garlock presentation to investors regarding chapter 11 filing

8/9/2019 Garlock Presentation to Investors Regarding Chapter 11 Filing

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Engineered for Per form ance

Garloc k Seal ing Tec hnologies LLCAsbestos Cla ims Resolu t ion

J une 7, 2010


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Forw ard Look ing St a tem ents

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Statements in this presentation that express a belief, expectation or intention, as well asthose that are not historical fact, are forward-looking statements under the PrivateSecurities Litigation Reform Act of 1995. The words may, hope, will, should,could, expect, plan, anticipate, intend, believe, estimate, predict,potential, continue, and other expressions which are predictions of or indicate futureevents and developments and which do not relate to historical matters identify forward-looking statements. These forward-looking statements involve a number of risks anduncertainties that may cause actual events and results to differ materially from suchforward-looking statements. These risks and uncertainties include, but are not limited to:Garlocks ability to reach acceptable agreements with asbestos claimants and othercreditors, Garlocks ability to obtain court approval for a proposed plan and its proposeddebtor-in-possession financing, unforeseen developments affecting Garlocks ability to paycreditors in full, operate in the ordinary course and adequately fund a trust to resolve allcurrent and future asbestos claims. Our filings with the Securities and ExchangeCommission, including the Form 10-K for the year ended December 31, 2009, and the Form

10-Q for the quarter ended March 31, 2010, describe risks and uncertainties in moredetail. We do not undertake to update any forward-looking statement made in this releaseto reflect any change in management's expectations or any change in the assumptions orcircumstances on which such statements are based.


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Date: June 10, 2010

Time: 8 a.m.- noon

Place: Omni Berkshire Place HotelNew York

Presenters: Bill Holland, Non-Executive ChairmanSteve Macadam, President & CEOBill Dries, CFORick Magee, General CounselMilt Childress, VP, Strategic Planning & Business

DevelopmentTony Gioffredi, Division President, Compressor ProductsInternational; President, Engine Products &Services Segment

Dale Herold, President, Garlock Sealing Technologies

RSVP: www.meetmax.com/enpro_investor_day.html

EnPro Inve st or Day

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http://www.meetmax.com/enpro_investor_day.htmlhttp://www.meetmax.com/enpro_investor_day.html


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Gar lock s Asbest os Li t igat ion

Limits EnPros value

Consumes significant amounts of cash

A billion dollars over the 10 years

Insurance is declining towards exhaustion Cash drain could go on for decades

Now is the time for a final and permanent solution

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A Changing Approac h t o Cla ims Resolu t ion

Historical strategy controlled cash outflows

Managed claims and insurance collections

Avoided undue litigation risks

Relied on strong defenses

Recent trends are disturbing Mesothelioma claims are increasing

Trust payments havent reduced demands against Garlock

State courts are no longer viable

Bankruptcy court offers a superior venue

One court and one judge

Claims are stayed, cash flows stop

Insurance is preserved

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Consol idat ed Financ ia l Report ing St ruc t ure: 2009

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Gar lock Fam i ly o f Com panies

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EnPro is Com m i t t ed t o Gar lock

Garlock is a core investment EnPro is excited by its prospects and opportunities

Financially sound, long history of profitability

$10 million DIP facility

Dedicated management and employees No disruptions to Garlocks business are expected

Asbestos claims resolution

Garlock has the means to fund a fairly constituted trust

Resolution removes allows Garlock and EnPro to achievefull potential

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Managing Gar lock s Asbestos L i t igat ion

CONTROL to RESOLUTION

--- why the change?

Strategy controlled cash impact

Situation expected to improve

Assumptions challenged

Bankruptcy system offers a better alternative

Asbestos claims resolution process now underway

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St rat egy Cont ro l led Cash Im pac t

Late 1990s

Smallpayments on

large numbersof claims


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Late 1990s

Smallpayments on


2000-2001

Bankruptcywave caused

paymentincrease

Particularly formesotheliomaclaims

Increasing

number ofjunk claims


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Insurance agreements

provided significant funding More than $1 billion in coverage


Late 1990s

Smallpayments on


2000-2001

Bankruptcywave caused

paymentincrease

Particularly formesotheliomaclaims

Increasing

number ofjunk claims

2002 on

Intense focus on cash

2002 spin-off

Mesothelioma payments increasing But decline in junk payments more

than offset increases


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Total and net cash outflows declining and manageablePre-EnPro After EnPro Spin Off

$8 3 $8 8 $94 $9 9 $83 $107 $8 8 $9 0$7 3

$8 2 $7 8 $52 $3 6

$40

$2 2

$3 8$2 5

$3 7

$165 $166

$146$135

$123 $129 $126$115

$110

$0

$30

$60

$90

$120

$150

$180

2000 2001 2002 2003 2004 2005 2006 2007 2008

Millions

Insurance Recoveries Net Cash Outflow

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Si t ua t ion Ex pect ed t o Improve

Improvements would more thanoffset eventual insurance decline

Tort reform would eliminate junk claims Non-malignancy claims had overwhelmed system

Reform initiative underway (national and state)

Wealthy bankruptcy trusts would pay claims

Garlocks payments would decline when trusts funded

Number of serious disease claims in decline Mesothelioma incidence had peaked in late 90s


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Si t ua t ion Ex pect ed t o Improve

Improvements would more than offseteventual insurance decline

Tort reform would eliminate junk claims Non-malignancy claims had overwhelmed system

Reform initiative underway (national and state)

Wealthy bankruptcy trusts would pay claims

Garlocks payments would decline when trusts funded

Number of serious disease claims in decline Mesothelioma incidence had peaked in late 90s

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One Assum pt ion Proved Ac c urat e

Tort reform did largely eliminate junk claims Comprehensive state reform

Mississippi and Texas led way

Texas silicosis hearing exposed fraud

Cases moved to inactive dockets

National legislative reform failed

Defendants confident disease claims manageable Claims numbers no longer overwhelming

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Ot her Assum pt ions Chal lenged

Trusts payments did not mitigate demands, settlements orverdicts Trust money delayed for years

Culpable defendants remained in bankruptcy

A full decade for WR Grace and Pittsburgh Corning

Insignificant recoveries from trusts

Targets changed

Risk grew for peripheral defendants

A new world by the time multi-billion dollar trusts emerged

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Trusts finally emerged with billions 2004 - $4.5 billion (DII and Western Macarthur)

2006 - $16 billion (OCF, USG, Armstrong, B&W, CE, Kaiser)

$3.5 $5.0

$7.6

$20.1

$23.1

$18.4 $20.1

$0

$5

$10

$15

$20

$25

2003 2004 2005 2006 2007 2008 2009

Billions

Trust Assets Available

Several additional trusts proposed but not yet funded will add at least $10 billion18


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Significant dollars began to flow from bankruptcy trusts

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But Garlock payments have NOT declined No credit for bankruptcy trust payments

$9.1

$23.1 $23.4

$35.1$30.1

$43.5

$59.2

$78.7$72.4 $75.6 $74.1 $70.7

$0

$20

$40

$60

$80

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Thousands

Average Mesothelioma Settlement

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1,6562,058 1,862 1,967

1,610 1,6921,822 1,883

0

500

1,000

1,500

2,000

2,500

3,000

2002 2003 2004 2005 2006 2007 2008 2009

New Meso Filings Overall Incidence Industrial Incidence


And targeting of Garlock has increased

Disease incidence in decline Garlock claims also began decline in 2004 But then increased each year from 2007-2009

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Cont rol ve rsus Resolu t ion --- w hy the change?

Insurance collections about to decline significantly

2011 collections $34 million lower

$70

$36 $30 $24 $20 $20 $18 $13 $11 $0

$0

$20

$40

$60

$80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Millions

Insurance Collections

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Cont rol ve rsus Resolu t ion --- w hy the change?

Insurance collections about to decline significantly

2011 collections $34 million lower

AND developments in bankruptcy cases encouraging

$70

$36 $30 $24 $20 $20 $18 $13 $11 $0

$0

$20

$40

$60

$80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Millions

Insurance Collections

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We Be l ieve Bankrupt c y Now Of fe rs a Bet t e r A l te rna t i ve

Asbestos claims resolution process under Chapter 11 Automatic stay stops cash drain

One court and one judge

Federal rules of evidence

Fair analysis of science and medicine

Permanent resolution available Estimation trial offers fair claims valuation

Credit for trust payments available

Process can lead to negotiated resolution

Without the risk of a significant adverse verdict Potentially at a significantly lower cost

With opportunity to preserve equity

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Gar lock Asbestos Cla im s Resolu t ion Proc essNow Underw ay

Filing on June 5 Western District of NC (Charlotte) Bankruptcy Court

Garlock in good financial position Will continue operations in ordinary course

Intends to meet obligations in full

Affiliate asbestos claims can be enjoined Protects EnPro and other EnPro businesses

Court to estimate liability

Garlock to establish trust

Permanently resolves asbestos claims

Garlock has the means to fund trust

Value preser ved, fu ture pro t ect ed25


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Ac c ount ing/Report ing Ram if ic at ions for EnPro

Stop consolidating Garlock operating results

Asbestos liability/insurance asset removed

Operating assets/liabilities combined Net assets restated to fair value

Investment balance frozen review for impairment

If claims resolution process successful, reconsolidate

Garlock results presented in EnPro footnote

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EnProGAAP

GarlockAdjustments

EnProProforma

Sales $ 803.0 $(134.4) $ 668.6

Normalized EBIT $ 56.8 $ (21.8) $ 35.0

Asbestos-related expenses (135.5) 135.5 -

Other (1) (108.1) 2.1 (106.0)

Interest expense, net (11.4) (13.4) (24.8)

Pre-tax continuing operations (198.2) 102.4 (95.8)

Tax 54.6 (39.6) 15.0

Net loss continuing operations $ (143.6) $ 62.8 $ (80.8)

EPS $ (7.19) $ 3.15 $ (4.04)

Profo rma Income St a tement Im pac t 2009($M)

(1) Includes goodwill impairment charge and other selected items.

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Asbestos Cla ims Resolut ion

Proforma Incom e St a tem ent Im pact : Q1 2010

EnProGAAP

GarlockAdjustments

EnProProforma

Sales $ 228.2 $(39.6) $ 188.6

Pre-asbestos EBIT $ 25.6 $ (6.4) $ 19.2

Asbestos-related expenses (14.5) 14.5 -

Interest expense, net (2.8) (6.4) (9.2)

Pre-tax continuing operations 8.3 1.7 10.0

Tax (2.7) $ (.6)(3.3)

Net income continuing operations $ 5.6 $ 1.1 $ 6.7

EPS $ .27 $ .06 $ .33

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Proforma Cash Flow Impac t 2009($M)

EnProGAAP

GarlockAdjustments

EnProProforma

Operating activities $ 59.0 $ (11.6) $ 47.4

Investing activities (66.3) 2.9 (63.4)

Financing activities (9.5) - (9.5)

Discontinued operations 15.4 - 15.4

Effect of FX 1.9 (0.2) 1.7

Net change in cash $ .5 $ (8.9) $ (8.4)

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EnProGAAP

GarlockAdjustments

EnProProforma

Cash $ 254 $ (14) $ 240

Other current assets 347 (114) 233

Investment in Garlock - 191 191*

Other non-current assets 727 (314) 413

$1,328 $ (251) $ 1,077

Current liabilities $ 256 $ (94) $ 162

Other non-current liabilities 535 (408) 127

Debt 132 251 383

Total liabilities 923 (251) 672

Shareholders equity 405 - 405*

$1,328 $ (251) $ 1,077

Proforma Balanc e Sheet Im pact 3/31/10($M)

* Does not reflect re-measurement gain/loss to restate net assets to fair value.

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Credi t Fac i l i t y Updat e

Post-Filing

Pre-Filing EnPro Garlock

Facility Size ($M) $75.0 $60.0 $10.0

Type ABL ABL ABL

Spread L+125 L+200 L+350

Maturity April '11 April '11Dec '11; annualrenewal rights

Unused Fee 0.25% 0.50% 0.75%Minimum Fixed ChargeCoverage Covenant 1.0 1.0 1.0

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Subordinat ed Prom issory Not es Payable t o Gar loc k($M)

Pre-Filing Post-Filing

Principal (1) $227.2 $227.2

Maturity Jan 2010 Jan 2017

Interest Rate 6.5% 11%

Cash Portion 6.5% 6.5%

PIK (non cash) n/a 4.5%

(1) Does not include notes payable by EnPro European finance subsidiary to Garlock ($24M at March 31, 2010).

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QUESTIONS

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NON-GAAP RECONCILIATIONS

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R i l i t i f "N l i d" EBIT t L f C t i i


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Rec onci l ia t ion of "Norm al ized" EBIT to Loss f rom Cont inu ingOperat ions Before Incom e Taxes (Unaudi ted)

For the Year Ended December 31, 2009

(Stated in Millions of Dollars)

2009

"Normalized" EBIT $ 56.8

Adjustments:

Asbestos-related expenses (135.5)

Goodwill impairment charge (113.1)

Restructuring costs (10.2)

Adjustment of liability for retiree medical benefits 19.2

Interest expense, net (11.4)

Environmental reserve adjustment (2.1)

Other (1.9)

Impact (255.0)

Loss from continuing operations before income taxes $ (198.2)

garlock presentation to investors regarding chapter 11 filing

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