Market Overview

EnPro Industries Reports Results for the Second Quarter of 2018

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EnPro Industries, Inc. (NYSE:NPO) today announced its financial results
for the three-month and six-month periods ended June 30, 2018.

Consolidated and Pro Forma Financial Highlights

(Amounts in millions except per share data and percentages)

Results for the Quarter Ended

June 30

    Consolidated 1     Pro Forma 2

2018 3

    2017 2017    

% ∆ 4

Net Sales $ 393.6 $ 307.6 $ 347.0 13.4 %
Segment Profit 5 $ 31.2 $ 35.8 $ 45.5 (31.4 %)
Segment Margin 7.9 % 11.6 % 13.1 %
Net Income $ 9.9 $ 9.0 $ 18.5 (46.5 %)
Diluted Earnings Per Share $ 0.47 $ 0.41 $ 0.85 (44.7 %)
Adjusted Net Income 6 $ 15.8 $ 10.1 $ 22.0 (28.2 %)
Adjusted Diluted Earnings Per Share 6 $ 0.75 $ 0.46 $ 1.01 (25.7 %)
Adjusted EBITDA 6 $ 47.7 $ 45.2 $ 58.5 (18.5 %)
Adjusted EBITDA Margin 6       12.1 %       14.7 %       16.9 %      
 
             
Results for the Six Months Ended

June 30

Consolidated 1 Pro Forma 2

2018 3

2017 2017

% ∆ 4

Net Sales $ 762.4 $ 603.4 $ 684.9 11.3 %
Segment Profit 5 $ 73.3 $ 72.0 $ 89.3 (17.9 %)
Segment Margin 9.6 % 11.9 % 13.0 %
Net Income $ 22.5 $ 15.4 $ 34.3 (34.4 %)
Diluted Earnings Per Share $ 1.05 $ 0.71 $ 1.57 (33.1 %)
Adjusted Net Income 6 $ 34.2 $ 19.6 $ 42.1 (18.8 %)
Adjusted Diluted Earnings Per Share 6 $ 1.60 $ 0.90 $ 1.93 (17.1 %)
Adjusted EBITDA 6 $ 99.7 $ 87.9 $ 112.3 (11.2 %)
Adjusted EBITDA Margin 6       13.1 %       14.6 %       16.4 %      
 
1 Consolidated results for the three months and six
months ended June 30, 2017 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 and (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. Consolidated results for the three months and six
months ended June 30, 2018 include the results of GST and OldCo,
which were reconsolidated effective as of July 31, 2017 upon the
consummation and effectiveness of the joint plan of reorganization
confirmed in the ACRP.
2 Pro forma financial information for the three months
and six months ended June 30, 2017 in these tables and throughout
this press release is presented as if GST and OldCo were
reconsolidated with EnPro throughout these periods based on the
consummation of the joint plan of reorganization, which was
consummated on July 31, 2017. See attached unaudited condensed
consolidated pro forma statement of operations.
3 Effective January 1, 2018, EnPro adopted the new
comprehensive revenue recognition accounting standard using a
modified retrospective transition approach. Under this approach,
revenues for prior periods have not been restated. Application of
the new standard for the three months and six months ended June 30,
2018 had an immaterial impact on items reflected in the consolidated
statement of operations as compared to amounts as determined under
the revenue recognition accounting standard applicable during the
three months and six months ended June 30, 2017.
4 Due to the reconsolidation effective July 31, 2017,
consolidated results in the three months and six months ended June
30, 2018 are being compared to the pro forma results for the
comparable periods in 2017.
5 Effective January 1, 2018, EnPro adopted a new
accounting standard on presentation of pension and other
postretirement benefits expense using a retrospective transition
approach. See the attached schedule of Segment Information
(Unaudited) for a description of the impact of the adoption of this
standard on Segment Profit for the three months and six months ended
June 30, 2017.
6 See the attached schedules for adjustments and
reconciliations to GAAP numbers.
 

Key Developments

  • All segments experienced strong sales growth in the second quarter,
    with total company sales growth of 13% compared to pro forma sales in
    the second quarter of last year.
  • Profitability declined due to results in Sealing Products and Power
    Systems, partially offset by an increase in Engineered Products.
    • Profitability in Sealing Products declined due to continued
      softness in the industrial gas turbine business and profitability
      challenges in heavy-duty trucking.
    • Profitability in Engineered Products increased due to strong
      sales growth and the positive impact of foreign exchange
      translation.
    • Profitability in Power Systems declined due to the negative
      impact of currency adjustments applicable to the EDF loss reserve
      resulting from the strengthening dollar, partially offset by an
      increase in profit on aftermarket parts and services.
  • Received a tax refund of $96 million during the second quarter
    related to the 2017 loss resulting from asbestos-related expenses and
    trust payments, and, subject to normal IRS review, the company expects
    to receive the remaining $32 million of tax refunds in the second half
    of 2018.
  • Collected $11 million of asbestos-related insurance recoveries in
    the second quarter.
  • Second quarter capital allocation highlights:
    • Repurchased 441,285 shares for approximately $32.9 million
      under the $50.0 million share repurchase program authorized by the
      Board of Directors in October 2017.
    • Paid a $0.24 per share quarterly dividend with a total value of
      $5.0 million.
    • Repatriated $30.6 million and $114.0 million of previously
      taxed earnings from foreign subsidiaries during the second quarter
      and first six months of the year, respectively.
  • Lowered guidance for 2018 Adjusted EBITDA from a range of $224
    million to $230 million to a range of $214 million to $220 million,
    stemming from the impact of the stronger dollar in the second quarter
    and from second-quarter profitability challenges in heavy-duty
    trucking.

"We had a difficult second quarter; however, the high-level numbers
don't tell the full story. Four of our six divisions did well in the
second quarter, and all of our businesses generated year-over-year sales
growth. In total, our sales were up 13% year-over-year compared to pro
forma sales in the second quarter of last year. Many of our core end
markets continued to experience favorable market conditions in the
quarter, including semiconductor, food & pharma, general industrial,
metals & mining, and European oil & gas," said Steve Macadam, President
and CEO. "Profitability was challenged by three primary items: first,
continued softness in the industrial gas turbine market, which led to
our decision to exit our facility servicing that market; second,
challenges in our heavy-duty trucking brake products group, including
booking a large warranty reserve; and third, the negative impact of
currency adjustments on the EDF program resulting from the strengthening
dollar and a significant first-half vs. second-half performance profile
in Power Systems. We expect stronger second-half performance in Sealing
Products and Power Systems and remain optimistic about our overall
financial performance in the back half of the year.

Given current macroeconomic forecasts, a robust backlog in Power
Systems, and positive demand patterns in many of our markets, we believe
that our sales momentum will continue through the end of the year,
resulting in full-year sales growth of between 8% and 9% over 2017 pro
forma sales. We expect full-year adjusted EBITDA of between $214 million
and $220 million, down from previous guidance of $224 million to $230
million. This $10 million reduction from our previous guidance is
attributable to the impact of the stronger dollar and second-quarter
profitability challenges in heavy-duty trucking. This new range reflects
a slightly improved outlook for the balance of the year," said Mr.
Macadam.

Full-year guidance excludes impacts from future acquisitions and
acquisition-related costs, restructuring costs, the impact of foreign
exchange rate changes subsequent to quarter-end, and any litigation or
environmental charges.

Consolidated results for the periods after July 31, 2017 reflect the
reconsolidation of GST, its subsidiaries and OldCo as a result of the
completion of the Asbestos Claims Resolution Process. Given that
consolidated results in the second quarter of 2017 did not reflect all
of EnPro's entities, investors may find comparisons of consolidated
results for the second quarter of 2018 to pro forma results for the
prior-year period to be most illustrative of the year-over-year
performance of all of EnPro's businesses. Pro forma results for the
quarter ended June 30, 2017 reflect the performance of all of these
businesses for that period.

Demand in semiconductor, food & pharma, general industrial, metals &
mining, aerospace, and European oil & gas continued to be strong during
the quarter. Nuclear demand was very strong relative to last year, while
automotive markets increased modestly. This positive momentum was
partially offset by continued softness in the industrial gas turbine
market. In total, acquisitions contributed 0.6% sales growth, and
foreign exchange translation contributed 2.0% sales growth on a
consolidated basis versus pro forma sales in the second quarter of 2017.

Segment profit in the second quarter was down year-over-year on a
consolidated basis compared to pro forma segment profit from the same
period of the prior year primarily due to results in Sealing Products
and Power Systems, partially offset by robust results in Engineered
Products. Excluding the impact of acquisitions and divestitures and
related costs, foreign exchange translation, impact of the change in the
loss reserve due to foreign exchange on the EDF contract, and
restructuring charges, total consolidated segment profit was 10.6% lower
compared to the total pro forma segment profit in the second quarter of
last year.

In Sealing Products, consolidated segment profit decreased in the second
quarter versus pro forma segment profit in the second quarter of last
year as higher sales volumes were more than offset by lower volume in
the industrial gas turbine business, commodity cost increases in
heavy-duty trucking that were primarily tariff-related, and unusual
warranty charges and productivity issues in the segment's heavy-duty
trucking business.

In Engineered Products, consolidated segment profit increased in the
second quarter versus pro forma segment profit in the second quarter of
last year due primarily to strong sales growth and positive impacts from
foreign exchange translation. Excluding the impact of restructuring
costs and favorable foreign exchange translation, consolidated segment
profit increased 23.3% compared to pro forma segment profit in the
prior-year period.

In Power Systems, consolidated segment profit decreased in the second
quarter versus pro forma segment profit in the second quarter of last
year driven by the impact of currency adjustments on the
Euro-denominated EDF program partially offset by an increase in profit
on aftermarket parts and services. Excluding a small restructuring
charge and the impact of foreign exchange on the EDF contract, which had
a negative impact of $3.5 million in the second quarter of 2018 and
positive impact of $3.8 million in the second quarter of 2017, segment
profit increased 25.0%.

Total restructuring costs of $6.5 million were incurred during the
second quarter, $6.2 million of which was in Sealing Products related to
exiting the industrial gas turbine facility in Oxford, MA, and
restructuring in heavy-duty trucking that was completed in May. The
restructuring of the industrial gas turbine business included the sale
of the building, which more than offset the cash impact of second
quarter restructuring actions. The before-tax, net cash impact of
restructuring announced in the quarter was a positive $24 million.

The company's average diluted share count in the second quarter of 2018
was 21.1 million shares, approximately 0.7 million less than in the same
period a year ago. The decrease was primarily due to share repurchases
in connection with the $50 million repurchase program authorized in
October 2017, partially offset by stock compensation award grants.
Repurchases under the October 2017 authorization began in the first
quarter of 2018, and through the second quarter, the company had
purchased 664,859 shares at a total cost of $49.9 million. In early July
2018, the company completed the $50 million share repurchase program.
With the completion of the recent share repurchase authorization, the
permitted share repurchases under the indenture governing the senior
notes have now been substantially exhausted.

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 for the three months and six months ended
June 30, 2017. These metrics are derived from tables attached to this
press release that illustrate, on a pro forma basis, financial results
for these periods of 2017 as if GST and OldCo were reconsolidated with
EnPro throughout each period 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 comparative information as
it reflects the performance of all of our subsidiaries during those
periods.

Conference Call and Webcast Information
EnPro will hold a
conference call tomorrow, August 2, at 10:00 a.m. Eastern Time to
discuss second quarter 2018 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 53479826. 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 conformity 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 three months and six months ended June 30, 2017 and 2018 are
attached to the release. Adjusted EBITDA anticipated for full year 2018
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; fluctuations in relevant foreign currency exchange rates;
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, 2017, 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: Second Quarter of 2018
 
 
Consolidated Financial Information and Reconciliations
 
 
Introduction of Unaudited Pro Forma Financial Information
 
 
Pro Forma Financial Information and Reconciliations
 
 

Sealing Products Segment

             
      Consolidated     Pro Forma 1
($ in millions) 2018     2017 2017     % ∆ 2
Results for the Quarter Ended June 30
Sales $ 255.7 $ 191.3 $ 229.7 11.3 %
Segment Profit $ 19.3 $ 21.2 $ 30.4 (36.5 %)
Segment Margin 7.5 % 11.1 % 13.2 %
Adjusted EBITDA 3 $ 38.6 $ 32.5 $ 45.7 (15.5 %)
Adjusted EBITDA Margin 3 15.1 % 17.0 % 19.9 %
 

Results for the Six Months Ended June 30

Sales $ 487.6 $ 370.6 $ 449.1 8.6 %
Segment Profit $ 43.0 $ 41.6 $ 57.5 (25.2 %)
Segment Margin 8.8 % 11.2 % 12.8 %
Adjusted EBITDA 3 $ 75.3 $ 61.9 $ 85.8 (12.2 %)
Adjusted EBITDA Margin 3       15.4 %       16.7 %       19.1 %      
1 See attached unaudited condensed consolidated pro forma
statements of operations.
2 Due to the reconsolidation on July 31, 2017,
consolidated results in the three-month and six-month periods ended
on June 30, 2018 are being compared to the pro forma results from
the comparable periods in 2017.
3 See attached schedules for adjustments and
reconciliations to GAAP numbers.
 

Segment Highlights

  • Consolidated sales increased in the second quarter versus pro forma
    sales in the prior-year period due to strength in semiconductor,
    aerospace, food & pharma, heavy-duty tractor and trailer builds,
    metals & mining, and nuclear. This positive momentum was partially
    offset by continued softness in industrial gas turbines. Excluding the
    impact of acquisitions, divestitures, and foreign exchange
    translation, consolidated sales increased 9.3% compared to pro forma
    sales in the prior-year period.
  • Consolidated segment profit decreased in the second quarter versus pro
    forma segment profit in the prior-year period, primarily driven by
    unusual warranty charges of $4.4 million in the heavy-duty trucking
    business, commodity cost increases in heavy-duty trucking that were
    primarily tariff-related, and productivity issues in heavy-duty
    trucking.

Engineered Products Segment

             
      Consolidated     Pro Forma 1
($ in millions) 2018     2017 2017     % ∆ 2
Results for the Quarter Ended June 30
Sales $ 85.4 $ 75.7 $ 75.8 12.7 %
Segment Profit $ 12.1 $ 8.3 $ 8.5 42.4 %
Segment Margin 14.2 % 11.0 % 11.2 %
Adjusted EBITDA 3 $ 16.2 $ 13.2 $ 13.4 20.9 %
Adjusted EBITDA Margin 3 19.0 % 17.4 % 17.7 %
 

Results for the Six Months Ended June 30

Sales $ 171.3 $ 150.8 $ 151.0 13.4 %
Segment Profit $ 26.5 $ 17.8 $ 17.9 48.0 %
Segment Margin 15.5 % 11.8 % 11.9 %
Adjusted EBITDA 3 $ 34.9 $ 27.4 $ 27.5 26.9 %
Adjusted EBITDA Margin 3       20.4 %       18.2 %       18.2 %      
1 See attached unaudited condensed consolidated pro forma
statements of operations.
2 Due to the reconsolidation on July 31, 2017,
consolidated results in the three-month and six-month periods ended
on June 30, 2018 are being compared to the pro forma results from
the comparable periods in 2017.
3 See attached schedules for adjustments and
reconciliations to GAAP numbers.
 

Segment Highlights

  • Consolidated sales increased in the second quarter versus pro forma
    sales in the prior-year period due to volume gains in the general
    industrial, oil & gas, and European automotive markets. Excluding the
    impact of foreign exchange translation, consolidated sales increased
    7.2% compared to pro forma sales in the prior-year period.
  • Consolidated segment profit increased in the second quarter versus pro
    forma segment profit in the prior-year period due primarily to strong
    sales growth and positive impacts from foreign exchange translation.
    Excluding the impact of restructuring costs and favorable foreign
    exchange translation, consolidated segment profit increased 23.3%
    compared to pro forma segment profit in the prior-year period.

Power Systems Segment

             
      Consolidated     Pro Forma 1
($ in millions) 2018     2017 2017     % ∆ 2
Results for the Quarter Ended June 30
Sales $ 53.7 $ 41.6 $ 42.5 26.4 %
Segment Profit (Loss) $ (0.2 ) $ 6.3 $ 6.6 N/A
Segment Margin N/A 15.1 % 15.5 %
Adjusted EBITDA 3 $ 1.3 $ 7.4 $ 7.8 (83.3 %)
Adjusted EBITDA Margin 3 2.4 % 17.8 % 18.4 %
 

Results for the Six Months Ended June 30

Sales $ 105.8 $ 84.0 $ 86.8 21.9 %
Segment Profit $ 3.8 $ 12.6 $ 13.9 (72.7 %)
Segment Margin 3.6 % 15.0 % 16.0 %
Adjusted EBITDA 3 $ 6.6 $ 14.8 $ 16.1 (59.0 %)
Adjusted EBITDA Margin 3       6.2 %       17.6 %       18.5 %      
1 See attached unaudited condensed consolidated pro forma
statements of operations.
2 Due to the reconsolidation on July 31, 2017,
consolidated results in the three-month and six-month periods ended
on June 30, 2018 are being compared to the pro forma results from
the comparable periods in 2017.
3 See attached schedules for adjustments and
reconciliations to GAAP numbers.
 

Segment Highlights

  • Consolidated sales increased in the second quarter versus pro forma
    sales in the prior-year period due to higher engine, aftermarket parts
    and service revenue. The increase in engine sales was largely driven
    by increased activity in the marine segment.
  • Consolidated segment profit decreased in the second quarter versus pro
    forma segment profit in the prior-year period primarily due to the
    impact of currency adjustments on the Euro-denominated EDF program
    partially offset by an increase in profit on aftermarket parts and
    services. Excluding a small restructuring charge and the impact of
    foreign exchange on the EDF contract, which had a negative impact of
    $3.5 million in the second quarter of 2018 and positive impact of $3.8
    million in the second quarter of 2017, segment profit increased 25.0%.
               
EnPro Industries, Inc.
 
Consolidated Statements of Operations (Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars, Except Per Share Data)
 
      Quarters Ended     Six Months Ended
June 30, June 30, June 30, June 30,
      2018    

2017 (1)

    2018     2017 (1)
Net sales $ 393.6 $ 307.6 $ 762.4 $ 603.4
Cost of sales       277.8         203.0         521.5         397.1  
 
Gross profit       115.8         104.6         240.9         206.3  
 
Operating expenses:
Selling, general and administrative 89.4 74.0 181.5 146.7
Other       4.3         3.1         5.3         4.4  
 
Total operating expenses       93.7         77.1         186.8         151.1  
 
Operating income 22.1 27.5 54.1 55.2
 
Interest expense (7.3 ) (16.1 ) (15.5 ) (31.0 )
Interest income 0.2 - 0.6 0.1
Other expense       (1.2 )       (0.2 )       (0.6 )       (3.7 )
 
Income before income taxes 13.8 11.2 38.6 20.6
Income tax expense       (3.9 )       (2.2 )       (16.1 )       (5.2 )
 
Net income     $ 9.9       $ 9.0       $ 22.5       $ 15.4  
 
Basic earnings per share     $ 0.47       $ 0.42       $ 1.06       $ 0.72  
Average common shares outstanding (millions)       20.9         21.3         21.1         21.4  
 
Diluted earnings per share     $ 0.47       $ 0.41       $ 1.05       $ 0.71  
Average common shares outstanding (millions)       21.1         21.8         21.3         21.8  
(1) In the first quarter of 2018, we adopted an accounting standard
that requires an employer to report the service cost component of
pension and other postretirement benefits expense in the same line
item or items as other compensation costs arising from services
rendered by the pertinent employees during the period. The other
components of net benefit cost are required to be presented in the
income statement separately from the service cost component and
outside a subtotal of income from operations.
 
For the quarter and six months ended June 30, 2017, we recast our
Consolidated Statement of Operations to reflect the retrospective
application of this guidance, which resulted in a decrease in cost
of sales of $0.1 million and $0.2 million, respectively, and a
decrease in selling, general and administrative expense of $0.1
million and $0.3 million, respectively, with a corresponding
increase in other (non-operating) expense. of $0.2 million and $0.5
million, respectively.
 
 
EnPro Industries, Inc.
       
Consolidated Statements of Cash Flows (Unaudited)
 
For the Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
2018 2017
Operating activities
Net income $ 22.5 $ 15.4

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation 19.0 14.8
Amortization 17.7 13.2
Deferred income taxes (7.5 ) (0.4 )
Stock-based compensation 3.5 3.5
Other non-cash adjustments 3.4 2.9

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

Asbestos insurance receivables 12.3 -
Accounts receivable, net (31.4 ) (20.8 )
Inventories (21.4 ) (7.5 )
Accounts payable 7.1 6.2
Other current assets and liabilities 100.6 12.0
Other non-current assets and liabilities       (16.2 )       (11.3 )
Net cash provided by operating activities       109.6         28.0  
 
Investing activities
Purchases of property, plant and equipment (28.1 ) (15.2 )
Payments for capitalized internal-use software (2.0 ) (1.9 )
Acquisitions, net of cash acquired - (39.7 )
Deconsolidation of OldCo - (4.8 )
Proceeds from sale of property, plant and equipment       26.3         0.3  
Net cash used in investing activities       (3.8 )       (61.3 )
 
Financing activities
Proceeds from debt 358.6 351.6
Repayments of debt (489.7 ) (279.6 )
Repurchase of common stock (49.5 ) (9.8 )
Dividends paid (10.3 ) (9.6 )
Other       (6.6 )       (3.3 )
Net cash provided by (used in) financing activities       (197.5 )       49.3  
 
Effect of exchange rate changes on cash and cash equivalents       (4.2 )       4.6  
 
Net increase (decrease) in cash and cash equivalents (95.9 ) 20.6
Cash and cash equivalents at beginning of period       189.3         111.5  
Cash and cash equivalents at end of period     $ 93.4       $ 132.1  
 
 
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 17.0 $ 30.4
Income taxes $ (86.1 ) $ 5.5
 
 
EnPro Industries, Inc.
       
Consolidated Balance Sheets (Unaudited)
 
As of June 30, 2018 and December 31, 2017
(Stated in Millions of Dollars)
 
June 30, December 31,
2018 2017
Current assets
Cash and cash equivalents $ 93.4 $ 189.3
Accounts receivable 290.4 261.7
Inventories 221.1 204.1
Income tax receivable 36.7 113.2
Other current assets       36.8         51.3  
Total current assets 678.4 819.6
 
Property, plant and equipment 293.5 296.9
Goodwill 334.2 336.1
Other intangible assets 311.6 347.0
Other assets       101.5         86.5  
Total assets     $ 1,719.2       $ 1,886.1  
 
Current liabilities
Current maturities of long-term debt 0.2 0.2
Accounts payable 134.5 130.7
Accrued expenses       122.1         137.2  
Total current liabilities 256.8 268.1
 
Long-term debt 487.8 618.3
Other liabilities       109.9         96.9  
Total liabilities       854.5         983.3  
 
 
Shareholders' equity
Common stock 0.2 0.2
Additional paid-in capital 297.9 347.9
Retained earnings 616.4 604.4
Accumulated other comprehensive loss (48.5 ) (48.4 )
Common stock held in treasury, at cost       (1.3 )       (1.3 )
Total shareholders' equity       864.7         902.8  
Total liabilities and equity     $ 1,719.2       $ 1,886.1  
 
 
EnPro Industries, Inc.
               
Segment Information (Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
Sales
Quarters Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
 
Sealing Products $ 255.7 $ 191.3 $ 487.6 $ 370.6
Engineered Products 85.4 75.7 171.3 150.8
Power Systems       53.7         41.6         105.8         84.0  
394.8 308.6 764.7 605.4
Less intersegment sales       (1.2 )       (1.0 )       (2.3 )       (2.0 )
      $ 393.6       $ 307.6       $ 762.4       $ 603.4  
 
 
Segment Profit (Loss)
Quarters Ended Six Months Ended
June 30, June 30,
2018     2017 (1) 2018     2017 (1)
 
Sealing Products $ 19.3 $ 21.2 $ 43.0 $ 41.6
Engineered Products 12.1 8.3 26.5 17.8
Power Systems       (0.2 )       6.3         3.8         12.6  
      $ 31.2       $ 35.8       $ 73.3       $ 72.0  
 
 
Segment Margin
Quarters Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
Sealing Products 7.5 % 11.1 % 8.8 % 11.2 %
Engineered Products 14.2 % 11.0 % 15.5 % 11.8 %
Power Systems       N/A         15.1 %       3.6 %       15.0 %
        7.9 %       11.6 %       9.6 %       11.9 %
 
 
Reconciliation of Segment Profit to Net Income
Quarters Ended Six Months Ended
June 30, June 30,
2018     2017 (1) 2018     2017 (1)
 
Segment profit $ 31.2 $ 35.8 $ 73.3 $ 72.0
Corporate expenses (8.5 ) (7.1 ) (17.2 ) (14.6 )
Interest expense, net (7.1 ) (16.1 ) (14.9 ) (30.9 )
Other expense, net       (1.8 )       (1.4 )       (2.6 )       (5.9 )
 
Income before income taxes 13.8 11.2 38.6 20.6
Income tax expense       (3.9 )       (2.2 )       (16.1 )       (5.2 )
Net income     $ 9.9       $ 9.0       $ 22.5       $ 15.4  
(1) Segment profit for 2017 was recast in 2018 to reflect the impact
of adoption of an accounting standard affecting the classification
of the non-service component of pension and other postretirement
benefit costs. The impact for the quarter and six months ended June
30, 2017 was an increase of $0.2 million and $0.4 million,
respectively, to total segment profit, with a corresponding $0.4
million increase in other expense, net. Please refer to the
Consolidated Statement of Operations for further information on the
standard and its impact.
 
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 to Consolidated Adjusted
Net Income and
Consolidated Adjusted Diluted Earnings Per Share (Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars, Except Per Share Data)
 
Quarters Ended June 30,
2018 2017
$    

Average common
shares outstanding,
diluted (millions)

    Per share $    

Average common
shares outstanding,
diluted (millions)

    Per share
 
Net income $ 9.9 21.1 $ 0.47 $ 9.0 21.8 $ 0.41
 
Income tax expense       3.9                     2.2              
 
Income before income taxes 13.8 11.2
 
Adjustments:
 
Environmental reserve adjustments and other costs associated with
previously disposed businesses
1.7 -
 
Restructuring costs 6.5 2.5
 
Acquisition expenses 0.1 0.5
 
Other       0.1                     0.7              
 
Adjusted income before income taxes 22.2 14.9
 
Adjusted income tax expense       (6.4 )                   (4.8 )            
 
Adjusted net income     $ 15.8       21.1     $ 0.75     $ 10.1       21.8     $ 0.46
 
 
Six Months Ended June 30,
2018 2017
$    

Average common
shares outstanding,
diluted (millions)

    Per share $    

Average common
shares outstanding,
diluted (millions)

    Per share
 
Net income $ 22.5 21.3 $ 1.05 $ 15.4 21.8 $ 0.71
 
Income tax expense       16.1                     5.2              
 
Income before income taxes 38.6 20.6
 
Adjustments:
 
Restructuring costs 6.8 3.4
 
Environmental reserve adjustments and other costs associated with
previously disposed businesses
1.7 3.3
 
Acquisition expenses 0.1 0.6
 
Other       0.9                     1.1              
 
Adjusted income before income taxes 48.1 29.0
 
Adjusted income tax expense       (13.9 )                   (9.4 )            
 
Adjusted net income     $ 34.2       21.3     $ 1.60     $ 19.6       21.8     $ 0.90

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 restructuring costs, environmental reserve adjustment, and other
are included as part of other operating expense and other expense.
Acquisition expenses are included as part of selling, general, and
administrative expense.
 

The adjusted income tax expense presented above is calculated
using a normalized company-wide effective tax rate excluding
discrete items of 29.0% and 32.5%, respectively for 2018 and 2017.
Per share amounts were calculated by dividing by the
weighted-average shares of diluted common stock outstanding during
the periods.

 
EnPro Industries, Inc.
               
Reconciliation of Segment Profit (Loss) to Adjusted Segment EBITDA
(Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
Quarter Ended June 30, 2018
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
 
Segment profit (loss) $ 19.3 $ 12.1 $ (0.2 ) $ 31.2
 
Restructuring costs 6.2 0.1 0.2 6.5
Depreciation and amortization expense   13.1         4.0         1.3         18.4  

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

$ 38.6       $ 16.2       $ 1.3       $ 56.1  
Adjusted segment EBITDA margin   15.1 %       19.0 %       2.4 %       14.3 %
 
Quarter Ended June 30, 2017
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
 
Segment profit $ 21.2 $ 8.3 $ 6.3 $ 35.8
 
Acquisition expenses* 0.5 0.1 - 0.6
Restructuring costs 1.9 0.6 - 2.5
Depreciation and amortization expense   8.9         4.2         1.1         14.2  
Adjusted segment EBITDA $ 32.5       $ 13.2       $ 7.4       $ 53.1  
Adjusted segment EBITDA margin   17.0 %       17.4 %       17.8 %       17.3 %
 
Six Months Ended June 30, 2018
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
 
Segment profit $ 43.0 $ 26.5 $ 3.8 $ 73.3
 
Restructuring costs 6.2 0.4 0.2 6.8
Depreciation and amortization expense   26.1         8.0         2.6         36.7  
Adjusted segment EBITDA $ 75.3       $ 34.9       $ 6.6       $ 116.8  
Adjusted segment EBITDA margin   15.4 %       20.4 %       6.2 %       15.3 %
 
Six Months Ended June 30, 2017
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
 
Segment profit $ 41.6 $ 17.8 $ 12.6 $ 72.0
 
Acquisition expenses* 0.6 0.1 - 0.7
Restructuring costs 2.2 1.2 - 3.4
Depreciation and amortization expense   17.5         8.3         2.2         28.0  
Adjusted segment EBITDA $ 61.9       $ 27.4       $ 14.8       $ 104.1  
Adjusted segment EBITDA margin   16.7 %       18.2 %       17.6 %       17.3 %
 

*

 

Includes fair value adjustments to acquisition date inventory.

 
For a reconciliation of segment profit to net income, please refer
to the Segment Information (Unaudited) schedule.
 
   
EnPro Industries, Inc.
           
Reconciliation of Consolidated Net Income to Consolidated Adjusted
EBITDA (Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
Quarters Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
 
 
Net income $ 9.9 $ 9.0 $ 22.5 $ 15.4
 

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

 
Interest expense, net 7.1 16.1 14.9 30.9
 
Income tax expense 3.9 2.2 16.1 5.2
 
Depreciation and amortization expense   18.4       14.2   36.7       28.0
 
EBITDA 39.3 41.5 90.2 79.5
 

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

 
Restructuring costs 6.5 2.5 6.8 3.4
 
Acquisition expenses 0.1 0.5 0.1 0.6
 
Environmental reserve adjustments and other costs associated with
previously disposed businesses
1.7 - 1.7 3.3
 
Other   0.1       0.7   0.9       1.1
 
Consolidated adjusted EBITDA $ 47.7     $ 45.2 $ 99.7     $ 87.9
 
*  

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 was 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.
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.

As contemplated by the settlement, following the approval of the joint
plan of reorganization by asbestos claimants in December 2016, 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 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 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
provided 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 had 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 (the "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 were 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. On
November 29, 2017, GST LLC, EnPro Holdings and EnPro entered into an
agreement with the Trust to provide for the early settlement of the
deferred contributions to the Trust under the Joint Plan and for the
call of the Option by EnPro Holdings, as the successor by merger to
OldCo. Under that agreement, in full satisfaction of the $60 million of
aggregate deferred contribution obligations under the Joint Plan and
payment of the $20 million call payment under the Option, on December 1,
2017 GST LLC, EnPro Holdings and EnPro paid $78.8 million (the "Early
Cash Settlement Amount") to the Trust and agreed to make a further
payment to the Trust to the extent that total interest earned through
July 31, 2018, with respect to a fixed income account in which the Early
Cash Settlement Amount was invested by the Trust is less than $1.2
million.

Pursuant to applicable accounting rules, upon and as of the Joint Plan
Effective Date, the assets and liabilities of both GST and OldCo were
reconsolidated into the EnPro balance sheet and 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 statement of
operations for the three months and six months ended June 30, 2017 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 to give effect to the
reconsolidation as if it had occurred on January 1, 2017.

The unaudited pro forma condensed consolidated statement of operations
for the three months and six months ended June 30, 2017 is 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 statement 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.

EnPro is providing the accompanying unaudited pro forma condensed
consolidated statement of operations in light of specific requests for
such pro forma information by investors. The unaudited pro forma
condensed consolidated statement of operations 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 date assumed.

   
EnPro Industries, Inc.
                   
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
 
For the Quarter Ended June 30, 2017
(Stated in Millions of Dollars, Except Per Share Data)
 
Eliminate Effect of Pro Forma

GST and

Intercompany Reconsolidation   Adjustments
      EnPro    

OldCo

    Transactions     of GST Pro Forma Reference
Net sales $ 307.6 $ 54.0 $ (14.6 ) $ - $ 347.0 (1)
Cost of sales       203.0         32.2       $ (14.6 )       0.3     220.9   (1), (2)
 
Gross profit       104.6         21.8         -         (0.3 )   126.1  
 
Operating expenses:
Selling, general and administrative 74.0 10.0 - 2.2 86.2 (2), (3)
Other       3.1         (23.7 )       -         23.2     2.6   (4)
 
Total operating expenses       77.1         (13.7 )       -         25.4     88.8  
 
Operating income 27.5 35.5 - (25.7 ) 37.3
 
Interest expense (16.1 ) - 8.9 (0.7 ) (7.9 ) (5)
Interest income - 9.4 (8.9 ) - 0.5 (5)
Other expense       (0.2 )       (2.4 )       -         2.4     (0.2 ) (4)
 
Income before income taxes 11.2 42.5 - (24.0 ) 29.7
Income tax expense       (2.2 )       (15.5 )       -         6.5     (11.2 ) (6)
 
Net income     $ 9.0       $ 27.0       $ -       $ (17.5 ) $ 18.5  
 
 
Basic earnings per share     $ 0.42         N/A         N/A         N/A   $ 0.87  
Average common shares outstanding (millions)       21.3                       21.3  
 
Diluted earnings per share     $ 0.41         N/A         N/A         N/A   $ 0.85  
Average common shares outstanding (millions)       21.8                       21.8  
 
(1)   Eliminate intercompany sales of $14.6 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 Six Months Ended June 30, 2017
(Stated in Millions of Dollars, Except Per Share Data)
 
Eliminate Effect of Pro Forma
Consolidated GST and Intercompany Reconsolidation   Adjustments
      EnPro    

OldCo

    Transactions     of GST Pro Forma Reference
Net sales $ 603.4 $ 110.6 $ (29.1 ) $ - $ 684.9 (1)
Cost of sales       397.1         68.3         (29.1 )       0.6     436.9   (1), (2)
 
Gross profit       206.3         42.3         -         (0.6 )   248.0  
 
Operating expenses:
Selling, general and administrative 146.7 20.8 - 4.4 171.9 (2),(3)
Other       4.4         (23.5 )       -         22.7     3.6   (4)
 
Total operating expenses       151.1         (2.7 )       -         27.1     175.5  
 
Operating income 55.2 45.0 - (27.7 ) 72.5
 
Interest expense (31.0 ) - 17.6 (1.4 ) (14.8 ) (5)
Interest income 0.1 18.4 (17.6 ) - 0.9 (5)
Other expense       (3.7 )       (4.5 )       -         4.5     (3.7 ) (4)
 
Income before income taxes 20.6 58.9 - (24.6 ) 54.9
Income tax expense       (5.2 )       (21.3 )       -         5.9     (20.6 ) (6)
 
Net income     $ 15.4       $ 37.6       $ -       $ (18.7 ) $ 34.3  
 
 
Basic earnings per share     $ 0.72         N/A         N/A         N/A   $ 1.60  
Average common shares outstanding (millions)       21.4                       21.4  
 
Diluted earnings per share     $ 0.71         N/A         N/A         N/A   $ 1.57  
Average common shares outstanding (millions)       21.8                       21.8  
 
(1)   Eliminate intercompany sales of $29.1 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 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 ceased 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 2017 statutory tax rate of 37.5% has been used for
all periods presented.

 

               
EnPro Industries, Inc.
 
Reconciliation of Pro Forma Net Income to Pro Forma Adjusted
EBITDA (Unaudited)
 
For the Quarters and Six Months ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
Quarters Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
 
 
Pro forma net income $ 9.9 $ 18.5 $ 22.5 $ 34.3
 

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

 
Interest expense, net 7.1 7.4 14.9 13.9
 
Income tax expense 3.9 11.2 16.1 20.6
 
Depreciation and amortization expense   18.4       18.3   36.7       36.1
 
Pro forma EBITDA 39.3 55.4 90.2 104.9
 

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

 
Restructuring costs 6.5 2.5 6.8 3.4
 
Acquisition expenses 0.1 0.5 0.1 0.6
 
Environmental reserve adjustments and other costs associated with
previously disposed businesses
1.7 - 1.7 3.3
 
Other   0.1       0.1   0.9       0.1
.
Pro forma adjusted EBITDA $ 47.7     $ 58.5 $ 99.7     $ 112.3
 

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 to Consolidated Adjusted EBITDA (Unaudited)."

 
Supplemental Disclosure: For the six months ended June 30, 2018,
approximately 56% 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 Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
Quarter Ended June 30, 2018
Sealing Engineered Power Intersegment
Products     Products     Systems     sales     Consolidated
 
Net sales $ 255.7       $ 85.4       $ 53.7       $ (1.2 )     $ 393.6  
 
 
Quarter Ended June 30, 2017
Sealing Engineered Power Intersegment
Products     Products     Systems     sales     Consolidated
 
Net sales $ 191.3 $ 75.7 $ 41.6 $ (1.0 ) $ 307.6
 
Adjustments:
Sales of deconsolidated entities 51.7 0.8 1.5 - 54.0
Intercompany sales   (13.3 )       (0.7 )       (0.6 )       -         (14.6 )
 
Pro forma net sales $ 229.7       $ 75.8       $ 42.5       $ (1.0 )     $ 347.0  
 
 
Six Months Ended June 30, 2018
Sealing Engineered Power Intersegment
Products     Products     Systems     sales     Consolidated
 
Net sales $ 487.6       $ 171.3       $ 105.8       $ (2.3 )     $ 762.4  
 
 
Six Months Ended June 30, 2017
Sealing Engineered Power Intersegment
Products     Products     Systems     sales     Consolidated
 
Net sales $ 370.6 $ 150.8 $ 84.0 $ (2.0 ) $ 603.4
 
Adjustments:
Sales of deconsolidated entities 104.5 1.3 4.8 - 110.6
Intercompany sales   (26.0 )       (1.1 )       (2.0 )       -         (29.1 )
 
Pro forma net sales $ 449.1       $ 151.0       $ 86.8       $ (2.0 )     $ 684.9  
 
               
EnPro Industries, Inc.
 
Reconciliation of Segment Profit (Loss) to Pro Forma Adjusted
Segment EBITDA (Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars)
 
Quarter Ended June 30, 2018
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
 
Segment Profit (Loss) $ 19.3 $ 12.1 $ (0.2 ) $ 31.2
 
Adjustments:
Restructuring costs 6.2 0.1 0.2 6.5
Depreciation and amortization expense   13.1         4.0       1.3         18.4  

 

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

$ 38.6       $ 16.2     $ 1.3       $ 56.1  
 
 
Quarter Ended June 30, 2017
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
Segment Profit $ 21.2 $ 8.3 $ 6.3 $ 35.8
 
Segment profit of deconsolidated entities 11.7 0.2 0.3 12.2
Pro forma depreciation and amortization adjustments (1) (2.5 ) - - (2.5 )
 
Pro forma segment profit 30.4 8.5 6.6 45.5
 
Adjustments:
Acquisition expenses* 0.5 0.1 - 0.6
Restructuring costs 1.9 0.6 - 2.5
Depreciation and amortization expense   12.9         4.2       1.2         18.3  
 
Pro forma adjusted segment EBITDA $ 45.7       $ 13.4     $ 7.8       $ 66.9  
 
 
Six Months Ended June 30, 2018
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
 
Segment Profit $ 43.0 $ 26.5 $ 3.8 73.3
 
Adjustments:
Restructuring costs 6.2 0.4 0.2 6.8
Depreciation and amortization expense   26.1         8.0       2.6         36.7  
 
Pro forma adjusted segment EBITDA $ 75.3       $ 34.9     $ 6.6       $ 116.8  
 
 
Six Months Ended June 30, 2017
Sealing Engineered Power Total
Products     Products     Systems     Segments
 
Segment Profit $ 41.6 $ 17.8 $ 12.6 $ 72.0
 
Segment profit of deconsolidated entities 20.9 0.1 1.3 22.3
Pro forma depreciation and amortization adjustments (1) (5.0 ) - - (5.0 )
 
Pro forma segment profit 57.5 17.9 13.9 89.3
 
Adjustments:
Acquisition expenses 0.5 0.1 - 0.6
Restructuring costs 2.2 1.2 - 3.4
Depreciation and amortization expense   25.6         8.3       2.2         36.1  
 
Pro forma adjusted segment EBITDA $ 85.8       $ 27.5     $ 16.1       $ 129.4  
 
(1)  

See notes (2) and (3) to the accompanying Pro Forma Condensed
Consolidated Statements of Operations (Unaudited) for further
information about these adjustments.

 

                       
EnPro Industries, Inc.
 
Reconciliation of Pro Forma Net Income to Pro Forma Adjusted Net
Income (Unaudited)
 
For the Quarters and Six Months Ended June 30, 2018 and 2017
(Stated in Millions of Dollars, Except Per Share Data)
 
Quarters Ended June 30,
2018 2017
$    

Average
common shares
outstanding,
diluted
(millions)

    Per share

$

   

Average
common shares
outstanding,
diluted
(millions)

    Per share
 
Pro forma net income $ 9.9 21.1 $ 0.47 $ 18.5 21.8 $ 0.85
 
Income tax expense       3.9                     11.2              
 
Income before taxes 13.8 29.7
 
Adjustments:
 
Environmental reserve adjustments and other costs associated with
previously disposed businesses
1.7 -
 
Restructuring costs 6.5 2.5
 
Acquisition expenses 0.1 0.5
 
Other       0.1                     0.1              
 
Adjusted income before taxes 22.2 32.8
 
Adjusted income tax expense       (6.4 )                   (10.8 )            
 
Pro forma adjusted net income     $ 15.8       21.1     $ 0.75     $ 22.0       21.8     $ 1.01
 
 
Six Months Ended June 30,
2018 2017

$

   

Average
common shares
outstanding,
diluted
(millions)

    Per share

$

   

Average
common shares
outstanding,
diluted
(millions)

    Per share
 
Pro forma net income $ 22.5 21.3 $ 1.05 $ 34.3 21.8 $ 1.57
 
Income tax expense       16.1                     20.6              
 
Income before taxes 38.6 54.9
 
Adjustments:
 
Environmental reserve adjustments and other costs associated with
previously disposed businesses
1.7 3.3
 
Restructuring costs 6.8 3.4
 
Acquisition expenses 0.1 0.6
 
Other       0.9                     0.1              
 
Adjusted income before taxes 48.1 62.3
 
Adjusted income tax expense       (13.9 )                   (20.2 )            
 
Pro forma adjusted net income     $ 34.2       21.3     $ 1.60     $ 42.1       21.8     $ 1.93

The foregoing tables provide 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 net income before selected items (pro forma
adjusted net income). The methodology for reconciliation is the
same as presented on the table titled "Reconciliation of
Consolidated Net Income to Consolidated Adjusted Net Income and
Consolidated Adjusted Diluted Earnings Per Share (Unaudited)."
Note that for the quarter and six months ended June 30, 2018, pro
forma financial results equal consolidated financial results as
the reconsolidation of GST and OldCo took place prior to the
beginning of the quarter.

 
Note that for the calculation Pro Forma Adjusted Diluted Earnings
Per Share for the prior year period, the option that had been in
existence permitting the Trust to purchase for $1 shares of EnPro
stock having a value of $20 million was not considered dilutive due
to EnPro's positive intent to settle the option in cash. The option
was settled in cash as part of the $78.8 million funding of the
Trust on November 29, 2017

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