Market Overview

EnPro Industries Reports Results for the Third Quarter of 2017

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EnPro Industries, Inc. (NYSE:NPO) today announced its financial results
for the three and nine-month periods ended September 30, 2017.

   
Consolidated and Pro Forma Financial Highlights

(Amounts in millions except per share data and percentages)

         
Consolidated Financial Results 1

Excludes Garlock Sealing Technologies LLC prior to July 31, 2017

Quarters Ended September 30   Nine Months Ended September 30
  2017   2016   % ᐃ   2017   2016   % ᐃ
Net Sales $ 343.7   $ 292.7   17.4% $ 947.1   $ 900.8   5.1%
Segment Profit $ 39.4 $ 33.3 18.3% $ 111.0 $ 88.3 25.7%
Segment Margin 11.5% 11.4% 11.7% 9.8%
Net Income (Loss) $ 490.2 $ 6.0 nm $ 505.6 $ (37.2) nm
Diluted Earnings (Loss) Per Share $ 22.49 $ 0.28 nm $ 23.32 $ (1.71) nm
Adjusted Net Income 2 $ 15.9 $ 9.3 71.0% $ 35.5 $ 22.2 59.9%
Adjusted Diluted Earnings Per Share 2 $ 0.73 $ 0.43 69.8% $ 1.64 $ 1.01 62.4%
Adjusted EBITDA 2 $ 51.1 $ 42.4 20.6% $ 139.1 $ 116.6 19.2%
Adjusted EBITDA Margin 2     14.9%     14.5%         14.7%     12.9%    
 
                                 
Pro Forma Financial Information 3

Includes Garlock Sealing Technologies LLC

Quarters Ended September 30   Nine Months Ended September 30
  2017   2016   % ᐃ   2017   2016   % ᐃ
Pro Forma Net Sales 2 $ 355.0 $ 331.1 7.2% $ 1,039.9 $ 1,018.1 2.1%
Pro Forma Segment Profit 2 $ 44.4 $ 38.5 15.3% $ 133.0 $ 104.8 26.9%
Pro Forma Segment Margin 2 12.5% 11.6% 12.8% 10.3%
Pro Forma Adjusted Net Income 2 $ 18.2 $ 18.0 1.1% $ 60.3 $ 48.9 23.3%
Pro Forma Adjusted EBITDA 2 $ 53.6 $ 51.6 3.9% $ 165.9 $ 145.0 14.4%
Pro Forma Adjusted EBITDA Margin 2     15.1%     15.6%         16.0%     14.2%    
 

1 Consolidated results for the third quarters
and first nine months of 2017 and 2016 reflect (i) the
deconsolidation of Garlock Sealing Technologies LLC ("GST") and
its subsidiaries, effective June 5, 2010, when GST filed a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code to
begin a process (the Asbestos Claims Resolution Process, or
"ACRP") in pursuit of an efficient and permanent resolution to all
current and future asbestos claims against it, (ii) the
deconsolidation of OldCo, LLC ("OldCo"), effective January 30,
2017, when it filed a voluntary petition under Chapter 11 of the
U.S. Bankruptcy Code in furtherance of the ACRP, and (iii) the
reconsolidation of GST and its subsidiaries and of OldCo effective
as of July 31, 2017 upon the consummation and effectiveness of the
joint plan of reorganization confirmed in the ACRP.

2 See attached schedules for adjustments and
reconciliations to GAAP numbers.

3 Pro forma financial information in these
tables and throughout this press release is presented as if GST
and OldCo were reconsolidated with EnPro throughout the periods
presented based on the consummation of the joint plan of
reorganization, which was consummated on July 31, 2017. See
attached unaudited condensed consolidated pro forma statements of
operations.

 

Business Highlights

  • We experienced strong third quarter sales and earnings performance
    despite several facilities being adversely impacted by hurricanes.
  • On July 31, the joint plan of reorganization was consummated and
    GST and related entities were reconsolidated with EnPro for financial
    reporting purposes.
  • As a result of the reconsolidation, consolidated financial results
    for the third quarter include August and September results for GST in
    addition to accounting adjustments made in accordance with the
    reconsolidation.
  • Consolidated net income reflects a $534.4 million non-cash gain
    recognized on the reconsolidation of GST, partially offset by a $10.1
    million non-cash impairment of intangible assets associated with AT
    Dynamics, which was acquired in February 2015.
  • In connection with the joint plan of reorganization in the third
    quarter, EnPro funded $400.0 million to satisfy a significant portion
    of the U.S. asbestos trust obligation and $16.7 million to fully
    satisfy the Canadian asbestos settlement obligation. An additional
    $80.0 million payment to satisfy the remaining U.S. asbestos trust
    obligation will be made prior to July 31, 2018.
  • Capital allocation highlights:
    • The company purchased 24,494 shares for $1.7 million in the
      third quarter as part of the share repurchase program that was
      authorized in October 2015.
    • EnPro also announced that its Board of Directors authorized the
      company to repurchase up to $50 million of its common shares over
      a three year period of time beginning on October 28, 2017.
    • The company paid a $0.22 per share dividend with a total value
      of $4.7 million.

"I am very pleased with the positive sales and earnings growth
experienced in all of our segments in the third quarter. We continue to
experience strengthening conditions in several of our core end markets,
and our teams are executing well on their defined growth strategies,"
said Steve Macadam, President and CEO. "While several of our facilities
within the Sealing Products and Engineered Products segments were
adversely impacted by hurricane activity in the third quarter, we are
encouraged by the strong performance in both segments despite lost or
deferred volumes as a result of the storms. Excluding the impact of
foreign exchange translation, acquisitions, divestitures and the
reconsolidation of GST on consolidated results, total company sales
increased by 4.1% on a consolidated basis and 6.0% on a pro forma basis
versus the third quarter of last year. Importantly, each of our segments
generated year-over-year growth."

"As we discussed when we released our second quarter results, on July
31, 2017, the joint plan of reorganization was consummated, and GST and
related entities were reconsolidated with EnPro for financial reporting
purposes. We are extremely excited about the completion of the ACRP and
look forward to a future free of asbestos claims."

Mr. Macadam continued, "We remain committed to our strategy to create
shareholder value through earnings growth and balanced capital
allocation, including disciplined investments for organic growth and
innovation, strategic acquisitions, and returning capital to
shareholders through dividends and share repurchases."

Demand in semiconductor, aerospace, automotive, food & pharma, metals &
mining and general industrial continued to be strong during the quarter,
while demand in heavy-duty trucking and oil & gas increased modestly
year-over-year. Power Systems experienced increased sales versus the
third quarter of last year driven by higher aftermarket parts sales.
This positive momentum was partially offset by continued softness in
nuclear and industrial gas turbines. In total, acquisitions, net of
divestitures, contributed 0.2% sales growth on a consolidated and pro
forma basis, while foreign exchange had a positive impact of 1.0% on a
consolidated basis and 1.1% on a pro forma basis.

Segment profit in the third quarter was up year-over-year on a
consolidated and pro forma basis due to a variety of factors. Sealing
Products' consolidated segment profit increased from the prior year due
to strong sales growth and the inclusion of two months of GST's results,
partially offset by unfavorable sales mix, slightly higher SG&A
expenses, and adjustments related to the reconsolidation of GST. Sealing
Products' pro forma segment profit increased from the prior year due to
strong sales growth, partially offset by unfavorable sales mix and
slightly higher SG&A expenses. Engineered Products grew consolidated and
pro forma segment profit compared to the same period last year as a
result of higher sales and continued positive impact from cost-reduction
efforts and restructuring activities that occurred throughout 2016,
partially offset by increases in incentive compensation expense. Power
Systems' segment profit was higher on a consolidated and pro forma basis
driven primarily by higher aftermarket sales and contract accounting
adjustments for several major engine programs. Excluding the impact of
acquisitions and divestitures and related costs, including a $1.5
million positive contingent purchase price adjustment in the third
quarter of 2016 related to the Fabrico acquisition, foreign exchange
translation, restructuring charges, and charges related to the
reconsolidation, total pro forma segment profit was 14.3% higher
compared to the third quarter of 2016.

The company's average diluted share count in the third quarter of 2017
was 21.8 million shares, approximately 0.1 million more than in the same
period a year ago. The increase was due to stock compensation award
grants which were partially offset by share repurchases in connection
with the $50 million repurchase program authorized in October 2015.
During the third quarter, the company purchased 24,494 shares at a total
cost of $1.7 million. Through the end of the third quarter, the company
had purchased a total of 898,060 shares as part of the program, at a
total investment of $47.2 million.

Outlook

"We continue to be encouraged by the positive financial performance in
our Sealing Products and Engineered Products segments in the third
quarter, driven by increased volumes. Additionally, in Power Systems, we
expect continued improvement in the fourth quarter versus 2016 largely
driven by production scheduling for key programs and increases in
aftermarket parts and service. Given continued strength in a number of
our markets, current macroeconomic forecasts, and customer order
patterns, we are increasing guidance for 2017 adjusted EBITDA from our
previous full-year range of $200 to $205 million to a revised full-year
range of $207 to $212 million. This revised range includes the impact
from the previously announced Qualiseal acquisition and excludes any
impact of further M&A activity, changes in foreign exchange rates from
the end of the third quarter, accounting adjustments associated with the
reconsolidation of GST and OldCo, and any fourth quarter litigation or
environmental charges," said Mr. Macadam.

Share Repurchase Authorization

EnPro announced that its Board of Directors authorized the company to
repurchase up to $50 million of its common shares over a three year
period of time. Under this new authorization, which became effective on
October 28, 2017, the company may repurchase shares in both open market
and privately negotiated transactions. The company's management will
determine the timing and amount of the transactions based on its
evaluation of market conditions, capital alternatives, and other
factors. Repurchases may also be made under Rule 10b5-1 plans, which
permit the company to repurchase shares when it otherwise would be
precluded from doing so under insider trading laws. The repurchase
program may be suspended or discontinued at any time and expires in
three years.

Pro Forma Results Including Deconsolidated Subsidiaries

To aid comparisons of year-over-year data, the company has included
information in this press release showing key operating metrics for
EnPro and its formerly deconsolidated subsidiaries, GST and OldCo, on a
pro forma reconsolidated basis. These metrics are derived from tables
attached to this press release that illustrate, on a pro forma basis,
total financial results for the third quarters and first nine months of
2017 and 2016 as if GST and OldCo were reconsolidated with EnPro
throughout the periods presented based on consummation of the joint plan
of reorganization, which was consummated on July 31, 2017. In response
to requests from investors, we are providing the pro forma financial
information in this release as supplemental information as it reflects
the performance of all of our subsidiaries.

Conference Call and Webcast Information

EnPro will hold a conference call tomorrow, October 31, at 10:00 a.m.
Eastern Time to discuss third quarter 2017 results. Investors who wish
to participate in the call should dial 1-800-851-4704 approximately 10
minutes before the call begins and provide conference ID number
53479823. A live audio webcast of the call and accompanying slide
presentation will be accessible from the company's website, http://www.enproindustries.com.
To access the presentation, log on to the webcast by clicking the link
on the company's home page.

Non-GAAP Financial Information

This press release contains financial measures that have not been
prepared in accordance with GAAP. They include adjusted net income,
adjusted diluted earnings per share, pro forma adjusted net income,
adjusted EBITDA, pro forma adjusted EBITDA, adjusted EBITDA margin and
pro forma adjusted EBITDA margin, as well as segment adjusted EBITDA,
segment adjusted EBITDA margin, pro forma segment adjusted EBITDA and
pro forma segment adjusted EBITDA margin. Tables showing the effect of
these non-GAAP financial measures for the third quarters and first nine
months of 2017 and 2016 are attached to the release. Adjusted EBITDA
anticipated for full year 2017 is calculated in a manner consistent with
the presentation of adjusted EBITDA in the attached tables. Because of
the forward-looking nature of this estimate of adjusted EBITDA, it is
impractical to present a quantitative reconciliation of such measure to
a comparable GAAP measure, and accordingly no such GAAP measure is being
presented.

Forward-Looking Statements

Statements in this press release that express a belief, expectation or
intention, as well as those that are not historical fact, are
forward-looking statements under the Private Securities Litigation
Reform Act of 1995. They involve a number of risks and uncertainties
that may cause actual events and results to differ materially from such
forward-looking statements. These risks and uncertainties include, but
are not limited to: general economic conditions in the markets served by
our businesses, some of which are cyclical and experience periodic
downturns; prices and availability of raw materials; and the amount of
any payments required to satisfy contingent liabilities related to
discontinued operations of our predecessors, including liabilities for
certain products, environmental matters, employee benefit obligations
and other matters. Our filings with the Securities and Exchange
Commission, including the Form 10-K for the year ended December 31,
2016, describe these and other risks and uncertainties in more detail.
We do not undertake to update any forward-looking statements made in
this press release to reflect any change in management's expectations or
any change in the assumptions or circumstances on which such statements
are based.

About EnPro Industries

EnPro Industries, Inc. is a leader in sealing products, metal polymer
and filament wound bearings, components and service for reciprocating
compressors, diesel and dual-fuel engines and other engineered products
for use in critical applications by industries worldwide. For more
information about EnPro, visit the company's website at http://www.enproindustries.com.

APPENDICES

Highlights of Segment Results: Third Quarter of 2017

Consolidated Financial Information and Reconciliations

Introduction of Unaudited Pro Forma Financial Information

Pro Forma Financial Information and Reconciliations

   

Sealing Products Segment

 
    Quarters Ended September 30   Nine Months Ended September 30
($ Millions)   2017   2016   % ᐃ   2017   2016   % ᐃ
Consolidated Sales $ 213.7   $ 175.3   21.9% $ 584.3   $ 532.6   9.7%
Consolidated Segment Profit $ 23.5 $ 23.1 1.7% $ 65.0 $ 62.4 4.2%
Consolidated Segment Margin 11.0% 13.2% 11.1% 11.7%
Consolidated Adjusted EBITDA 1 $ 40.1 $ 32.8 22.3% $ 101.9 $ 92.3 10.4%
Consolidated Adjusted EBITDA Margin 1 18.8% 18.7% 17.4% 17.3%
 
Pro Forma Sales 2 $ 224.6 $ 213.1 5.4% $ 673.8 $ 647.5 4.1%
Pro Forma Segment Profit 2 $ 28.2 $ 27.9 1.1% $ 85.3 $ 77.7 9.8%
Pro Forma Segment Margin 2 12.6% 13.1% 12.7% 12.0%
Pro Forma Adjusted EBITDA 1,2 $ 42.4 $ 41.8 1.4% $ 127.9 $ 120.2 6.4%
Pro Forma Adjusted EBITDA Margin 1,2     18.9%     19.6%         19.0%     18.6%    

1 See attached schedules for adjustments and
reconciliations to GAAP numbers.

2 See attached unaudited condensed consolidated
pro forma statements of operations.

 

Segment Highlights

  • Consolidated and pro forma sales increased in the third quarter versus
    the prior year due to strength in semiconductor, aerospace, food &
    pharma, heavy-duty trucking, metals & mining, and general industrial,
    while industrial gas turbines and nuclear experienced continued
    headwinds. Excluding the impact of acquisitions, divestitures, foreign
    exchange translation, and the reconsolidation of GST on consolidated
    results, consolidated sales increased 1.9% and pro forma sales
    increased 4.5% compared to the third quarter of 2016.
  • Consolidated segment profit increased in the third quarter versus
    prior year as a result of sales growth and the reconsolidation of GST
    for two months in the quarter, partially offset by a $3.8 million fair
    market value inventory adjustment and a $1.7 million increase in
    amortization related to the reconsolidation. Pro forma segment profit
    increased in the third quarter versus prior year due to sales growth,
    partially offset by unfavorable product mix with higher semiconductor
    and lower nuclear and industrial gas turbines sales compared to prior
    year, and slightly higher SG&A costs. Excluding the impact of
    acquisitions and related charges, including a $1.5 million positive
    contingent purchase price adjustment in the third quarter of last year
    related to the Fabrico acquisition, divestitures, foreign exchange
    translation, restructuring inventory fair value charges and the
    reconsolidation of GST on consolidated results, consolidated segment
    profit decreased 3.4% and pro forma segment profit increased 6.8%.
  • Excluding the impact of acquisitions, divestitures, restructuring
    costs, and charges related to the reconsolidation, segment SG&A costs
    in the third quarter were $1.4 million higher on a pro forma basis
    versus the same period of 2016.
  • Several facilities in the Sealing Products segment were impacted by
    hurricane activity in Texas and Florida in the third quarter, and we
    estimate segment profit was reduced by approximately $1.5 million as a
    result of lost or deferred sales and cost incurred due to temporary
    plant closings.
   

Engineered Products Segment

         
    Quarters Ended September 30   Nine Months Ended September 30
($ Millions)   2017   2016   % ᐃ   2017   2016   % ᐃ
Consolidated Sales $ 75.5   $ 65.7   14.9% $ 226.3   $ 213.5   6.0%
Consolidated Segment Profit $ 7.7 $ 2.9 165.5% $ 25.4 $ 10.4 144.2%
Consolidated Segment Margin 10.2% 4.4% 11.2% 4.9%
Consolidated Adjusted EBITDA 1 $ 11.7 $ 8.6 36.0% $ 38.9 $ 28.7 35.5%
Consolidated Adjusted EBITDA Margin 1 15.5% 13.1% 17.2% 13.4%
 
Pro Forma Sales 2 $ 75.6 $ 65.8 14.9% $ 226.7 $ 214.2 5.8%
Pro Forma Segment Profit 2 $ 7.8 $ 3.0 160.0% $ 25.6 $ 10.9 134.9%
Pro Forma Segment Margin 2 10.3% 4.6% 11.3% 5.1%
Pro Forma Adjusted EBITDA 1,2 $ 11.8 $ 8.7 35.6% $ 39.2 $ 29.3 33.8%
Pro Forma Adjusted EBITDA Margin 1,2     15.6%     13.2%         17.3%     13.7%    

1 See attached schedules for adjustments and
reconciliations to GAAP numbers.

2 See attached unaudited condensed consolidated
pro forma statements of operations.

 

Segment Highlights

  • Sales increased in the third quarter versus the prior year due to
    strength in the general industrial, automotive, aerospace, and North
    American and European oil & gas markets. Excluding the impact of
    foreign exchange translation, and the reconsolidation of GST on
    consolidated results, consolidated sales increased 11.8% and pro forma
    sales increased 11.7% in the third quarter versus the same period in
    2016.
  • Segment profit increased in the third quarter versus prior year as a
    result of higher sales and continued positive impact from
    cost-reduction efforts and restructuring activities that occurred
    throughout 2016. Excluding the impact of restructuring costs,
    favorable foreign exchange translation, and the GST reconsolidation,
    third quarter consolidated segment profit increased 67.3% and pro
    forma segment profit increased 64.4% from a year ago.
  • Excluding restructuring costs, segment SG&A costs in the third quarter
    were $1.0 million higher on a pro forma basis versus the same period
    of 2016. Increased SG&A costs were driven primarily by incentive
    compensation expense, partially offset by cost-reduction efforts
    completed in 2016.
  • The hurricane in Texas impacted the Engineered Products segment in the
    third quarter, and we estimate segment profit was reduced by
    approximately $0.8 million as a result of lost or deferred sales and
    cost incurred due to temporary plant closings.
   

Power Systems Segment

         
    Quarters Ended September 30   Nine Months Ended September 30
($ Millions)   2017   2016   % ᐃ   2017   2016   % ᐃ
Consolidated Sales $ 55.4   $ 52.5   5.5% $ 139.4   $ 157.2   (11.3%)
Consolidated Segment Profit $ 8.2 $ 7.3 12.3% $ 20.6 $ 15.5 32.9%
Consolidated Segment Margin 14.8% 13.9% 14.8% 9.9%
Consolidated Adjusted EBITDA 1 $ 9.4 $ 8.3 13.3% $ 24.1 $ 19.3 24.9%
Consolidated Adjusted EBITDA Margin 1 17.0% 15.8% 17.3% 12.3%
 
Pro Forma Sales 2 $ 55.8 $ 53.0 5.3% $ 142.7 $ 159.3 (10.4%)
Pro Forma Segment Profit 2 $ 8.4 $ 7.6 10.5% $ 22.1 $ 16.2 36.4%
Pro Forma Segment Margin 2 15.1% 14.3% 15.5% 10.2%
Pro Forma Adjusted EBITDA 1,2 $ 9.6 $ 8.6 11.6% $ 25.5 $ 20.0 27.5%
Pro Forma Adjusted EBITDA Margin 1,2     17.2%     16.2%         17.9%     12.6%    

1 See attached schedules for adjustments and
reconciliations to GAAP numbers.

2 See attached unaudited condensed consolidated
pro forma statements of operations.

 

Segment Highlights

  • Sales increased in the third quarter versus the same period last year
    primarily due to higher aftermarket parts revenue.
  • Segment profit was higher in the third quarter compared to the same
    period last year due to higher aftermarket parts revenue, lower
    warranty costs and a positive LIFO inventory adjustment, partially
    offset by lower margins on engine programs and a net $0.8 million
    negative adjustment for the EDF contract. The EDF contract adjustment
    was driven by increased production cost estimates partially offset by
    favorable foreign exchange in the third quarter. Excluding the impact
    of restructuring costs, non-EDF related favorable foreign exchange
    translation, and the GST reconsolidation, consolidated segment profit
    increased 6.0% and pro forma segment profit increased 11.5% in the
    third quarter from a year ago.
  • Excluding restructuring costs, segment SG&A costs in the third quarter
    were $0.1 million higher on a pro forma basis versus the same period
    of 2016.
 
EnPro Industries, Inc.
           
Consolidated Statements of Operations (Unaudited)
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars, Except Per Share Data)
 
        Quarters Ended   Nine Months Ended
September 30, September 30, September 30, September 30,
        2017   2016   2017   2016
Net sales $ 343.7 $ 292.7 $ 947.1 $ 900.8
Cost of sales     228.5       194.1       625.8       596.7  
 
  Gross profit     115.2       98.6       321.3       304.1  
 
Operating expenses:
Selling, general and administrative 85.7 70.9 232.7 231.7
Asbestos settlement - - - 80.0
  Other     11.0       2.4       15.4       10.4  
 
    Total operating expenses     96.7       73.3       248.1       322.1  
 
Operating income (loss) 18.5 25.3 73.2 (18.0 )
 
Interest expense (11.2 ) (14.3 ) (42.2 ) (41.7 )
Interest income 0.9 0.3 1.0 0.7
Gain on reconsolidation of GST and OldCo 534.4 - 534.4 -
Other expense     (1.9 )     (1.3 )     (5.1 )     (5.4 )
 
Income (loss) before income taxes 540.7 10.0 561.3 (64.4 )
Income tax benefit (expense)     (50.5 )     (4.0 )     (55.7 )     27.2  
 
  Net income (loss)   $ 490.2     $ 6.0     $ 505.6     $ (37.2 )
 
Basic earnings (loss) per share   $ 22.98     $ 0.28     $ 23.68     $ (1.71 )
Average common shares outstanding (millions)     21.3       21.5       21.4       21.7  
 
Diluted earnings (loss) per share   $ 22.49     $ 0.28     $ 23.32     $ (1.71 )
Average common shares outstanding (millions)     21.8       21.7       21.7       21.7  
 
     
EnPro Industries, Inc.
     
Consolidated Statements of Cash Flows (Unaudited)          
 
For the Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
2017   2016
Operating activities
Net income (loss) $ 505.6 $ (37.2 )

Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

Depreciation 23.5 22.8
Amortization 21.8 19.9
Gain on reconsolidation of GST and OldCo (534.4 ) -
Asbestos settlement - 80.0
Deferred income taxes 42.6 (38.7 )
Stock-based compensation 5.2 4.8
Other non-cash adjustments 13.4 0.8

Change in assets and liabilities, net of effects of acquisition,
deconsolidation and reconsolidation of businesses:

Asbestos liabilities, net of insurance receivables 9.9 -
Accounts receivable, net (22.8 ) (8.3 )
Inventories 0.6 2.0
Accounts payable 5.1 (17.4 )
Other current assets and liabilities 0.5 (4.7 )
      Other non-current assets and liabilities       (6.6 )     (16.1 )
        Net cash provided by operating activities       64.4       7.9  
 
Investing activities
Purchases of property, plant and equipment (23.6 ) (24.6 )
Payments for capitalized internal-use software (2.6 ) (3.1 )
Acquisitions, net of cash acquired (39.5 ) (28.5 )
Reconsolidation of GST and OldCo 41.1 -
Deconsolidation of OldCo (4.8 ) -
Capital contribution to OldCo (45.2 ) -
  Other                 0.4       3.7  
        Net cash used in investing activities       (74.2 )     (52.5 )
 
Financing activities
Proceeds from debt 503.0 303.3
Repayments of debt (409.3 ) (192.7 )
Repurchase of common stock (11.5 ) (26.2 )
Dividends paid (14.3 ) (13.6 )
  Other                 (2.5 )     (3.1 )
        Net cash provided by financing activities       65.4       67.7  
 
Effect of exchange rate changes on cash and cash equivalents       9.0       (11.7 )
 
Net increase in cash and cash equivalents 64.6 11.4
Cash and cash equivalents at beginning of period       111.5       103.4  
Cash and cash equivalents at end of period       $ 176.1     $ 114.8  
 
 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 44.8 $ 39.7
Income taxes $ 8.9 $ 26.8
 
 
EnPro Industries, Inc.
   
Consolidated Balance Sheets (Unaudited)        
 
As of September 30, 2017 and December 31, 2016
(Stated in Millions of Dollars)
 
 
2017   2016
Current assets
Cash and cash equivalents $ 176.1 $ 111.5
Accounts receivable 247.7 208.1
Inventories 210.8 175.4
  Other current assets     71.4       29.9  
Total current assets 706.0 524.9
 
Property, plant and equipment 284.2 215.4
Goodwill 344.7 201.5
Other intangible assets 353.3 176.9
Investment in GST - 236.9
Deferred income taxes and income tax receivable 88.8 152.6
Other assets     65.4       38.2  
    Total assets   $ 1,842.4     $ 1,546.4  
 
Current liabilities
Short-term borrowings from GST $ - $ 26.2
Notes payable to GST - 12.7
Current maturities of long-term debt 0.2 0.2
Accounts payable 111.8 102.9
Asbestos liability - current 80.0 30.0
  Accrued expenses     119.7       131.0  
Total current liabilities 311.7 303.0
 
Long-term debt 560.4 424.8
Notes payable to GST - 283.2
Asbestos liability - 80.0
Other liabilities     103.8       96.9  
    Total liabilities     975.9       1,187.9  
 
 
Shareholders' equity
Common stock 0.2 0.2
Additional paid-in capital 343.4 346.5
Retained earnings 575.0 84.0
Accumulated other comprehensive loss (50.8 ) (70.9 )
  Common stock held in treasury, at cost     (1.3 )     (1.3 )
    Total shareholders' equity     866.5       358.5  
    Total liabilities and equity   $ 1,842.4     $ 1,546.4  
 
     
EnPro Industries, Inc.
   
Segment Information (Unaudited)                  
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
 
Sales                    
Quarters Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
Sealing Products $ 213.7 $ 175.3 $ 584.3 $ 532.6
Engineered Products 75.5 65.7 226.3 213.5
Power Systems         55.4       52.5       139.4       157.2  
344.6 293.5 950.0 903.3
Less intersegment sales       (0.9 )     (0.8 )     (2.9 )     (2.5 )
            $ 343.7     $ 292.7     $ 947.1     $ 900.8  
 
 
Segment Profit                    
Quarters Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
Sealing Products $ 23.5 $ 23.1 $ 65.0 $ 62.4
Engineered Products 7.7 2.9 25.4 10.4
Power Systems         8.2       7.3       20.6       15.5  
            $ 39.4     $ 33.3     $ 111.0     $ 88.3  
 
 
Segment Margin                    
Quarters Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Sealing Products 11.0 % 13.2 % 11.1 % 11.7 %
Engineered Products 10.2 % 4.4 % 11.2 % 4.9 %
Power Systems         14.8 %     13.9 %     14.8 %     9.9 %
              11.5 %     11.4 %     11.7 %     9.8 %
 
 
Reconciliation of Segment Profit to Net Income (Loss)            
Quarters Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
Segment profit $ 39.4 $ 33.3 $ 111.0 $ 88.3
Corporate expenses (9.7 ) (6.4 ) (24.3 ) (21.9 )
Asbestos settlement - - - (80.0 )
Gain on reconsolidation of GST and OldCo 534.4 - 534.4 -
Interest expense, net (10.3 ) (14.0 ) (41.2 ) (41.0 )
Other expense, net       (13.1 )     (2.9 )     (18.6 )     (9.8 )
 
Income (loss) before income taxes 540.7 10.0 561.3 (64.4 )
Income tax benefit (expense)       (50.5 )     (4.0 )     (55.7 )     27.2  
Net income (loss)       $ 490.2     $ 6.0     $ 505.6     $ (37.2 )
 

Segment profit is total segment revenue reduced by operating
expenses and restructuring and other costs identifiable with the
segment.  Corporate expenses include general corporate
administrative costs.  Expenses not directly attributable to the
segments, corporate expenses, net interest expense, asset
impairments, gains/losses related to the sale of assets and income
taxes are not included in the computation of segment profit.  The
accounting policies of the reportable segments are the same as
those for the Company.

 
           
EnPro Industries, Inc.
 
Reconciliation of Consolidated Net Income (Loss) to Consolidated
Adjusted Net Income and
Consolidated Adjusted Diluted Earnings Per Share (Unaudited)  
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars, Except Per Share Data)
 
 
Quarters Ended September 30,
2017 2016
$  

Average common
shares outstanding,
diluted (millions)

  Per share $  

Average common
shares outstanding,
diluted (millions)

  Per share
 
Net income $ 490.2 21.8 $ 22.49 $ 6.0 21.7 $ 0.28
 
Income tax expense     50.5               4.0          
 
Income before income taxes 540.7 10.0
 
Adjustments:
 
Gain on reconsolidation of GST and OldCo (534.4 ) -
 
Impairment of ATD intangible assets 10.1 -
 
Environmental reserve adjustment 1.9 1.2
 
Restructuring costs 0.3 2.2
 
Fair value adjustment to acquisition date inventory 4.1 -
 
Acquisition expenses 0.1 -
 
  Other     0.7               0.4          
 
Adjusted income before income taxes 23.5 13.8
 
  Adjusted income tax expense     (7.6 )             (4.5 )        
 
Adjusted net income   $ 15.9     21.8   $ 0.73   $ 9.3     21.7   $ 0.43  
 
 
Nine Months Ended September 30,
2017 2016
$  

Average common
shares outstanding,
diluted (millions)

  Per share $  

Average common
shares outstanding,
diluted (millions)

  Per share
 
Net income (loss) $ 505.6 21.7 $ 23.32 $ (37.2 ) 21.7 $ (1.71 )
 
Income tax expense (benefit)     55.7               (27.2 )        
 
Income (loss) before income taxes 561.3 (64.4 )
 
Adjustments:
 
Asbestos settlement - 80.0
 
Gain on reconsolidation of GST and OldCo (534.4 ) -
 
Impairment of ATD intangible assets 10.1 -
 
Restructuring costs 3.8 9.2
 
Environmental reserve adjustment 5.2 5.3
 
Fair value adjustment to acquisition date inventory 4.2 -
 
Acquisition expenses 0.7 0.8
 
  Other     1.7               2.0          
 
Adjusted income before income taxes 52.6 32.9
 
  Adjusted income tax expense     (17.1 )             (10.7 )        
 
Adjusted net income   $ 35.5     21.7   $ 1.64   $ 22.2     21.9   $ 1.01  
 

Management of the Company believes that it would be helpful to the
readers of the financial statements to understand the impact of
certain selected items on the Company's reported net income and
earnings per share, including items that may recur from time to
time.  The items adjusted for in this schedule are those that are
excluded by management in budgeting or projecting for performance
in future periods, as they typically relate to events specific to
the period in which they occur. This presentation enables readers
to better compare EnPro Industries, Inc. to other diversified
industrial manufacturing companies that do not incur the sporadic
impact of restructuring activities or other selected items.
Management acknowledges that there are many items that impact a
company's reported results and this list is not intended to
present all items that may have impacted these results.

 

The fair value adjustment to acquisition date inventory is
reflected in cost of sales. The acquisition expenses are included
in selling, general and administrative expenses, and the
impairment of ATD intangible assets, restructuring costs,
environmental reserve adjustment, and other are included as part
of other operating expense and other expense.

 

The adjusted income tax expense presented above is calculated
using a normalized company-wide effective tax rate excluding
discrete items of 32.5%.  Per share amounts were calculated by
dividing by the weighted-average shares of diluted common stock
outstanding during the periods.  In the nine months ended
September 30, 2016, there was a loss attributable to common
shares.  There were 0.2 million potentially dilutive shares
excluded from the calculation of consolidated earnings per share
for the nine months ended September 30, 2016 since they were
antidilutive, which are added back for the purpose of calculating
adjusted net income per share for that period.

 
       
EnPro Industries, Inc.
   
Reconciliation of Segment Profit to Adjusted Segment EBITDA
(Unaudited)
       
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
 
Quarter Ended September 30, 2017
Sealing Engineered Power Total
Products   Products   Systems   Segments
 
 
Segment profit $ 23.5 $ 7.7 $ 8.2 $ 39.4
 
Acquisition expenses* 4.2 - - 4.2
Restructuring costs 0.5 (0.2 ) - 0.3
Depreciation and amortization expense   11.9       4.2       1.2       17.3  

Earnings before interest, income taxes, depreciation,
amortization, and other selected items (adjusted segment EBITDA)

$ 40.1     $ 11.7     $ 9.4     $ 61.2  
Adjusted segment EBITDA margin   18.8 %     15.5 %     17.0 %     17.8 %
 
Quarter Ended September 30, 2016
Sealing Engineered Power Total
Products   Products   Systems   Segments
 
 
Segment profit $ 23.1 $ 2.9 $ 7.3 $ 33.3
 
Restructuring costs 0.6 1.3 (0.1 ) 1.8
Depreciation and amortization expense   9.1       4.4       1.1       14.6  
Adjusted segment EBITDA $ 32.8     $ 8.6     $ 8.3     $ 49.7  
Adjusted segment EBITDA margin   18.7 %     13.1 %     15.8 %     17.0 %
 
Nine Months Ended September 30, 2017
Sealing Engineered Power Total
Products   Products   Systems   Segments
 
 
Segment profit $ 65.0 $ 25.4 $ 20.6 $ 111.0
 
Acquisition expenses* 4.8 0.1 - 4.9
Restructuring costs 2.8 1.0 - 3.8
Depreciation and amortization expense   29.3       12.4       3.5       45.2  
Adjusted segment EBITDA $ 101.9     $ 38.9     $ 24.1     $ 164.9  
Adjusted segment EBITDA margin   17.4 %     17.2 %     17.3 %     17.4 %
 
Nine Months Ended September 30, 2016
Sealing Engineered Power Total
Products   Products   Systems   Segments
 
 
Segment profit $ 62.4 $ 10.4 $ 15.5 $ 88.3
 
Acquisition expenses* 0.7 0.1 - 0.8
Restructuring costs 3.3 4.8 0.4 8.5
Depreciation and amortization expense   25.9       13.4       3.4       42.7  
Adjusted segment EBITDA $ 92.3     $ 28.7     $ 19.3     $ 140.3  
Adjusted segment EBITDA margin   17.3 %     13.4 %     12.3 %     15.6 %
 
*Includes fair value adjustments to acquisition date inventory.
 

For a reconciliation of segment profit to net income (loss),
please refer to the Segment Information (Unaudited) schedule.

 
         
EnPro Industries, Inc.
   
Reconciliation of to Consolidated Net Income (Loss) to Consolidated
Adjusted EBITDA (Unaudited)                  
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
Quarters Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
 
Net income (loss) $ 490.2 $ 6.0 $ 505.6 $ (37.2 )
 

Adjustments to arrive at earnings before interest, income taxes,
depreciation and amortization (EBITDA):

 
Interest expense, net 10.3 14.0 41.2 41.0
 
Income tax expense (benefit) 50.5 4.0 55.7 (27.2 )
 
Depreciation and amortization expense   17.3       14.6   45.3       42.7  
 
EBITDA 568.3 38.6 647.8 19.3
 

Adjustments to arrive at earnings before interest, income taxes,
depreciation, amortization and other selected items (Consolidated
Adjusted EBITDA):

 
Asbestos settlement - - - 80.0
 
Gain on reconsolidation of GST and OldCo (534.4 ) - (534.4 ) -
 
Impairment of ATD intangible assets 10.1 - 10.1 -
 
Restructuring costs 0.3 2.2 3.8 9.2
 
Acquisition expenses 0.1 - 0.7 0.7
 
Fair value adjustment to acquisition date inventory 4.1 - 4.2 0.1
 
Environmental reserve adjustment 1.9 1.2 5.2 5.3
 
Other   0.7       0.4   1.7       2.0  
 
Consolidated adjusted EBITDA $ 51.1     $ 42.4 $ 139.1     $ 116.6  
 

* Consolidated adjusted EBITDA as presented also
represents the amount defined as "EBITDA" under the indenture
governing the Company's 5.875% senior notes due 2022.

 

Unaudited Pro Forma Information Reflecting the Reconsolidation of
Garlock Sealing Technologies and Other Deconsolidated Subsidiaries

The historical business operations of EnPro's subsidiaries, Garlock
Sealing Technologies LLC ("GST LLC") and The Anchor Packing Company
("Anchor"), resulted in a substantial volume of asbestos litigation in
which plaintiffs alleged personal injury or death as a result of
exposure to asbestos fibers. Those subsidiaries manufactured and/or sold
industrial sealing products, predominately gaskets and packing, that
contained encapsulated asbestos fibers. Anchor is an inactive and
insolvent indirect subsidiary of EnPro. EnPro's subsidiaries' exposure
to asbestos litigation and their relationships with insurance carriers
have been managed through another subsidiary, Garrison Litigation
Management Group, Ltd. ("Garrison"). GST LLC, Anchor and Garrison are
collectively referred to as "GST."

On June 5, 2010 (the "Petition Date"), GST filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code in
the U.S. Bankruptcy Court for the Western District of North Carolina in
Charlotte (the "Bankruptcy Court"). The filings were the initial step in
an asbestos claims resolution process.

The financial results of GST and its subsidiaries had been included in
EnPro's consolidated results through June 4, 2010, the day prior to the
Petition Date. However, U.S. generally accepted accounting principles
require an entity that files for protection under the U.S. Bankruptcy
Code, whether solvent or insolvent, whose financial statements were
previously consolidated with those of its parent, as GST's and its
subsidiaries' were with EnPro's, generally must be prospectively
deconsolidated from the parent and the investment accounted for using
the cost method. Accordingly, the financial results of GST and its
subsidiaries are not included in EnPro's consolidated results after June
4, 2010 until the reconsolidation described below.

On March 17, 2016, EnPro announced that it had reached a comprehensive
settlement to resolve current and future asbestos claims. The settlement
was reached with the court-appointed committee representing current
asbestos claimants (the "GST Committee") and the court-appointed legal
representative of future asbestos claimants (the "GST FCR") in GST's
Chapter 11 case pending before the Bankruptcy Court. Representatives for
current and future asbestos claimants (the "Coltec Representatives")
against Coltec Industries Inc ("Coltec") (another subsidiary of EnPro
and, at that time, GST's direct parent) also joined in the settlement.
The terms of the settlement are set forth in the Term Sheet for
Permanent Resolution of All Present and Future GST Asbestos Claims and
Coltec Asbestos Claims dated March 17, 2016 among EnPro, Coltec, GST,
the GST Committee, the GST FCR and the Coltec Representatives included
as Exhibit 99.2 to EnPro's Form 8-K filed on March 18, 2016. Under the
settlement, the GST Committee, the GST FCR and the Coltec
Representatives agreed to join GST and Coltec in proposing a joint plan
of reorganization that incorporates the settlement and to ask asbestos
claimants and the court to approve the plan. The joint plan of
reorganization was filed with the Bankruptcy Court on May 20, 2016 and
amendments to the joint plan of reorganization were filed with the
Bankruptcy Court on June 21, 2016, July 29, 2016, December 2, 2016,
April 3, 2017, May 14, 2017, May 19, 2017, June 8, 2017, and June 9,
2017. The joint plan of reorganization was filed as Exhibit 2.1 to the
Company's Form 8-K filed on July 31, 2017. As so modified, the joint
plan of reorganization superseded all prior plans of reorganization
filed by GST with the Bankruptcy Court.

The joint plan of reorganization was subject to approval by a vote in
favor of the plan by asbestos claimants. The solicitation process to
obtain approval of the asbestos claimants was completed successfully on
December 9, 2016, with 95.85% in number and 95.80% in amount of claims
held by asbestos claimants casting valid ballots voting in favor of
approval of the joint plan of reorganization.

As contemplated by the comprehensive settlement, following the approval
of the joint plan of reorganization by asbestos claimants, Coltec
engaged in a series of corporate restructuring transactions in which all
of its significant operating assets and subsidiaries, which included
each of EnPro's major business units, were distributed to a new direct
EnPro subsidiary ("EnPro Holdings"). OldCo, as the successor by merger
to Coltec in those transactions, retained responsibility for all
asbestos claims and rights to certain insurance assets. The
restructuring was completed on December 31, 2016 and, as contemplated by
the joint plan of reorganization and the comprehensive settlement, OldCo
filed a pre-packaged Chapter 11 bankruptcy petition with the Bankruptcy
Court on January 30, 2017. Accordingly, the financial results of OldCo
and its subsidiaries are not included in EnPro's consolidated results
after January 29, 2017 until the reconsolidation described below. On
February 3, 2017, the Bankruptcy Court issued an order for the joint
administration of the OldCo Chapter 11 proceedings with the GST Chapter
11 proceedings.

The consensual settlement includes as a condition to EnPro's obligations
to proceed with the settlement that EnPro, Coltec, GST LLC and Garlock
of Canada Ltd (an indirect subsidiary of GST LLC) enter into a written
agreement, to be consummated concurrently with the effective date of
consummation of the joint plan of reorganization, with the Canadian
provincial workers' compensation boards (the "Provincial Boards")
resolving remedies the Provincial Boards may possess against Garlock of
Canada Ltd, GST, Coltec or any of their affiliates, including releases
and covenants not to sue, for any present or future asbestos-related
claim, and that the agreement is either approved by the Bankruptcy Court
following notice to interested parties or the Bankruptcy Court concludes
that its approval is not required. On November 11, 2016, EnPro and such
subsidiaries entered into such an agreement (the "Canadian Settlement")
with the Provincial Boards to resolve current and future claims against
EnPro, GST, Garrison, Coltec, and Garlock of Canada Ltd. for recovery of
a portion of amounts the Provincial Boards have paid and will pay in the
future under asbestos-injury recovery statutes in Canada for claims
relating to asbestos-containing products. The Canadian Settlement
provides for an aggregate cash settlement payment to the Provincial
Boards of $(U.S.) 20 million, payable on the fourth anniversary of the
effective date of the joint plan of reorganization. Under the Canadian
Settlement, after the effective date of the joint plan of
reorganization, the Provincial Boards will have the option of
accelerating the payment, in which case the amount payable would be
discounted from the fourth anniversary of the effective date of the
joint plan of reorganization to the payment date at a discount rate of
4.5% per annum. On February 3, 2017, the Bankruptcy Court issued an
order approving the Canadian Settlement. The Provincial Boards provided
notice of their election to accelerate the payment. After application of
the discount resulting from such acceleration of payment, the settlement
payment of approximately $(U.S.) 16.7 million was made on August 11,
2017.

On May 15, 2017, the Bankruptcy Court announced its decision
recommending that the U.S. District Court for the Western District of
North Carolina (the "District Court") confirm the joint plan of
reorganization, and on June 12, 2017 the District Court issued an order
confirming the joint plan of reorganization. The joint plan of
reorganization has been consummated, with an effective date of 12:01
a.m. on July 31, 2017 (the "Joint Plan Effective Date").

The joint plan of reorganization provides for the establishment of a
trust (the "Trust"), which was funded (i) with aggregate cash
contributions by GST LLC and Garrison of $350 million made immediately
prior to the Joint Plan Effective Date, (ii) by the contribution made by
OldCo immediately prior to the Joint Plan Effective Date of $50 million
in cash and an option, exercisable one year after the Joint Plan
Effective Date, permitting the Trust to purchase for $1 shares of EnPro
common stock having a value of $20 million (with OldCo having the right
to call the option for payment of $20 million in cash at any time prior
to the first anniversary of the Joint Plan Effective Date, with the
Trust having the right to put the option to OldCo for payment by OldCo
of $20 million on the day prior to the first anniversary of the Joint
Plan Effective Date and with the option terminating on the second
anniversary of the Joint Plan Effective Date in return for payment to
the Trust of $20 million), and (iii) by the obligations under the Joint
Plan of OldCo to make a deferred contribution of $40 million in cash and
of GST LLC and Garrison to make an aggregate deferred contribution of
$20 million in cash no later than one year after the Joint Plan
Effective Date. These deferred contributions are guaranteed by EnPro and
secured by a pledge of 50.1% of the outstanding voting equity interests
of GST LLC and Garrison. Under the joint plan of reorganization, the
Trust has assumed responsibility for all present and future asbestos
claims arising from the operations or products of GST or Coltec/OldCo.
Under the joint plan of reorganization, EnPro, through its subsidiaries,
retained ownership of OldCo, GST LLC and Garrison. Anchor, which has not
conducted business operations for many years and had nominal assets, has
been dissolved.

Pursuant to applicable accounting rules, upon and as of the Joint Plan
Effective Date, the assets and liabilities of both GST and OldCo are
reconsolidated into the EnPro balance sheet at their preliminary
estimated fair value in accordance with authoritative guidance on
business acquisitions. These estimates are subject to the final
completion of the valuation process for GST and OldCo. In addition,
EnPro's consolidated financial statements include the sales, income,
expenses and cash flows of both GST and OldCo beginning on the Joint
Plan Effective Date.

The accompanying unaudited pro forma condensed consolidated financial
information has been prepared to illustrate the effects of the
reconsolidation of GST and OldCo and their respective subsidiaries with
EnPro assuming the confirmation and consummation of the joint plan of
reorganization and the consummation of the Canadian Settlement and is
based upon the preliminary estimated fair value of assets and
liabilities of GST and OldCo as of July 31, 2017 and the historical
results of GST and OldCo's operations after consideration of the
adjustments to the fair value of assets and liabilities. The unaudited
pro forma condensed consolidated statements of operations for the
quarter and nine months ended September 30, 2017 and 2016 give effect to
the reconsolidation as if it had occurred on January 1, 2016.

The unaudited pro forma condensed consolidated statements of operations
are based on estimates and assumptions, which have been made solely for
the purposes of developing such pro forma information. The unaudited pro
forma condensed consolidated statements of operations also include
certain adjustments such as increased depreciation and amortization
expense on tangible and intangible assets, increased interest expense on
the debt incurred to complete the reconsolidation as well as the tax
impacts related to these adjustments. The pro forma adjustments are
based upon available information and certain assumptions that EnPro
believes are reasonable.

The unaudited pro forma condensed consolidated statements of operations
do not reflect certain material nonrecurring charges or credits that
resulted from the transaction and will be included in EnPro's income
within the twelve months following the transaction. These items include
the gain realized upon reconsolidation of GST and OldCo, a charge to
income tax expense associated with the realization of an incremental net
deferred tax liability associated with the reconsolidation of GST and
OldCo, and increased costs of sales to be recognized with the
recognition of GST's inventory at net realizable value upon the
reconsolidation.

EnPro is providing the unaudited pro forma condensed consolidated
financial information in light of specific requests for such pro forma
information by investors. The unaudited pro forma condensed consolidated
financial information is provided for illustrative purposes only and
does not purport to represent what the actual consolidated results of
operations or the consolidated financial position of EnPro would have
been had the reconsolidation of GST and OldCo occurred on the dates
assumed, nor are they necessarily indicative of future consolidated
results of operations or financial position.

 
EnPro Industries, Inc.
             
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
 
For the Quarter Ended September 30, 2017
(Stated in Millions of Dollars, Except Per Share Data)
Effect of
Eliminate Reconsolidation Pro Forma
GST and Intercompany of GST and   Adjustments
        EnPro   OldCo   Transactions   OldCo   Pro Forma   Reference
Net sales $ 343.7 $ 15.3 $ (4.0 ) $ - $ 355.0 (1)
Cost of sales     228.5       9.6       (4.0 )     (3.7 )     230.4   (1), (2)
 
  Gross profit     115.2       5.7       -       3.7       124.6  
 
Operating expenses:
Selling, general and administrative 85.7 3.7 - 0.8 90.2 (2), (3)
  Other     11.0       (0.4 )     -       (0.3 )     10.3   (4)
 
    Total operating expenses     96.7       3.3       -       0.5       100.5  
 
Operating income 18.5 2.4 - 3.2 24.1
 
Interest expense (11.2 ) - 3.0 (0.7 ) (8.9 ) (5)
Interest income 0.9 3.1 (3.0 ) - 1.0 (5)
Gain on reconsolidation of GST and OldCo 534.4 - - (534.4 ) - (7)
Other expense     (1.9 )     (1.1 )     -       1.1       (1.9 ) (4)
 
Income before income taxes 540.7 4.4 - (530.8 ) 14.3
Income tax expense     (50.5 )     (3.0 )     -       48.1       (5.4 ) (6)
 
  Net income   $ 490.2     $ 1.4     $ -     $ (482.7 )   $ 8.9  
 
 
Basic earnings per share   $ 22.98       N/A       N/A       N/A     $ 0.42  
Average common shares outstanding (millions)     21.3                   21.3  
 
Diluted earnings per share   $ 22.49       N/A       N/A       N/A     $ 0.41  
Average common shares outstanding (millions)     21.8                   21.8  
 
 
(1) Eliminate intercompany sales of $4.0 million.
 
(2)

Reflects the increase in depreciation expense of $0.1 million due
to adjusting property, plant and equipment to fair value. The
total fair value adjustment to property, plant and equipment was
$23.3 million of which $16.0 million related to depreciable
buildings and improvements and machinery and equipment that have a
net remaining economic life of 14.5 years. Also reflects the
add-back of a $3.8 million non-recurring increase to cost of sales
incurred in the third quarter associated with the step up of GST
inventory to fair value upon reconsolidation.

 
(3)

Reflects the increase in amortization expense as a result of the
fair value adjustment due to the creation of the finite-lived
intangible assets. The useful life of the finite-lived intangible
assets is 15 years.

 
(4) Eliminate asbestos-related expenses which cease upon confirmation
and consummation of the joint plan of reorganization.
 
(5)

Eliminate intercompany interest and add interest expense on
incremental borrowings made in order to make payment upon
confirmation and consummation of the consensual plan of
reorganization. We used an estimated interest rate of 3% for all
periods.

 
(6)

For purposes of the consolidated pro forma financial information,
an estimated statutory tax rate of 37.5% has been used for all
periods presented.

 
(7)

Reflects elimination of the gain on reconsolidation of GST and
OldCo as the transaction causing the gain is presumed to have
taken place at the beginning of 2016, and the gain is a
non-recurring impact of the reconsolidation.

 
           
EnPro Industries, Inc.
 
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
 
For the Nine Months Ended September 30, 2017
(Stated in Millions of Dollars, Except Per Share Data)
Effect of
Eliminate Reconsolidation Pro Forma
Consolidated GST and Intercompany of GST and   Adjustments
        EnPro   OldCo   Transactions   OldCo   Pro Forma   Reference
Net sales $ 947.1 $ 125.9 $ (33.1 ) $ - $ 1,039.9 (1)
Cost of sales     625.8       77.9       (33.1 )     (3.2 )     667.4   (1), (2)
 
  Gross profit     321.3       48.0       -       3.2       372.5  
 
Operating expenses:
Selling, general and administrative 232.7 24.5 - 5.2 262.4 (3)
  Other     15.4       (23.9 )     -       22.4       13.9   (4)
 
    Total operating expenses     248.1       0.6       -       27.6       276.3  
 
Operating income 73.2 47.4 - (24.4 ) 96.2
 
Interest expense (42.2 ) - 20.6 (2.0 ) (23.6 ) (5)
Interest income 1.0 21.5 (20.6 ) - 1.9 (5)
Gain on reconsolidation of GST and OldCo 534.4 - (534.4 ) - (7)
Other expense     (5.1 )     (5.6 )     -       5.6       (5.1 ) (4)
 
Income before income taxes 561.3 63.3 - (555.2 ) 69.4
Income tax expense     (55.7 )     (24.3 )     -       54.0       (26.0 ) (6)
 
  Net income   $ 505.6     $ 39.0     $ -     $ (501.2 )   $ 43.4  
 
 
Basic earnings per share   $ 23.68       N/A       N/A       N/A     $ 2.03  
Average common shares outstanding (millions)     21.4                   21.4  
 
Diluted earnings per share   $ 23.32       N/A       N/A       N/A     $ 2.00  
Average common shares outstanding (millions)     21.7                   21.7  
 
 
(1) Eliminate intercompany sales of $33.1 million.
 
(2)

Reflects the increase in depreciation expense of $0.6 million due
to adjusting property, plant and equipment to fair value. The
total fair value adjustment to property, plant and equipment was
$23.3 million of which $16.0 million related to depreciable
buildings and improvements and machinery and equipment that have a
net remaining economic life of 14.5 years. Also reflects the
add-back of a $3.8 million non-recurring increase to cost of sales
incurred in the third quarter associated with the step up of GST
inventory to fair value upon reconsolidation.

 
(3)

Reflects the increase in amortization expense as a result of the
fair value adjustment due to the creation of the finite-lived
intangible assets. The useful life of the finite-lived intangible
assets is 15 years.

 
(4) Eliminate asbestos-related expenses which cease upon confirmation
and consummation of the joint plan of reorganization.
 
(5)

Eliminate intercompany interest and add interest expense on
incremental borrowings made in order to make payment upon
confirmation and consummation of the consensual plan of
reorganization. We used an estimated interest rate of 3% for all
periods.

 
(6)

For purposes of the consolidated pro forma financial information,
an estimated statutory tax rate of 37.5% has been used for all
periods presented.

 
(7)

Reflects elimination of the gain on reconsolidation of GST and
OldCo as the transaction causing the gain is presumed to have
taken place at the beginning of 2016, and the gain is a
non-recurring impact of the reconsolidation.

 
           
EnPro Industries, Inc.
 
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
 
For the Quarter Ended September 30, 2016
(Stated in Millions of Dollars, Except Per Share Data)
 
Eliminate Effect of Pro Forma
Intercompany Reconsolidation   Adjustments
        EnPro   GST   Transactions   of GST   Pro Forma   Reference
Net sales $ 292.7 $ 49.2 $ (10.8 ) $ - $ 331.1 (1)
Cost of sales     194.1       31.3     $ (10.8 )     0.3       214.9   (1), (2)
 
  Gross profit     98.6       17.9       -       (0.3 )     116.2  
 
Operating expenses:
Selling, general and administrative 70.9 10.0 - 2.3 83.2 (2), (3)
  Other     2.4       0.2       -       (0.4 )     2.2   (4)
 
    Total operating expenses     73.3       10.2       -       1.9       85.4  
 
Operating income 25.3 7.7 - (2.2 ) 30.8
 
Interest expense (14.3 ) (0.1 ) 8.4 (0.7 ) (6.7 ) (5)
Interest income 0.3 8.5 (8.4 ) - 0.4 (5)
Other expense     (1.3 )     (6.8 )     -       6.8       (1.3 ) (4)
 
Income before income taxes 10.0 9.3 - 3.9 23.2
Income tax expense     (4.0 )     (3.7 )     -       (1.0 )     (8.7 ) (6)
 
  Net income   $ 6.0     $ 5.6     $ -     $ 2.9     $ 14.5  
 
 
Basic earnings per share   $ 0.28       N/A       N/A       N/A     $ 0.67  
Average common shares outstanding (millions)     21.5                   21.5  
 
Diluted earnings per share   $ 0.28       N/A       N/A       N/A     $ 0.67  
Average common shares outstanding (millions)     21.7                   21.7  
 
 
(1) Eliminate intercompany sales of $10.8 million.
 
(2)

Reflects the increase in depreciation expense of $0.3 million due
to adjusting property, plant and equipment to fair value. The
total fair value adjustment to property, plant and equipment was
$23.3 million of which $16.0 million related to depreciable
buildings and improvements and machinery and equipment that have a
net remaining economic life of 14.5 years.

 
(3)

Reflects the increase in amortization expense as a result of the
estimated fair value adjustment due to the creation of the
finite-lived intangible assets. The estimated useful life of the
finite-lived intangible assets is 15 years.

 
(4) Eliminate asbestos-related expenses which cease upon confirmation
and consummation of the joint plan of reorganization.
 
(5)

Eliminate intercompany interest and add interest expense on
incremental borrowings made in order to make payment upon
confirmation and consummation of the joint plan of reorganization.
We used an estimated interest rate of 3% for all periods.

 
(6)

For purposes of the consolidated pro forma financial information,
an estimated statutory tax rate of 37.5% has been used for all
periods presented.

 
           
EnPro Industries, Inc.
 
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
 
For the Nine Months Ended September 30, 2016
(Stated in Millions of Dollars, Except Per Share Data)
 
Eliminate Effect of Pro Forma
Consolidated Intercompany Reconsolidation   Adjustments
        EnPro   GST   Transactions   of GST   Pro Forma   Reference
Net sales $ 900.8 $ 150.9 $ (33.6 ) $ - $ 1,018.1 (1)
Cost of sales     596.7       95.3       (33.6 )     0.8       659.2   (1), (2)
 
  Gross profit     304.1       55.6       -       (0.8 )     358.9  
 
Operating expenses:
Selling, general and administrative 231.7 31.3 - 6.7 269.7 (3)
  Other     90.4       50.5       -       (131.2 )     9.7   (4)
 
    Total operating expenses     322.1       81.8       -       (124.5 )     279.4  
 
Operating income (loss) (18.0 ) (26.2 ) - 123.7 79.5
 
Interest expense (41.7 ) (0.1 ) 25.0 (2.0 ) (18.8 ) (5)
Interest income 0.7 25.4 (25.0 ) - 1.1 (5)
Other expense     (5.4 )     (14.8 )     -       14.8       (5.4 ) (4)
 
Income (loss) before income taxes (64.4 ) (15.7 ) - 136.5 56.4
Income tax benefit (expense)     27.2       5.9       -       (54.3 )     (21.2 ) (6)
 
  Net income (loss)   $ (37.2 )   $ (9.8 )   $ -     $ 82.2     $ 35.2  
 
 
Basic earnings (loss) per share   $ (1.71 )     N/A       N/A       N/A     $ 1.62  
Average common shares outstanding (millions)     21.7                   21.7  
 
Diluted earnings (loss) per share   $ (1.71 )     N/A       N/A       N/A     $ 1.61  
Average common shares outstanding (millions)     21.7               0.2       21.9   (7)
 
 
(1) Eliminate intercompany sales of $33.6 million.
 
(2)

Reflects the increase in depreciation expense of $0.8 million due
to adjusting property, plant and equipment to fair value. The
total fair value adjustment to property, plant and equipment was
$23.3 million of which $16.0 million related to depreciable
buildings and improvements and machinery and equipment that have a
net estimated remaining economic life of 14.5 years.

 
(3)

Reflects the increase in amortization expense as a result of the
estimated fair value adjustment due to the creation of the
finite-lived intangible assets. The estimated useful life of the
finite-lived intangible assets is 15 years.

 
(4) Eliminate asbestos-related expenses which cease upon confirmation
and consummation of the joint plan of reorganization.
 
(5)

Eliminate intercompany interest and add interest expense on
incremental borrowings made in order to make payment upon
confirmation and consummation of the proposed joint plan of
reorganization. We used an estimated interest rate of 3% for all
periods.

 
(6)

For purposes of the consolidated pro forma financial information,
an estimated statutory tax rate of 37.5% has been used for all
periods presented.

 
(7) Represents shares that would no longer be antidilutive since the pro
forma consolidated company would have net income.
 
         
EnPro Industries, Inc.
   
Reconciliation of Pro Forma Net Income to Pro Forma Adjusted
EBITDA (Unaudited)
 
For the Quarters and Nine Months ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
Quarters Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
 
Pro forma net income $ 8.9 $ 14.5 $ 43.4 $ 35.2
 

Adjustments to arrive at pro forma earnings before interest,
taxes, depreciation, and amortization (pro forma EBITDA)

 
Interest expense, net 7.9 6.3 21.7 17.7
 
Income tax expense 5.4 8.7 26.0 21.2
 
Depreciation and amortization expense   18.7     18.6   54.8     54.9
 
Pro forma EBITDA 40.9 48.1 145.9 129.0
 

Adjustments to arrive at pro forma earnings before interest,
income taxes, depreciation, amortization, and other selected items
(pro forma adjusted EBITDA):

 
Restructuring costs 0.3 2.2 3.7 9.6
 
Impairment of ATD intangible assets 10.1 - 10.1 -
 
Acquisition expenses 0.1 - 0.7 0.8
 
Environmental reserve adjustment 1.9 1.2 5.2 5.3
 
Other   0.3     0.1   0.3     0.3
.
Pro forma adjusted EBITDA $ 53.6   $ 51.6 $ 165.9   $ 145.0
 

The foregoing table provides a reconciliation of pro forma net
income set forth in the accompanying unaudited pro forma condensed
consolidated statements of operations reflecting reconsolidation
of GST to pro forma earnings before interest, income taxes,
depreciation, amortization and other selected items (pro forma
adjusted EBITDA).  The methodology for reconciliation is the same
as presented on the table titled "Reconciliation of Consolidated
Net Income (Loss) to Consolidated Adjusted EBITDA (Unaudited)".

 

Supplemental Disclosure:  For the nine months ended September 30,
2017, approximately 39% of pro forma adjusted EBITDA as presented
above was attributable to EnPro's subsidiaries that do not
guarantee our 5.875% Senior Notes due 2022.

 
         
EnPro Industries, Inc.
   
Reconciliation of Net Sales to Pro Forma Net Sales (Unaudited)
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
Quarter Ended September 30, 2017
Sealing Engineered Power Intersegment
Products   Products   Systems   sales   Consolidated
 
Net sales $ 213.7 $ 75.5 $ 55.4 $ (0.9 ) $ 343.7
 
Adjustments:
Sales of deconsolidated entities 14.5 0.2 0.5 - 15.2
Intercompany sales   (3.6 )     (0.1 )     (0.1 )     (0.1 )     (3.9 )
 
Pro forma net sales $ 224.6     $ 75.6     $ 55.8     $ (1.0 )   $ 355.0  
 
 
Quarter Ended September 30, 2016
Sealing Engineered Power Intersegment
Products   Products   Systems   sales   Consolidated
 
Net sales $ 175.3 $ 65.7 $ 52.5 $ (0.8 ) $ 292.7
 
Adjustments:
Sales of deconsolidated entities 47.7 0.6 0.9 - 49.2
Intercompany sales   (9.9 )     (0.5 )     (0.4 )     -       (10.8 )
 
Pro forma net sales $ 213.1     $ 65.8     $ 53.0     $ (0.8 )   $ 331.1  
 
 
Nine Months Ended September 30, 2017
Sealing Engineered Power Intersegment
Products   Products   Systems   sales   Consolidated
 
Net sales $ 584.3 $ 226.3 $ 139.4 $ (2.9 ) $ 947.1
 
Adjustments:
Sales of deconsolidated entities 119.1 1.5 5.3 - 125.9
Intercompany sales   (29.6 )     (1.1 )     (2.0 )     (0.4 )     (33.1 )
 
Pro forma net sales $ 673.8     $ 226.7     $ 142.7     $ (3.3 )   $ 1,039.9  
 
 
Nine Months Ended September 30, 2016
Sealing Engineered Power Intersegment
Products   Products   Systems   sales   Consolidated
 
Net sales $ 532.6 $ 213.5 $ 157.2 $ (2.5 ) $ 900.8
 
Adjustments:
Sales of deconsolidated entities 146.0 2.0 2.9 - 150.9
Intercompany sales   (31.1 )     (1.3 )     (0.8 )     (0.4 )     (33.6 )
 
Pro forma net sales $ 647.5     $ 214.2     $ 159.3     $ (2.9 )   $ 1,018.1  
 
       
EnPro Industries, Inc.
   
Reconciliation of Segment Profit to Pro Forma Adjusted Segment
EBITDA (Unaudited)
 
For the Quarters and Nine Months Ended September 30, 2017 and 2016
(Stated in Millions of Dollars)
 
Quarter Ended September 30, 2017
Sealing Engineered Power Total
Products   Products   Systems   Segments
 
 
Segment Profit $ 23.5 $ 7.7 $ 8.2 $ 39.4
 
Segment profit of deconsolidated entities 1.8 0.1 0.2 2.1
Pro forma acquisition date inventory fair value adjustment 3.8 - - 3.8
Pro forma depreciation and amortization adjustments (1) (0.9 ) - - (0.9 )
 
Pro forma segment profit 28.2 7.8 8.4 44.4
 
Adjustments:
Acquisition expenses* 0.4 - - 0.4
Restructuring costs 0.5 (0.2 ) - 0.3
Depreciation and amortization expense   13.3       4.2       1.2       18.7  

Pro forma segment earnings before interest, income taxes,
depreciation amortization, and other selected items (pro forma
adjusted segment EBITDA)

$ 42.4     $ 11.8     $ 9.6     $ 63.8  
 
 
Quarter Ended September 30, 2016
Sealing Engineered Power Total
Products   Products   Systems   Segments
 
Segment Profit $ 23.1 $ 2.9 $ 7.3 $ 33.3
 
Segment profit of deconsolidated entities 7.4 0.1 0.3 7.8
Pro forma depreciation and amortization adjustments (1) (2.6 ) - - (2.6 )
 
Pro forma segment profit 27.9 3.0 7.6 38.5
 
Adjustments:
Restructuring costs