of Coltec's three industry segments contributed approximately one-third of total
sales in 1993.

Coltec's strategy is to develop and maintain substantial market positions
and attractive margins for its products through technological innovation, cost
efficiencies, product differentiation and quality. Coltec emphasizes targeted
development of highly engineered, high value-added components and systems
designed to meet specific customer requirements. This emphasis has enabled
Coltec to maintain close, interactive relationships with the major aircraft and
domestic automobile manufacturers and Coltec's principal industrial customers.
Through successful introduction of new products, cost reductions, productivity
improvements and selected divestitures, Coltec has consistently achieved strong
operating margins in its businesses. Coltec's average operating margin for the
period from 1989 to 1993 was 17.7% and the operating margins in 1992 and 1993
were 17.8% and 17.7%, respectively, excluding the effect of a restructuring
charge taken in the second quarter of 1993 (the "1993 restructuring charge").
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Industry Segment Information". Coltec's focus on aftermarket sales
(representing 42% of total sales from 1989 to 1993) in all of its segments
contributes to Coltec's consistently strong operating margins.

Coltec's Aerospace/Government segment has taken an aggressive approach in
responding to changing economic and market conditions. With reductions in
domestic military spending, Coltec has placed increasing emphasis on sales to
commercial aircraft and aircraft engine manufacturers. Coltec's
Aerospace/Government segment increased commercial sales as a percentage of total
sales from 48% in 1989 to 62% in 1993. In 1993, Aerospace/Government segment
sales declined 13%, primarily reflecting lower demand for new commercial
aircraft resulting from the excess capacity of the world airline fleets. The
Aerospace/Government segment's operating margin was 18.9% in 1993, excluding the
effect of the 1993 restructuring charge, compared to 19.5% in 1992. Coltec's
ability to maintain this operating margin for 1993 was particularly noteworthy
in light of weak industry conditions. In addition to producing landing gear for
various aircraft manufacturers, including The Boeing Company ("Boeing") and
McDonnell Douglas Corporation ("McDonnell Douglas"), Coltec has been awarded
contracts to supply the main and nose landing gear assemblies for the Boeing 777
aircraft. In 1993, Coltec delivered on schedule the first three main and nose
landing gear assemblies for Boeing 777 aircraft. Production rates and deliveries
of Boeing 777 landing gear shipsets are scheduled to accelerate over the next
several years. Coltec has been awarded a contract to supply main landing gear
for the Boeing 737-700 aircraft. Coltec's Fairbanks Morse Engine Division
("Fairbanks Morse") recently received firm orders valued at $40 million for
engines that will power the first ship of the Sealift fleet and a U.S. Navy
amphibious landing ship. In the first quarter of 1994, Fairbanks Morse acquired
equipment and other assets related to the Alco engine business from General
Electric Transportation Systems ("GE Transportation").

3
<PAGE>
In 1993, Coltec's Automotive segment recorded strong operating performance,
including a 25% improvement in operating income and an 11% increase in sales.
The segment's operating margin in 1993 increased to a record 23.8%, excluding
the 1993 restructuring charge, from 21.1% in 1992. This reflects higher new car
and truck production, increased applications for segment components and the
introduction of new automotive products. In response to automotive technology
changes in the 1980's that led to the substitution of fuel injection systems for
carburetors, Coltec has developed a substantially new automotive product line
since 1984 that includes fuel injection components, transmission controls,
suspension controls, oil pumps and a new electric emission control air pump. The
Automotive segment expanded its emission-control air pump business late in 1993
by acquiring the assets of the air pump manufacturing operation of General
Motors Corporation ("General Motors") and was named the sole supplier of these
parts to General Motors. The Automotive segment is the sole supplier of the
aluminum intake manifold introduced in Chrysler Corporation's ("Chrysler") 3.5
liter engine on its LH series of vehicles, and Coltec has been selected as the
sole supplier of Chrysler's next-generation induction module systems for the 3.5
liter engine, which will incorporate a plastic intake manifold in 1998. In
addition, in 1993 Coltec's Automotive segment supplied approximately 15% of the
oil pump requirements of Ford Motor Company ("Ford") in North America. In early
1994, Coltec Automotive began supplying mechanical air pumps to Isuzu Motors
Limited ("Isuzu") in both the United States and Japan.

Coltec's Industrial segment continues to introduce technologically advanced
products and develop more efficient ways of serving customers. In 1993, Garlock
Mechanical Packing introduced GYLON style 3540, a highly compressible,
chemically resistant gasket material that can be easily installed at chemical
plants, and, in order to serve end users more quickly, significantly streamlined
two production areas to reduce production times. The Quincy Compressor Division
broadened its business base by introducing a new vacuum pump and an air
compressor powered by natural gas. Delavan Commercial Products is gaining wide
market acceptance with the STOP-DRIP valve which reduces the pollution that
occurs in oil burners. Garlock Bearings is a leader in the production of
self-lubricating bearings and has further expanded into the automotive market
with several new applications for its products. Industrial segment operating
income and sales were down 6% and 2%, respectively, and the segment's operating
margin was 18.2% in 1993, excluding the 1993 restructuring charge. Excluding the
operating results of the Central Moloney Transformer Division ("Central
Moloney"), which was sold in January 1994, operating income for 1993 was down
slightly from 1992 results, sales were up 2% and the operating margin was 21.7%.

In January 1994, Coltec refinanced its bank credit agreement (the "1992
Credit Agreement", and, as refinanced, the "1994 Credit Agreement") on terms
which offer Coltec greater financial flexibility and lower borrowing costs. If
this refinancing had been in place at the beginning of 1993, earnings before
extraordinary item for 1993 would have increased by $10.1 million, or $0.14 per
common share. Refinancing the 1992 Credit Agreement has also increased Coltec's
operating flexibility and requires no scheduled mandatory debt repayments until
January 1997. Since 1989, Coltec has generated $646 million in cash provided by
operating activities.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered:
U.S. Offering............... 18,611,084
shares
International Offering...... 4,600,000
shares
Total..................... 23,211,084
shares(a)
Common Stock outstanding...... 69,762,203
shares(b)
NYSE and PSE Symbol........... COT
<FN>
- ---------
(a) All shares (the "Shares") are being offered by the Selling Stockholders.
(b) The 69,762,203 shares of Common Stock, par value $.01 per share ("Common
Stock"), outstanding is as of February 25, 1994, and excludes 2,255,000
shares of Common Stock subject to employee stock options with a weighted
average exercise price of $15.54 per share.
</TABLE>

SELLING STOCKHOLDERS

As of the date of this Prospectus, The Morgan Stanley Leveraged Equity Fund
II, L.P. ("MSLEF II"), and Colt Equity Investors, L.P. ("Colt L.P.") owned
14,898,000 and 1,641,263 shares of Common Stock, respectively. Morgan Stanley
Leveraged Equity Fund II, Inc. ("MSLEF II, Inc.") is the sole general partner of
MSLEF II and is a wholly owned subsidiary of Morgan Stanley Group Inc. ("Morgan
Stanley Group"). Morgan Stanley Equity Investors Inc. is the sole general
partner of Colt L.P. and is a wholly owned subsidiary of Morgan Stanley Group.
As of the date of this Prospectus, Morgan Stanley Group, First Plaza Group
Trust, and Leeway & Co. owned 2,535,143; 1,695,889; and 1,695,889 shares of
Common Stock, respectively. All the shares of Common Stock owned by MSLEF II,
Colt L.P., Morgan Stanley Group, First Plaza Group Trust, and Leeway & Co. are
being offered in the Offering. In addition, Salvatore J. Cozzolino and Andrew C.
Hilton, each of whom retired as a Vice Chairman of Coltec in January 1994,
owned, as of the date of this Prospectus, 372,450 and 372,450 shares of Common
Stock, respectively, that are being offered in the Offering. The 23,211,084
shares of Common Stock being offered in the Offering constitute 33.3% of the
shares of Common Stock outstanding as of the date of this Prospectus. MSLEF II,
Colt L.P., Morgan Stanley Group, First Plaza Group Trust, Leeway & Co., Mr.
Cozzolino and Dr. Hilton are herein referred to sometimes as the "Selling
Stockholders". Upon completion of the Offering, the three employees of Morgan
Stanley & Co. Incorporated ("Morgan Stanley") who are currently Directors of
Coltec intend to resign from the Board of Directors of Coltec. Morgan Stanley, a
subsidiary of Morgan Stanley Group, is one of the lead managers of the Offering.

As of the date of this Prospectus, the executive officers of Coltec
beneficially owned an aggregate of 1,705,892 shares of Common Stock. None of
such shares are being offered in the Offering. See "Management", "Selling
Stockholders" and "Underwriters".

CERTAIN SIGNIFICANT CONSIDERATIONS

For a discussion of certain significant considerations that should be
considered in evaluating an investment in the Common Stock, see "Certain
Significant Considerations".

5
<PAGE>
SUMMARY FINANCIAL DATA

The following summary financial data were derived from, and should be read
in conjunction with, the financial statements and related notes of Coltec, the
selected financial data and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Sales............................................. $1,334.8 $1,368.7 $1,373.0 $1,487.2 $1,516.7
-------- -------- -------- -------- --------
Operating income (a).............................. 211.7 243.1 229.0 268.9 272.8
-------- -------- -------- -------- --------
Earnings from continuing operations before
interest,
income taxes and extraordinary item (b).......... 211.7 243.1 230.4 278.1 278.6
Interest and debt expense, net.................... 110.2 135.8 199.9 203.4 211.8
Provision for income taxes........................ 36.3 42.6 28.3 33.8 16.8
-------- -------- -------- -------- --------
Earnings from continuing operations
before extraordinary item (a).................... 65.2 64.7 2.2 40.9 50.0
Discontinued operations (c)....................... -- -- -- 17.7 3.6
Extraordinary item (d)............................ (17.8) (106.9) .6 (4.5) (6.1)
-------- -------- -------- -------- --------
Net earnings (loss)............................... 47.4 (42.2) 2.8 54.1 47.5
-------- -------- -------- -------- --------
Earnings (loss) per common share:
Continuing operations (a)....................... .94 1.11 .09 1.64 2.00
Discontinued operations......................... -- -- -- .70 .14
Extraordinary item.............................. (.26) (1.83) .02 (.18) (.24)
-------- -------- -------- -------- --------
Net earnings (loss)............................. .68 (.72) .11 2.16 1.90
-------- -------- -------- -------- --------
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital................................... 163.1 95.3 168.8 162.9 207.3
Total assets...................................... 806.4 828.8 834.2 876.8 952.3
Long-term debt (including current portion)........ 1,033.6 1,122.1 1,622.9 1,646.3 1,747.4
Shareholders' equity.............................. (625.5) (666.6) (1,194.5) (1,188.4) (1,241.3)
OTHER OPERATING DATA:
Operating margin (a).............................. 15.9% 17.8% 16.7% 18.1% 18.0%
Cash provided by operating activities............. 105.2 119.9 149.2 155.5 114.3
Capital expenditures.............................. 38.6 25.0 26.2 23.2 28.7
Depreciation of property, plant and equipment..... 33.2 35.3 36.9 36.8 36.7
Order backlog (at end of period).................. 669.7 709.1 808.8 864.2 831.0
Number of employees (at end of period)............ 10,000 10,700 11,400 12,400 13,300
<FN>
- ------------
(a) Operating income for 1993 includes the 1993 restructuring charge of $25.2
million ($15.3 million after taxes, or $0.22 per common share) taken to
cover the cost of consolidation and rearrangement of certain manufacturing
facilities and related reductions in work force, primarily in the
Aerospace/Government segment, as well as at Central Moloney. If the 1993
restructuring charge was excluded, operating income, earnings from
continuing operations before extraordinary item, earnings per common share
from continuing operations and the operating margin would have been $236.9
million, $80.5 million, $1.16, and 17.7%, respectively, in 1993. Central
Moloney was sold in January 1994.
(b) Earnings from continuing operations before interest, income taxes and
extraordinary item include for 1991, 1990 and 1989, $1.4 million, $9.2
million and $5.8 million, respectively, of dividend income from Coltec's
minority interest in Crucible Materials Corporation. If such item was
excluded, earnings from continuing operations before interest, income taxes
and extraordinary item would have been $229.0 million, $268.9 million and
$272.8 million for the years ended December 31, 1991, 1990 and 1989,
respectively.
(c) On March 22, 1990, Coltec sold substantially all the assets of the Colt
Firearms Division ("Colt Firearms") to a company formed by a group of
private investors for total proceeds of $51.6 million and a gain of $17.3
million. Coltec has accounted for the sales, expenses, assets and
liabilities of Colt Firearms as a discontinued operation.
(d) Coltec recognized extraordinary items in each of the five years ended
December 31, 1993 in connection with debt refinancings and early retirement
of debt, and, in addition, in the year ended December 31, 1992 in
connection with the recapitalization that occurred in that year (the "1992
Recapitalization").
</TABLE>

6
<PAGE>
THE COMPANY

Coltec's strategy is to develop and maintain substantial market positions
and attractive margins for its products through technological innovation, cost
efficiencies, product differentiation and quality. Coltec emphasizes targeted
development of highly engineered, high value-added components and systems
designed to meet specific customer requirements. This emphasis has enabled
Coltec to maintain close, interactive relationships with the major aircraft and
domestic automobile manufacturers and Coltec's principal industrial customers.
Through successful introduction of new products, cost reductions, productivity
improvements and selected divestitures, Coltec has consistently achieved strong
operating margins in its businesses. Coltec's average operating margin for the
period from 1989 to 1993 was 17.7% and the operating margins in 1992 and 1993
were 17.8% and 17.7%, respectively, excluding the effect of the 1993
restructuring charge. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Industry Segment Information". Coltec's
focus on aftermarket sales (representing 42% of total sales from 1989 to 1993)
in all of its segments contributes to Coltec's consistently strong operating
margins.

Coltec's Aerospace/Government segment has taken an aggressive approach in
responding to changing economic and market conditions. With reductions in
domestic military spending, Coltec has placed increasing emphasis on sales to
commercial aircraft and aircraft engine manufacturers. Coltec's
Aerospace/Government segment increased commercial revenues as a percentage of
total sales from 48% in 1989 to 62% in 1993. In 1993, Aerospace/Government
segment sales declined 13%, primarily reflecting lower demand for new commercial
aircraft resulting from the excess capacity of the world airline fleets. The
Aerospace/ Government segment's operating margin was 18.9% in 1993, excluding
the effect of the 1993 restructuring charge, compared to 19.5% in 1992. Coltec's
ability to maintain this operating margin for 1993 was particularly noteworthy
in light of weak industry conditions. In addition to producing landing gear for
various aircraft manufacturers, including Boeing and McDonnell Douglas, Coltec
has been awarded contracts to supply the main and nose landing gear assemblies
for the Boeing 777 aircraft. In 1993, Coltec delivered on schedule the first
three main and nose landing gear assemblies for the Boeing 777 aircraft.
Production rates and deliveries of Boeing 777 landing gear shipsets are
scheduled to accelerate over the next several years. Coltec has been awarded a
contract to supply main landing gear for the Boeing 737-700 aircraft. Fairbanks
Morse recently received firm orders valued at $40 million for engines that will
power the first ship of the Sealift fleet and a U.S. Navy amphibious landing
ship. In the first quarter of 1994, Fairbanks Morse acquired equipment and other
assets related to the Alco engine business from GE Transportation.

In 1993, Coltec's Automotive segment recorded strong operating performance,
including a 25% improvement in operating income and an 11% increase in sales.
The segment's operating margin in 1993 increased to a record 23.8%, excluding
the 1993 restructuring charge, from 21.1% in 1992. This reflects higher new car
and truck production, increased applications for segment components and the
introduction of new automotive products. In response to automotive technology
changes in the 1980's that led to the substitution of fuel injection systems for
carburetors, Coltec has developed a substantially new automotive product line
since 1984 that includes fuel injection components, transmission controls,
suspension controls, oil pumps and a new electric emission control air pump. The
Automotive segment expanded its emission-control air pump business late in 1993
by acquiring the assets of the air pump manufacturing operation of

7
<PAGE>
General Motors and was named the sole supplier of these parts to General Motors.
The Automotive segment is the sole supplier of the aluminum intake manifold
introduced in Chrysler's 3.5 liter engine on its LH series of vehicles, and
Coltec has been selected as the sole supplier of Chrysler's next-generation
induction module systems for the 3.5 liter engine, which will incorporate a
plastic intake manifold in 1998. In addition, in 1993 Coltec's Automotive
segment supplied approximately 15% of the oil pump requirements of Ford in North
America. In early 1994, Coltec Automotive began supplying mechanical air pumps
to Isuzu in both the United States and Japan.

Coltec's Industrial segment continues to introduce technologically advanced
products and develop more efficient ways of serving customers. In 1993, Garlock
Mechanical Packing introduced GYLON style 3540, a highly compressible,
chemically resistant gasket material that can be easily installed at chemical
plants, and, in order to serve end users more quickly, significantly streamlined
two production areas to reduce production times. The Quincy Compressor Division
broadened its business base by introducing a new vacuum pump and an air
compressor powered by natural gas. Delavan Commercial Products is gaining wide
market acceptance with the STOP-DRIP valve which reduces the pollution that
occurs in oil burners. Garlock Bearings is a leader in the production of
self-lubricating bearings and has further expanded into the automotive market
with several new applications for its products. Industrial segment operating
income and sales were down 6% and 2%, respectively, and the segment's operating
margin was 18.2% in 1993, excluding the 1993 restructuring charge. Excluding the
operating results of Central Moloney, which was sold in January 1994, operating
income for 1993 was down slightly from 1992 results, sales were up 2% and the
operating margin was 21.7%.

In January 1994, Coltec refinanced the 1992 Credit Agreement on terms which
offer Coltec greater financial flexibility and lower borrowing costs. If this
refinancing had been in place at the beginning of 1993, earnings before
extraordinary item for 1993 would have increased by $10.1 million, or $0.14 per
common share. Refinancing the 1992 Credit Agreement has also increased Coltec's
operating flexibility and requires no scheduled mandatory debt repayments until
January 1997. Since 1989, Coltec has generated $646 million in cash provided by
operating activities.

Coltec, through its subsidiaries, is the successor to the business which was
incorporated in Pennsylvania in 1911. The corporate name of Coltec was changed
from Colt Industries Inc on May 3, 1990. The principal executive offices of
Coltec are located at 430 Park Avenue, New York, New York 10022, telephone
number (212) 940-4000.

CERTAIN SIGNIFICANT CONSIDERATIONS

LEVERAGE AND DEBT SERVICE

As a result of a recapitalization of Coltec completed in 1986 (the "1986
Recapitalization") and the acquisition of Coltec by Coltec Holdings Inc.
("Holdings") in 1988, Coltec is highly leveraged. Although the 1992
Recapitalization reduced the deficit in shareholders' equity and reduced
indebtedness and interest expense, Coltec continues to have substantial
indebtedness and negative shareholders' equity. As of December 31, 1993,
Coltec's total indebtedness was $1,033.6 million. At such date, Coltec's total
assets were $806.4 million and its shareholders' equity was a deficit of $625.5
million. Coltec's negative shareholders' equity is due to the 1986
Recapitalization and the retirement of an intercompany note in the principal
amount of $846.3 million distributed by Coltec to Holdings. For the year ended
December 31, 1993, Coltec's ratio of earnings to fixed charges was 1.9 to 1.
Giving effect to the 1994 Credit Agreement as if it had been entered into on
January 1, 1993 and excluding the 1993 restructuring charge, Coltec's ratio of
earnings to fixed charges would have been 2.4 to 1 for the year ended December
31, 1993.

Although the 1992 Recapitalization and the refinancing of the 1992 Credit
Agreement in January 1994 have improved Coltec's operating and financing
flexibility, Coltec's remaining substantial indebtedness could limit its
capacity to respond to changing business and economic conditions. Insofar as
changing business and economic conditions may affect the financial condition and
financing requirements of Coltec, they could pose significant risks to the
holders of Common Stock of Coltec. Furthermore, the ability of

8
<PAGE>
Coltec to satisfy its obligations and to service, repay or refinance its debt
will be dependent upon the future performance of Coltec, which will be subject
to prevailing economic conditions and to financial, business and other factors,
including factors beyond the control of Coltec, affecting the business and
operations of Coltec.

The 1994 Credit Agreement imposes significant operating and financial
restrictions on Coltec. Such restrictions affect, and in many respects
significantly limit or prohibit, among other things, the ability of Coltec to
incur additional indebtedness, create liens, sell assets, engage in mergers and
acquisitions, make certain capital expenditures or pay dividends. The indentures
under which Coltec's 9-3/4% Senior Notes Due 1999, 9-3/4% Senior Notes Due 2000
and 10-1/4% Senior Subordinated Notes Due 2002 were issued contain certain
similar restrictive covenants. These restrictions, in combination with the
leveraged nature of Coltec, could limit the ability of Coltec to effect future
financings or otherwise may restrict corporate activities. See "Description of
Certain Indebtedness".

Borrowings under the 1994 Credit Agreement bear interest at fluctuating
rates. Increases in interest rates with respect to such borrowings could
adversely affect Coltec's financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Financial Position" and "Description of Certain Indebtedness".

CYCLICAL BUSINESS AND COMPETITION; LITIGATION

Coltec operates in markets that are cyclical in nature and highly
competitive, and Coltec's results of operations are affected by changes in its
customers' markets, including changes that affect government defense contracts
and commercial aircraft and automobile production. Currently, defense spending
and commercial aircraft production schedules are at reduced levels and have
adversely affected sales in the Aerospace/Government segment. While the
Automotive segment is benefiting from the strength in the automotive industry
and increased applications for components supplied by Coltec, results at the
Industrial segment divisions have been mixed. Many of Coltec's competitors have
substantially greater financial resources than Coltec.

From time to time the business operations of Coltec result in product
liability actions, including asbestos litigation. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Asbestos
Litigation" for recent developments in asbestos litigation involving Coltec.

Certain of the contracts under which Coltec is a supplier, including those
with commercial aviation manufacturers and the United States government, contain
provisions allowing for early termination, including termination due to lack of
congressional appropriation or for convenience. See "Business -- Contract
Risks".

9
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has traded on the NYSE and the PSE since March 25, 1992,
the date of its initial public offering. The following table sets forth the high
and low sales prices (expressed as dollars per common share) of the Common Stock
as reported on the NYSE Composite Tape for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
FISCAL 1992
First Quarter (beginning March 25).............. $ 19 $ 17
Second Quarter.................................. 21 3/4 17
Third Quarter................................... 19 1/4 15 3/8
Fourth Quarter.................................. 19 1/4 14 1/8
FISCAL 1993
First Quarter................................... 19 1/4 16 1/4
Second Quarter.................................. 17 1/2 14 7/8
Third Quarter................................... 18 15 1/4
Fourth Quarter.................................. 19 3/8 16
FISCAL 1994
First Quarter (through March 21, 1994).......... 21 7/8 18 3/4
</TABLE>

At March 15, 1994, there were 568 holders of record of the Common Stock.

Coltec does not currently intend to pay cash dividends on the Common Stock.
Coltec currently intends to retain earnings for support of its working capital,
repayment of indebtedness, capital expenditures and other general corporate
purposes. The 1994 Credit Agreement and certain of the indentures governing
issues of Coltec's long-term debt limit the payment of cash dividends on the
Common Stock. See "Description of Certain Indebtedness". Subject to such
restrictions, any future determination to pay cash dividends will be dependent
upon Coltec's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board of Directors.

10
<PAGE>
CONSOLIDATED CAPITALIZATION

The following table sets forth the consolidated short-term debt and
consolidated capitalization of Coltec as of December 31, 1993. All Shares
offered pursuant to the Offering are being sold by the Selling Stockholders.
Coltec will not receive any proceeds from the Offering. The table should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. See "Selected Financial Data".

<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------
(DOLLARS IN
MILLIONS)
<S> <C>
Current maturities of long-term debt.... $ 1.5
----------
----------
Long-term debt (a):
1992 Credit Agreement (b)............. $ 308.6
9-3/4% Senior Notes Due 1999.......... 150.0
9-3/4% Senior Notes Due 2000.......... 200.0
11-1/4% Debentures Due 1996-2015...... 91.6
10-1/4% Senior Subordinated Notes Due
2002................................. 250.0
Other due 1994-2010................... 31.9
----------
Total long-term debt................ 1,032.1
----------
Shareholders' equity:
Preferred stock, $.01 par value,
2,500,000 shares authorized; no
shares outstanding................... --
Common Stock, $.01 par value,
100,000,000 shares authorized,
69,943,341 shares issued (excluding
25,000,000 shares held by a wholly
owned subsidiary).................... .7
Capital in excess of par value........ 636.8
Retained earnings (deficit)........... (1,251.5)
Unearned compensation -- restricted
stock awards......................... (5.5)
Minimum pension liability............. (4.2)
Foreign currency translation
adjustments.......................... 1.1
----------
(622.6)
Less cost of 179,309 shares of Common
Stock in treasury.................... (2.9)
----------
Total shareholders' equity.......... (625.5)
----------
Total capitalization.............. $ 406.6
----------
----------
<FN>
- ---------
(a) See "Description of Certain Indebtedness" for additional information with
respect to certain indebtedness of Coltec.
(b) In January 1994, the 1992 Credit Agreement was refinanced. See "Description
of Certain Indebtedness" and Note 16 of the Notes to the Financial
Statements appearing elsewhere in this Prospectus.
</TABLE>

11
<PAGE>
SELECTED FINANCIAL DATA

The following table sets forth selected financial data of Coltec for the
five years ended December 31, 1993. The selected financial data, with the
exception of order backlog and employee data, were derived from the financial
statements of Coltec, certain of which statements have been audited by Arthur
Andersen & Co., independent public accountants, as indicated in their report
included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Sales........................................ $ 1,334.8 $ 1,368.7 $ 1,373.0 $ 1,487.2 $ 1,516.7
----------- ----------- ----------- ----------- -----------
Operating income (a)......................... 211.7 243.1 229.0 268.9 272.8
----------- ----------- ----------- ----------- -----------
Earnings from continuing
operations before interest, income taxes
and extraordinary item (b)................ 211.7 243.1 230.4 278.1 278.6
Interest and debt expense, net............... 110.2 135.8 199.9 203.4 211.8
Provision for income taxes................... 36.3 42.6 28.3 33.8 16.8
----------- ----------- ----------- ----------- -----------
Earnings from continuing operations before
extraordinary item (a)...................... 65.2 64.7 2.2 40.9 50.0
Discontinued operations (c).................. -- -- -- 17.7 3.6
Extraordinary item (d)....................... (17.8) (106.9) .6 (4.5) (6.1)
----------- ----------- ----------- ----------- -----------
Net earnings (loss).......................... 47.4 (42.2) 2.8 54.1 47.5
----------- ----------- ----------- ----------- -----------
Earnings (loss) per common share:
Continuing operations (a).................. .94 1.11 .09 1.64 2.00
Discontinued operations.................... -- -- -- .70 .14
Extraordinary item......................... (.26) (1.83) .02 (.18) (.24)
----------- ----------- ----------- ----------- -----------
Net earnings (loss)........................ .68 (.72) .11 2.16 1.90
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.............................. 163.1 95.3 168.8 162.9 207.3
Total assets................................. 806.4 828.8 834.2 876.8 952.3
Long-term debt (including current portion)... 1,033.6 1,122.1 1,622.9 1,646.3 1,747.4
Shareholders' equity......................... (625.5) (666.6) (1,194.5) (1,188.4) (1,241.3)
OTHER OPERATING DATA:
Operating margin (a)......................... 15.9% 17.8% 16.7% 18.1% 18.0%
Cash provided by operating activities........ 105.2 119.9 149.2 155.5 114.3
Capital expenditures......................... 38.6 25.0 26.2 23.2 28.7
Depreciation of property, plant and
equipment................................... 33.2 35.3 36.9 36.8 36.7
Order backlog (at end of period)............. 669.7 709.1 808.8 864.2 831.0
Number of employees (at end of period)....... 10,000 10,700 11,400 12,400 13,300
<FN>
- ------------
(a) Operating income for 1993 includes the 1993 restructuring charge of $25.2
million ($15.3 million after taxes, or $0.22 per common share) taken to
cover the cost of consolidation and rearrangement of certain manufacturing
facilities and related reductions in work force, primarily in the
Aerospace/Government segment, as well as at Central Moloney. If the 1993
restructuring charge was excluded, operating income, earnings from
continuing operations before extraordinary item, earnings per common share
from continuing operations and the operating margin would have been $236.9
million, $80.5 million, $1.16, and 17.7%, respectively, in 1993. Central
Moloney was sold in January 1994.
(b) Earnings from continuing operations before interest, income taxes and
extraordinary item include for 1991, 1990 and 1989, $1.4 million, $9.2
million and $5.8 million, respectively, of dividend income from Coltec's
minority interest in Crucible Materials Corporation. If such item was
excluded, earnings from continuing operations before interest, income taxes
and extraordinary item would have been $229.0 million, $268.9 million and
$272.8 million for the years ended December 31, 1991, 1990 and 1989,
respectively.
(c) On March 22, 1990, Coltec sold substantially all the assets of Colt
Firearms to a company formed by a group of private investors for total
proceeds of $51.6 million and a gain of $17.3 million. Coltec has accounted
for the sales, expenses, assets and liabilities of Colt Firearms as a
discontinued operation.
(d) Coltec recognized extraordinary items in each of the five years ended
December 31, 1993 in connection with debt refinancings and early retirement
of debt, and, in addition, in the year ended December 31, 1992 in
connection with the 1992 Recapitalization.
</TABLE>

12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

In April 1992, Coltec completed the 1992 Recapitalization, which included
the initial public offering of its Common Stock, two long-term debt offerings
and the 1992 Credit Agreement. The 1992 Recapitalization reduced aggregate
indebtedness and interest expense, refinanced a substantial portion of remaining
indebtedness on more favorable terms and improved Coltec's operating and
financial flexibility. At the end of 1993, Coltec had total debt of $1,033.6
million compared with $1,622.9 million at the beginning of 1992.

In January 1994, Coltec refinanced the 1992 Credit Agreement on terms that
offer Coltec greater financial flexibility and lower borrowing costs. If this
refinancing had been in place at the beginning of 1993, earnings before
extraordinary item for 1993 would have increased by $10.1 million, or $0.14 per
common share. Refinancing the 1992 Credit Agreement also increased Coltec's
operating flexibility and requires no scheduled mandatory debt repayments until
January 1997.

Through successful introduction of new products, cost reductions,
productivity improvements and selected divestitures, Coltec has consistently
achieved strong operating margins in its businesses. Coltec's average operating
margin for the period from 1989 to 1993 was 17.7% and the operating margins in
1992 and 1993 were 17.8% and 17.7%, respectively, excluding the effect of the
1993 restructuring charge. Coltec's ability to maintain this operating margin
for 1993 was particularly noteworthy as two of Coltec's major markets were weak.
The recession in the aerospace industry has been more severe than anticipated,
and the United States manufacturing sector, which is the primary market for
Coltec's Industrial segment, remained weak. Despite unfavorable industry
conditions, the operating margins for the Aerospace/Government and Industrial
segments were 18.9% and 18.2%, respectively, excluding the 1993 restructuring
charge. The Automotive segment showed strong growth in operating margin, to a
record 23.8%, excluding the 1993 restructuring charge, from the 1992 level of
21.1%.

Coltec recorded the 1993 restructuring charge of $25.2 million ($15.3
million after taxes, or $0.22 per common share) in the second quarter of 1993 to
cover the cost of consolidation and rearrangement of certain manufacturing
facilities and related reductions in work force. These changes are intended to
reduce operating costs and improve Coltec's competitiveness. Coltec believes
that the cost efficiencies gained from the restructuring will permit Coltec to
maintain or improve operating margins. The restructuring has been concentrated
in the Aerospace/Government segment and includes the closing of a Menasco
landing gear facility and a Walbar turbine engine components facility, and
reducing the manufacturing area at Chandler Evans. In the Automotive segment,
the restructuring covered the relocation of administrative offices and the
distribution operation of Holley Replacement Parts to one of the division's
manufacturing operations. In the Industrial segment, the restructuring covered
the closing of a Central Moloney plant. During 1993, significant progress was
made toward achieving the objectives of the restructuring program and the
program is expected to be completed in 1994. In January 1994, Coltec sold
Central Moloney. Coltec believes that this divestiture will contribute to
improved results in the Industrial segment. Excluding the operating results of
Central Moloney and the 1993 restructuring charge, the 1993 operating margin for
the Industrial segment was 21.7%.

13
<PAGE>
INDUSTRY SEGMENT INFORMATION

The following table shows financial information by industry segment for the
five years ended December 31, 1993.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales:
Aerospace/Government............. $ 453.3 $ 523.7 $ 562.8 $ 581.9 $ 570.5
Automotive....................... 445.7 402.6 372.6 436.1 479.3
Industrial....................... 436.7 443.8 439.3 470.2 468.8
Intersegment elimination (a)..... (.9) (1.4) (1.7) (1.0) (1.9)
---------- ---------- ----------- ----------- -----------
Total.......................... $ 1,334.8 $ 1,368.7 $ 1,373.0 $ 1,487.2 $ 1,516.7
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Operating income (b):
Aerospace/Government............. $ 67.8 $ 102.1 $ 109.6 $ 107.6 $ 118.7
Automotive....................... 102.4 85.1 59.3 93.9 92.6
Industrial....................... 75.9 84.4 80.2 96.1 86.7
---------- ---------- ----------- ----------- -----------
Total segments................. 246.1 271.6 249.1 297.6 298.0
Corporate unallocated (c)........ (34.4) (28.5) (20.1) (28.7) (25.2)
---------- ---------- ----------- ----------- -----------
Operating income............... $ 211.7 $ 243.1 $ 229.0 $ 268.9 $ 272.8
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Operating margin (b):
Aerospace/Government............. 15.0% 19.5% 19.5% 18.5% 20.8%
Automotive....................... 23.0 21.1 15.9 21.5 19.3
Industrial (d)................... 17.4 19.0 18.3 20.4 18.5
---------- ---------- ----------- ----------- -----------
Total.......................... 15.9% 17.8% 16.7% 18.1% 18.0%
Return on total assets (e):
Aerospace/Government............. 17.6% 26.3% 26.7% 25.1% 25.6%
Automotive....................... 82.2 71.8 48.1 66.3 57.2
Industrial....................... 42.1 45.2 42.2 49.1 41.5
---------- ---------- ----------- ----------- -----------
Total.......................... 26.3% 29.3% 27.5% 30.7% 28.9%
Backlog (f):
Aerospace/Government............. $ 524.5 $ 576.9 $ 697.2 $ 738.5 $ 696.4
Automotive....................... 77.6 64.8 47.0 51.5 56.4
Industrial....................... 67.6 67.4 64.6 74.2 78.2
---------- ---------- ----------- ----------- -----------
Total.......................... $ 669.7 $ 709.1 $ 808.8 $ 864.2 $ 831.0
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
<FN>
- ------------
(a) Reflects elimination of intercompany sales between divisions in different
segments.
(b) The 1993 restructuring charge of $25.2 million is included in 1993 segment
operating income as follows: $17.7 million in Aerospace/ Government, $3.8
million in Automotive and $3.7 million in Industrial. Excluding the 1993
restructuring charge, operating income and the operating margin for 1993
would have been $85.5 million and 18.9% for Aerospace/Government, $106.2
million and 23.8% for Automotive and $79.6 million and 18.2% for
Industrial.
(c) Represents corporate selling and administrative expense, including other
income and expense, that is not allocable to individual industry segments.
(d) Excluding Central Moloney, which was sold in January 1994, the operating
margin for the Industrial segment would have been 21.7% in 1993, 22.4% in
1992, 21.7% in 1991, 23.2% in 1990 and 20.0% in 1989.
(e) Return on total assets is calculated for each segment by dividing segment
operating income by segment total assets at December 31, and for total
Coltec by dividing total Coltec operating income by total assets at
December 31, less assets of discontinued operations.
(f) Of the $669.7 million backlog at December 31, 1993, $255.2 million was
scheduled to be shipped after 1994.
</TABLE>

RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993, COMPARED WITH YEAR ENDED DECEMBER 31, 1992

Earnings before extraordinary item for 1993 were $80.5 million, equal to
$1.16 per common share, excluding the 1993 restructuring charge of $25.2 million
($15.3 million after taxes, or $0.22 per common

14
<PAGE>
share) recorded by Coltec in the second quarter of 1993. This compared with
earnings before extraordinary item of $64.7 million, or $1.11 per common share,
in 1992. In January 1994, Coltec entered into the 1994 Credit Agreement. Had
this facility been entered into at the beginning of 1993, earnings before
extraordinary item for 1993 would have increased by $10.1 million, or $0.14 per
common share. Sales were $1,334.8 million in 1993 compared with $1,368.7 million
in 1992. Operating income for 1993 was $236.9 million and the operating margin
was 17.7%, excluding the 1993 restructuring charge; and for 1992, operating
income was $243.1 million and the operating margin was 17.8%. Although sales and
operating income declined slightly in 1993, Coltec was able to maintain its
operating margin at about the same level as in 1992. This performance was
achieved despite 1993 being a difficult year for two of the major markets served
by Coltec. The aerospace industry continued to be impacted by declining orders
for new commercial aircraft and cuts in defense spending; and the nation's
manufacturing sector, the primary market for the Industrial segment, remained
weak.

Excluding the 1993 restructuring charge, the Aerospace/Government segment
reported a 16% decline in operating income in 1993 on a 13% sales decline and an
operating margin of 18.9% compared with 19.5% last year. Operating income for
1993 was $85.5 million on sales of $453.3 million, compared with operating
income of $102.1 million on sales of $523.7 million in the prior year. The
Automotive segment achieved a record 23.8% operating margin in 1993, compared
with 21.1% in 1992, a 25% improvement in operating income and an 11% increase in
sales. Operating income was $106.2 million on sales of $445.7 million compared
with operating income of $85.1 million on sales of $402.6 million in 1992. This
strong performance reflects higher new car and truck production, increased
applications for segment components and the introduction of new automotive
products. In the Industrial segment, operating income and sales were down 6% and
2%, respectively, and segment operating margin declined to 18.2% from 19.0% in
1992. Segment operating income was $79.6 million and sales were $436.7 million,
compared with operating income of $84.4 million and sales of $443.8 million in
1992. Record sales and earnings performances were reported by Quincy Compressor
and Garlock Bearings Divisions, while Central Moloney, Garlock Mechanical
Packing and France Compressor Products Divisions and FMD Electronics reported
lower results in 1993. Excluding Central Moloney, which was sold in January
1994, sales were up 2% to $372.5 million compared with $365.3 million in 1992,
operating income was $80.7 million, down slightly from $81.9 million in 1992,
and segment operating margin for 1993 was 21.7% compared with 22.4% in 1992.
Following is a discussion of the results of operations for the year ended
December 31, 1993, compared with the year ended December 31, 1992.

SALES. Sales of $1,334.8 million in 1993 were 2% lower than the $1,368.7
million in 1992. In the Aerospace/Government segment, sales were $453.3 million
compared with $523.7 million last year. The decline in Aerospace/Government
segment sales reflects lower demand for new commercial aircraft resulting from
the excess capacity of the world airline fleets, as well as continued declines
in defense spending. In spite of the weak economic conditions in the aerospace
industry, Coltec began shipping components for new commercial programs in 1993,
including landing gear systems for the Boeing 777 aircraft and flight controls
for the Fo-70 aircraft produced by N.V. Fokker ("Fokker"). In 1993, sales to the
military and other branches of the United States Government accounted for $173
million, or 38%, of total sales for the Aerospace/ Government segment, compared
with $192 million, or 37%, in 1992 and $223 million, or 40%, in 1991. For
Coltec, sales to the military and other branches of the United States Government
were $190 million, $210 million and $224 million, or 14%, 15% and 16%, in 1993,
1992 and 1991, respectively. In 1993, Menasco Aerosystems Division reported
lower commercial sales of landing gear systems for both the Boeing 757 and 767
aircraft and lower military sales, primarily for spare parts. Menasco Aerospace
Ltd in Canada reported lower shipments of landing gear systems for the Boeing
737 and the McDonnell Douglas MD-80 aircraft and flight controls for the Fokker
Fo-100 aircraft. Sales of overhaul and repair services declined at Menasco
Overhaul Division due mainly to increased competition and the economic slowdown
in Europe. The decline in sales at Fairbanks Morse was due to completion of
certain government programs and lower shipments of engines to the commercial
sector. Late in 1993, Fairbanks Morse was awarded a contract to provide engines
for the U.S. Navy Sealift program. Sales at Chandler Evans Control Systems
Division declined in 1993 on lower demand for fuel pumps from both the
commercial and military markets. Walbar reported higher sales in 1993 on
increased demand for repair and coating services for gas turbine engine
components, and on increased shipments of turbine blades and vanes for
commercial aircraft engines.

15
<PAGE>
For 1993, Automotive segment sales increased 11% to $445.7 million,
reflecting the recovery of the domestic automotive industry that began last year
and continued to accelerate in 1993. Also contributing to the sales improvement
were increased applications for segment components and the introduction of new
automotive products. Sales were higher at Holley Automotive Division on
increased demand for manifold assemblies and transmission solenoids, and on the
introduction of new automotive products. Coltec Automotive Division reported
increased shipments of oil pumps into the European automotive market and
mechanical emission control air pumps for use on light trucks and vans. The
sales improvement at Stemco Truck Products Division was due to the continued
demand for wheel lubrication systems from original equipment manufacturers,
reflecting increased truck and trailer production, and to increased aftermarket
shipments, resulting from gains in market share. Farnam Sealing Systems reported
higher sales on increased demand from the original equipment market for engine
and transmission products. Holley Replacement Parts reported lower sales in 1993
reflecting the continuing decline in demand for carburetors in the aftermarket.

Sales for the Industrial segment in 1993 were $436.7 million, or 2% lower
than in 1992. Sales were higher at Quincy Compressor on increased shipments of
rotary screw air compressors, strong demand for compressor parts and
accessories, and new product introductions. Garlock Bearings reported higher
sales on new applications for DU bearings and strong demand from the truck
market for DX bearings. Sales were up at Sterling Die and Haber Tool due
primarily to increased demand from the automotive market, and at Garlock
Plastomer Products on strong acceptance from the aerospace industry for its new
PTFE insulating tape. At Garlock Mechanical Packing Division, sales of KLOZURE
oil seals and industrial seals were higher on increased demand from original
equipment manufacturers; while sales of gasketing and compressed sheet products
declined due to softness in the petrochemical market. Sales were lower in 1993
at Central Moloney reflecting the low level of demand for transformers and
competitive pricing pressures, and at Garlock Valves & Industrial Plastics
Division due to the slowdown in the European economy. Delavan Commercial
Products Division reported lower sales due to the foreign exchange translation
impact on sales of its U.K. affiliate and to lower demand for agricultural
nozzles and pumps, resulting from the flooding in the Midwest.

COST OF SALES. Cost of sales decreased 4% in 1993 reflecting lower sales
volume for the Aerospace/ Government segment and Central Moloney, improved
manufacturing processes, lower maintenance cost and depreciation expense, and
benefits realized from the restructuring program. As a percent of sales, cost of
sales declined to 67.8% from 69.0% in 1992.

SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense,
including other income and expense, increased 6% in 1993. This increase results
primarily from a full year of amortization expense on restricted stock awards
granted in 1992 and from the inclusion in 1992 of a nonrecurring reduction in
insurance cost and receipt of a license fee by Menasco Aerosystems. The increase
in 1993 selling and administrative expense was offset in part by recovery of
previously incurred engineering expense by Coltec Automotive. As a percent of
sales, selling and administrative expense increased to 14.4% from 13.2% in 1992.

RESTRUCTURING CHARGE. The 1993 restructuring charge of $25.2 million
recorded in the second quarter of 1993 covers the cost of consolidation and
rearrangement of certain manufacturing facilities and related reductions in work
force, primarily in the Aerospace/Government segment, as well as at Central
Moloney. Key elements of the restructuring program include closing a landing
gear manufacturing facility and consolidation of landing gear production at two
existing Menasco facilities, closing a turbine engine components facility and
consolidating production of these components at three existing Walbar
facilities, and closing one of two Central Moloney plants. At Chandler Evans
Control Systems, the manufacturing area was reduced; and at Holley Replacement
Parts, administrative offices and the distribution operation are being relocated
to one of the division's manufacturing facilities. During 1993, significant
progress was made toward achieving the objectives of the restructuring program,
and the program is expected to be completed in 1994.

INTEREST AND DEBT EXPENSE, NET. Net interest expense declined $25.7
million, or 19%, in 1993. Included in 1992 was substantial interest expense that
was reduced significantly by the 1992 Recapitalization.

16
<PAGE>
PROVISION FOR INCOME TAXES. The effective income tax rate for 1993 was
35.75% compared with 39.7% in 1992. The lower effective tax rate for 1993 is
principally due to the disaffiliation of Coltec from Holdings as a result of the
1992 Recapitalization and the adjustment of reserves, partially offset by the
increase in the U.S. statutory rate from 34% to 35%.

EXTRAORDINARY ITEM. In 1993, Coltec incurred extraordinary charges of $17.8
million in connection with debt refinancings and the early retirement of debt.
This included $14.7 million from a debt refinancing completed in January 1994.
In 1992, Coltec incurred extraordinary charges of $105.3 million in connection
with the 1992 Recapitalization and $1.6 million from the early retirement of
debt.

YEAR ENDED DECEMBER 31, 1992, COMPARED WITH YEAR ENDED DECEMBER 31, 1991

In 1992, earnings before extraordinary item were $64.7 million, equal to
$1.11 per common share, compared with $2.2 million, or $0.09 per common share,
in 1991. The lower 1991 earnings reflected substantial interest expense, which
was reduced significantly by the 1992 Recapitalization. Giving pro forma effect
to the 1992 Recapitalization as if it had occurred on January 1, 1991, Coltec
would have reported earnings before extraordinary item for 1992 of $82.4
million, or $1.19 per common share, compared with earnings of $56.5 million, or
$0.82 per common share, in 1991. Operating income for 1992 increased 6% over
1991 on a slight decline in sales. Operating income was $243.1 million in 1992
on sales of $1,368.7 million, compared with operating income of $229.0 million
on sales of $1,373.0 million in 1991. Coltec's operating margin improved from
16.7% in 1991 to 17.8% in 1992. The 1992 results were achieved in spite of
continued reductions in defense spending and the slowdown in certain commercial
programs that unfavorably impacted the Aerospace/Government segment and resulted
in a 12% decline in Coltec's order backlog from the level at year-end 1991. Both
sales and operating income in the Aerospace/Government segment declined 7% in
1992; however, the segment maintained its 1991 operating margin of 19.5%.
Operating income for the Aerospace/Government segment in 1992 was $102.1 million
on sales of $523.7 million, compared with operating income of $109.6 million on
sales of $562.8 million in 1991. In the Automotive segment, operating income was
up 44% in 1992 on an 8% sales increase and segment operating margin improved to
21.1% from 15.9% in 1991. Segment operating income was $85.1 million and sales
were $402.6 million compared with operating income of $59.3 million and sales of
$372.6 million in 1991. This strong performance by the Automotive segment was
aided by increased new car and truck production, the introduction of new
automotive products having higher margins and recovering aftermarket sales. In
the Industrial segment, operating income increased 5% on a slight improvement in
sales and segment operating margin improved to 19.0% from 18.3% in 1991, despite
the lack of significant growth during 1992 in many of the markets served.
Operating income and sales for the Industrial segment were $84.4 million and
$443.8 million, respectively, in 1992. This compared with operating income and
sales of $80.2 million and $439.3 million, respectively, in 1991. The segment's
improved results were paced by the strong performances of Garlock Bearings and
Quincy Compressor. Following is a discussion of the results of operations for
the year ended December 31, 1992, compared with the year ended December 31,
1991.

SALES. For 1992, sales totaled $1,368.7 million, which was slightly lower
than the $1,373.0 million reported in 1991. In the Aerospace/Government segment,
sales declined 7% to $523.7 million compared with $562.8 million in 1991. The
sales decline was due to continued reductions in defense spending and
stretch-out of certain commercial programs. Lower sales at Menasco Aerosystems
were due primarily to a reduction in military spare parts sales and, to a lesser
extent, a reduction in commercial spare parts sales. This sales decline was
offset in part by increased shipments of landing gear systems for Lockheed
Corp.'s ("Lockheed") F-16 and Boeing 757 aircraft. Sales were down at Menasco
Aerospace reflecting a program stretch-out on the McDonnell Douglas MD-80
aircraft and lower spare parts sales. The weak economic condition of the airline
industry resulted in lower demand for landing gear overhaul services at Menasco
Overhaul. Walbar reported a decline in sales on lower shipments of compressor
blades and vanes to aircraft engine manufacturers for military applications.
Chandler Evans Control Systems reported lower sales of spare parts to both the
military and commercial markets; however, the division was able to offset this
sales decline with sales of new products. Higher sales at Delavan Gas Turbine
Products resulted from increased overhaul services and at Lewis Engineering from
improved pricing.

17
<PAGE>
Sales for the Automotive segment increased 8% to $402.6 million, reflecting
increased new car and truck production, the introduction of new automotive
products having higher margins and recovering aftermarket sales. Contributing to
the higher sales was the initial production of the LH car models manufactured by
Chrysler which use Holley throttle bodies and other fuel system components. All
divisions within the Automotive segment reported increased sales in 1992. Higher
sales at Holley Automotive were due to strong demand for transmission solenoids
and the introduction of new automotive products. At Coltec Automotive, shipments
of both mechanical air pumps and oil pumps were above 1991 levels. In addition,
tooling and prototype sales were higher. In 1992, Coltec Automotive began
initial shipments of oil pumps into the European automotive market. The sales
increase at Holley Replacement Parts was due to improved pricing and higher
volume for remanufactured and performance carburetors resulting from increased
market penetration. The sales improvement at Stemco Truck Products was due to
selected price increases and to an increase in shipments of wheel lubrication
systems to the original equipment market. Farnam Sealing Systems reported higher
sales on the introduction of new engine and transmission products.

Industrial segment sales of $443.8 million were slightly higher in 1992.
Sales were up significantly at Garlock Bearings on increased demand for DU
bearings from the automotive market and new applications for DX bearings. Sales
were higher at Quincy Compressor on increased demand for reciprocating and
rotary screw air compressors and from improved pricing. The Sterling Die and
Haber Tool operations benefited from increased sales to the automotive market.
At Delavan Commercial Products, sales of fuel spray nozzles were up to the home
heating market, reflecting cooler weather in the Northeast and higher sales to
Europe and Japan, and to the industrial market, reflecting increased
pollution-control applications. Sales were down at Central Moloney due to lower
pricing and reduced volume, attributable to a falloff in demand for transformers
related to a decline in housing starts. Due to weak market conditions in 1992,
Garlock Mechanical Packing reported sales declines in Canada and Mexico and in
its hydraulic components, compression packing and mechanical seals product
lines. These declines were offset in part by increased sales of industrial
sealing and gasketing products, price increases and new product sales. Lower
sales were also reported in 1992 by France Compressor Products.

COST OF SALES. Cost of sales decreased 2% in 1992 reflecting the lower
sales volume in the Aerospace/ Government segment, reductions in work force and
benefits realized from manufacturing efficiencies and cost-reduction programs.
As a percent of sales, cost of sales declined to 69.0% from 70.4% in 1991.

SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense,
including other income and expense, increased 2% in 1992. Selling and
administrative expense for 1992 reflected a $3.5 million reduction in insurance
cost compared with a $6.5 million reduction in 1991. These reductions were
realized from the sale of stock in a company formed in 1986 to provide insurance
coverage then largely unavailable. The increase in 1992 selling and
administrative expense was offset in part by higher license fee receipts
received by Menasco Aerosystems in 1992. As a percent of sales, selling and
administrative expense was 13.2% in 1992 compared to 12.9% in 1991.

INTEREST AND DEBT EXPENSE, NET. Net interest expense declined $64.1
million, or 32%, in 1992. Included in 1991 was substantial interest expense that
was reduced significantly by the 1992 Recapitalization.

PROVISION FOR INCOME TAXES. The effective income tax rates were 39.7% and
92.8% for 1992 and 1991, respectively. The lower effective rate for 1992
reflected a lower tax cost to repatriate non-U.S. earnings and no adverse effect
of unutilized operating losses as a result of higher income for 1992.

EXTRAORDINARY ITEM. In 1992, Coltec incurred extraordinary charges of
$105.3 million in connection with the 1992 Recapitalization, primarily for
premiums, expenses and write-off of deferred financing costs from early
retirement of debt, and $1.6 million from the write-off of deferred financing
costs from early retirement of debt and from a debt refinancing. In 1991, Coltec
recognized an extraordinary gain of $.6 million resulting from the purchase of
its debentures.

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<PAGE>
DISCONTINUED OPERATIONS

On March 22, 1990, Coltec sold substantially all of the assets of Colt
Firearms to the parent company of Colt's Manufacturing Company, Inc.
(collectively with its parent company, "Colt's Manufacturing"), a company formed
by a group of private investors, for cash and certain securities of Colt's
Manufacturing. At December 31, 1993, Coltec's investment in Colt's Manufacturing
was fully reserved.

On March 18, 1992, Colt's Manufacturing filed a petition for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code, and on January
19, 1993, the Official Committee of Unsecured Creditors of Colt's Manufacturing
Company, Inc. filed a fraudulent conveyance action against Coltec and other
defendants. Coltec believes that it has adequately provided for any liabilities
Coltec may incur with respect to Colt's Manufacturing and accordingly does not
believe that the Chapter 11 filing or the associated financial condition of
Colt's Manufacturing or the fraudulent conveyance action will have a material
effect on Coltec's results of operations and financial condition.

LIQUIDITY AND FINANCIAL POSITION

On April 1, 1992, Coltec completed the 1992 Recapitalization, which included
a public offering of its Common Stock, two long-term debt offerings and a new
bank financing arrangement. The 1992 Recapitalization reduced aggregate
indebtedness, refinanced a substantial portion of remaining indebtedness on more
favorable terms and improved Coltec's operating and financial flexibility. On
November 18, 1993, Holdings became a wholly owned subsidiary of Coltec as a
result of a reorganization that resulted in the exchange by the Holdings
shareholders of their shares of common stock of Holdings for 24,830,000 shares
of common stock of Coltec (the "1993 Holdings Reorganization"), constituting
35.5% of the shares of Common Stock outstanding after the exchange. Immediately
before this exchange, Holdings owned 35.7%, or 25,000,000 shares, of the Common
Stock of Coltec.

Funds from operations continue to be the main source of financing for
Coltec's businesses and for repaying its debt. In 1993, cash provided by
operating activities was $105.2 million compared with $119.9 million in 1992 and
$149.2 million in 1991. The lower cash from operations in 1993 was due primarily
to increased working capital requirements. In addition to the $105.2 million of
cash generated in 1993, Coltec received $26.7 million of cash in the 1993
Holdings Reorganization. These funds were used to reduce indebtedness by $92.1
million and invest $38.6 million in capital expenditures. As a result of an
agreement with one of its insurance carriers, Coltec began collecting in the
third quarter of 1993 its receivable from insurance carriers for asbestos
product liability claims and related litigation costs. Included in current
receivables at December 31, 1993 was $35.8 million due from insurance carriers.
Excluding this amount, receivables increased 2% to $125.7 million at December
31, 1993 and receivable days outstanding were 36 compared with 35 days at
year-end 1992. Inventories of $167.8 million at December 31, 1993, were slightly
higher than at year-end 1992, and inventory turnover was 4.76 times in 1993
compared with 4.83 times in 1992. Cash and cash equivalents at December 31,
1993, were $5.7 million compared with $7.2 million at December 31, 1992. Working
capital at December 31, 1993, was $163.1 million and the current ratio was 1.83.
This compares with working capital of $95.3 million and a current ratio of 1.39
at December 31, 1992. The increase in working capital results from the
receivable from insurance carriers and the reduction in current maturities of
long-term debt, reflecting the debt refinancing completed in January 1994.

At December 31, 1993, total debt was $1,033.6 million compared with $1,122.1
million at December 31, 1992. During 1993, Coltec redeemed $50.0 million of its
11-1/4% debentures and refinanced $15.1 million of its 9-7/8% industrial revenue
bonds with like bonds having interest rates of 6.4% to 6.55%. The 1994 Credit
Agreement, which expires June 30, 1999, has resulted in reducing Coltec's
mandatory debt repayments over the next five years by approximately $120.0
million and will result in lower interest cost in future years. The 1994 Credit
Agreement also provides up to $100 million for issuance of letters of credit and
will be reduced by $50.0 million on both January 11, 1997 and 1998. On January
11, 1994, borrowings of $324.0 million were outstanding and letters of credit of
$43.6 million were issued under the 1994 Credit Agreement leaving $47.4 million
available for additional borrowings and the issuance of letters of credit. The
1994 Credit Agreement was used to prepay borrowings outstanding and replace
letters of credit issued under the 1992 Credit Agreement. The remaining balance
of the 1994 Credit Agreement will be used for working capital and

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<PAGE>
general corporate purposes. Coltec's loan agreements contain various
restrictions and conditions, with which Coltec is in compliance. See
"Description of Certain Indebtedness". Management believes that cash generated
from operations and borrowings available under the 1994 Credit Agreement will be
adequate to meet Coltec's operating needs, planned capital expenditures and debt
service requirements for the next several years.

The negative balance in shareholders' equity of $625.5 million at December
31, 1993 compares with a negative balance of $666.6 million at year-end 1992.
The $41.1 million increase in equity during 1993 reflects $47.4 million of net
earnings, $2.8 million of amortization of unearned compensation related to
restricted shares and $.2 million of proceeds and tax benefits from the exercise
of stock options and the expiration of restrictions on restricted stock, offset
by a $4.2 million minimum pension liability, a $3.6 million reduction in foreign
currency translation adjustments, and $1.5 million of expenses incurred in
connection with the 1993 Holdings Reorganization.

Other assets at December 31, 1993, were $87.9 million or $41.7 million less
than the balance at year-end 1992. This reduction results from the write-off of
deferred financing cost as a result of the refinancing of the 1992 Credit
Agreement and from the increase in amounts currently due from insurance
carriers. Other liabilities increased $52.5 million during 1993 to $132.4
million at December 31, 1993. This increase results from recognition of a
minimum pension liability, the assumption of liabilities in connection with the
1993 Holdings Reorganization and a reserve for environmental and product
liability claims, established from proceeds to be received from insurance
settlements. The $46.4 million in liabilities of discontinued operations at
December 31, 1993, represented reserves to cover total future estimated costs of
the disposition of Crucible Materials Corporation, the steelmaking facility in
Midland, Pennsylvania, and Colt Firearms.

CAPITAL EXPENDITURES

Capital expenditures were $38.6 million in 1993 compared to $25.0 million in
1992 and $26.2 million in 1991, as Coltec continues to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production and maintain facilities. The level of capital expenditures has
and will vary from year to year, affected by the timing of capital spending for
new production equipment for new products, periodic plant and facility expansion
as well as cost reduction and labor efficiency programs. Capital expenditures
during 1993 included construction of a manufacturing facility in Greenwood,
South Carolina, for Walbar Metals; consolidation of landing gear production at
the Ft. Worth, Texas facility of Menasco Aerosystems, and production equipment
to manufacture a new oil pump at Coltec Automotive. At December 31, 1993, Coltec
had $14.9 million of planned capital expenditures that included $4.7 million for
a new landing gear overhaul facility in Ontario, Canada, and $1.7 million for
consolidation of administrative offices and distribution operations of Holley
Replacement Parts at Bowling Green, Kentucky.

ENVIRONMENTAL

Coltec, in the ordinary course of conducting its business, is subject to
numerous federal, state and local environmental laws and is a potentially
responsible party under the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended, or similar state laws, in connection with
alleged contamination at several sites. Coltec's annual expenditures (including
capital expenditures) relating to environmental matters over the three years
ended December 31, 1993 ranged from $4 million to $6 million, and Coltec expects
such expenditures to range from $8 million to $11 million in each of 1994 and
1995. Coltec does not believe that costs for environmental matters will have a
material effect on Coltec's results of operations and financial condition.

20
<PAGE>
ASBESTOS LITIGATION

With respect to asbestos product liability and related litigation costs, in
1993 two subsidiaries of Coltec received approximately 27,400 new lawsuits, with
a comparable number of lawsuits received in 1992 and 1991. The subsidiaries made
payments with respect to asbestos liability and related costs aggregating $38.7
million in 1993, $39.8 million in 1992 and $48.4 million in 1991, substantially
all of which were covered by insurance.

As of December 31, 1993, certain actions had been settled on a group basis
with payments to be made to individual plaintiffs over periods of one to four
years. In addition, in accordance with Coltec's internal procedures for the
processing of asbestos product liability actions and due to the proximity to
trial or settlement, certain outstanding actions have progressed to a stage
where Coltec can reasonably estimate the cost to dispose of these actions.
Coltec estimates that the aggregate remaining cost of the disposition of the
foregoing settled actions and actions in advanced stages of processing,
including associated legal costs, is approximately $52.6 million and expects
that this cost will be substantially covered by insurance.

As of December 31, 1993, the two subsidiaries were among a number of
defendants in approximately 68,500 actions, including approximately 6,100
actions in advanced stages of processing as described above. As of December 31,
1992, the number of outstanding actions approximated that as of December 31,
1993. The remaining 62,400 outstanding actions as of December 31, 1993 are in
preliminary procedural stages. Coltec lacks sufficient information upon which
judgments can be made as to the validity or ultimate disposition of such
actions, thereby making it difficult to estimate with reasonable certainty the
liability or costs to Coltec. When asbestos actions are received they are
typically forwarded to local counsel to ensure that the appropriate preliminary
procedural response is taken. The complaints typically do not contain sufficient
information to permit a reasonable evaluation as to their merits at the time of
receipt, and in jurisdictions encompassing a majority of the outstanding actions
the practice has been that little or no discovery or other action is taken until
several months prior to the date set for trial. Accordingly, Coltec generally
does not have the information necessary to analyze the actions in sufficient
detail to estimate the ultimate liability or costs to Coltec, if any, until the
actions appear on a trial calendar. A determination to seek dismissal, to
attempt to settle or to proceed to trial is typically not made prior to the
receipt of such information.

It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted that, with
respect to recently settled actions or actions in advanced stages of processing,
the mix of the injuries alleged and the mix of the occupations of the plaintiffs
are changing from those traditionally associated with Coltec's asbestos-related
actions. Coltec is not able to determine with reasonable certainty whether this
trend will continue. Based upon the foregoing, and due to the unique factors
inherent in each of the actions, including the nature of the disease, the
occupation of the plaintiff, the presence or absence of other possible causes of
a plaintiff's illness, the availability of legal defenses, such as the statute
of limitations or state of the art, and whether the lawsuit is an individual one
or part of a group, management is unable to estimate with reasonable certainty
the cost of disposing of outstanding actions in preliminary procedural stages or
of actions that may be filed in the future. However, Coltec believes that it is
in a favorable position compared to many other defendants because, among other
things, the asbestos fibers in its asbestos-containing products were
encapsulated. Considering the foregoing, as well as the experience of Coltec and
other defendants in asbestos litigation, the likely sharing of judgments among
multiple responsible defendants, and the significant amount of insurance
coverage that Coltec expects to be available from its solvent carriers, Coltec
believes that pending and reasonably anticipated future actions are not likely
to have a material effect on Coltec's results of operations and financial
condition.

21
<PAGE>
to be recorded in 1994 will relate only to settled actions and actions in
advanced stages of processing, which approximated $52.6 million as of December
31, 1993. Coltec does not expect that the adoption of Interpretation No. 39 will
have a material effect on Coltec's results of operations and financial
condition.

OTHER FINANCIAL INFORMATION

PRO FORMA RESULTS OF OPERATIONS

Giving pro forma effect to the 1992 Recapitalization as if it had occurred
on January 1, 1991, Coltec would have reported earnings before extraordinary
item as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1992 1991
-------- --------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
---------------------
<S> <C> <C>
Earnings before interest, income taxes and extraordinary item.... $243.1 $230.4
Interest and debt expense, net................................... 116.7 117.6
Provision for income taxes....................................... 44.0 56.3
-------- --------
Earnings before extraordinary item............................... $ 82.4 $ 56.5
-------- --------
Earnings per common share
before extraordinary item(a).................................... $1.19 $.82
-------- --------
<FN>
- ---------
(a) Pro forma earnings per common share before extraordinary item by quarter
would have been $0.22, $0.33, $0.29 and $0.35 for the first, second, third
and fourth quarters of 1992, respectively; and $0.15 $0.23, $0.29 and $0.15
for the like quarters of 1991.
</TABLE>

EFFECT OF INFLATION

Inflation has not had a major impact on the operations of Coltec during the
past three years. Coltec generally has been able to offset the effects of
inflation with price increases, cost-reduction programs and operating
efficiencies.

IMPACT OF NEW ACCOUNTING STANDARDS

Coltec adopted Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", and No. 109,
"Accounting for Income Taxes", effective January 1, 1993; and No. 112,
"Employers' Accounting for Postemployment Benefits", effective January 1, 1994.
The adoption of these standards did not have a material effect on Coltec's
results of operations and financial condition.

Based on preliminary analyses, Coltec does not expect that the future
adoption of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan", and No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", will have a material effect on Coltec's results of
operations and financial condition.

22
<PAGE>
BUSINESS

GENERAL

Coltec's strategy is to develop and maintain substantial market positions
and attractive margins for its products through technological innovation, cost
efficiencies, product differentiation and quality. Coltec emphasizes targeted
development of highly engineered, high value-added components and systems
designed to meet specific customer requirements. This emphasis has enabled
Coltec to maintain close, interactive relationships with the major aircraft and
domestic automobile manufacturers and Coltec's principal industrial customers.
Through successful introduction of new products, cost reductions, productivity
improvements and selected divestitures, Coltec has consistently achieved strong
operating margins in its businesses. Coltec's average operating margin for the
period from 1989 to 1993 was 17.7% and the operating margins in 1992 and 1993
were 17.8% and 17.7%, respectively, excluding the effect of the 1993
restructuring charge. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Industry Segment Information". Coltec's
focus on aftermarket sales (representing 42% of total sales from 1989 to 1993)
in all of its segments contributes to Coltec's consistently strong operating
margins.

Coltec's Aerospace/Government segment has taken an aggressive approach in
responding to changing economic and market conditions. With reductions in
domestic military spending, Coltec has placed increasing emphasis on sales to
commercial aircraft and aircraft engine manufacturers. Coltec's
Aerospace/Government segment increased commercial sales as a percentage of total
sales from 48% in 1989 to 62% in 1993. In 1993, Aerospace/Government segment
sales declined 13%, primarily reflecting lower demand for new commercial
aircraft resulting from the excess capacity of the world airline fleets. The
Aerospace/Government segment's operating margin was 18.9% in 1993, excluding the
effect of the 1993 restructuring charge, compared to 19.5% in 1992. Coltec's
ability to maintain this operating margin for 1993 was particularly noteworthy
in light of weak industry conditions. In addition to producing landing gear for
various aircraft manufacturers, including Boeing and McDonnell Douglas, Coltec
has been awarded contracts to supply the main and nose landing gear for the
Boeing 777 aircraft. In 1993, Coltec delivered on schedule the first three main
and nose landing gear assemblies for the Boeing 777 aircraft. Production rates
and deliveries of Boeing 777 landing gear shipsets are scheduled to accelerate
over the next several years. Coltec has been awarded a contract to supply main
landing gear for the Boeing 737-700 aircraft. Fairbanks Morse recently received
firm orders valued at $40 million for engines that will power the first ship of
the Sealift fleet and a U.S. Navy amphibious landing ship. In the first quarter
of 1994, Fairbanks Morse acquired equipment and other assets related to the Alco
engine business from GE Transportation.

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<PAGE>
oil pumps and a new electric emission control air pump. The Automotive segment
expanded its emission-control air pump business late in 1993 by acquiring the
assets of the air pump manufacturing operation of General Motors and was named
the sole supplier of these parts to General Motors. The Automotive segment is
the sole supplier of the aluminum intake manifold introduced in Chrysler's 3.5
liter engine on its LH series of vehicles, and Coltec has been selected as the
sole supplier of Chrysler's next-generation induction module systems for the 3.5
liter engine, which will incorporate a plastic intake manifold in 1998. In
addition, in 1993 Coltec's Automotive segment supplied approximately 15% of the
oil pump requirements of Ford in North America. In early 1994, Coltec Automotive
began supplying mechanical air pumps to Isuzu in both the United States and
Japan.

Coltec's Industrial segment continues to introduce technologically advanced
products and develop more efficient ways of serving customers. In 1993, Garlock
Mechanical Packing introduced GYLON style 3540, a highly compressible,
chemically resistant gasket material that can be easily installed at chemical
plants, and, in order to serve end users more quickly, significantly streamlined
two production areas to reduce production times. The Quincy Compressor Division
broadened its business base by introducing a new vacuum pump and an air
compressor powered by natural gas. Delavan Commercial Products is gaining wide
market acceptance with the STOP-DRIP valve which reduces the pollution that
occurs in oil burners. Garlock Bearings is a leader in the production of
self-lubricating bearings and has further expanded into the automotive market
with several new applications for its products. Industrial segment operating
income and sales were down 6% and 2%, respectively, and the segment's operating
margin was 18.2% in 1993, excluding the 1993 restructuring charge. Excluding the
operating results of Central Moloney, which was sold in January 1994, operating
income for 1993 was down slightly from 1992 results, sales were up 2% and the
operating margin was 21.7%.

AEROSPACE/GOVERNMENT

Through its Aerospace/Government segment, Coltec is a leading manufacturer
of landing gear systems, engine fuel controls, turbine blades, fuel injectors,
nozzles and related components for commercial and military aircraft, and also
produces high-horsepower diesel engines for naval ships and diesel, gas and
dual-fuel engines for electric power plants. The divisions, principal products
and principal markets of the Aerospace/Government segment are as follows:

<TABLE>
<CAPTION>
DIVISION PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ---------------------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Menasco Aircraft landing gear systems and Commercial and military aircraft
components, flight control actuation manufacturers
systems and other aircraft components
Chandler Evans Control Systems Aircraft fuel pumps and control systems Aircraft engine manufacturers
Walbar Blades, vanes and discs for jet engines Aircraft engine manufacturers
Delavan Gas Turbine Products Fuel injectors, spraybars and other Aircraft engine manufacturers
components for gas turbine engines
Lewis Engineering Cockpit instrumentation and sensors Commercial and military aircraft
and engine manufacturers
Fairbanks Morse Engine Large engines powered by diesel fuel or U.S. Navy, electric utilities
natural gas
</TABLE>

24
<PAGE>
With reductions in domestic military spending, Coltec has placed an
increasing emphasis on sales by its Aerospace/Government segment to commercial
aircraft manufacturers. In addition to producing landing gear for various
Boeing, McDonnell Douglas and other aircraft, Coltec has been awarded a contract
to supply main landing gear for the Boeing 737-700 aircraft. In the case of
Coltec's successful bid to become the supplier of landing gear for the Boeing
777 aircraft, Coltec developed and delivered the first landing gear set ahead of
schedule in August 1993. Coltec has also been successful in increasing its
penetration of the commercial aircraft engine market, including the commuter
aircraft and general aviation markets, through its Chandler Evans Control
Systems, Walbar and Delavan Gas Turbine Divisions. See "Aerospace Controls",
"Aircraft Engine Components" and "Gas Turbine Products" below.

In most of the divisions in this segment, Coltec is a leading manufacturer
in the markets it services and has focused its efforts on manufacturing quality
products involving a high engineering content or proprietary technology. In many
cases in which Coltec developed components for use in a specific aircraft,
Coltec has become the primary source for replacement parts and, in some cases,
service for these products in the aftermarket. Many of the programs for which
Coltec has been awarded a contract or for which Coltec has been selected as a
manufacturer are subject to termination or modification. See "-- Contract
Risks".

LANDING GEAR SYSTEMS

Coltec, through its Menasco Aerosystems and Menasco Overhaul Divisions and
its Canadian subsidiary, Menasco Aerospace Ltd. (collectively referred to as
"Menasco"), designs, manufactures and markets landing gear systems, parts and
components for medium-to-heavy commercial aircraft and for military aircraft and
provides spare parts and overhaul services for these products. Menasco is one of
the leading suppliers of landing gear for medium-to-heavy commercial and
military aircraft. It also designs and manufactures aircraft flight control
actuation systems and is a team leader in a flight control systems research and
development program directed toward the design, validation and implementation of
advanced "fly-by-wire/ fly-by-light" flight control technology. Landing gear,
including components, parts, and overhaul services for landing gear, accounted
for approximately 87% of Menasco's sales and 11% of Coltec's sales during 1993.
For the years 1993, 1992 and 1991, commercial sales accounted for 62%, 73% and
70%, respectively, of Menasco's total sales.

Menasco has been awarded contracts to supply the main and nose landing gear
for the Boeing 777 aircraft. Delivery of landing gear for the Boeing 777
aircraft commenced in 1993. Boeing has announced that 147 firm orders and
options for an additional 108 of its 777 aircraft have been placed as of
December 31, 1993. Menasco has been selected to replace a competitor as the
supplier of the main landing gear for the Fokker Fo-100 aircraft as well as to
supply the main landing gear and flight controls for the Fokker Fo-70. Menasco
has supplied most of the flight controls for the Fo-100 since this aircraft was
introduced. Other commercial programs for which Menasco is currently producing
landing gear and flight controls include the main and nose landing gear for the
Boeing 757 aircraft, the main landing gear for the Boeing 737 aircraft, the nose
landing gear for the Boeing 767 aircraft, the main landing gear for the
McDonnell Douglas MD-80/90 aircraft, the flight controls for the Canadair RJ-601
aircraft and the landing gear components for the A-320 and A-330/340 aircraft
manufactured by Airbus Industrie ("Airbus").

Menasco is supplying the main and nose landing gear for the Taiwanese
Indigenous Defense Fighter being built for the Taiwanese government and is
developing the main and nose landing gear for the Lockheed/Boeing F-22 Advanced
Tactical Fighter. Other military programs for which Menasco is currently
producing landing gear and flight controls include the main and tail landing
gear for the McDonnell Douglas AH-64 Apache helicopter, the nose landing gear
and flight controls for the McDonnell Douglas C-17 military transport, the main
and nose landing gear for the Lockheed F-16 and the Lockheed C-130 military
transport.

Landing gear and flight controls are designed for specific aircraft and
produced by a single manufacturer. Menasco has been the sole supplier of this
equipment for each program it has been awarded. The price of landing gear
constitutes up to approximately 2% of the total cost of an aircraft.

25
<PAGE>
Menasco joined with Messier-Bugatti for the development and production of
landing gear for the Boeing 777 and the Airbus 330/340 aircraft and has agreed
to cooperate on future ventures where appropriate, which may include Airbus and
McDonnell Douglas programs, although no major commercial programs are currently
formalized.

In addition to manufacturing and marketing aircraft landing gear and flight
controls, Menasco provides complete overhaul services on a worldwide basis for
landing gear and actuation systems through its overhaul facilities in the United
States and Canada.

In view of the relatively small number of medium-to-heavy aircraft
manufactures, Menasco's commercial sales of landing gear have historically been
concentrated among a limited number of purchasers, primarily Boeing, McDonnell
Douglas and Lockheed in the United States and Fokker in Europe.

The market for landing gear is highly competitive, with a small number of
airframe manufacturers evaluating potential suppliers based on design, price and
record of past performance. Menasco has made significant investments in
long-term marketing to promote working relationships with customers and to
enhance Menasco's engineering department's understanding of customer
requirements. Menasco believes it is this engineering expertise, together with
its record of on-time delivery, quality and price, which has made Menasco one of
the leading producers of medium-to-heavy aircraft landing gear worldwide.
Menasco's primary domestic competitors are the Cleveland Pneumatic Division of
The B.F. Goodrich Company and Bendix Brake and Strut Division of Allied-Signal
Inc. ("Allied-Signal"). Foreign competitors include Messier-Bugatti, Dowty of
England and Dowty Canada Ltd. The overhaul business has become increasingly
competitive. Menasco believes its competitive strengths in the overhaul business
include its name, which carries a reputation for quality and service.

Raw materials and finished products essential to Menasco's manufacturing
operations are available in sufficient quantity from various sources.

AEROSPACE CONTROLS

Coltec, through its Chandler Evans Control Systems Division ("Chandler
Evans"), manufactures a variety of aircraft engine fuel control systems and fuel
pumps and engine and aircraft components for the aerospace industry. Chandler
Evans' products are highly engineered and contain proprietary technology.
Principal customers for these products include gas turbine engine manufacturers,
aircraft manufacturers, domestic and foreign airlines, commercial fleet
operators and the military services. For the years 1993, 1992 and 1991,
commercial sales accounted for 67%, 71% and 63%, respectively, of Chandler
Evans' total sales.

Chandler Evans produces for sale to the commercial aircraft engine market
the main fuel pump for certain models of the General Electric CF-6 and CF-34
engines, both used on various commercial aircraft, and the Textron Lycoming
LF-507 engine used on the British Aerospace BAe 146 aircraft. Chandler Evans
also produces for sale to the military aircraft engine market the main fuel pump
for certain models of the United Technologies F-100 engine used on the McDonnell
Douglas F-15 aircraft, the main and afterburner fuel pumps for the General
Electric F-404 engine used on the McDonnell Douglas F-18 aircraft and the fuel
control systems for the Textron Lycoming T-53 engine used on the Bell UH-1
Utility and Cobra attack helicopters. The main and afterburner pump for the
GE-414 engine is currently in development. Except for the General Electric CF-6
and the United Technologies F-100 (for which different manufacturers supply
components for specific engine versions having different thrust), Chandler Evans
is the sole source of the pumps and fuel control systems that it supplies for
the engine programs described above.

Chandler Evans was selected to develop and manufacture a full authority
digital electronic control ("FADEC") for the Allison 250 engine. Delivery of
this system is scheduled to begin in late 1994. Also, Chandler Evans has
developed a FADEC for the T800-LHT helicopter engine, a joint venture of Allison
Engine Company and Allied-Signal Garrett, which has commercial and military
applications. Chandler Evans is likely to remain the sole source of these
components for the life of these programs.

26
<PAGE>
Chandler Evans also supports its products with aftermarket sales of spare
units, parts and overhaul service. For the year 1993, 52% of Chandler Evans'
revenues were attributable to the aftermarket. Aftermarket sales are very
significant, since proprietary programs allow Chandler Evans to realize
favorable operating margins.

Chandler Evans competes with Argo-Tech Corp. and the Aviation Division of
Sundstrand Corporation in fuel pumps and with the Bendix Control Division of
Allied-Signal and the Hamilton Standard Division of United Technologies
Corporation in fuel controls. Due to the highly engineered, proprietary nature
of its products, Chandler Evans maintains a substantial portion of aftermarket
sales, with competition limited to a small number of imitation parts
manufacturers.

AIRCRAFT ENGINE COMPONENTS

Coltec, through its Walbar Inc subsidiary and its Canadian subsidiary,
Walbar Canada Inc. (together referred to as "Walbar"), manufactures turbine
components, compressor airfoils, and turbine and compressor rotating parts
primarily for aircraft gas turbine engines and, to a lesser extent, for
land-based, marine and industrial gas turbine applications, and performs
services including repairs and protective coatings for these products. Coltec
believes that Walbar is one of the leading independent manufacturers of blades,
impellers and rotating components for jet engines. Although Walbar does not
typically design the products it manufactures, its manufacturing processes are
highly sophisticated.

Walbar manufactures products for commercial engines, including the Pratt &
Whitney 100 used on the deHavilland Dash 8, Alenia ATR 40 and Alenia ATR 72
aircraft, the Pratt & Whitney 200 used on the McDonnell Douglas Helicopter MDX,
the Pratt & Whitney 300 used on the British Aerospace BAe 1000 aircraft, the
Pratt & Whitney PT6 used on various commercial and military aircraft, and the
Garrett Auxiliary Power Units used on various commercial aircraft. Walbar's
original equipment and replacement components are also utilized in a number of
other commercial aircraft, including the Boeing 727, 737, 747, 757, and 767; the
Airbus A300, A310 and A320; and the McDonnell Douglas DC-8, DC-9, DC-10 and
MD-80. Walbar's blades, vanes and discs are employed on many of the leading
models of turboprop, business jet and commuter aircraft currently in service.
Walbar supplies a number of different compressor and turbine blades for the new
Allison 3007/2100/T406 engine family. These engines are designed for use on
several business and regional commuter aircraft and also have military
applications. Targeting the commuter aircraft market is part of Walbar's
strategy of emphasizing the production of turbine engine components for
commercial aircraft applications. Turbine blades for Rolls Royce engines are
produced for commercial and military aircraft. For the years 1993, 1992 and
1991, commercial sales accounted for approximately 85%, 74% and 60%,
respectively, of Walbar's total sales.

Walbar manufactures products for military engines, including the General
Electric F-404 used on the McDonnell Douglas F-18 aircraft, the General Electric
F-110 used on the Grumman F-14 aircraft, the McDonnell Douglas F-15 aircraft and
Lockheed F-16 aircraft, the GE LM 2500 used on the U.S. Navy's Spruance class
destroyers, the Textron Lycoming AGT 1500 used on the U.S. Army's M-1 Abrams
main battle tank, the Volvo RM12 engine for the SAAB JAS39 aircraft and Turbo
Union RB199 engine for the Panavia Tornado aircraft.

Walbar's market has become increasingly competitive over the past several
years as airlines have sought to limit parts inventories and defense procurement
has been reduced. Although Walbar does not typically design its own products,
management believes that its highly sophisticated applied manufacturing
technology, responsive production capabilities and focus on cost reduction have
made Walbar one of the leading independent manufacturers of blades, impellers
and rotating components for jet engines. Chromalloy American Corporation and
Howmet Turbine Components Corporation provide competition in all aspects of this
industry. In addition, Walbar's principal customers possess, in varying degrees,
integrated production capacity for producing and servicing the components that
Walbar supplies.

27
<PAGE>
GAS TURBINE PRODUCTS

Coltec, through its Delavan Inc subsidiary operating as the Delavan Gas
Turbine Products Division ("Delavan"), manufactures highly engineered fuel
injectors, spraybars and other components for commercial and military aircraft
gas turbine engines. Coltec believes that Delavan is the leading producer of
these products for small-to-medium size aircraft engines. These products are
made to design specifications using sophisticated production processes and are
marketed directly to engine manufacturers pursuant to production contracts. The
principal customers include General Electric Company, Allied-Signal Engines,
Pratt & Whitney Canada Inc., Textron Lycoming and the Allison Engine Company.
Delavan also supports its products with aftermarket sales of spare units and
overhaul services. For the years 1993, 1992 and 1991, commercial sales accounted
for 69%, 58% and 66%, respectively, of Delavan's total sales. The market for
Delavan products is considered highly competitive. Competitive pressure is
focused on price at the manufacturing level and on service and price in the
aftermarket segment. Coltec believes that Delavan has achieved its leading
position as a supplier of fuel injectors, spraybars and other components to
producers of small-to-medium size aircraft engines due essentially to superior
product performance, development support and a leadership role in the use of
computer modeling in the design of nozzles. Delavan competes worldwide with
Textron Fuel Systems Division of Textron Inc. and Parker-Hannifin Corporation.

AIRCRAFT INSTRUMENTATION

Coltec, through its Lewis Engineering Operation, designs, develops and
produces electro-mechanical and electronic instrumentation for aircraft cockpits
and temperature sensors for aircraft and engine systems. Lewis competes with
several manufacturers of aircraft instruments.

ENGINES

Coltec, through Fairbanks Morse, manufactures and markets large, heavy-duty
diesel, gas and dual-fuel engines and parts for such engines. Fairbanks Morse
manufactures engines in conventional "V" and in-line opposed piston
configurations which are used as power drives for compressors, large pumps and
other industrial machinery, for marine propulsion and for stationary and marine
power generation. Engines are offered from 4 to 18 cylinders, ranging from 640
to 29,320 horsepower. Such products are sold in the domestic market primarily
through regional sales offices and field sales engineers and in foreign markets
through the domestic sales network and foreign sales representatives. Parts are
sold primarily through factory and regional sales offices. Approximately 50% of
Fairbanks Morse's sales are for replacement parts and service for Fairbanks
Morse engines.

Large heavy-duty diesel engines are sold to the U.S. Navy and Coast Guard
and to electric utilities, municipal power plants, oil and gas producers, firms
engaged in ship and tug operations, offshore drilling activities and local,
state and federal governments.

Under a license agreement with Societe d'Etudes de Machines Thermiques, S.A.
groupe Alsthom, a French company, Fairbanks Morse has the right to manufacture
the Colt-Pielstick PC2 and PC4 lines of large diesel engines, which operate on
oil fuel (including heavy oil) and, in the case of the PC2, dual-fuel, and range
in size from 4,400 to 29,320 horsepower. Engines manufactured under this license
are used for primary power by electric utilities, standby power for nuclear
electric generating plants and ship propulsion.

Over the last several years, Fairbanks Morse has supplied each of the ships
in the U.S. Navy Landing Ship Dock ("LSD") program with four 16-cylinder PC2.5
engines, each delivering 8,500 horsepower for main propulsion, and four
12-cylinder opposed piston engines for shipboard power generation. The LSD ships
hold amphibious craft and troops for close deployment in emergencies. Engines
for 11 LSD and LSD Cargo Variant ships have been delivered and engines for one
additional ship are scheduled for delivery in 1995. Another major program for
Fairbanks Morse is the TAO fleet oiler program. These ships are powered by two
10-cylinder PC4.2 engines, each delivering 16,290 horsepower. A total of 15
ships of this series have been ordered by the U.S. Navy. Engines for 14 ships
have been delivered and the remaining shipset is in production. Fairbanks Morse
has also received a firm order to produce four 10-cylinder PC4.2 engines for the
first new ship in the nation's Sealift Program with options for an additional
five to eight ships. The four engines for the first ship are scheduled to be
delivered in 1995. If the options are converted to firm orders by the U.S. Navy,
four engines would be delivered each year beginning in 1996.

28
<PAGE>
Contracts are awarded in the heavy-duty diesel engine market based on price
and successful operation in similar applications. Coltec attributes its strong
position in this market to its history as a supplier to the U.S. Navy in a
variety of propulsion and generator set applications and its ability to meet the
U.S. Navy's military specification requirements. Management believes that
Fairbanks Morse and its primary competitor, the Cooper-Bessemer Reciprocating
Division of Cooper Industries, Inc., lead the field of four domestic
manufacturers serving the market for heavy-duty diesel engines in power ranges
from 5,000 to 30,000 horsepower. Fairbanks Morse competes with six domestic
manufacturers in the medium speed (1,000 to 5,000 horsepower) engine market,
dominated by General Motors and Caterpillar Inc., and with several foreign
manufacturers. Numerous domestic and foreign manufacturers compete in the under
1,500 horsepower engine market.

In the first quarter of 1994, Fairbanks Morse acquired equipment and other
assets related to the Alco engine business from GE Transportation. Under the
terms of the agreement, Fairbanks Morse will manufacture and sell engines and
aftermarket parts for Alco diesel engines used in power plants and marine
markets. GE Transportation will retain the rights to sell and market Alco
engines and aftermarket parts for its locomotive markets. Fairbanks Morse has
been issued a preferred supplier contract to manufacture these engines and parts
for General Electric's locomotive needs. Fairbanks Morse expects to begin
producing Alco engines and aftermarket parts in April 1994.

AUTOMOTIVE

Coltec's Automotive segment manufactures and markets a selected line of high
value-added products, including fuel injection system assemblies and components,
transmission controls, suspension controls, emission control air pumps, oil
pumps and seals for domestic original equipment manufacturers and the
replacement parts market. The divisions, principal products and principal
markets of the Automotive segment are as follows:

<TABLE>
<CAPTION>
DIVISION PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ---------------------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Holley Automotive Fuel injection components, transmission Automotive manufacturers
controls and suspension controls
Coltec Automotive Air pumps and oil pumps Automotive manufacturers
Holley Replacement Parts New and remanufactured replacement and Automotive manufacturers, wholesale
performance carburetors and electronic distributors and retailers in
fuel injection components replacement markets
Farnam Sealing Systems Gaskets and seals Automotive industry
Stemco Truck Products Oil seals, exhaust systems and Fleet truck operators and truck parts
hubodometers distributors
Performance Friction Products Synchronizers and clutch plates Automotive and truck manufacturers
</TABLE>

Coltec's principal automotive products have strong brand name recognition.
Coltec has targeted the development of highly engineered components for fuel
injection systems, transmission controls, suspension controls and air and oil
pumps. By forming close, interactive relationships with the domestic automotive
manufacturers, Coltec has taken advantage of a shift by these manufacturers from
internal sourcing to procurement of components from outside suppliers.

29
<PAGE>
AUTOMOTIVE PRODUCTS

Coltec, through its Holley Automotive Division, designs and manufactures
fuel injection components, electrohydraulic control devices for transmissions
and suspensions, transmission modulators and other automotive products used in
passenger cars and trucks. Holley has been recognized for its engineering
excellence and has strategically changed its structure and product line to
accommodate the evolving automotive market. These products are sold directly to
original equipment manufacturers, Chrysler, Ford and General Motors.

Holley currently produces all the multi-point throttle bodies used on
Chrysler imported 3.0 liter engines and the Chrysler-manufactured 3.3 liter
engines. These six-cylinder engines propel the LeBaron Convertible, Shadow,
Sundance and Acclaim, as well as the Minivan. Holley also is the sole source of
the upper intake module and throttle body for the Chrysler 3.5 liter engine used
on the Chrysler LH mid-size sedans (the Chrysler Concorde, Dodge Intrepid and
Eagle Vision) and also the Chrysler New Yorker and LHS.

In the non-fuel area, significant business has been established in
transmission control devices. Holley supplies high volumes of aneroid and
non-aneroid modulators to the General Motors Powertrain Division. Holley has
expanded its design capabilities to include electronic solenoids for automatic
transmission control. Holley's first electronic transmission solenoid
application was introduced by Chrysler in 1989. Applications were expanded to
Saturn in 1991, and to Ford and General Motors in 1992 with additional
applications for Ford for the 1994 model year. Holley has increased design and
manufacturing capabilities further in development and sales of suspension
solenoids to a major suspension manufacturer selling to Ford.

Coltec, through its Coltec Automotive Division, produces a mechanical air
pump that supplies additional air to the exhaust system which enhances the
oxidation process and reduces pollutants emitted into the atmosphere. Coltec
Automotive is the sole independent domestic supplier of automotive mechanical
air pumps. Major customers are Ford and Chrysler and, with the acquisition of
the assets of the General Motors air pump manufacturing business, Coltec
Automotive will become the sole source of these components to General Motors'
North American operations. Coltec Automotive has also developed an advanced
electric air pump designed to cope with increasingly stringent emission
standards. In early 1994, Coltec Automotive began supplying mechanical air pumps
to Isuzu for use in its Rodeo and Trooper sport utility models and one of its
truck models. Coltec expects to ship approximately 30,000 air pumps a year to
Isuzu, half for the Japanese market and half for the U.S. market.

Coltec Automotive has also developed a line of engine oil pumps for use in
many of Ford's cars and light trucks. Applications have expanded to Ford's
Modular and Zetec engines.

Coltec, through its Holley Replacement Parts Division, manufactures and
markets fuel injection components and other fuel metering devices and controls
such as intake manifolds, electric fuel pumps, emission control devices, and
engine and road speed governors, new and remanufactured automotive and marine
carburetors, remanufactured automotive air conditioning compressors, carburetor
parts and repair kits, mechanical fuel pumps, valve covers and related engine
components under the Holley name. Holley carburetors and components are used in
domestic and foreign vehicles and marine engines and are sold directly to
original equipment manufacturers, principally Chrysler, Ford, General Motors and
Outboard Marine Corporation, and, through distributors and mass merchandisers to
the parts and replacement market.

In the domestic market, this segment competes principally with Ford, General
Motors and several independent manufacturers. To date, Coltec has not been a
significant supplier to foreign vehicle manufacturers.

TRUCK PRODUCTS AND SEALING SYSTEMS

Coltec, through its Stemco Inc subsidiary operating as the Stemco Products
Division ("Stemco"), is one of the leading domestic manufacturers of wheel
lubrication systems for heavy-duty trucks. Stemco also

30
<PAGE>
produces mileage recording devices (hubodometers) and exhaust systems for the
heavy-duty truck, medium-duty truck and school bus markets and manufactures
moisture ejectors and other related products for vehicle and stationary air
systems. Approximately 80% of Stemco's revenues are derived from replacement
parts. Stemco, thorough its Performance Friction Products Operation,
manufactures a line of asbestos-free fluorocarbon friction materials, a line of
carbon-based friction materials and synchronizers and clutch plates for
transmissions, transfer cases and wet brakes for use in trucks, off highway
equipment and passenger cars. Coltec, through its Farnam Sealing Systems
Division, manufactures and markets automotive and industrial gaskets, seals and
other sealing system products for engines, fuel systems and transmissions.
Stemco's truck products and Coltec's sealing systems include highly engineered
proprietary products.

INDUSTRIAL

In the Industrial segment, Coltec, through its Garlock Inc subsidiary
("Garlock"), is a leading manufacturer of industrial seals, gaskets, packing
products and self-lubricating bearings and, through its Delavan-Delta, Inc.
subsidiary, is a producer of technologically advanced spray nozzles for
agricultural, home heating and industrial applications. Coltec also produces air
compressors for manufacturers. The divisions, principal products and principal
markets of the Industrial segment are as follows:

<TABLE>
<CAPTION>
DIVISION PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ---------------------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Garlock Mechanical Packing Seals, gaskets, packings and expansion Chemical, pulp and paper, utilities and
joints industrial manufacturers
Garlock Valves & Industrial Plastics Valves, PTFE sheet and tape Chemical and industrial manufacturers
France Compressor Products Compressor valves and seals Compressor manufacturers and users
Garlock Bearings Self-lubricating metal-backed bearings Industrial and automotive manufacturers
and materials
Delavan Commercial Products Industrial, agricultural and heating Agricultural operations, oil burner
unit spray nozzles manufacturers and replacement market
Ortman Fluid Power Hydraulic and pneumatic cylinders Industrial manufacturers
Haber and Sterling Cold-forming dies and thread-rolling Fastener and automotive manufacturers
dies
FMD Electronics Electronic ignition systems and level Industrial manufacturers
control instruments
Quincy Compressor Helical screw and reciprocating air Manufacturing and oil and gas industries
compressors
</TABLE>

Coltec's Industrial segment manufactures and markets a wide range of
products for use in various industries. In this segment, Coltec's strategy has
involved developing high quality products, capitalizing on brand name
recognition, targeting specific, well-defined markets and building good
distribution systems.

In January 1994, Coltec sold its Central Moloney Transformer Division.

SEALS, PACKINGS AND GASKETING MATERIAL

Coltec, under the Garlock name, is a leading manufacturer of industrial
seals, gasketing material and gasket assemblies and packing products. Through
its France Compressor Products Division of Garlock ("France"), Coltec
manufactures and markets rod packings, piston rings, valves and components for
reciprocating gas and air compressors used primarily in the hydrocarbon
processing industry. These products withstand high temperature, corrosive
environments, prevent leakage and exclude contaminants from rotating and
reciprocating machinery and seal joints.

31
<PAGE>
Manufacturing processes involve plastics, rubbers, metals, textiles,
chemicals, aramid fibers, carbon fibers, or a combination of the same. Garlock
has been a leader in using advancements in materials technology to develop new
products, including its GYLON line of products, and in converting to asbestos-
free products. Approximately 95% of the gasketing and packing materials
currently manufactured by Garlock worldwide are asbestos-free. Because the raw
materials for Garlock's products are widely available, the seals, gasketing
materials and packings business of Garlock is not dependent on a limited number
of suppliers.

Garlock's seals, gasketing material and packings are marketed through sales
personnel, sales representatives, agents and distributors to numerous industrial
customers involved principally in the petroleum, steel, chemical, food
processing, power generation and pulp and paper industries.

Most seals, gasketing material and packings wear out during the life of the
product in which they are incorporated. Accordingly, the service and replacement
market for these products is significant. In 1993, the service and replacement
market accounted for approximately 80% of Garlock's sales of seals, gasketing
material and packings.

Manufacturers in this market compete on the basis of price and aftermarket
services. Garlock's extensive distribution network, and its leadership in
product development, have contributed to the establishment of what Coltec
believes to be its leading position in the market for seals, gasketing products
and packings. France believes it is a leading supplier of premium components in
the aftermarket, where it competes primarily with C. Lee Cook and Cook Manley,
subsidiaries of Dover Corporation, and Hoerbinger Corporation of America Inc.

BEARINGS, VALVES, PLASTICS, NOZZLES, CYLINDERS, FORMING TOOLS, IGNITION
SYSTEMS AND LEVEL CONTROLS

Coltec, through Garlock, is a leading manufacturer of steel-backed and
fiberglass-backed self-lubricating bearings and bearing materials primarily for
the automotive, truck, agricultural and construction markets. Garlock also
manufactures polytetrafluoroethylene ("PTFE") lined butterfly and plug valves
and components and PTFE tapes.

Coltec, through its Delavan-Delta, Inc. subsidiary operating as the Delavan
Commercial Products Division, manufactures and markets spray nozzles and
accessories for the agricultural, industrial and home heating markets. These
products are sold to original equipment manufacturers, distributors and other
end-users throughout the world.

Coltec, through Garlock's Ortman Fluid Power operation, manufactures
hydraulic and pneumatic cylinders in bore diameter sizes from 1-1/2 to 24
inches. Coltec, under the Sterling and Haber names, manufactures and markets a
wide variety of metal cutting and metal forming tools. Sales of these products
are primarily made directly to consumers. Competition for such products is
provided by numerous companies.

Coltec, through its FMD Electronics operation, manufactures magnetos,
ignition systems and level control instruments. These products are sold to
original equipment manufacturers and through factory and regional sales forces
to various accounts for resale.

AIR COMPRESSORS

Coltec, through its Quincy Compressor Division ("Quincy"), manufactures and
markets reciprocating and helical screw air compressors and vacuum pumps.
Helical screw air compressors are manufactured and sold under a non-exclusive
license and technical assistance agreement with Svenska Rotor Maskiner
Aktiebolaget, a Swedish licensor.

Reciprocating and helical screw air compressors have a wide range of
industrial applications, providing compressed air for general plant services,
pneumatic climate and instrument control, dry-type sprinkler systems, air loom
weaving, paint spray processes, diesel and gas engine starting, pressurization,
pneumatic tools and other air-actuated equipment. Engine-driven skid-mounted
models of helical screw air compressors are used in energy related services,
such as air-assisted deep-hole drilling, both on offshore drilling platforms and
in tertiary recovery schemes involving on-site combustion approaches. Quincy air
compressors

32
<PAGE>
are marketed through a well-developed distribution network consisting of field
sales personnel and distributors to original equipment manufacturers located in
major industrial centers throughout the United States, Canada, Mexico and the
Pacific Rim.

In the domestic market for small, industrial and reciprocating air
compressors, management believes that Ingersoll-Rand is the major competitor,
with Champion Pneumatic Machinery Co., Inc. and the Campbell-Hausfeld division
of Scott Fetzer as other competitors. In the domestic market for helical screw
air compressors, management believes that Ingersoll-Rand and Sullair are the
dominant competitors, with Gardner-Denver Division of Cooper Industries, Inc.
and Atlas Copco Corporation as other competitors.

INTERNATIONAL OPERATIONS

Coltec's international operations, mainly in Canada, are conducted through
foreign-based manufacturing or sales subsidiaries, or both, and by export sales
from domestic divisions to unrelated foreign customers. Export sales of products
of the Automotive segment and diesel engines are made either directly or through
foreign representatives. Compressors are sold through foreign distributors.
Certain products of the Industrial segment are sold in foreign countries through
salesmen and sales representatives or sales agents.

Coltec's manufacturing and marketing activities in Canada are carried on
through subsidiaries. Menasco Aerospace Ltd., an indirect wholly owned
subsidiary of Coltec, manufactures landing gear systems and aircraft flight
controls and provides overhaul service for Canadian and other customers. Walbar
Canada Inc., a wholly owned subsidiary of Walbar, manufactures jet engine
compressor blades, vanes and turbine components in Canada. Garlock of Canada
Ltd., a wholly owned subsidiary of Garlock, manufactures and markets seals,
gasketing material, packings and truck products. It also markets parts for
Fairbanks Morse diesel engines and accessories as well as other products for use
in Canada and for export to other countries.

Through wholly owned or majority controlled foreign subsidiaries, Coltec
operates 15 plants in Canada, Mexico, France, the United Kingdom, Australia and
Germany. In addition, Coltec occupies leased office and warehouse space in
various foreign countries.

Devaluations or fluctuations relative to the United States dollar in the
exchange rates of the currency of any country where Coltec has foreign
operations could adversely affect the profitability of such operations in the
future.

For financial information on operations by geographic segments, see Note 11
of the Notes to Financial Statements appearing elsewhere in this Prospectus.

Coltec's contracts with foreign nations for delivery of military equipment,
including components, are subject to deferral or cancellation by United States
Government regulation or orders regulating sales of military equipment abroad.
Any such action on the part of the United States Government could have a
material effect on Coltec's results of operations and financial condition.

SALES TO THE MILITARY AND BY CLASS OF PRODUCTS

Sales to the military and other branches of the United States Government,
primarily in the Aerospace/ Government segment, were 14%, 15% and 16% of total
Coltec sales in 1993, 1992 and 1991, respectively. During the last three fiscal
years, landing gear systems was the only class of similar products that
accounted for at least 10% of total Coltec sales. In 1993, 1992 and 1991, sales
of landing gear systems constituted 11%, 12% and 14%, respectively, of total
Coltec sales.

BACKLOG

At December 31, 1993, Coltec's backlog of firm unfilled orders was $669.7
million compared with $709.1 million at December 31, 1992. Of the $669.7 million
backlog at December 31, 1993, approximately $255.2 million is scheduled to be
shipped after 1994.

CONTRACT RISKS

Coltec, through its various divisions, primarily Menasco, Chandler Evans,
Walbar and Delavan Gas Turbine Products, produces products for manufacturers of
commercial aircraft pursuant to contracts that generally call for deliveries at
predetermined prices over varying periods of time and that provide for

33
<PAGE>
termination payments intended to compensate for certain costs incurred in the
event of cancellation. In addition, certain commerical aviation contracts
contain provisions for termination for convenience similar to those contained in
United States Government contracts described below. Longer-term agreements
normally provide for price adjustments intended to compensate for deferral of
delivery depending upon market conditions.

A significant portion of the business of Coltec's Menasco, Chandler Evans,
Walbar and Delavan Gas Turbine Products divisions has been as a subcontractor
and as a prime contractor in supplying products in connection with military
programs. Substantially all of Coltec's government contracts are firm
fixed-price contracts. Under firm fixed-price contracts, Coltec agrees to
perform certain work for a fixed price and, accordingly, realizes all the
benefit or detriment occasioned by decreased or increased costs of performing
the contracts. From time to time, Coltec accepts fixed-price contracts for
products that have not been previously developed. In such cases, Coltec is
subject to the risk of delays and cost over-runs. Under United States Government
regulations, certain costs, including certain financing costs, portions of
research and development costs, and certain marketing expenses related to the
preparation of competitive bids and proposals, are not allowable. The Government
also regulates the methods under which costs are allocated to Government
contracts. With respect to Government contracts that are obtained pursuant to an
open bid process and therefore result in a firm fixed price, the Government has
no right to renegotiate any profits earned thereunder. In Government contracts
where the price is negotiated at a fixed price rather than on a cost-plus basis,
as long as the financial and pricing information supplied to the Government is
current, accurate and complete, the Government similarly has no right to
renegotiate any profits earned thereunder. If the Government later conducts an
audit of the contractor and determines that such data were inaccurate or
incomplete and that the contractor thereby made an excessive profit, the
Government may take action to recoup the amount of such excessive profit, plus
treble damages, and take other enforcement actions.

United States Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for default of the
contractor. Fixed-price-type contracts provide for payment upon termination for
items delivered to and accepted by the Government, and, if the termination is
for convenience, for payment of the contractor's costs incurred plus the costs
of settling and paying claims by terminated subcontractors, other settlement
expenses, and reasonable profit on its costs incurred. However, if a contract
termination is for default, (a) the contractor is paid such amount as may be
agreed upon for completed and partially-completed products and services accepted
by the Government, (b) the Government is not liable for the contractor's costs
with respect to unaccepted items, and is entitled to repayment of advance
payments and progress payments, if any, related to the terminated portions of
the contracts, and (c) the contractor may be liable for excess costs incurred by
the Government in procuring undelivered items from another source.

In addition to the right of the Government to terminate, Government
contracts are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds on a fiscal-year basis even
though contract performance may take many years. Consequently, at the outset of
a major program, the contract is usually partially funded, and additional monies
are normally committed to the contract by the procuring agency only as
appropriations are made by Congress for future fiscal years.

A substantial portion of Coltec's automotive products are sold pursuant to
the terms and conditions (including termination for convenience provisions) of
the major domestic automotive manufacturers' purchase orders, and deliveries are
subject to periodic authorizations which are based upon the production schedules
of such automotive manufacturers.

RESEARCH AND PATENTS

Most divisions of Coltec maintain staffs of manufacturing and product
engineers whose activities are directed at improving the products and processes
of Coltec's operations. Manufactured and development products are subject to
extensive tests at various divisional plants. Total research and development
cost, including product development, was $22.1 million for 1993, $22.9 million
for 1992 and $23.8 million for 1991. Coltec presently has approximately 370
employees engaged in research, development and engineering activities.

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<PAGE>
Coltec owns a number of United States and other patents and trademarks and
has granted licenses under some of such patents and trademarks. Management does
not consider the business of Coltec as a whole to be materially dependent upon
any patent, patent right or trademark.

EMPLOYEE RELATIONS

As of December 31, 1993, Coltec had approximately 10,000 employees, of whom
approximately 4,000 were salaried. Approximately 40% of the hourly employees are
represented by unions for collective bargaining purposes. Union agreements
relate, among other things, to wages, hours and conditions of employment, and
the wages and benefits furnished are generally comparable to industry and area
practices.

Nine collective bargaining agreements covering approximately 2,500 hourly
employees which expired in 1993 have been renegotiated. In 1994, four collective
bargaining agreements covering approximately 400 hourly employees are due to
expire. Coltec considers the labor relations of Coltec to be satisfactory,
although Coltec does experience work stoppages from time to time.

Coltec is subject to extensive Government regulations with respect to many
aspects of its employee relations, including increasingly important occupational
health and safety and equal employment opportunity matters. Failure to comply
with certain of these requirements could result in ineligibility to receive
Government contracts. These conditions are common to the various industries in
which Coltec participates and entail the risk of financial and other exposure.

PROPERTIES

Coltec operates 60 manufacturing plants in 21 states and in Canada, Mexico,
France, the United Kingdom, Australia and Germany. In addition, Coltec has other
facilities throughout the United States and in various foreign countries, which
include sales offices, repair and service shops, light manufacturing and
assembly facilities, administrative offices and warehouses.

Certain information with respect to Coltec's principal manufacturing plants
that are owned in fee, all of which (other than Palmyra, New York) are
encumbered pursuant to the 1994 Credit Agreement between Coltec and certain
banks and related security documents, is set forth below:

<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF APPROXIMATE
SEGMENT LOCATION SQUARE FEET ACREAGE
- ------------------------------ ------------------------------ ----------- -----------
<S> <C> <C> <C>
Aerospace/ Government West Hartford, Connecticut (a) 1,200,000 111
Beloit, Wisconsin 856,000 73
Burbank, California (b) 472,000 19
Ft. Worth, Texas 324,000 43
Oakville, Ontario 213,000 14
Mississauga, Ontario 153,000 10
Automotive Bowling Green, Kentucky (c) 456,000 60
Longview, Texas 265,000 52
Sallisaw, Oklahoma 220,000 53
Industrial Palmyra, New York 696,000 121
<FN>
- ---------
(a) Approximately 239,000 square feet are utilized by the Aerospace/Government
segment with the balance leased, available for lease or available for sale.
(b) During 1994, the Burbank, California facility will be closed and production
of landing gear will be consolidated at the Ft. Worth, Texas and Oakville,
Ontario facilities.
(c) Approximately 352,000 square feet are utilized by the Automotive segment
with the balance available for sale.
</TABLE>

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<PAGE>
In addition to the above facilities, certain manufacturing activities of
some industry segments are conducted within leased premises, the largest of
which is approximately 173,000 square feet. The Automotive segment has
significant manufacturing facilities on leased premises in Water Valley,
Mississippi (lease expires in 1994) and Longview, Texas (lease expires in 1997).
The Industrial segment has leased facilities located in Quincy, Illinois (lease
expires in 1998). Some of these leases provide for options to purchase or to
renew the lease with respect to the leased premises.

Coltec's total manufacturing facilities currently being utilized aggregate
approximately 6,500,000 square feet of floor area, of which approximately
5,800,000 square feet of area are owned in fee and the balance is leased.

Coltec leases approximately 39,000 square feet at 430 Park Avenue, New York,
New York, for its executive offices, and has renewal options under such lease
through 2001.

In the opinion of management, Coltec's principal properties, whether owned
or leased, are suitable and adequate for the purposes for which they are used
and are suitably maintained for such purposes.

36
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of Coltec are set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ---------------------------------------------
<S> <C> <C>
David I. Margolis.............. 64 Chairman of the Board of Directors, Chief
Executive Officer and Director
John W. Guffey, Jr............. 56 President, Chief Operating Officer and
Director
Paul G. Schoen................. 49 Executive Vice President, Finance, Treasurer
and Chief Financial Officer
Anthony J. diBuono............. 63 Executive Vice President, Secretary and
General Counsel
Laurence H. Polsky............. 50 Executive Vice President, Administration
John M. Cybulski............... 57 Senior Vice President, Aerospace
Richard L. Dashnaw............. 57 Senior Vice President, Group Operations
James J. McHugh................ 64 Vice President, Labor Relations
J. Bradford Mooney, 63 Director
Jr.(a)(b).....................
Joel Moses(a)(b)............... 52 Director
Salvatore J. Cozzolino......... 69 Director
Andrew C. Hilton............... 65 Director
Donald P. Brennan(a)........... 53 Director
Frank V. Sica.................. 43 Director
Howard I. Hoffen(a)............ 30 Director
<FN>
- ---------
(a) Member of the Stock Option and Compensation Committee.
(b) Member of the Audit Committee.
</TABLE>

Mr. Margolis has been Chairman of the Board, Chief Executive Officer and a
Director of Coltec since prior to 1989. He was also President of Coltec from
prior to 1989 until May 1991. He also currently serves as a director of
Burlington Industries, Inc. Mr. Margolis has been employed by Coltec for the
past 31 years.

Mr. Guffey has been President and Chief Operating Officer of Coltec since
May 1991 and a Director since 1991. From prior to 1989 until May 1991, he served
as Group President of Coltec and President of the Garlock Mechanical Packing
Division. Mr. Guffey has been employed continuously by Coltec for the past nine
years and for a total of 15 of the last 21 years, including two years by Garlock
prior to its acquisition by Coltec.

Mr. Schoen has been Executive Vice President, Finance, Treasurer and Chief
Financial Officer of Coltec since January 1994. From May 1991 until December
1993, he was Senior Vice President, Finance, Treasurer and Chief Financial
Officer of Coltec. He served as Senior Vice President and Controller of Coltec
from January 1991 until May 1991 and as Vice President--Accounting from prior to
1989 until December 1990. Mr. Schoen has been employed by Coltec for the past 20
years.

Mr. diBuono has been Executive Vice President, Secretary and General Counsel
of Coltec since January 1994. From prior to 1989 until December 1993, he served
as Senior Vice President, Secretary and General Counsel of Coltec. Mr. diBuono
has been employed by Coltec for the past 25 years.

Mr. Polsky has been Executive Vice President, Administration of Coltec since
January 1994. From April 1992 until December 1993, he served as Senior Vice
President, Administration of Coltec. He was Vice President, Personnel for Cooper
Industries, Inc., an industrial manufacturing company, from prior to 1989 until
April 1992.

37
<PAGE>
Mr. Cybulski has been Senior Vice President, Aerospace of Coltec since May
1991. He served as Group President of Coltec from March 1989 until May 1991 and
served as President of Menasco Aerospace Ltd., a subsidiary of Coltec, from
prior to 1989 until June 1991. Mr. Cybulski has been employed by Coltec for the
past 13 years.

Mr. Dashnaw has been Senior Vice President, Group Operations of Coltec since
January 1994. He served as Group President of Coltec from February 1991 until
December 1993 and has served as President of Fairbanks Morse Engine Division
since prior to 1989. Mr. Dashnaw has been employed by Coltec for the past seven
years.

Mr. McHugh has served as Vice President, Labor Relations of Coltec since
prior to 1989. Mr. McHugh has been employed by Coltec for the past 14 years.

Mr. Mooney is a Rear Admiral (retired) in the U.S. Navy. From January 1989
until March 1992, he served as President and Managing Director of Harbor Branch
Oceanographic Institution, Inc., a marine research organization. He has also
been a consultant in ocean engineering and research management since his
retirement from the U.S. Navy in September 1987.

Mr. Moses has been Dean of the School of Engineering, and D.C. Jackson
Professor of Computer Science and Engineering, at Massachusetts Institute of
Technology ("MIT"), since January 1991. He was head of the Department of
Electrical Engineering and Computer Science of MIT from prior to 1989 until
August 1989. He was a Visiting Professor at the Harvard Graduate School of
Business Administration from September 1989 until June 1990. He is also a
director of Analog Devices, Inc.

Mr. Cozzolino has been a Director of Coltec since prior to 1989. From May
1991 until January 1994, he served as Vice Chairman of the Board of Directors of
Coltec and from prior to 1989 until May 1991, he was Executive Vice President
and Treasurer of Coltec. Mr. Cozzolino retired from his position as Vice
Chairman in January 1994.

Dr. Hilton has been a Director of Coltec since prior to 1989. From May 1991
until January 1994, he served as Vice Chairman of the Board of Directors of
Coltec and from prior to 1989 until May 1991, he was an Executive Vice President
of Coltec. Dr. Hilton retired from his position as Vice Chairman in January
1994.

Mr. Brennan has been a Managing Director of Morgan Stanley since 1984 and is
a member of its Management Committee. He is responsible for Morgan Stanley's
Merchant Banking Division and is Chairman, President and a director of MSLEF II,
Inc., Morgan Stanley Equity Investors Inc. and Morgan Stanley Capital Partners
III, Inc. Mr. Brennan also serves as a director of Coltec, Agricultural Minerals
and Chemicals Inc., Agricultural Minerals Corporation, A/S Bulkhandling,
Beaumont Methanol Corporation, Container Corporation of America, Fort Howard
Corporation, Hamilton Services Limited, Jefferson Smurfit Corporation, PSF
Finance Holdings Inc., SIBV/MS Holdings, Inc., Shuttleway and Stanklav Holdings,
Inc. Mr. Brennan is Deputy Chairman and a director of Waterford Wedgwood plc and
a director of Waterford Wedgwood U.K. plc.

Mr. Sica has been a Managing Director of Morgan Stanley since 1988 and is a
director of MSLEF II, Inc., Morgan Stanley Equity Investors Inc. and Morgan
Stanley Capital Partners III, Inc. He also serves as a director of Coltec, ARM
Financial Group, Inc., Consolidated Hydro, Inc., EMMIS Broadcasting Corporation,
Fort Howard Corporation, Integrity Life Insurance Company, Interstate Natural
Gas Company, Kohl's Corporation, National Integrity Life Insurance Company,
PageMart, Inc., Southern Pacific Rail Corporation and Sullivan Communications,
Inc.

Mr. Hoffen has been a Vice President of Morgan Stanley, MSLEF II, Inc.,
Morgan Stanley Equity Investors Inc. and Morgan Stanley Capital Partners III,
Inc. since January 1994. From September 1989 until January 1994, he was an
Associate of Morgan Stanley. Mr. Hoffen also serves as a director of Coltec,
Amerin Guaranty Corporation and Interstate Natural Gas Company.

The Board of Directors intends to nominate Messrs. Margolis, Guffey, Schoen,
Mooney and Moses for election as Directors at the 1994 Annual Meeting of
Shareholders (the "1994 Annual Meeting"). The Board

38
<PAGE>
also intends to nominate another person having no affiliation with Coltec for
election to the Board at the 1994 Annual Meeting. Messrs. Cozzolino and Hilton
will not be nominated for reelection to the Board. Upon the completion of the
Offering, Messrs. Brennan, Sica and Hoffen will resign from the Board and will
not be nominated for reelection to the Board.

Following the completion of the Offering, and if the Board's nominees are
elected as Directors at the 1994 Annual Meeting, Coltec anticipates that
thereafter the Board will appoint Messrs. Mooney and Moses as the members of the
Audit Committee and the Stock Option and Compensation Committee. In addition,
following the completion of the Offering, and if the Board's nominees are
elected as Directors at the 1994 Annual Meeting, Coltec anticipates that as soon
as practicable thereafter an additional director having no other affiliation
with Coltec will be appointed to the Board with the result that the Board would
then be comprised of a majority of members having no other affiliation with
Coltec.

39
<PAGE>
SELLING STOCKHOLDERS

Set forth below is certain information concerning the ownership, as of
February 25, 1994, of the Common Stock, and as adjusted to give effect to the
sale of the Shares offered hereby, by each Selling Stockholder and by all
directors and executive officers of Coltec as a group.

<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE THE OFFERING AFTER THE OFFERING
--------------------- SHARES --------------------
NUMBER OF BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ---------------------------------------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
The Morgan Stanley Leveraged
Equity Fund II, L.P.(a)
1251 Avenue of the Americas,
New York, NY 10020 14,898,000 21.4 % 14,898,000 -- --
Colt Equity Investors, L.P.(b)
1251 Avenue of the Americas,
New York, NY 10020 1,641,263 2.4 1,641,263 -- --
Morgan Stanley Group Inc.
1251 Avenue of the Americas,
New York, NY 10020 2,535,143 3.6 2,535,143 -- --
Mellon Bank, N.A., as trustee for
First Plaza Group Trust
One Mellon Bank Center,
Pittsburgh, PA 15258 1,695,889 2.4 1,695,889 -- --
Leeway & Co.
c/o State Street Bank and Trust Company
Master Trust Division
One Enterprise Drive,
North Quincy, MA 02171 1,695,889 2.4 1,695,889 -- --
Salvatore J. Cozzolino 465,916(c) * 372,450 93,466 *
Andrew C. Hilton 465,916(d) * 372,450 93,466 *
All directors and executive officers as
a group (13 persons) 1,706,092(e) 2.4 0 1,706,092(e) 2.4
<FN>
- ---------
* Represents less than 1% of class.
(a) MSLEF II, Inc. is the sole general partner of MSLEF II and is a wholly
owned subsidiary of Morgan Stanley Group.
(b) Morgan Stanley Equity Investors Inc. is the sole general partner of Colt
Equity Investors, L.P. and is a wholly owned subsidiary of Morgan Stanley
Group.
(c) Includes options to purchase 66,000 shares of Common Stock exercisable
within 60 days. Mr. Cozzolino, a Director of Coltec, retired as Vice
Chairman in January 1994.
(d) Includes options to purchase 66,000 shares of Common Stock exercisable
within 60 days. Dr. Hilton, a Director of Coltec, retired as Vice Chairman
in January 1994.
(e) Includes options to purchase 384,000 shares of Common Stock exercisable
within 60 days and 23,626 shares held by the trustee for the Coltec
Retirement Savings Plan for Salaried Employees. Excludes any shares of
Common Stock beneficially owned by Mr. Cozzolino or Dr. Hilton.
</TABLE>

40
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Coltec's authorized capital stock consists of 100 million shares of Common
Stock, par value $.01 per share, and 2.5 million shares of preferred stock, par
value $.01 per share ("Preferred Stock"). The following summary description of
the capital stock of Coltec does not purport to be complete and is qualified in
its entirety by reference to Coltec's Restated Articles of Incorporation, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, and Pennsylvania corporate law. See "Additional
Information".

COMMON STOCK

Subject to the prior rights of any series of Preferred Stock that may from
time to time be authorized and outstanding, holders of Common Stock are entitled
to receive dividends out of funds legally available therefor when, as and if
declared by the Board of Directors and to receive pro rata the net assets of
Coltec legally available for distribution upon liquidation or dissolution.
Holders of Common Stock are entitled to one vote for each share of Common Stock
held on each matter submitted to a vote of shareholders, including the election
of directors. All outstanding shares of Common Stock are fully paid and
nonassessable.

PREFERRED STOCK

The Board of Directors has the authority to issue the Preferred Stock in one
or more classes or series and to fix the voting powers, preferences and relative
participating, optional or other special rights, without any further vote or
action by the shareholders. The ability of the Board of Directors to issue
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of Coltec. Coltec has
no current plans to issue any of the Preferred Stock.

CERTAIN PROVISIONS OF THE RESTATED ARTICLES OF INCORPORATION AND BY-LAWS

The Restated Articles of Incorporation provide that any action required or
permitted to be taken by the shareholders of Coltec may be effected only at an
annual or special meeting of shareholders, and prohibits shareholders' action by
written consent in lieu of a meeting. Coltec's By-laws provide that special
meetings of shareholders may be called only by the chairman or by a majority of
the members of the Board of Directors. Shareholders are not permitted to call a
special meeting or to require that the Board of Directors call a special meeting
of shareholders.

Coltec's By-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors or a committee
thereof, of candidates for election as directors as well as for other
shareholder proposals to be considered at shareholders' meetings. Notice of
shareholder proposals and director nominations must be timely given in writing
to the Secretary of Coltec prior to the meeting at which the matters are to be
acted upon or directors are to be elected. The notice must contain certain
information specified in Coltec's By-laws.

LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION

The Restated Articles of Incorporation provide for indemnification of
officers and directors of Coltec to the extent permitted by Pennsylvania law,
which generally permits indemnification for actions taken by officers or
directors as representatives of Coltec in good faith and in a manner reasonably
believed to be in or not opposed to Coltec's best interests, subject to certain
limitations.

In accordance with Pennsylvania law, the Restated Articles of Incorporation
and Coltec's By-laws contain provisions eliminating the personal liability of
directors to Coltec and its shareholders for monetary damages for breaches of
their fiduciary duties, except for breach of a director's duty to act with
statutorily defined due care and for a breach which constitutes self-dealing,
willful misconduct or recklessness. The applicable provisions of Pennsylvania
law pertain only to breaches of duty by directors as directors and not in any
other corporate capacity, including as officers. As a result of the inclusion of
such provisions, shareholders may be unable to recover monetary damages against
directors for actions taken by them which constitute negligence or gross
negligence or which are in violation of their fiduciary duties, although it may
be possible

41
<PAGE>
to obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have any effective remedy against the
challenged conduct.

STATUTORY PROVISIONS

On April 27, 1990, the Pennsylvania Business Corporation Law of 1988 (the
"BCL") was amended, among other things, to protect public companies from hostile
takeover attempts. Set forth below is a summary of significant anti-takeover
provisions of the BCL. Such provisions may delay, defer or prevent a takeover
attempt that a shareholder might consider to be in its best interest. As
indicated, and as permitted by the BCL, Coltec has elected not to be governed by
certain anti-takeover provisions.

STATUTORY PROVISIONS APPLICABLE TO COLTEC

BUSINESS COMBINATIONS (SUBCHAPTER 25-F). A public corporation may not
engage in any business combination with a 20% shareholder for five years
following the 20% acquisition unless: (a) the combination or the purchase of the
control shares was approved by the board of directors before the date that the
shareholder became an interested shareholder or (b)(i) the combination is
approved by the holders of a majority of the shares not controlled by the
interested shareholder at a special meeting held not less than three months
after the shareholder acquired an 80% voting stake, and the aggregate amount of
the offer meets certain fair price criteria or (ii) by unanimous vote. If the
combination was not previously approved, the 20% shareholder may effect a
combination after the five-year period only if the shareholder receives approval
from a majority of the shares not owned by the acquiror or the aggregate amount
of the offer meets certain fair price criteria.

FIDUCIARY OBLIGATIONS OF DIRECTORS (SECTIONS 1715 ET AL.). In discharging
their duties, directors may, in considering the best interests of the
corporation, consider (a) the effects of any action upon any or all groups
affected by such action, including shareholders, employees, suppliers, customers
and creditors of the corporation, and communities in which the corporation is
located, (b) the short-term and long-term interests of the corporation,
including the possibility that these interests may be best served by the
corporation's continued independence, (c) the resources, intent and conduct
(past, stated and potential) of any person seeking to acquire control and (d)
all other pertinent factors. Directors need not treat any corporate interest or
interests of any particular group affected by such action (e.g., shareholders)
as the dominant or controlling interest or factor.

STATUTORY PROVISIONS INAPPLICABLE TO COLTEC

CONTROL TRANSACTIONS (SUBCHAPTER 25-E). Any person who acquires the direct
or indirect power to control the vote of at least 20% of the outstanding voting
interests in a public corporation is required to pay any other shareholder who
exercises his rights under the BCL an amount equal to the fair value of the
voting shares held by such shareholder as of the date of the transaction
pursuant to which control of at least 20% voting interest was obtained.

CONTROL SHARE ACQUISITION (SUBCHAPTER 25-G). Subject to safe harbors for
certain acquiring persons, shareholder approval is required before a person who
acquires (or seeks to acquire) ownership or voting power over "control shares"
of a public corporation may vote the control shares. Control shares are defined
in terms of crossing any one of three specified thresholds of percentage
ownership of voting power (20%, 33 1/3% or 50%). The public corporation has the
right to redeem the control shares (at their market price at the time of
redemption) if the acquiror fails to obtain the approval of the remaining
shareholders or fails to complete the control transaction.

DISGORGEMENT OF PROFITS (SUBCHAPTER 25-H). Subject to safe harbors for
certain acquiring persons, disgorgement to the public corporation is mandated
for profits realized by a person or group that (a) acquires stock from the
public corporation itself or from the shareholders within two years before or 18
months after the person or group attempts to acquire 20% or more of a public
corporation's voting power, or publicly discloses that it is seeking to acquire
control of the public corporation and (b) then sells that stock within 18 months
after such an attempt or disclosure.

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<PAGE>
SEVERANCE PAY (SUBCHAPTER 25-I). Severance payments must be made to
employees of public corporations who are terminated within 24 months after a
control share acquisition approved by shareholders.

LABOR CONTRACTS (SUBCHAPTER 25-J). Labor contracts are preserved after a
control share acquisition approved by shareholders.

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summary of agreements governing the 1994 Credit Agreement and
certain other outstanding long-term indebtedness of Coltec does not purport to
be complete and is qualified in its entirety by reference to the various
agreements, copies of which have been filed, or incorporated by reference, as
exhibits to Coltec's Annual Report of Form 10-K for the fiscal year ended
December 31, 1993, which is incorporated by reference in this Prospectus.
Capitalized terms used but not defined herein have the meanings assigned to them
in the various agreements described.

1994 CREDIT AGREEMENT

Coltec has entered into the 1994 Credit Agreement among Coltec, the various
financial institutions named therein (the "Lenders"), Credit Lyonnais New York
Branch, the Bank of Montreal, The Industrial Bank of Japan, Limited, New York
Branch and The Bank of Nova Scotia, as Co-Agents thereunder, and Bankers Trust
Company, as Administrative Agent thereunder, pursuant to which the Lenders have
agreed, subject to certain conditions, to provide up to $415 million of
financing to Coltec under a revolving loan facility (the "Revolving Loan
Facility") from time to time until June 30, 1999. The 1994 Credit Agreement also
provides for the issuance of letters of credit in an aggregate amount of up to
$100 million under the Revolving Loan Facility; provided that at no time shall
the aggregate principal amount of loans outstanding, together with the aggregate
face amount of letters of credit issued, under the Revolving Loan Facility
exceed $415 million.

PREPAYMENTS AND COMMITMENT REDUCTIONS

The Revolving Loan Facility is subject to mandatory commitment reductions
and corresponding prepayments of $50 million on each of January 11, 1997 and
January 11, 1998. In addition, the 1994 Credit Agreement requires certain other
mandatory commitment reductions and corresponding prepayments from the net
proceeds of certain sales of assets and certain issuances of debt or equity
securities. The 1994 Credit Agreement also permits voluntary prepayments and
commitment reductions of the Revolving Loan Facility from time to time.

INTEREST

Loans under the 1994 Credit Agreement bear interest at an annual rate equal
to, at Coltec's option, (a) the Base Rate (as described below) or (b) the
Eurodollar Rate (as described below) plus 1.00%; PROVIDED that the Eurodollar
Rate may be reduced from time to time based on the achievement of specified
ratios of Coltec's EBIDTA to Interest Expense (as defined in the 1994 Credit
Agreement) and of certain ratings of Coltec's long-term unsecured indebtedness
by Standard & Poor's Rating Group and Moody's Investors Service, Inc. Interest
on Base Rate Loans is payable quarterly and interest on Eurodollar Rate Loans is
payable at the end of the relevant interest period (but not less often than
quarterly). The default rate of interest for all Loans is equal to the higher of
(a) the Base Rate applicable to such Loans plus 2.25% per annum and (b) the
Eurodollar Rate applicable to such Loans plus 2.00% per annum. The "Base Rate"
is the higher of (a) 1/2 of 1% in excess of the Federal Reserve reported
certificate of deposit rate and (b) the rate that Bankers Trust Company
announces as its prime lending rate, as in effect from time to time. The
"Eurodollar Rate" is the average of the quotations for one, two, three or
six-month London Interbank Offered Rate offered to first class banks in the New
York interbank Eurodollar market by Bankers Trust Company, adjusted for
statutory reserves at all times.

GUARANTEES

Amounts owed under or in respect of the 1994 Credit Agreement by Coltec are
guaranteed by each of the material domestic subsidiaries of Coltec, whether now
existing or hereafter acquired or organized.

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<PAGE>
SECURITY

All the obligations of Coltec under the 1994 Credit Agreement and the other
loan documents and under the interest rate protection agreements of Coltec
maintained with a Lender, and all the obligations of the subsidiaries of Coltec
guaranteeing the obligations of Coltec thereunder, are secured by (a) all the
common stock of each current or future material domestic subsidiary of Coltec
and 66% of the common stock of any current or future foreign subsidiary of
Coltec that is owned by Coltec or any of its domestic subsidiaries; (b)
substantially all the inventory, machinery and equipment, patents, trademarks
and other personal property of Coltec and its material domestic subsidiaries;
and (c) certain real estate and fixtures thereon owned by Coltec and its
material domestic subsidiaries.

COVENANTS

The 1994 Credit Agreement contains certain customary covenants, including
restrictive covenants that, subject to certain exceptions, impose limitations on
the ability of Coltec and its subsidiaries to, among other things: (a) create or
incur additional indebtedness or contingent obligations; (b) create or incur
additional liens; (c) merge with other entities; (d) dispose of a material
portion of their assets or acquire all or substantially all of the business or
assets of other entities; (e) invest in or make loans to other entities; (f)
enter into certain real property leases, operating leases or sale-leaseback
transactions; (g) pay dividends and redeem or repurchase capital stock; (h)
engage in certain transactions with affiliates; (i) pay, prepay, repurchase or
retire outstanding indebtedness; and (j) amend the terms of certain indebtedness
and other material agreements. The 1994 Credit Agreement also restricts the
maximum amount of capital expenditures that may be made by Coltec and its
subsidiaries in any fiscal year as follows: 1994--$50 million; 1995-- $55
million; 1996--$60 million; 1997--$65 million and 1998 and thereafter--$70
million; PROVIDED that Coltec and its subsidiaries may use up to $25 million of
any amount permitted to be made and remaining unutilized from any fiscal year in
the immediately succeeding fiscal year. In addition, the 1994 Credit Agreement
includes financial covenants requiring Coltec to maintain (a) a ratio of
Consolidated Current Assets to Consolidated Current Liabilities (in each case,
as defined in the 1994 Credit Agreement) of at least 1.25 to 1 at all times and
(b) an Interest Coverage Ratio (as defined in the 1994 Credit Agreement) for any
four fiscal quarter period ending on or prior to December 31, 1994 of at least
2.25 to 1 and for any four fiscal quarter period ending thereafter of at least
2.50 to 1.

EVENTS OF DEFAULT

The 1994 Credit Agreement contains customary events of default, including
but not limited to: (a) nonpayment of principal, interest, fees or other amounts
when due; (b) violation of covenants; (c) failure of any representation or
warranty to be true in all material respects when made; (d) cross-default and
cross-acceleration; (e) bankruptcy events; (f) material judgments rendered
against Coltec; (g) violation of certain ERISA provisions; (h) change of
control; and (i) invalidity of any loan document or security interest created
thereunder.

9 3/4% SENIOR NOTES DUE 1999 AND 9 3/4% SENIOR NOTES DUE 2000

The 9 3/4% Senior Notes Due 1999 (the "Senior Notes Due 1999") were issued
under an Indenture dated as of October 26, 1992 (the "Senior Notes Due 1999
Indenture"), between Coltec and United States Trust Company of New York, as
Trustee. The Senior Notes Due 1999 are unsecured senior obligations of Coltec,
mature on November 1, 1999, and bear interest at the rate of 9 3/4% per annum,
payable semiannually on May 1 and November 1 of each year. The 9 3/4% Senior
Notes Due 2000 (the "Senior Notes Due 2000") were issued under an Indenture
dated as of April 1, 1992 (the "Senior Notes Due 2000 Indenture"), between
Coltec and United States Trust Company of New York, as Trustee. The Senior Notes
Due 2000 are unsecured senior obligations of Coltec, mature on April 1, 2000,
and bear interest at the rate of 9 3/4% per annum, payable semiannually on April
1 and October 1 of each year. Neither the Senior Notes Due 1999 nor the Senior
Notes Due 2000 are redeemable prior to maturity.

The Senior Notes Due 1999 Indenture and the Senior Notes Due 2000 Indenture
each contain covenants that (a) limit, under certain circumstances, the ability
of Coltec and certain of its subsidiaries to incur additional indebtedness and
contingent obligations, enter into sale-leaseback transactions or grant liens;
(b) limit the ability of Coltec and certain of its subsidiaries to redeem or
reacquire, prior to any

44
<PAGE>
scheduled maturity, repayment or sinking fund payment any indebtedness of Coltec
that ranks PARI PASSU with or is subordinate in right of payment to the Senior
Notes Due 1999 or Senior Notes Due 2000, as the case may be, which is scheduled
to mature on or after the maturity date of the Senior Notes Due 1999 or Senior
Notes Due 2000, as the case may be, or pay dividends or make other distributions
on account of, or reacquire, any shares of any class of its capital stock; (c)
limit the investments which may be made by Coltec and certain of its
subsidiaries; (d) limit the ability of certain subsidiaries of Coltec to issue
capital stock in certain circumstances; (e) limit the ability of Coltec and
certain of its subsidiaries to engage in transactions with certain of Coltec's
affiliates; (f) limit the ability of Coltec to merge, consolidate or sell all or
substantially all its assets; (g) prohibit, subject to certain exceptions,
Coltec or certain of its subsidiaries from creating or permitting to exist any
consensual encumbrance or restriction on the ability of such subsidiaries to pay
dividends, repay certain indebtedness owed to Coltec or any such subsidiary
thereof or transfer assets to Coltec or certain of its subsidiaries; and (h)
require that the proceeds of certain sales of assets be used to make an offer to
repurchase the Senior Notes Due 1999 or Senior Notes Due 2000, as the case may
be.

11 1/4% DEBENTURES DUE 1996-2015

The 11 1/4% Debentures due 1996-2015 (the "Debentures") were issued under an
Indenture dated as of December 1, 1985 between Coltec and the Bank of New York
(as successor to Mellon Bank, N.A.), as trustee (the "1985 Indenture").

The Debentures are redeemable at Coltec's option, in whole or in part, from
time to time at redemption prices determined by year of redemption. Coltec may
not, however, effect the optional redemption prior to December 1, 1995, directly
or indirectly, from or in anticipation of borrowed funds having an annual
interest cost of less than 11 1/4%.

The 1985 Indenture contains, among others, covenants that restrict the
incurrence of secured debt and sale-leaseback transactions by Coltec and certain
of its subsidiaries. In connection with the consummation of the 1992
Recapitalization, Coltec's obligations under the 1985 Indenture and the
Debentures were secured, and any other indebtedness that Coltec may incur under
the 1985 Indenture will be secured, by certain assets of Coltec and its
subsidiaries equally and ratably, as and to the extent required by the 1985
Indenture, with Coltec's obligations under the 1994 Credit Agreement.

10 1/4% SENIOR SUBORDINATED NOTES DUE 2002

The 10 1/4% Senior Subordinated Notes Due 2002 (the "Subordinated Notes")
were issued under an Indenture dated as of April 1, 1992 (the "Subordinated Note
Indenture"), between Coltec and Norwest Bank Minnesota, National Association, as
Trustee. The Subordinated Notes are unsecured senior subordinated obligations of
Coltec, mature on April 1, 2002, and bear interest at the rate of 10 1/4% per
annum, payable semiannually on April 1 and October 1 of each year. The
Subordinated Notes are redeemable, in whole or in part, at Coltec's option, at
any time on or after April 1, 1997, at specified redemption prices (expressed in
percentages of principal amount), together with accrued interest to the
redemption date, starting at 105.125% of the principal amount and declining
thereafter.

The Subordinated Note Indenture contains covenants that (a) limit, under
certain circumstances, the ability of Coltec and certain of its subsidiaries to
incur additional indebtedness and contingent obligations or grant liens; (b)
limit the ability of Coltec and certain of its subsidiaries to redeem or
reacquire, prior to any scheduled maturity, repayment or sinking fund payment,
any indebtedness of Coltec that ranks PARI PASSU with or is subordinate in right
of payment to the Subordinated Notes, which is scheduled to mature on or after
the maturity date of the Subordinated Notes, or pay dividends or make other
distributions on account of, or reacquire, any shares of any class of its
capital stock; (c) limit the investments which may be made by Coltec and certain
of its subsidiaries; (d) prohibit the issuance by Coltec of any indebtedness
that is by its terms senior in right of payment to the Subordinated Notes and
subordinate to any "senior indebtedness" (as such term is defined in the
Subordinated Note Indenture) of Coltec; (e) limit the ability of Coltec and
certain of its subsidiaries to engage in transactions with certain of Coltec's
affiliates; (f) limit the ability of Coltec to merge, consolidate or sell all or
substantially all its assets; (g) prohibit, subject to certain exceptions,
Coltec or certain of its subsidiaries from creating or permitting to exist any
consensual encumbrance or

45
<PAGE>
restriction on the ability of such subsidiaries to pay dividends, repay certain
indebtedness owed to Coltec or any such subsidiary thereof or transfer assets to
Coltec or certain of its subsidiaries; and (h) require that the proceeds of
certain sales of assets be used to make an offer to repurchase the Subordinated
Notes.

The Subordinated Notes are subordinate in right of payment to all "senior
indebtedness" of Coltec, as such term is defined in the Subordinated Note
Indenture. As defined in the Subordinated Note Indenture, "senior indebtedness"
includes, among other things, indebtedness under the 1994 Credit Agreement, the
Senior Notes Due 1999, the Senior Notes Due 2000 and the Debentures.

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock. In general, a "Non-U.S.
Holder" is any person holding Common Stock other than (a) a citizen or resident
of the United States, (b) a corporation or partnership created or organized in
the United States or under the laws of the United States or of any State, or (c)
an estate or trust whose income is includible in gross income for United States
federal income tax purposes regardless of its source. The discussion is based on
current provisions of the Code, and administrative and judicial interpretations
of the Code as of the date hereof, all of which are subject to change, and is
for general information only. The discussion does not address aspects of federal
taxation other than income and estate taxation and does not address all aspects
of federal income and estate taxation. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S. Holder.
Accordingly, prospective investors are urged to consult their tax advisors
regarding the United States federal, state, local and non-U.S. income and other
tax consequences of holding and disposing of shares of Common Stock.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or any lower rate prescribed by an
applicable tax treaty) unless the dividends are (a) effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States,
and (b) if a tax treaty applies, attributable to a United States permanent
establishment maintained by the Non-U.S. Holder. Dividends effectively connected
with such a trade or business and, if applicable, attributable to such a
permanent establishment, will generally not be subject to withholding (if the
Non-U.S. Holder files certain forms with the payor of the dividend) and will
generally be subject to United States federal income tax at the same rates
applicable to U.S. Holders. In the case of a Non-U.S. Holder which is a
corporation, such effectively connected income also may be subject to the branch
profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States of effectively connected earnings and
profits) but only, if a tax treaty applies, if such earnings and profits also
are attributable to a U.S. permanent establishment. To determine the
applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under current
Treasury regulations to be paid to a resident of that country. Proposed Treasury
regulations, if finally adopted, would require Non-U.S. Holders to file certain
forms to obtain the benefit of any applicable tax treaty providing for a lower
rate of withholding tax on dividends. Such forms would contain the holder's name
and address and an official statement by the competent authority in the foreign
country (as designated in the applicable tax treaty) attesting to the holder's
status as a resident thereof.

SALE OF COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such Holder's Common
Stock unless (a) Coltec is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which Coltec does not believe that
it has been or is likely to become) and, in the event that the Common Stock is
"regularly traded" for such purposes, the Non-U.S. Holder held, directly or
indirectly at any time during the five-year period ending on the date of
disposition, more than 5% of the Common Stock; (b) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States and, if a tax treaty applies, attributable

46
<PAGE>
to a permanent establishment maintained by the Non-U.S. Holder in the United
States; (c) the Common Stock is disposed of by a Non-U.S. Holder who is an
individual, who holds the Common Stock as a capital asset and who is present in
the United States for 183 days or more in the taxable year of the disposition
and certain other requirements are met; or (d) the Non-U.S. Holder is an
individual who is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain United States expatriates.

ESTATE TAX

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for United States federal estate tax purposes, unless an applicable tax
treaty provides otherwise, and may be subject to United States federal estate
tax.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Coltec must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced by an applicable tax treaty. Copies of these
information returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities in the country in which the
Non-U.S. Holder resides. United States backup withholding tax (which generally
is a withholding tax imposed at the rate of 31% on certain payments to persons
that fail to furnish the information required under the United States
information reporting requirements) will generally not apply under existing
Treasury regulations to dividends paid on Common Stock to a Non-U.S. Holder at
an address outside the United States. This exemption may be affected, on a
prospective basis, if the Treasury regulations are revised to eliminate the
foreign address method for determining the applicability of the 30% withholding
tax or any lower treaty rate as discussed above.

The payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner certifies, among other things,
its status as a Non-U.S. Holder or otherwise establishes an exemption. The
payment of the proceeds from the disposition of Common Stock to or through a
non-U.S. office of a non-U.S. broker will not be subject to backup withholding
and generally will not be subject to information reporting. Under the existing
Treasury regulations, unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder, information reporting will apply to
dispositions through (a) a non-U.S. office of a U.S. broker, and (b) a non-U.S.
office of a non-U.S. broker that is either a "controlled foreign corporation"
for United States federal income tax purposes or a person 50% or more of whose
gross income from all sources for a certain three-year period was effectively
connected with a United States trade or business. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded
(or credited against the Non-U.S. Holder's United States federal income tax
liability, if any), provided that the required information is furnished to the
Internal Revenue Service.

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<PAGE>
UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, the U.S. Underwriters named below have severally agreed
to purchase, and the Selling Stockholders have severally agreed to sell to them,
and the International Underwriters named below have severally agreed to
purchase, and the Selling Stockholders have severally agreed to sell to them,
the respective number of shares of Common Stock set forth opposite the names of
such Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ------------------------------------------------------------ ----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
CS First Boston Corporation...............................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
Wertheim Schroder & Co. Incorporated......................
----------------
Subtotal................................................ 18,611,084
----------------
International Underwriters:
Morgan Stanley & Co. International Limited................
CS First Boston Limited...................................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Merrill Lynch International Limited.......................
Wertheim Schroder International Limited...................
----------------
Subtotal................................................ 4,600,000
----------------
Total................................................. 23,211,084
----------------
----------------
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters". The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all the shares of Common Stock offered hereby
if any such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (a) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (b) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain transactions specified in the Agreement Between U.S. and
International Underwriters. With respect to Donaldson, Lufkin & Jenrette
Securities Corporation, the foregoing representations and agreements (a) made by
it in its capacity as a U.S. Underwriter will apply only to shares of Common
Stock purchased by it in its capacity as a U.S. Underwriter, (b) made by it in
its capacity as an International Underwriter will apply only to shares of Common
Stock purchased by it in its capacity as an International Underwriter and (c)
will not restrict its ability to distribute this Prospectus in its capacity as a
U.S. Underwriter or as an International

48
<PAGE>
Underwriter. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of any
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the U.S. Shares and the International
Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of shares of Common Stock to be purchased pursuant to the Underwriting
Agreement as may be mutually agreed. The per share price of any shares sold
shall be the Price to Public set forth on the cover page hereof, in United
States dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
Common Stock in Canada or to, or for the benefit of, any resident of Canada in
contravention of the securities laws of Canada or any province or territory
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the foregoing
effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (a) it has not offered
or sold and will not offer or sell any shares of Common Stock in the United
Kingdom by means of any document (other than in circumstances which do not
constitute an offer to the public within the meaning of the Companies Act 1985);
(b) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the shares of Common Stock offered hereby in, from or otherwise involving the
United Kingdom; and (c) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document which consists of, or is part of,
listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the
Financial Services Act 1986, to any person of a kind described in Article 9(3)
of the Financial Services Act 1986 (Investment Advertisements)(Exemptions) Order
1988, or to any person to whom the document may otherwise lawfully be issued or
passed on.

The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share on sales to
other Underwriters or to certain dealers.

Coltec has agreed that, without the prior written consent of Morgan Stanley,
it will not offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 90 days after the date hereof, other than
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock and issued pursuant to employee benefit plans of Coltec which
are in existence on the date hereof. In addition, holders of shares of
Common Stock, including all executive officers and directors, have agreed (with

49
<PAGE>
certain limited exceptions) not to offer, sell, contract to sell or otherwise
dispose of such shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 90 days after the
date hereof without the prior written consent of Morgan Stanley.

In the Underwriting Agreement, Coltec and the Selling Stockholders have
agreed to indemnify the several Underwriters, and Coltec has agreed to indemnify
the Selling Stockholders, against certain liabilities, including liabilities
under the Securities Act.

The provisions of Schedule E ("Schedule E") to the by-laws of the National
Association of Securities Dealers, Inc. (the "NASD") apply to the Offering.
Pursuant to the provisions of Schedule E, NASD members may not execute
transactions in the Common Stock in discretionary accounts without the prior
written approval of the customer.

LEGAL MATTERS

Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for Coltec by Shearman & Sterling, New York, New York and Reed
Smith Shaw & McClay, Pittsburgh, Pennsylvania. Certain legal matters will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The financial statements and schedules included and incorporated by
reference in this Prospectus and elsewhere in the Registration Statement of
which this Prospectus is a part have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

Coltec has filed with the Commission a Registration Statement (which term
shall include any amendments thereto) on Form S-3 under the Securities Act of
1933, as amended, with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission and to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

Coltec is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports and other information with the Commission.
The Registration Statement and the exhibits thereto, as well as such reports,
proxy statements and other information filed by Coltec with the Commission, may
be inspected and copied at the public reference facilities of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 7 World Trade Center, 13th floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such reports and other information may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005
and the PSE, 301 Pine Street, Suite 1104, San Francisco, California 94104.

50
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet............................. F-2
Consolidated Statement Of Earnings..................... F-4
Consolidated Statement Of Cash Flows................... F-5
Consolidated Statement Of Shareholders' Equity......... F-6
Notes To Financial Statements.......................... F-7
Report Of Independent Public Accountants............... F-25
</TABLE>

F-1
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets
Cash and cash equivalents (Notes 1 and 7)............ $ 5,749 $ 7,155
Accounts and notes receivable (Notes 7 and 15)
Trade.............................................. 124,640 123,331
Other.............................................. 41,051 4,959
-------- --------
165,691 128,290
Less allowance for doubtful accounts............... 4,170 4,614
-------- --------
161,521 123,676
Inventories (Note 1)
Finished goods..................................... 39,206 42,044
Work in process and finished parts................. 103,166 102,787
Raw materials and supplies......................... 25,405 22,075
-------- --------
167,777 166,906
Deferred income taxes (Note 5)....................... 17,036 33,080
Other current assets................................. 8,587 7,710
-------- --------
Total current assets............................... 360,670 338,527
Property, plant and equipment, at cost (Note 1)
Land and improvements................................ 18,202 18,637
Buildings and equipment.............................. 130,085 132,013
Machinery and equipment.............................. 479,220 462,992
Leasehold improvements............................... 8,445 8,491
Construction in progress............................. 21,285 17,988
-------- --------
657,237 640,121
Less accumulated depreciation and amortization....... 431,908 413,312
-------- --------
225,329 226,809
Costs in excess of net assets acquired, net of
amortization (Note 1)................................. 132,550 133,883
Other assets (Notes 6, 7 and 15)....................... 87,863 129,557
-------- --------
$806,412 $828,776
-------- --------
-------- --------
</TABLE>

The accompanying notes to financial statements are an integral part of this
statement.

F-2
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
SHARE DATA)
Current liabilities
Current maturities of long-term debt (Notes 6, 7 and
16)................................................. $ 1,543 $ 48,645
Accounts payable..................................... 64,791 59,287
Accrued expenses
Salaries, wages and employee benefits.............. 40,946 49,661
Taxes.............................................. 30,103 30,876
Interest........................................... 23,887 20,626
Other.............................................. 32,272 29,100
----------- -----------
127,208 130,263
Current portion of liabilities of discontinued
operations.......................................... 4,000 5,046
----------- -----------
Total current liabilities........................ 197,542 243,241
Long-term debt (Notes 6, 7 and 16)..................... 1,032,089 1,073,450
Deferred income taxes (Note 5)......................... 27,543 53,116
Other liabilities...................................... 132,367 79,854
Liabilities of discontinued operations................. 42,361 45,759
Commitments and contingencies (Note 15)
Shareholders' equity (Notes 1, 8, 9 and 13)
Preferred stock
$.01 par value, 2,500,000 shares authorized, shares
outstanding -- none................................. -- --
Common stock
$.01 par value, 100,000,000 shares authorized,
69,943,341 and 69,853,464 shares issued at December
31, 1993 and 1992, respectively (excluding
25,000,000 shares held by a wholly-owned subsidiary
at December 31, 1993)............................... 699 699
Capital in excess of par value....................... 636,846 634,088
Retained earnings (deficit).......................... (1,251,465) (1,298,899)
Unearned compensation -- restricted stock awards..... (5,552) (7,221)
Minimum pension liability............................ (4,205) --
Foreign currency translation adjustments............. 1,077 4,689
----------- -----------
(622,600) (666,644)
Less cost of 179,309 shares of common stock in
treasury at December 31, 1993....................... (2,890) --
----------- -----------
(625,490) (666,644)
----------- -----------
$ 806,412 $ 828,776
----------- -----------
----------- -----------
</TABLE>

The accompanying notes to financial statements are an integral part of this
statement.

F-3
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales.................................................................. $1,334,829 $1,368,703 $1,372,979
---------- ---------- ----------
Costs and expenses
Cost of sales............................................................ 905,464 944,405 966,791
Selling and administrative............................................... 192,437 181,176 177,168
Restructuring charge (Note 3)............................................ 25,219 -- --
---------- ---------- ----------
Total costs and expenses............................................... 1,123,120 1,125,581 1,143,959
---------- ---------- ----------
Operating income........................................................... 211,709 243,122 229,020
Dividend income............................................................ -- -- 1,431
---------- ---------- ----------
Earnings before interest, income taxes and extraordinary item.............. 211,709 243,122 230,451
Interest and debt expense, net............................................. 110,190 135,862 199,942
---------- ---------- ----------
Earnings before income taxes and extraordinary item........................ 101,519 107,260 30,509
Provision for income taxes (Note 5)........................................ 36,293 42,577 28,300
---------- ---------- ----------
Earnings before extraordinary item......................................... 65,226 64,683 2,209
Extraordinary item (Note 4)................................................ (17,792) (106,930) 591
---------- ---------- ----------
Net earnings (loss)........................................................ $ 47,434 $ (42,247) $ 2,800
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per common share (Note 1)
Before extraordinary item................................................ $ .94 $ 1.11 $ .09
Extraordinary item....................................................... (.26) (1.83) .02
---------- ---------- ----------
Net earnings (loss)...................................................... $ .68 $ (.72) $ .11
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common and common equivalent shares............. 69,591 58,413 25,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The accompanying notes to financial statements are an integral part of this
statement.

F-4
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss)...................................................... $ 47,434 $ (42,247) $ 2,800
Adjustments to reconcile net earnings (loss) to cash
Extraordinary item..................................................... 17,792 106,930 (591)
Restructuring charge................................................... 25,219 -- --
Depreciation and amortization.......................................... 49,092 49,129 44,916
Noncash interest expense, net.......................................... -- 25,180 92,991
Deferred income taxes.................................................. (10,766) (17,829) 22,607
Receivable from insurance carriers..................................... 3,056 (15,660) (2,816)
Payment of liabilities of discontinued operations...................... (4,444) (6,166) (4,152)
Other operating items.................................................. (11,809) 2,032 (13,702)
---------- --------- ----------
115,574 101,369 142,053
---------- --------- ----------
Changes in assets and liabilities
Accounts and notes receivable............................................ (2,007) (7,896) 13,158
Inventories.............................................................. (2,871) 15,261 25,099
Deferred income taxes.................................................... 3,501 (216) (6,658)
Other current assets..................................................... (877) 738 1,235
Accounts payable......................................................... 4,067 (4,819) (4,587)
Accrued expenses......................................................... (12,169) 15,450 (21,060)
---------- --------- ----------
Changes in assets and liabilities...................................... (10,356) 18,518 7,187
---------- --------- ----------
Cash provided by operating activities.................................. 105,218 119,887 149,240
---------- --------- ----------
Cash flows from investing activities
Cash received in Holdings reorganization................................. 26,749 -- --
Proceeds from sale of an investment...................................... -- 3,733 12,035
Capital expenditures..................................................... (38,587) (24,997) (26,239)
Other -- net............................................................. 1,948 (3,503) 1,547
---------- --------- ----------
Cash used in investing activities...................................... (9,890) (24,767) (12,657)
---------- --------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt................................. 46,069 150,000 5,557
Retirement of long-term debt............................................. (138,179) (242,192) (117,659)
Net proceeds from issuance of common stock in recapitalization........... -- 625,575 --
Net retirement of long-term debt in recapitalization..................... -- (433,836) --
Payment of premiums, fees and expenses in recapitalization and debt
refinancing............................................................. -- (153,061) --
Distribution to Holdings pursuant to preferred stock redemption and tax
sharing procedure....................................................... (4,624) (48,585) (14,000)
---------- --------- ----------
Cash used in financing activities...................................... (96,734) (102,099) (126,102)
---------- --------- ----------
Cash and cash equivalents
Increase (decrease)...................................................... (1,406) (6,979) 10,481
At beginning of period................................................... 7,155 14,134 3,653
---------- --------- ----------
At end of period......................................................... $ 5,749 $ 7,155 $ 14,134
---------- --------- ----------
---------- --------- ----------
</TABLE>

The accompanying notes to financial statements are an integral part of this
statement.

F-5
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1993
-----------------------------------------------------------------------------------------------------------------
UNEARNED FOREIGN
COMMON STOCK CAPITAL IN RETAINED COMPENSATION- MINIMUM CURRENCY TREASURY STOCK
------------------ EXCESS OF EARNINGS RESTRICTED PENSION TRANSLATION ------------------
SHARES AMOUNT PAR VALUE (DEFICIT) STOCK AWARDS LIABILITY ADJUSTMENTS SHARES AMOUNT TOTAL
---------- ------- ---------- ----------- ------------- -------- ---------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance, January
1, 1991......... 25,000,000 $250 $ -- $(1,201,630) $ -- $ -- $13,019 -- $ -- $(1,188,361)
Net earnings..... 2,800 2,800
Distribution to
Holdings
pursuant to tax
sharing
procedure....... (14,000) (14,000)
Proceeds from
Holdings applied
to purchase of
Holdings senior
discount
debentures...... 4,763 4,763
Foreign currency
translation
adjustments..... 271 271
---------- ------- ---------- ----------- ------------- -------- ---------- --------- ------- -----------
Balance, December
31, 1991........ 25,000,000 250 -- (1,208,067) -- -- 13,290 -- -- (1,194,527)
Net loss......... (42,247) (42,247)
Issuance of stock
in
recapitalization... 44,275,000 443 625,132 625,575
Distribution to
Holdings
pursuant to
preferred stock
redemption and
tax sharing
procedure....... (48,585) (48,585)
Issuance of
restricted
stock, net...... 578,464 6 8,956 (7,221) 1,741
Foreign currency
translation
adjustments..... (8,601) (8,601)
---------- ------- ---------- ----------- ------------- -------- ---------- --------- ------- -----------
Balance, December
31, 1992........ 69,853,464 699 634,088 (1,298,899) (7,221) -- 4,689 -- -- (666,644)
Net earnings..... 47,434 47,434
Issuance of
restricted
stock, net...... 89,877 -- 1,389 1,669 (14,309) (229) 2,829
Exercise of stock
options......... (4) 5,000 79 75
Tax benefit from
stock option and
incentive
plan............ 133 133
Stock exchange in
the Holdings
reorganization.. 1,240 (170,000) (2,740) (1,500)
Minimum pension
liability....... (4,205) (4,205)
Foreign currency
translation
adjustments..... (3,612) (3,612)
---------- ------- ---------- ----------- ------------- -------- ---------- --------- ------- -----------
Balance, December
31, 1993........ 69,943,341 $699 $ 636,846 $(1,251,465) $ (5,552) $(4,205) $1,077 (179,309) $(2,890) $ (625,490)
---------- ------- ---------- ----------- ------------- -------- ---------- --------- ------- -----------
---------- ------- ---------- ----------- ------------- -------- ---------- --------- ------- -----------
</TABLE>

The accompanying notes to financial statements are an integral part of this
statement.

F-6
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION: Investments in which Coltec Industries Inc
("Coltec") has ownership of 50% or more of the voting common stock are
consolidated in the financial statements. Intercompany accounts and transactions
are eliminated.

CONSOLIDATED STATEMENT OF CASH FLOWS: Cash equivalents consist of
short-term, highly liquid investments with original maturities of three months
or less. The effect of changes in foreign exchange rates on cash balances is not
significant.

Interest paid and federal and state income taxes paid and refunded were as
follows:

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid............................................ $ 105,713 $ 107,236 $ 105,377
Income taxes --
Paid................................................... 31,873 40,767 30,327
Refunded............................................... 3,913 4,417 4,470
</TABLE>

FOREIGN CURRENCY TRANSLATION: The financial statements of foreign
subsidiaries were prepared in their respective local currencies and are
translated into U.S. dollars at year-end rates for assets and liabilities and at
monthly weighted average rates for income and expenses. Translation adjustments
are included in shareholders' equity. Foreign currency transaction gains and
losses are included in net earnings. For 1993, 1992 and 1991, such gains and
losses were not significant.

INVENTORIES: Inventories, including inventories under long-term commercial
and government contracts and programs, are valued at the lower of cost or
market, less reserves of $18,086,000 and $16,789,000 at December 31, 1993 and
1992, respectively, for potential losses from excess and slow-moving
inventories. At December 31, 1993 and 1992, $45,150,000 and $64,464,000,
respectively, of contract advances have been offset against inventories under
long-term commercial and government contracts and programs in the Consolidated
Balance Sheet. Losses on commercial and government contracts and programs are
recognized in full when identified. At December 31, 1993 and 1992, an accrual
for loss contracts and programs was not required. Cost elements included in
inventory are material, labor and factory overhead, primarily using standard
cost, which approximates actual cost. Cost on approximately 53% of the domestic
inventory at December 31, 1993 was determined on the last-in, first-out basis.
Cost on the remainder of the inventory is generally determined on the first-in,
first-out basis. The excess of current cost over last-in, first-out cost at
December 31, 1993 and 1992 was approximately $21,800,000 and $24,500,000,
respectively.

PROPERTY AND DEPRECIATION: Depreciation and amortization of plant and
equipment are provided generally by using the straight-line method, based on
estimated useful lives of the assets. For U.S. federal income tax purposes, most
assets are depreciated using allowable accelerated methods.

The ranges of estimated useful lives used in computing depreciation and
amortization for financial reporting were as follows:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Land improvements........................................................... 5-40
Buildings and equipment..................................................... 10-45
Machinery and equipment..................................................... 3-20
</TABLE>

For leasehold improvements, the estimated useful life used in computing
amortization is the lesser of the asset life or the lease term.

Interest cost incurred during the period of construction of plant and
installation of equipment is capitalized as part of the cost of such plant and
equipment.

F-7
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Renewals and betterments are capitalized by additions to the related asset
accounts, while repair and maintenance costs are charged against earnings.
Coltec generally records retirements by removing the cost and accumulated
depreciation from the asset and reserve accounts.

At December 31, 1993 and 1992, Coltec had the following assets recorded
under capital leases:

<TABLE>
<CAPTION>
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements................................................ $ 285 $ 294
Buildings and equipment.............................................. 7,867 8,583
Machinery and equipment.............................................. 11,059 11,023
Leasehold improvements............................................... 1,003 1,028
--------- ---------
20,214 20,928
Less -- Accumulated depreciation and amortization.................... 15,548 15,062
--------- ---------
$ 4,666 $ 5,866
--------- ---------
--------- ---------
</TABLE>

ENVIRONMENTAL EXPENDITURES: Expenditures for environmental activities are
expensed or capitalized in accordance with generally accepted accounting
principles. Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue generation,
are accrued when it is probable that an obligation has been incurred and the
amount can be reasonably estimated. Expenditures incurred for environmental
compliance with respect to pollution prevention and ongoing monitoring programs
are expensed as incurred. Expenditures that increase the value of the property
are capitalized.

START-UP COSTS: Start-up costs related to new operations and new product
lines are expensed as incurred.

REVENUE RECOGNITION: Revenue, including revenue under long-term commercial
and government contracts and programs, is recorded at the time deliveries or
customer acceptances are made and Coltec has the contractual right to bill.

COSTS IN EXCESS OF NET ASSETS ACQUIRED: It is Coltec's policy to amortize
the excess costs arising from acquisitions on a straight-line basis over periods
not to exceed 40 years. At December 31, 1993 and 1992, accumulated amortization
was $52,063,000 and $47,036,000, respectively.

SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE: In November 1991, Coltec
increased the amount of authorized common stock to 100,000,000 shares and
decreased the par value of the preferred stock and the common stock to $.01 per
share. In January 1992, Coltec effected a 250,000 for 1 split of its common
stock. Reference is made to Note 2 for information relating to the
Recapitalization.

In November 1993, all the shareholders of Coltec Holdings Inc. ("Holdings"),
the former parent company of Coltec, exchanged their shares of common stock of
Holdings for 35.5% or 24,830,000 shares of common stock of Coltec. Reference is
made to Note 13 for information relating to the Holdings Reorganization.

Earnings per common share are computed by dividing earnings by the weighted
average number of common and common equivalent shares outstanding during each
period. Common equivalent shares are shares issuable on the exercise of stock
options and shares of restricted stock, net of shares assumed to have been
purchased using the treasury stock method. All applicable share and per share
data has been adjusted for the 250,000 for 1 split.

F-8
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. RECAPITALIZATION
On April 1, 1992, Coltec completed a plan of recapitalization which included
its initial public offering of 44,275,000 shares of Coltec common stock for net
proceeds of $625,575,000 (the "Equity Offering") and the public offering of
$200,000,000 aggregate principal amount of its 9 3/4% senior notes due 2000 and
of $250,000,000 aggregate principal amount of its 10 1/4% senior subordinated
notes due 2002 (the "Note Offerings"). Coltec's recapitalization consisted of
(i) the Equity Offering, the net proceeds of which were used to redeem all of
the outstanding $355,493,000 aggregate principal amount of 12 1/2% senior
subordinated debentures due 1997-2001 at 106.25% of principal amount, together
with accrued interest to the date of redemption (the "12 1/2% Debenture
Redemption") and to repay the outstanding $225,000,000 indebtedness under the
Letter of Credit and Revolving Credit Facility Agreement (the "1989 Credit
Agreement"), (ii) bank borrowings under a Term and Working Capital Facility (the
"1992 Credit Agreement") of which $429,772,000 was initially drawn down, and
(iii) the Note Offerings. Proceeds from the 1992 Credit Agreement and the Note
Offerings were used (a) to retire a dividend note payable from Coltec to
Holdings, the proceeds of which were used by Holdings to effect its tender offer
for the outstanding Holdings 14 3/4% senior discount debentures (the "Holdings
Debentures") ($881,000,000 aggregate principal amount and $733,115,000 accreted
value) (the "Debt Tender Offer"), the related consent solicitation and the
redemption of the Holdings preferred stock (the "Preferred Stock Redemption"),
(b) to repay the remaining indebtedness outstanding under the 1989 Credit
Agreement not repaid from the proceeds of the Equity Offering and (c) to pay
fees and expenses in connection with the foregoing transactions (the
"Recapitalization").

In connection with the Recapitalization, Coltec incurred extraordinary
charges in the second quarter 1992 of $105,347,000, net of a $28,000,000 tax
benefit. The extraordinary charges were primarily payment of premiums and
expenses, and write-off of deferred financing costs resulting from early
retirement of debt.

Pursuant to the Recapitalization, the consolidated statement of earnings for
the year ended December 31, 1991 and for the first quarter 1992 reflect the
interest and finance cost related to the outstanding Holdings Debentures because
the net proceeds of the Note Offerings and the 1992 Credit Agreement were used
to repay such indebtedness.

3. RESTRUCTURING CHARGE
Coltec recorded a restructuring charge of $25,219,000 ($15,300,000 after
taxes, or $.22 per common share) in the second quarter 1993 to cover the cost of
consolidation and rearrangement of certain manufacturing facilities and related
reductions in work force, primarily in the Aerospace/ Government segment, as
well as at Central Moloney Transformer Division.

4. EXTRAORDINARY ITEM
In 1993, Coltec incurred extraordinary charges of $17,792,000, net of a
$9,581,000 tax benefit, in connection with debt refinancings and the early
retirement of debt, including $14,675,000, net of a $7,902,000 tax benefit, from
a debt refinancing completed in January 1994. Reference is made to Note 16 for
information on the refinancing.

In 1992, Coltec incurred extraordinary charges of $105,347,000, net of a
$28,000,000 tax benefit, in connection with the Recapitalization and
extraordinary charges of $1,583,000, net of a $816,000 tax benefit, in
connection with a debt refinancing and early retirement of debt. Reference is
made to Note 2 for information on the Recapitalization. In 1991, Coltec
recognized an extraordinary gain of $591,000, net of taxes of $305,000, in
connection with the early retirement of debt.

F-9
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES
Effective January 1, 1993, Coltec adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires that the
deferred tax provision be determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and liabilities using
presently enacted tax rates.

The significant components of deferred tax assets and liabilities at
December 31, 1993 and 1992 were as follows:

<TABLE>
<CAPTION>
1993 1992
---------------------- ----------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Excess tax over book depreciation................................. $ -- $ (32,049) $ -- $ (34,001)
Recognition of income on contracts reported on different methods
for tax and financial reporting.................................. -- (30,068) -- (31,256)
Employee benefit plans............................................ 31,057 -- 29,408 --
Administrative and general expenses period costed for tax
purposes......................................................... -- (8,357) -- (10,454)
Foreign tax credit carryforwards.................................. 29,000 -- 19,000 --
Other............................................................. 28,910 -- 26,267 --
---------- ---------- ---------- ----------
88,967 (70,474) 74,675 (75,711)
Less -- Valuation allowance....................................... (29,000) -- (19,000) --
---------- ---------- ---------- ----------
Total deferred taxes.............................................. $ 59,967 $ (70,474) $ 55,675 $ (75,711)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

The valuation allowance is attributable to foreign tax credit carryforwards
which expire in the years 1994 through 1998.

Domestic and foreign components of earnings before income taxes and
extraordinary item were as follows:

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................. $ 71,126 $ 67,217 $ (11,758)
Foreign.................................................. 30,393 40,043 42,267
---------- ---------- -----------
Total.................................................... $ 101,519 $ 107,260 $ 30,509
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

Provision for income taxes was as follows:

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current --
Domestic................................................. $ 36,254 $ 43,026 $ (5,575)
Foreign.................................................. 9,568 17,596 17,926
---------- ---------- ---------
45,822 60,622 12,351
Deferred --
Domestic................................................. (11,553) (14,527) 16,187
Foreign.................................................. 2,024 (3,518) (238)
---------- ---------- ---------
(9,529) (18,045) 15,949
---------- ---------- ---------
Total.................................................. $ 36,293 $ 42,577 $ 28,300
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

F-10
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES (CONTINUED)
Reconciliation of tax at the U.S. statutory income tax rate, 35% in 1993 and
34% in 1992 and 1991, to the provision for income taxes was as follows:

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rate....................................................... $ 35,532 $ 36,468 $ 10,373
Tax cost (benefit) --
Repatriation of non-U.S. earnings.............................................. 3,201 4,600 8,662
Non-U.S. rate differential..................................................... 954 1,708 3,317
Adjustment of reserves......................................................... (6,692) (2,636) (1,663)
Unutilized operating losses.................................................... -- -- 5,245
Other (not individually significant)........................................... 3,298 2,437 2,366
--------- --------- ---------
Provision for income taxes....................................................... $ 36,293 $ 42,577 $ 28,300
--------- --------- ---------
Effective tax rate............................................................... 35.75% 39.7% 92.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>

The provisions, prior to the disaffiliation noted below, were determined
pursuant to the tax sharing procedure between Coltec and Holdings and would have
been the same if determined by Coltec on a separate group basis.

Holdings, subsequent to its disaffiliation from Coltec, realized during the
fourth quarter 1992 the benefit of unutilized operating losses for 1991 by
filing a refund claim based on the carryback of such losses.

As a consequence of the Recapitalization, Coltec became disaffiliated from
Holdings. For 1991 and the first quarter of 1992, Coltec and all of its 80% or
greater owned U.S. subsidiaries ("Coltec Separate Group") joined with Holdings
in the filing of consolidated U.S. federal income tax returns with Holdings as
the parent company. For the nine month period ended December 31, 1992, Coltec
Separate Group filed a consolidated U.S. federal income tax return with Coltec
as the parent company. During the periods of affiliation with Holdings, Coltec's
portion of the resulting tax liability for each of the periods was the lesser of
(i) Coltec's tax liability determined on a Coltec Separate Group basis, or (ii)
Coltec's ratable share of Holdings' consolidated tax liability, including,
pursuant to the tax sharing procedure between Coltec and Holdings, part of the
determined tax benefits from Holdings' losses. Upon consummation of the
Recapitalization, the tax sharing procedure was terminated and Coltec and
Holdings entered into a Tax Disaffiliation Agreement. On November 18, 1993,
Holdings became a wholly-owned subsidiary of Coltec. Reference is made to Note
13 for information relating to the Holdings Reorganization.

The excess of Coltec's U.S. federal income tax liability, for each period of
affiliation with Holdings, determined in accordance with the tax sharing
procedure, over its U.S. federal income tax liability if determined on a
separate group basis was paid to Holdings and is included as a distribution to
Holdings in the Consolidated Statement of Shareholders' Equity.

F-11
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT

<TABLE>
<CAPTION>
1993 1992
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
1992 Credit Agreement -- 7.5%*................................. $ 308,618 $ 350,922
9 3/4% senior notes due 1999................................... 150,000 150,000
9 3/4% senior notes due 2000................................... 200,000 200,000
11 1/4% debentures due 1996-2015............................... 91,625 141,625
10 1/4% senior subordinated notes due 2002..................... 250,000 250,000
Other due 1994-2010............................................ 33,389 29,548
------------ ------------
1,033,632 1,122,095
Less -- Amounts due within one year............................ 1,543 48,645
------------ ------------
$ 1,032,089 $ 1,073,450
------------ ------------
------------ ------------
<FN>
- ---------
*Indicates average interest rate for 1993.
(a) In connection with the Recapitalization, Coltec entered into the 1992
Credit Agreement with various banks. The 1992 Credit Agreement consisted of
a $404,772,000 term loan facility and a $160,000,000 revolving loan
facility. In addition, up to $85,000,000 of letters of credit could be
issued under or outside the facility. At December 31, 1993, $259,618,000
and $49,000,000 of borrowings were outstanding under the term loan and
revolving loan facilities, respectively; and $43,608,000 of letters of
credit had been issued. In January 1994, Coltec completed a bank
refinancing that resulted in the repayment of the 1992 Credit Agreement.
Reference is made to Note 16 for information on the refinancing.
Interest on borrowings under the 1992 Credit Agreement was computed, at
Coltec's option, at an annual rate equal to (i) the base rate plus 1.5% or
(ii) the Eurodollar rate plus 2.75%. The base rate was the higher of (x) 1/2
of 1% in excess of the Federal Reserve reported certificate of deposit rate
and (y) the prime lending rate, as in effect from time to time. Letter of
credit fees of 3% were payable on outstanding letters of credit and a
commitment fee of 1/2 of 1% was payable on the unutilized revolving loan
facility.
The 1992 Credit Agreement contained various restrictions and conditions
including a fixed charge coverage ratio, current ratio, leverage ratio and
cash flow coverage ratio. In addition, the 1992 Credit Agreement limited or
restricted purchases of Coltec's common stock, payment of dividends, capital
expenditures, the incurrence of additional indebtedness, mergers, asset
acquisitions and dispositions, investments, prepayment of other debt and
transactions with affiliates. At December 31, 1993, Coltec was in compliance
with the above covenants.
(b) The 9 3/4% senior notes due 1999 are not redeemable prior to maturity on
November 1, 1999.
(c) The 9 3/4% senior notes due 2000 were issued in connection with the
Recapitalization and are not redeemable prior to maturity on April 1, 2000.
(d) The 10 1/4% senior subordinated notes were issued in connection with the
Recapitalization and are redeemable at the option of Coltec on or after
April 1, 1997 at 105.125% of par, declining to 100% of par on or after
April 1, 1999.
(e) Coltec has purchased in the open market and redeemed $58,375,000 principal
amount of its 11 1/4% debentures. The remaining 11 1/4% debentures are
redeemable at the option of Coltec at 106.750% of par, declining to 100% of
par on or after December 1, 2005. Mandatory annual sinking fund payments
</TABLE>

F-12
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
of $7,125,000 beginning December 1, 1996 are calculated to retire 90% of
the debentures prior to maturity. Coltec, at its option, may redeem up to
an additional $14,250,000 annually, beginning December 1, 1996 through
2014.
(f) At December 31, 1993 and 1992, $1,550,000 and $9,550,000, respectively, of
defeased notes have been offset against trustee funds included in other
assets in the Consolidated Balance Sheet. The defeased notes include
$1,550,000 at both December 31, 1993 and 1992 of 9 7/8% industrial revenue
bonds issued in 1980 and $8,000,000 at December 31, 1992 of 9 3/4% senior
promissory notes issued in 1976.
(g) The amounts payable under capital lease obligations as of December 31, 1993
were as follows:
</TABLE>

<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1994........................................................................... $ 1,333
1995........................................................................... 1,333
1996........................................................................... 1,333
1997........................................................................... 1,333
1998........................................................................... 1,288
Remainder...................................................................... 28,397
-------------
Total minimum lease payments................................................... 35,017
Less -- Amount representing interest........................................... 17,399
-------------
Total minimum lease payments at present value, included in
long-term debt................................................................ $ 17,618
-------------
-------------
<FN>
(h) Minimum payments on long-term debt, after reflecting the bank refinancing
completed in January, 1994, due within five years from December 31, 1993
are as follows:
</TABLE>

<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1994........................................................................... $ 1,543
1995........................................................................... 941
1996........................................................................... 522
1997........................................................................... 50,750
1998........................................................................... 50,814
</TABLE>

7. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of Coltec's financial instruments:

Cash and cash equivalents: The carrying amount of cash and cash equivalents
approximates fair value due to the short-term maturity of the investments.

Accounts and notes receivable, other: The carrying amount of accounts and
notes receivable, other approximates fair value due to the short-term nature of
the receivables.

Long-term receivables and investments: The fair value of certain long-term
receivables and investments is based on quoted market prices for similar
publicly traded securities or on the present value of estimated future cash
flows.

Long-term debt: The fair value of Coltec's publicly traded long-term debt is
based on the quoted market prices for such debt and for non-publicly traded
long-term debt, on quoted market prices for similar publicly traded debt. The
fair value of interest rate swap agreements is based on quotes from commercial
banks.

F-13
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of Coltec's financial instruments at December 31,
1993 and 1992 is as follows:

<TABLE>
<CAPTION>
1993 1992
-------------------------- ----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 5,749 $ 5,749 $ 7,155 $ 7,155
Accounts and notes receivable, other.............. 41,051 41,051 4,959 4,959
Long-term receivables and investments --
Practical to estimate fair value................ 38,041 38,041 17,479 17,466
Not practical to estimate fair value............ 21,759 -- 63,928 --
Long-term debt.................................... 1,033,632 1,082,164 1,122,095 1,153,820
</TABLE>

It was not practicable to obtain independent estimates of the fair value of
Coltec's minority interest, consisting principally of preferred stock, in
Crucible Materials Corporation ("Crucible"), a private corporation in 1993 and
1992, or of the receivable from insurance carriers for asbestos product
liability claims and related litigation costs in 1992 without incurring
excessive costs. The $21,759,000 carrying value of the investment in Crucible at
December 31, 1993 and 1992, and the $42,169,000 receivable from insurance
carriers at December 31, 1992 are included in other assets in the Consolidated
Balance Sheet. Reference is made to Note 15 for information relating to the
receivable from insurance carriers.

It is Coltec's policy to enter into forward exchange contracts to hedge U.S.
dollar denominated sales, under long-term contracts, of certain foreign
subsidiaries. Coltec does not engage in speculation. Coltec's foreign exchange
contracts do not subject Coltec to risk due to exchange rate movements because
gains and losses on these contracts offset losses and gains on the sales and
related receivables being hedged. At December 31, 1993 and 1992 Coltec had
$251,610,000 and $298,990,000, respectively, of forward exchange contracts,
denominated in Canadian dollars, which had a fair value of $240,131,000 and
$283,240,000, respectively, based on quotes from commercial banks. The contracts
have varying maturities with none exceeding five years.

In addition, Coltec has outstanding as of December 31, 1993: (a) interest
rate swap agreements with major financial institutions, the carrying and fair
values of which are included with long-term debt in the above table, having a
total notional principal amount of $150,000,000, an average fixed interest rate
of 6.34% and an average remaining life of 1 1/4 years; (b) a contingent
liability for guaranteed debt and lease payments of $27,140,000; and (c) letters
of credit, other than with respect to guaranteed debt, of $40,733,000. In the
opinion of management, nonperformance by the other parties to the interest rate
swap agreements and the contingent liabilities will not have a material effect
on Coltec's results of operations and financial condition.

8. STOCK OPTION AND INCENTIVE PLAN
On March 19, 1992, Coltec adopted the 1992 Stock Option and Incentive Plan
(the "Option Plan"). The Option Plan provides for the granting of incentive
stock rights, stock options, stock appreciation rights, restricted stock and
dividend equivalents to officers and key employees. The number of shares that
may be issued under the Option Plan may not exceed 3,000,000 shares of common
stock. Stock options outstanding under the Option Plan were granted at a price
equal to 100% of the market price on the date of grant and are exercisable in
annual installments of 20%, commencing one year from date of grant.

F-14
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND INCENTIVE PLAN (CONTINUED)
Information on stock options for the two years ended December 31, 1993 is as
follows:

<TABLE>
<CAPTION>
OPTION PRICE
NUMBER OF RANGE PER
SHARES SHARE
--------- ------------
<S> <C> <C>
Outstanding January 1, 1992......... -- --
Granted............................. 2,015,000 $15.00-18.25
Exercised........................... -- --
Canceled............................ -- --
--------- ------------
Outstanding December 31, 1992....... 2,015,000 15.00-18.25
Granted............................. 290,000 16.38-18.75
Exercised........................... (5,000) 15.00
Canceled............................ (40,000) 15.00
--------- ------------
Outstanding December 31,1993........ 2,260,000 15.00-18.75
--------- ------------
Exercisable December 31:
1992.............................. -- --
1993.............................. 398,000 15.00-18.25
--------- ------------
--------- ------------
</TABLE>

In addition to the granting of stock options, Coltec has granted shares of
restricted stock under the Option Plan. Restrictions on certain shares lapse in
annual installments of 33 1/3% commencing one and three years from date of
grant. Restrictions on the remaining shares lapse 100% three years from the date
of grant. The unearned compensation resulting from the grant of restricted
shares is reported as a reduction to shareholders' equity in the Consolidated
Balance Sheet and is being charged to earnings over the period the restricted
shares vest.

Information on restricted stock for the two years ended December 31, 1993 is
as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Outstanding January 1................................................ 578,464 --
Granted.............................................................. 89,877 578,464
Restrictions expired................................................. (99,772) --
Forfeited............................................................ (14,309) --
--------- ---------
Outstanding December 31.............................................. 554,260 578,464
--------- ---------
--------- ---------
</TABLE>

Shares available for grant at December 31, 1993 and 1992 under the Option
Plan were 66,659 and 406,536, respectively.

9. PENSION AND RETIREMENT PLANS
Coltec and certain of its subsidiaries have in effect, for substantially all
U.S. employees, pension plans under which funds are deposited with trustees. The
benefits under these plans are based primarily on years of service and either
final average salary or fixed amounts for each year of service. Coltec's funding
policy is consistent with the funding requirements of the Employee Retirement
Income Security Act ("ERISA") of 1974, as amended. Plan assets consist
principally of publicly traded equity and fixed-income securities.

Pension coverage for employees of the non-U.S. subsidiaries is provided, to
the extent deemed appropriate, through separate plans. Obligations under such
plans are systematically provided for by depositing funds with trustees, or
through book reserves.

F-15
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. PENSION AND RETIREMENT PLANS (CONTINUED)
In a number of the pension plans, the plan assets exceed the accumulated
benefit obligations ("overfunded plans"); and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets ("underfunded plans").

As of December 31, 1993 and 1992, the status of Coltec's pension plans was
as follows:

<TABLE>
<CAPTION>
1993 1992*
----------------------- -----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLANS PLANS PLANS
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Actuarial present value of projected benefit
obligation, based on employment service to date and
current salary levels:
Vested employees................................... $ 246,597 $ 115,724 $ 229,120 $ 103,126
Nonvested employees................................ 7,040 6,447 6,718 5,781
---------- ----------- ---------- -----------
Accumulated benefit obligation..................... 253,637 122,171 235,838 108,907
Additional amounts related to projected salary
increases......................................... 21,060 436 22,982 3,162
---------- ----------- ---------- -----------
Total projected benefit obligation................. 274,697 122,607 258,820 112,069
---------- ----------- ---------- -----------
Assets available for benefits:.......................
Funded assets...................................... 305,411 82,421 293,921 82,839
Accrued pension expense, per books................. 1,069 40,614 4,542 27,549
---------- ----------- ---------- -----------
Total assets....................................... 306,480 123,035 298,463 110,388
---------- ----------- ---------- -----------
Assets in excess of (less than) projected benefit
obligation.......................................... $ 31,783 $ 428 $ 39,643 $ (1,681)
---------- ----------- ---------- -----------
Consisting of:
Unamortized net asset existing at date of adoption
of FAS No. 87..................................... $ 2,492 $ 19,098 $ 1,526 $ 10,508
Unrecognized net gain (loss)....................... 34,589 (11,813) 43,613 (6,244)
Unrecognized prior service cost.................... (5,298) (6,857) (5,496) (5,945)
---------- ----------- ---------- -----------
$ 31,783 $ 428 $ 39,643 $ (1,681)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
<FN>
- ---------
*Restated to reflect funding classification as of December 31, 1993.
</TABLE>

For U.S. plans, discount rates of 7.5% and 8.0% were used as of December 31,
1993 and 1992, respectively, for the valuation of the actuarial present value of
benefit obligations.

In accordance with the requirements of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions", Coltec recorded a
minimum pension liability for underfunded plans. The minimum liability is equal
to the excess of the accumulated benefit obligation over plan assets. A
corresponding amount is recorded as either an intangible asset or a reduction of
shareholders' equity. As of December 31, 1993, Coltec recorded a $13,571,000
additional minimum liability included in other liabilities in the Consolidated
Balance Sheet, a $7,102,000 intangible asset included in other assets in the
Consolidated Balance Sheet, and a $4,205,000 charge to shareholders' equity, net
of a $2,264,000 tax benefit.

F-16
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. PENSION AND RETIREMENT PLANS (CONTINUED)
Assumptions as of January 1 used to develop the net periodic pension cost
for U.S. plans were:

<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Discount rate for benefit obligations.......................................... 8.0% 8.0% 8.5%
Expected long-term rate of return on assets.................................... 8.5% 8.5% 8.5%
Rate of increase in compensation levels........................................ 5.0% 6.0% 6.0%
</TABLE>

For non-U.S. plans, which were not material, similar economic assumptions
were used.

The components of net periodic pension cost were as follows:

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned..................................... $ 9,423 $ 9,947 $ 9,087
Interest cost on projected benefit obligation....................... 28,496 27,993 26,511
Actual return on assets............................................. (7,770) (233) (32,541)
Amortization and deferral, net...................................... (30,968) (38,394) (1,282)
---------- ---------- ----------
Net periodic pension cost (credit).................................. $ (819) $ (687) $ 1,775
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

For discontinued operations, Coltec's total projected benefit obligation at
December 31, 1993 and 1992 was $263,751,000 and $263,660,000, respectively, and
is fully funded. Interest accrued for 1993, 1992 and 1991 on the projected
benefit obligation was $20,450,000, $21,555,000, and $24,200,000, respectively,
and was fully offset by return on assets resulting in no net periodic cost.

10. OTHER POSTRETIREMENT BENEFITS
Coltec provides health care and life insurance benefits to its eligible
retired employees, principally in the United States. Effective January 1, 1993,
Coltec adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", ("FAS 106") using
the delayed recognition transition option whereby the transition obligation is
being amortized on a straight-line basis over 20 years. FAS 106 requires that
the cost of postretirement benefits be recognized in the financial statements
during the years the employees provide services. Prior to 1993, Coltec
recognized the cost of postretirement benefits by expensing the premiums, net of
retiree contributions.

Coltec's accumulated postretirement benefit obligation, none of which is
funded, and the postretirement benefit cost liability at December 31, 1993 and
January 1, 1993 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1992 1993
------------ -----------
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of projected accumulated postretirement
benefit obligation
Retirees.......................................................... $ 17,511 $ 16,390
Fully eligible active participants................................ 4,613 3,987
Other active participants......................................... 3,441 3,546
------------ -----------
Total............................................................. 25,565 23,923
Unamortized transition obligation................................... (22,727) (23,923)
Unrecognized net loss............................................... (1,482) --
------------ -----------
Postretirement benefit cost liability............................... $ 1,356 $ --
------------ -----------
------------ -----------
</TABLE>

F-17
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The components of postretirement benefit cost for the year ended December
31, 1993 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost -- benefits earned................................................ $ 249
Interest cost on accumulated postretirement benefit obligation................. 1,838
Amortization of transition obligation.......................................... 1,196
------
Postretirement benefit cost.................................................... $ 3,283
------
------
</TABLE>

Discount rates of 7.5% and 8.0% were used in determining the accumulated
postretirement benefit obligation at December 31, 1993 and January 1, 1993,
respectively. The health care cost trend rates used in determining the
accumulated postretirement benefit obligation at December 31, 1993 were 13.1% in
1994 gradually declining to 5.0% in 2005. The effect of a 1% increase in the
health care cost trend rates in each year would be to increase the total service
and interest cost components of the postretirement benefit cost for 1993 by
$234,000 and to increase the accumulated postretirement benefit obligation at
December 31, 1993 by $1,800,000.

11. SEGMENT INFORMATION
Coltec's financial results are reported in three industry segments:
Aerospace/Government, Automotive, and Industrial.

Information on sales and operating income by industry segment for the years
1993, 1992 and 1991 included on page 14 in Management's Discussion and Analysis
of Financial Condition and Results of Operations is incorporated herein by
reference.

Information on total assets; depreciation of property, plant and equipment;
and capital expenditures by industry segment for the three years ended December
31, 1993 is as follows:

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Total assets:
Aerospace/Government..................................................... $ 386.2 $ 388.7 $ 410.0
Automotive............................................................... 124.6 118.6 123.3
Industrial............................................................... 180.1 186.7 189.8
Corporate unallocated.................................................... 115.5 134.8 111.1
--------- --------- ---------
Total.................................................................. $ 806.4 $ 828.8 $ 834.2
--------- --------- ---------
--------- --------- ---------
Depreciation of property, plant and equipment:
Aerospace/Government..................................................... $ 16.1 $ 17.3 $ 18.4
Automotive............................................................... 7.4 7.9 8.7
Industrial............................................................... 9.5 9.9 9.6
Corporate unallocated.................................................... .2 .2 .2
--------- --------- ---------
Total.................................................................. $ 33.2 $ 35.3 $ 36.9
--------- --------- ---------
--------- --------- ---------
Capital expenditures:
Aerospace/Government..................................................... $ 21.8 $ 13.3 $ 14.2
Automotive............................................................... 9.6 6.5 5.7
Industrial............................................................... 7.2 5.2 6.3
--------- --------- ---------
Total.................................................................. $ 38.6 $ 25.0 $ 26.2
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-18
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. SEGMENT INFORMATION (CONTINUED)
Information by geographic segment for the three years ended December 31,
1993 is as follows:

<TABLE>
<CAPTION>
OPERATING TOTAL
SALES INCOME ASSETS
--------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
1993
Domestic operations.................................................. $ 1,155.4 $ 215.9 $ 619.4
Foreign operations................................................... 206.7 30.2 207.6
Intersegment elimination............................................. (27.3) -- (136.1)
--------- ----------- ---------
Total segments..................................................... 1,334.8 246.1 690.9
Corporate unallocated................................................ -- (34.4) 115.5
Total.............................................................. $ 1,334.8 $ 211.7 $ 806.4
1992
Domestic operations.................................................. $ 1,160.8 $ 228.3 $ 623.7
Foreign operations................................................... 232.8 43.3 217.4
Intersegment elimination............................................. (24.9) -- (147.1)
--------- ----------- ---------
Total segments..................................................... 1,368.7 271.6 694.0
Corporate unallocated................................................ -- (28.5) 134.8
--------- ----------- ---------
Total.............................................................. $ 1,368.7 $ 243.1 $ 828.8
--------- ----------- ---------
--------- ----------- ---------
1991
Domestic operations.................................................. $ 1,132.9 $ 204.3 $ 632.2
Foreign operations................................................... 264.3 44.8 224.0
Intersegment elimination............................................. (24.2) -- (133.1)
Total segments..................................................... 1,373.0 249.1 723.1
Corporate unallocated................................................ -- (20.1) 111.1
--------- ----------- ---------
Total.............................................................. $ 1,373.0 $ 229.0 $ 834.2
--------- ----------- ---------
--------- ----------- ---------
</TABLE>

12. SUPPLEMENTARY EARNINGS INFORMATION
The following costs and expenses are included in the Consolidated Statement
of Earnings:

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Maintenance............................................................ $ 25,363 $ 27,444 $ 28,651
--------- --------- ---------
Taxes, other than federal income taxes:
Payroll.............................................................. 28,700 28,764 28,725
--------- --------- ---------
Property............................................................. 4,764 4,793 4,745
--------- --------- ---------
State and local...................................................... 4,785 5,195 4,427
--------- --------- ---------
Rent................................................................... 12,235 12,849 12,803
--------- --------- ---------
Research and development costs......................................... 22,079 22,947 23,773
--------- --------- ---------
--------- --------- ---------
</TABLE>

13. RELATED PARTY TRANSACTIONS
On November 18, 1993, Holdings became a wholly owned subsidiary of Coltec as
a result of the exchange by all of the Holdings shareholders of their shares of
common stock of Holdings for 35.5% or 24,830,000 shares of common stock of
Coltec (the "Holdings Reorganization"). Immediately before this exchange,
Holdings owned 35.7% or 25,000,000 shares of common stock of Coltec. As a result
of the exchange, Morgan Stanley Group Inc. became a direct shareholder of
Coltec. The 25,000,000 shares of

F-19
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13. RELATED PARTY TRANSACTIONS (CONTINUED)
common stock of Coltec which Holdings owned before this exchange and continues
to own after the exchange are reported in the Consolidated Balance Sheet as a
reduction of the total common shares issued. Expenses of $1,500,000 incurred in
connection with this exchange were charged to capital in excess of par value. In
connection with an industrial revenue bond refinancing in 1993, Morgan Stanley &
Co. Incorporated ("MS & Co."), a wholly owned subsidiary of Morgan Stanley Group
Inc., received a fee of $309,000.

During 1992, in connection with the Recapitalization, MS & Co. received a
portion of the total underwriting commission of $36,527,000 in connection with
the Equity Offering, an underwriting commission of $11,250,000 in connection
with the Note Offerings, and fees of $1,049,000 as one of the dealer managers
for the Debt Tender Offer. In addition, MS & Co. received an underwriting
commission of $2,625,000 in connection with the offering of the 9 3/4% senior
notes due 1999.

During the two years ended December 31, 1992, MS & Co. acted as a dealer in
the placement of a portion of Coltec's commercial paper and as one of the
brokers in the purchase of Coltec's debentures.

F-20
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. QUARTERLY SALES AND EARNINGS (UNAUDITED)
The following table sets forth quarterly sales, gross profit and earnings
for the three years ended December 31, 1993.

<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
1ST 2ND 3RD 4TH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1993
Net sales........................................................ $ 339,934 $ 334,591 $ 316,077 $ 344,227
---------- ---------- ---------- ----------
Gross profit..................................................... 107,903 107,729 104,585 109,148
---------- ---------- ---------- ----------
Operating income................................................. 54,967 37,040 56,800 62,902
---------- ---------- ---------- ----------
Earnings before extraordinary item............................... 17,490 6,013 18,490 23,233
Extraordinary item............................................... (264) (375) (378) (16,775)
---------- ---------- ---------- ----------
Net earnings..................................................... 17,226 5,638 18,112 6,458
---------- ---------- ---------- ----------
Earnings (loss) per common share
Before extraordinary item...................................... .25 .09 .27 .33
Extraordinary item............................................. -- (.01) (.01) (.24)
---------- ---------- ---------- ----------
Net earnings................................................... .25 .08 .26 .09
---------- ---------- ---------- ----------
1992
Net sales........................................................ $ 337,557 $ 359,973 $ 330,640 $ 340,533
---------- ---------- ---------- ----------
Gross profit..................................................... 98,867 109,122 106,447 109,862
---------- ---------- ---------- ----------
Operating income................................................. 52,293 65,480 59,537 65,812
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary item........................ (2,713) 23,280 19,905 24,211
Extraordinary item............................................... -- (105,347) -- (1,583)
---------- ---------- ---------- ----------
Net earnings (loss).............................................. (2,713) (82,067) 19,905 22,628
---------- ---------- ---------- ----------
Earnings (loss) per common share
Before extraordinary item...................................... (.11) .33 .29 .35
Extraordinary item............................................. -- (1.51) -- (.02)
---------- ---------- ---------- ----------
Net earnings (loss)............................................ (.11) (1.18) .29 .33
---------- ---------- ---------- ----------
1991
Net sales........................................................ $ 337,087 $ 357,297 $ 338,205 $ 340,390
---------- ---------- ---------- ----------
Gross profit..................................................... 95,362 107,176 102,951 100,699
---------- ---------- ---------- ----------
Operating income................................................. 48,934 58,988 64,098 57,000
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary item........................ (2,263) 2,554 5,831 (3,913)
Extraordinary item............................................... 591 -- -- --
---------- ---------- ---------- ----------
Net earnings (loss).............................................. (1,672) 2,554 5,831 (3,913)
---------- ---------- ---------- ----------
Earnings (loss) per common share
Before extraordinary item...................................... (.09) .10 .23 (.16)
Extraordinary item............................................. .02 -- -- --
---------- ---------- ---------- ----------
Net earnings (loss)............................................ (.07) .10 .23 (.16)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

Reference is made to Note 3 for restructuring charge, Note 4 for
extraordinary item and Note 1 for earnings per share. Earnings (loss) per common
share for the year ended December 31, 1992 does not equal the sum of earnings
(loss) per common share for each of the four quarters of 1992 due to the Equity
Offering.

F-21
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENCIES
Coltec and certain of its subsidiaries are liable for lease payments and are
defendants in various lawsuits, including actions involving asbestos-containing
products. With respect to asbestos product liability and related litigation
costs, in 1993 two subsidiaries of Coltec received approximately 27,400 new
lawsuits, with a comparable number of lawsuits received in 1992 and 1991. The
subsidiaries made payments with respect to asbestos liability and related costs
aggregating $38,677,000 in 1993, $39,810,000 in 1992 and $48,442,000 in 1991,
substantially all of which were covered by insurance.

In May 1993, in a case in which neither Coltec nor any of its subsidiaries
were parties, the Supreme Court of Pennsylvania confirmed that the continuous
trigger theory of coverage was applicable to relevant insurance policies
governed by Pennsylvania law and held that the insured could trigger any policy
during the applicable policy period in full without allocating among all
policies providing coverage and without allocating to the insured responsibility
for policy periods in which there was insufficient coverage. Following such
decision, agreement was reached by Coltec with certain of its insurers regarding
the balance of Coltec's primary and most of its first-layer excess coverage and
payments are being made in accordance with the agreement.

Based on the favorable resolution of the primary and most of the first-layer
excess coverage, Coltec anticipates that the continuous trigger theory of
coverage should apply to the balance of Coltec's excess insurance. Therefore,
Coltec believes that it is likely to have coverage for a substantial portion of
foreseeable future asbestos-related actions and litigation costs, and has
reflected payments made for asbestos product liability actions and related
litigation costs, net of recoveries, as a receivable from its insurance
carriers. At December 31, 1993, and 1992, the receivable balance was $59,535,000
and $42,169,000, respectively, and is included in other assets in the
Consolidated Balance Sheet, except for the current portion at December 31, 1993,
$35,838,000, which is in accounts and notes receivable, other.

As of December 31, 1993, certain actions had been settled on a group basis
with payments to be made to individual plaintiffs over periods of one to four
years. In addition, in accordance with Coltec's internal procedures for the
processing of asbestos product liability actions and due to the proximity to
trial or settlement, certain outstanding actions have progressed to a stage
where Coltec can reasonably estimate the cost to dispose of these actions.
Coltec estimates that the aggregate remaining cost of the disposition of the
foregoing settled actions and actions in advanced stages of processing,
including associated legal costs, is approximately $52,600,000 and expects that
this cost will be substantially covered by insurance.

F-22
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted that, with
respect to recently settled actions or actions in advanced stages of processing,
the mix of the injuries alleged and the mix of the occupations of the plaintiffs
are changing from those traditionally associated with Coltec's asbestos-related
actions. Coltec is not able to determine with reasonable certainty whether this
trend will continue. Based upon the foregoing, and due to the unique factors
inherent in each of the actions, including the nature of the disease, the
occupation of the plaintiff, the presence or absence of other possible causes of
a plaintiff's illness, the availability of legal defenses, such as the statute
of limitations or state of the art, and whether the lawsuit is an individual one
or part of a group, management is unable to estimate with reasonable certainty
the cost of disposing of outstanding actions in preliminary procedural stages or
of actions that may be filed in the future. However, Coltec believes that it is
in a favorable position compared to many other defendants because, among other
things, the asbestos fibers in its asbestos-containing products were
encapsulated. Considering the foregoing, as well as the experience of Coltec and
other defendants in asbestos litigation, the likely sharing of judgments among
multiple responsible defendants, and the significant amount of insurance
coverage that Coltec expects to be available from its solvent carriers, Coltec
believes that pending and reasonably anticipated future actions are not likely
to have a material effect on Coltec's results of operations and financial
condition.

Effective in the first quarter of 1994, Coltec will adopt the requirements
of Financial Accounting Standards Board Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts." In accordance with Interpretation No. 39,
Coltec will record an accrual for its liabilities for asbestos-related matters
that are deemed probable and can be reasonably estimated, and will separately
record an asset equal to the amount of such liabilities that is expected to be
recovered by insurance. Accordingly, the liabilities and assets to be recorded
in 1994 will relate only to settled actions and actions in advanced stages of
processing which approximated $52,600,000 as of December 31, 1993. Coltec does
not expect that the adoption of Interpretation No. 39 will have a material
effect on Coltec's results of operations and financial condition.

Under operating lease commitments, expiring on various dates after December
31, 1994, Coltec and certain of its subsidiaries are obligated as of December
31, 1993 to pay rentals totaling $28,283,000 as follows: $6,104,000 in 1994,
$5,021,000 in 1995, $4,085,000 in 1996, $3,042,000 in 1997, $2,796,000 in 1998,
and $7,235,000 in later years. These rent payments are before reduction for
related sublease rental income of $1,375,000.

16. SUBSEQUENT EVENT
On January 11, 1994, Coltec entered into a $415,000,000 reducing revolving
credit facility (the "1994 Credit Agreement"), with a syndicate of banks, which
expires June 30, 1999. The facility also provides up to $100,000,000 for the
issuance of letters of credit and will be reduced $50,000,000 on both January
11, 1997 and 1998. Obligations under the facility are secured by substantially
all of Coltec's assets. Borrowings under the facility bear interest, at Coltec's
option, at an annual rate equal to (i) the base rate or (ii) the Eurodollar rate
plus 1%. The base rate is the higher of (x) 1/2 of 1% in excess of the Federal
Reserve reported certificate of deposit rate, and (y) the prime lending rate, as
in effect from time to time. Letter of credit fees of 1% are payable on
outstanding letters of credit and a commitment fee of 3/8 of 1% is payable on
the unutilized facility.

The facility contains various restrictions and conditions. The most
restrictive of these require that the fixed charge coverage ratio be at least
2.25 to 1 for any period of four consecutive quarters to and including the
fourth quarter of 1994 and thereafter 2.5 to 1. The ratio of current assets to
current liabilities must be at least 1.25 to 1. In addition, the facility limits
or restricts purchases of Coltec's common stock, payment of dividends, capital
expenditures, indebtedness, liens, mergers, asset acquisitions and dispositions,
investments, prepayment of certain debt and transactions with affiliates.

F-23
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

16. SUBSEQUENT EVENT (CONTINUED)
Upon completion of the refinancing on January 11, 1994, borrowings of
$324,000,000 were outstanding and letters of credit of $43,608,000 were issued
under the 1994 Credit Agreement. The 1994 Credit Agreement was used to prepay
indebtedness outstanding and replace letters of credit issued under the 1992
Credit Agreement. The remaining balance of the facility will be used for working
capital and general corporate purposes. In December, 1993, Coltec recorded an
extraordinary charge of $14,675,000, net of a $7,902,000 tax benefit, in
connection with the early retirement of the 1992 Credit Agreement.

F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Coltec Industries Inc:

We have audited the accompanying consolidated balance sheet of Coltec
Industries Inc (a Pennsylvania corporation) and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Coltec Industries Inc and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted acccounting principles.

Arthur Andersen & Co.
New York, N.Y.
January 24, 1994

F-25
<PAGE>
COLTEC I N D U S T R I E S INC
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH 22, 1994
23,211,084 SHARES
COLTEC INDUSTRIES INC
COMMON STOCK
---------------------

------------------------------

INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "CERTAIN
SIGNIFICANT CONSIDERATIONS".

------------------------

PRICE $ A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS (1) STOCKHOLDERS (2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
<FN>
(1) COLTEC AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS".
(2) COLTEC HAS AGREED TO PAY, OR REIMBURSE THE SELLING STOCKHOLDERS FOR,
CERTAIN EXPENSES OF THE OFFERING, WHICH ARE ESTIMATED AT $ .
</TABLE>

------------------------

MORGAN STANLEY & CO.
INTERNATIONAL

CS FIRST BOSTON

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MERRILL LYNCH INTERNATIONAL LIMITED

WERTHEIM SCHRODER
INTERNATIONAL

, 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is an estimate of the fees and expenses payable in
connection with the Offering, none of which will be borne by the Selling
Stockholders:

<TABLE>
<S> <C>
SEC Registration fee...................................... $ 168,582
NASD fee.................................................. 30,500
Printing expenses......................................... *
Legal fees and expenses................................... *
Accounting fees and expenses.............................. *
Blue Sky fees and expenses................................ *
Miscellaneous............................................. *
---------
Total................................................... *
---------
---------
<FN>
- ---------
*To be completed by amendment.
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Reference is made to Sections 1741 and 1742 of the 1988 Business Corporation
Law of the Commonwealth of Pennsylvania, which provide for indemnification of
directors and officers in certain circumstances. In addition, Article VIII of
the By-laws of Coltec provides that, except as prohibited by law, any director,
officer or employee of Coltec is entitled to be indemnified in any action or
proceeding in which he or she may be involved by virtue of holding such
position.

Reference is also made to Section IX of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying directors and officers of Coltec against
certain liabilities.

In addition, Coltec maintains a directors' and officers' liability insurance
policy and has entered into indemnification agreements with each of its
executive officers and directors.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------
<S> <C>
**1.1 Form of Underwriting Agreement.
4.1 Amended and Restated Articles of Incorporation of Coltec (incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form S-1 of
the Registrant, Registration
No. 33-44846, filed on January 7, 1992).
4.2 By-laws of Coltec (incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1 of the Registrant,
Registration No. 33-44846, filed on January 7, 1992).
**5 Opinion of Reed Smith Shaw & McClay regarding the legality of the
securities being registered.
*12.1 Computation of Ratio of Earnings to Fixed Charges.
*23.1 Consent of Arthur Andersen & Co.
**23.2 Consent of Reed Smith Shaw & McClay (included in their opinion filed as
Exhibit 5).
*24 Power of attorney (included on the signature pages to the Registration
Statement).
<FN>
- ---------
*Filed herewith.
**To be filed by amendment.
</TABLE>

II-1
<PAGE>
ITEM 17. UNDERTAKINGS

A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

B. The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(3) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in The City of New York, State of New York, on the 22nd day of March,
1994.

COLTEC INDUSTRIES INC

By: ______/s/_Anthony J. diBuono______
Anthony J. diBuono
Executive Vice President,
General Counsel and Secretary

II-3
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Anthony J. diBuono and Paul G. Schoen, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/s/ David I. Margolis Director, Chairman of the Board
------------------------------------------- and Chief Executive Officer March 22, 1994
David I. Margolis (Principal Executive Officer)
Executive Vice President,
/s/ Paul G. Schoen Finance, Treasurer and
------------------------------------------- Chief Financial Officer March 22, 1994
Paul G. Schoen (Principal Financial and Accounting
Officer)
/s/ John W. Guffey, Jr.
------------------------------------------- Director March 22, 1994
John W. Guffey, Jr.
/s/ J. Bradford Mooney, Jr.
------------------------------------------- Director March 22, 1994
J. Bradford Mooney, Jr.
/s/ Dr. Joel Moses
------------------------------------------- Director March 22, 1994
Dr. Joel Moses
/s/ Andrew C. Hilton
------------------------------------------- Director March 22, 1994
Andrew C. Hilton
/s/ Salvatore J. Cozzolino
------------------------------------------- Director March 22, 1994
Salvatore J. Cozzolino
/s/ Donald P. Brennan
------------------------------------------- Director March 22, 1994
Donald P. Brennan
/s/ Frank V. Sica
------------------------------------------- Director March 22, 1994
Frank V. Sica
/s/ Howard I. Hoffen
------------------------------------------- Director March 22, 1994
Howard I. Hoffen
</TABLE>

II-4

<PAGE>
EXHIBIT 12.1

COLTEC INDUSTRIES INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)

<TABLE>
<CAPTION>
Year Ended December 31,
Proforma ----------------------------------------------------------
1993 (2) 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before
extraordinary item.................... $ 90,609 $ 65,226 $ 64,683 $ 2,209 $ 40,934 $ 50,030
Add (deduct):
Income taxes:
Federal and foreign................. 49,605 36,293 42,577 28,300 33,770 16,777
State and local..................... 5,309 1,877 1,886 1,538 913 (2,303)
Portion of rents representative
of interest factor (1).............. 4,078 4,078 4,283 4,268 4,246 3,998
Interest expense...................... 94,589 111,497 137,797 201,954 206,027 214,983
---------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing
operations before
extraordinary item,
as adjusted........................... $ 244,190 $ 218,971 $ 251,226 $ 238,269 $ 285,890 $ 283,485
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest expense...................... $ 94,589 $ 111,497 $ 137,797 $ 201,954 $ 206,027 $ 214,983
Capitalized interest.................. 1,140 1,140 1,196 955 1,015 577
Portion of rents representative
of interest factor (1).............. 4,078 4,078 4,283 4,268 4,246 3,998
---------- ---------- ---------- ---------- ---------- ----------
Fixed charges........................... $ 99,807 $ 116,715 $ 143,276 $ 207,177 $ 211,288 $ 219,558
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Ratio of earnings to fixed charges...... 2.4 1.9 1.8 1.2 1.4 1.3
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<FN>
- ---------
Note:
(1) Estimated to be 1/3 of total rent expense.
(2) Pro forma to: (a) reflect the 1994 Credit Agreement being entered into
at the beginning of 1993 and (2) exclude the restructuring charge of
$25,219,000 recorded in the second quarter of 1993.
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Coltec Industries Inc:

As independent public accountants, we hereby consent to (1) the
incorporation by reference in this registration statement of our reports dated
January 24, 1994 included and incorporated by reference into Coltec Industries
Inc's Form 10-K for the year ended December 31, 1993, and (2) the use of our
report and to all references to our Firm included in or made a part of this
registration statement.

Arthur Andersen & Co.
New York, N.Y.
March 22, 1994