Company Quick10K Filing
Enpro Industries
Price69.22 EPS1
Shares21 P/E107
MCap1,440 P/FCF18
Net Debt586 EBIT45
TEV2,026 TEV/EBIT45
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-12-31 Filed 2020-03-11
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-25
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-26
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-22
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-04
10-K 2014-12-31 Filed 2015-02-25
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-08
10-K 2013-12-31 Filed 2014-02-25
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-02-27
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-16 Filed 2012-02-27
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-03
8-K 2020-06-19
8-K 2020-06-12
8-K 2020-05-05
8-K 2020-04-30
8-K 2020-02-25
8-K 2020-02-19
8-K 2020-01-21
8-K 2019-12-12
8-K 2019-11-05
8-K 2019-10-30
8-K 2019-09-25
8-K 2019-09-25
8-K 2019-07-29
8-K 2019-07-29
8-K 2019-07-19
8-K 2019-05-02
8-K 2019-04-30
8-K 2019-04-11
8-K 2019-03-11
8-K 2019-02-14
8-K 2019-01-11
8-K 2018-11-01
8-K 2018-10-31
8-K 2018-10-17
8-K 2018-10-02
8-K 2018-10-01
8-K 2018-08-02
8-K 2018-06-28
8-K 2018-05-03
8-K 2018-05-03
8-K 2018-02-21
8-K 2018-02-14

NPO 10Q Quarterly Report

Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 npo-2020331xex311q1.htm
EX-31.2 npo-2020331xex312q1.htm
EX-32 npo-2020331xex32q1.htm

Enpro Industries Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.11.71.30.80.40.02012201420172020
Assets, Equity
0.50.40.30.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________
FORM 10-Q
 _________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-31225
 _________________________________________ 
ENPRO INDUSTRIES, INC.
(Exact name of registrant, as specified in its charter)
_____________________________________  
North Carolina
 
01-0573945
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
5605 Carnegie Boulevard
 
 
Suite 500
 
 
Charlotte
 
 
North Carolina
 
28209
(Address of principal executive offices)
 
(Zip Code)
(704) 731-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
__________________________________________
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value
NPO
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
As of April 29, 2020, there were 20,515,457 shares of common stock of the registrant outstanding, which does not include 184,458 shares of common stock held by a subsidiary of the registrant and accordingly are not entitled to be voted. There is only one class of common stock.
 





PART I
FINANCIAL INFORMATION
 Item 1.
Financial Statements
ENPRO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, 2020 and 2019
(in millions, except per share amounts)

 
2020
 
2019
Net sales
$
282.7

 
$
303.0

Cost of sales
187.4

 
203.5

Gross profit
95.3

 
99.5

Operating expenses:
 
 
 
Selling, general and administrative
73.2

 
81.5

Other
1.6

 
1.4

Total operating expenses
74.8

 
82.9

Operating income
20.5

 
16.6

Interest expense
(4.7
)
 
(5.2
)
Interest income
0.7

 
0.7

Other income (expense)
1.4

 
(1.5
)
Income from continuing operations before income taxes
17.9

 
10.6

Income tax expense
(7.7
)
 
(2.8
)
Income from continuing operations
10.2

 
7.8

Less: income attributable to redeemable non-controlling interest, net of tax
0.1

 

Income from continuing operations attributable to EnPro Industries, Inc.
10.1

 
7.8

Income from discontinued operations, net of tax
208.6

 
5.3

Net income attributable to EnPro Industries, Inc.
$
218.7

 
$
13.1

Comprehensive income
$
197.2

 
$
19.9

Less: comprehensive income attributable to redeemable non-controlling interest
1.0

 

Comprehensive income attributable to EnPro Industries, Inc.
$
196.2

 
$
19.9

 
 
 
 
Basic earnings per share attributable to EnPro Industries, Inc.:
 
 
 
Continuing operations
$
0.49

 
$
0.37

Discontinued operations
10.13

 
0.26

Net income per share
$
10.62

 
$
0.63

Diluted earnings per share attributable to EnPro Industries, Inc.:
 
 
 
Continuing operations
$
0.49

 
$
0.37

Discontinued operations
10.10

 
0.26

Net income per share
$
10.59

 
$
0.63





See notes to consolidated financial statements (unaudited).

1



ENPRO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 2020 and 2019
(in millions)
 
2020
 
2019
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
 
 
 
Net income attributable to EnPro Industries, Inc.
$
218.7

 
$
13.1

Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations:
 
 
 
Income. from discontinued operations, net of taxes
(208.6
)
 
(5.3
)
Depreciation
7.5

 
7.4

Amortization
9.7

 
8.2

Deferred income taxes
(0.6
)
 
(1.7
)
Stock-based compensation
1.3

 
1.7

Other non-cash adjustments
1.2

 
1.5

Change in assets and liabilities, net of effects of acquisition and divestitures of businesses:
 
 
 
Accounts receivable, net
(27.3
)
 
(16.6
)
Inventories
0.7

 
(10.7
)
Accounts payable
0.2

 
(7.6
)
Other current assets and liabilities
(5.7
)
 
9.6

Other non-current assets and liabilities
3.2

 
(0.9
)
Net cash provided by (used in) operating activities of continuing operations
0.3

 
(1.3
)
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
 
 
 
Purchases of property, plant and equipment
(5.2
)
 
(4.1
)
Proceeds from sale of businesses
441.3

 

Other
(2.0
)
 
(0.1
)
Net cash provided by (used in) investing activities of continuing operations
434.1

 
(4.2
)
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
 
 
 
Proceeds from debt
24.9

 
120.8

Repayments of debt
(159.3
)
 
(111.6
)
Repurchase of common stock
(5.3
)
 
(2.0
)
Dividends paid
(5.5
)
 
(5.4
)
Other
(1.3
)
 
(3.4
)
Net cash used in financing activities of continuing operations
(146.5
)
 
(1.6
)
CASH FLOWS OF DISCONTINUED OPERATIONS
 
 
 
Operating cash flows
(6.2
)
 
11.2

Investing cash flows

 
(6.2
)
Net cash provided by (used in) discontinued operations
(6.2
)
 
5.0

Effect of exchange rate changes on cash and cash equivalents
(11.9
)
 
3.4

Net increase in cash and cash equivalents
269.8

 
1.3

Cash and cash equivalents at beginning of period
121.2

 
129.6

Cash and cash equivalents at end of period
$
391.0

 
$
130.9

Supplemental disclosures of cash flow information:
 
 
 
Cash paid (received) during the period for:
 
 
 
Interest, net
$
(2.3
)
 
$
(1.6
)
Income taxes, net
$
2.6

 
$
(12.5
)
Non-cash investing and financing activities:
 
 
 
Non-cash acquisitions of property, plant, and equipment
$
0.7

 
$
0.7


See notes to consolidated financial statements (unaudited).

2



ENPRO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share amounts)
 
March 31,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
391.0

 
$
121.2

Accounts receivable, net
187.1

 
160.8

Inventories
153.4

 
157.1

Prepaid expenses and other current assets
50.2

 
56.3

Current assets held for sale

 
254.1

Total current assets
781.7

 
749.5

Property, plant and equipment, net
208.9

 
218.8

Goodwill
474.6

 
485.3

Other intangible assets, net
448.4

 
466.9

Other assets
128.0

 
114.6

Total assets
$
2,041.6

 
$
2,035.1

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
3.9

 
$
4.1

Accounts payable
79.7

 
82.7

Accrued expenses
109.3

 
123.8

Income tax payable
88.4

 
13.5

Current liabilities held for sale

 
89.5

Total current liabilities
281.3

 
313.6

Long-term debt
491.1

 
625.2

Deferred taxes and non-current income taxes payable
67.1

 
74.6

Other liabilities
101.2

 
106.8

Total liabilities
940.7

 
1,120.2

Commitments and contingencies

 

Redeemable non-controlling interest
29.0

 
28.0

Shareholders’ equity
 
 
 
Common stock – $.01 par value; 100,000,000 shares authorized; issued, 20,699,915 shares in 2020 and 20,785,346 shares in 2019
0.2

 
0.2

Additional paid-in capital
286.3

 
292.1

Retained earnings
845.5

 
632.2

Accumulated other comprehensive loss
(58.9
)
 
(36.4
)
Common stock held in treasury, at cost – 185,764 shares in 2020 and 186,516 shares in 2019
(1.2
)
 
(1.2
)
Total shareholders’ equity
1,071.9

 
886.9

Total liabilities and equity
$
2,041.6

 
$
2,035.1




See notes to consolidated financial statements (unaudited).

3



ENPRO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Overview, Basis of Presentation and Recently Issued Authoritative Accounting Guidance
Overview
EnPro Industries, Inc. (“we,” “us,” “our,” “EnPro” or the “Company”) is a leader in the design, development, manufacture, and marketing of proprietary engineered industrial products that primarily include: sealing products; heavy-duty truck wheel-end component systems; self-lubricating non-rolling bearing products; precision engineered components and lubrication systems for reciprocating compressors; hoses and fittings for the hygienic process industries; bellows and bellow assemblies; pedestals for semiconductor manufacturing; and PTFE products. In addition to these products, we also provide cleaning and refurbishment services for critical components and assemblies used in state-of-the-art semiconductor equipment.
Basis of Presentation
The accompanying interim consolidated financial statements are unaudited, and certain related information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted in accordance with Rule 10-01 of Regulation S-X. They were prepared following the same policies and procedures used in the preparation of our annual financial statements except as disclosed below and reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of results for the periods presented. The Consolidated Balance Sheet as of December 31, 2019 was derived from the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2019. The results of operations for the interim periods are not necessarily indicative of the results for the fiscal year. These consolidated financial statements should be read in conjunction with our annual consolidated financial statements for the year ended December 31, 2019 included within our annual report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets and liabilities and the disclosures regarding contingent assets and liabilities at period end and the reported amounts of revenue and expenses during the reporting period. The recent outbreak of the coronavirus, or COVID-19, which has been declared by the World Health Organization to be a "pandemic," has caused us to evaluate our accounting estimates that require the consideration of forecasted financial information, including, but not limited to, our allowance for credit losses, the carrying value of our goodwill, intangible assets, and other long-lived assets. This assessment was conducted in the context of information that was reasonably available to us, as well as our consideration of the future potential impacts of COVID-19 on our business as of March 31, 2020. We determined that due to many of our businesses being deemed "essential" under applicable governmental orders otherwise restricting business activities, the limited downtime of our operations, and our ability to adapt and to continue to operate in our current environment, that no triggering event existed at March 31, 2020 and an interim impairment test was not performed. However, because of uncertainties at this time with respect to the severity and duration of the COVID-19 outbreak, the duration and terms of related governmental orders restricting activities, and the timing and pace of any economic recovery as COVID-19 impacts ultimately abate, we cannot predict with specificity the extent and duration of any future impact on our business and financial results from COVID-19. In addition, although most of our operations have been treated as “essential” operations under applicable government orders restricting business activities that have been issued to date, and accordingly have been permitted to continue to operate, it is possible that they may not continue to be so treated under future government orders, or, even if so treated, site-specific health and safety concerns might otherwise require certain of our operations to be halted for some period of time. Accordingly, if the impact is more severe or longer in duration than we have projected, such impact could potentially result in impairments of assets and increases in credit allowances in future periods.
All intercompany accounts and transactions between our consolidated operations have been eliminated.
Our acquisition of all of the equity securities of LeanTeq Co, Ltd. and its affiliate LeanTeq LLC (collectively "LeanTeq") in 2019 resulted in rollover equity from two of LeanTeq sellers (the “Sellers”) who were executives of the acquired entity. This rollover equity gives the Sellers approximately a 10% ownership share (the "Rollover Equity") of Lunar Investment LLC, our subsidiary that purchased LeanTeq. We have the right to buy, and the non-controlling interest holders have the right to sell, the Rollover Equity within 90 days following the third anniversary of the closing of the acquisition of LeanTeq. We have accounted for this transaction as redeemable non-controlling interests and have recorded the redeemable non-controlling interest in a mezzanine section on our accompanying consolidated balance sheets, located between liabilities and equity. Earnings associated with the redeemable non-controlling interest are reflected as income attributable to redeemable non-controlling interest, net of tax in the accompanying consolidated statements of operations.


4



In January 2020, we adopted a new accounting standard that changes how we measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The standard requires us to estimate our lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.

We applied a current expected credit loss model ("CECL") to our trade receivables. Given the nature of our trade receivables, a complex modeling system to develop forward-looking models was not necessary. Since our receivables are short-term, reasonable and supportable forecasted information was not readily available and our application of CECL relied on historical information and existing economic conditions. We will continue to monitor the collectability of our receivables as well as apply any supportable forecast information as it becomes available to make adjustments to our estimated reserve.

We applied our CECL model to our trade receivables at January 1, 2020 using a modified retrospective transition approach. Upon adoption, we recorded a $0.1 million increase to our allowance for credit losses with a corresponding decrease to retained earnings.

Changes in our allowance for doubtful accounts for the three months ended March 31, 2020 were as follows:

(in millions)
 
Balance at December 31, 2019
$
3.7

Adoption of new accounting standard
0.1

Charge to expense
0.3

Balance at March 31, 2020
$
4.1



Additionally, in January 2020, we adopted a standard to simplify annual and interim goodwill impairment testing for public business entities. Under the standard, we will perform our annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Upon adoption, there was no impairment of goodwill recorded and this standard is applied following adoption on a prospective basis for all annual and interim goodwill impairment assessments.

Recently Issued Authoritative Accounting Guidance
    
In December 2019, a standard was issued that will simplify the accounting for income taxes in nine unrelated areas. The standard is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the new guidance and do not expect its impact to be material to our consolidated financial statements.

2.
Discontinued Operations

During the fourth quarter of 2019, we entered into an agreement to sell the Fairbanks Morse division, which comprised our entire Power Systems segment. The sale of Fairbanks Morse closed on January 21, 2020 to an affiliate of funds managed by private equity firm Arcline Investment Management for a sales price of $450.0 million. The preliminary pre-tax gain on the disposition of Fairbanks Morse was $274.3 million ($209.7 million, net of tax). We have reported, for all periods presented, the financial condition, results of operations, and cash flows of Fairbanks Morse as discontinued operations in the accompanying financial statements.

For the three months ended March 31, 2020 and 2019, the results of operations from Fairbanks Morse, prior to sale on January 21, 2020, were as follows:


5



 
2020
 
2019
 
(in millions)
Net sales
$
7.6

 
$
57.9

Cost of sales
7.6

 
44.3

Gross profit

 
13.6

Operating expenses:
 
 
 
Selling, general, and administrative expenses
1.5

 
6.3

Other
(0.1
)
 

Total operating expenses
1.4

 
6.3

Income (loss) from discontinued operations before income tax
(1.4
)
 
7.3

Income tax benefit (expense)
0.3

 
(2.0
)
Income (loss) from discontinued operations, net of tax
(1.1
)
 
5.3

Gain from sale of discontinued operations, net of tax
209.7

 

Income from discontinued operations, net of tax
$
208.6

 
$
5.3


The major classes of assets and liabilities for Fairbanks Morse as of December 31, 2019 are shown below:
(in millions)
 
Assets:
 
Accounts receivable
$
107.8

Inventories
60.2

Property, plant, and equipment
63.0

Goodwill
11.8

Other assets
11.3

Total assets of discontinued operations
$
254.1

 
 
Liabilities:
 
Accounts payable
$
36.9

Accrued expenses
48.2

Other liabilities
4.4

Total liabilities of discontinued operations
$
89.5



3.
Acquisitions

On September 25, 2019, we acquired all of the equity securities of LeanTeq. LeanTeq primarily provides refurbishment services for critical components and assemblies used in state-of-the-art semiconductor equipment. This equipment is used to produce the latest and most technologically advanced microchips for smartphones, autonomous vehicles, high-speed wireless connectivity, artificial intelligence, and other leading-edge applications. Founded in 2011 and headquartered in Taoyuan City, Taiwan, LeanTeq has two locations in Taiwan and one in the United States (Silicon Valley). LeanTeq is included as part of our Technetics Group within the Sealing Products segment.
On July 2, 2019, we acquired 100% of the stock of The Aseptic Group (comprising Aseptic Process Equipment SAS and Aseptic Services SARL, collectively referred to as “Aseptic”), which distributes, designs and manufactures aseptic fluid transfer products for the pharmaceutical and biopharmaceutical industries. Aseptic, headquartered in Limonest, France, is included as part of our Garlock group of companies within the Sealing Products segment.

The following pro forma condensed consolidated financial results of operations for the three months ended March 31, 2019 are presented as if the acquisitions had been completed prior to 2019:


6



 
(in millions)
Pro forma net sales
$
314.7

Pro forma income from continuing operations
6.9


These amounts have been calculated after applying our accounting policies and adjusting the results of LeanTeq and Aseptic to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied prior to 2019 as well as additional interest expense to reflect financing required, together with the consequential tax effects. These pro forma financial results have been prepared for comparative purposes only and do not reflect the effect of synergies that would have been expected to result from the integration of these acquisitions. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred prior to 2019, or of future results of the consolidated entities.
We received $0.1 million in 2020 as a result of a final working capital adjustment that related to our LeanTeq acquisition.

4.
Income Taxes

Our income tax expense and resulting effective tax rate are based upon the estimated annual effective tax rates applicable for the respective periods adjusted for the effect of items required to be treated as discrete in the interim periods. This estimated annual effective tax rate is affected by the relative proportions of revenue and income before taxes in the jurisdictions in which we operate. Based on the geographical mix of earnings our annual effective tax rate fluctuates based on the portion of our profits earned in each jurisdiction.

The effective tax rates for the three months ended March 31, 2020 and 2019 were 43.2% and 27.1%, respectively. The effective tax rate for the three months ended March 31, 2020 reflects the impact of the minimum tax on certain non-U.S. earnings, current year increase in valuation allowance against certain net operating losses and higher tax rates in most foreign jurisdictions. The effective tax rate for the three months ended March 31, 2019 reflects the minimum tax on certain non-U.S. earnings, higher tax rates in most foreign jurisdictions and adjustments to state net operating losses.

In June 2017, the IRS began an examination of our 2014 U.S. federal income tax return.  Although this examination is part of a routine and recurring cycle, we cannot predict the final outcome or expected conclusion date of the audit.  Various foreign and state tax returns are also currently under examination and some of these exams may conclude within the next twelve months.  The final outcomes of these audits are not yet determinable; however, management believes that any assessments that may arise will not have a material effect on our financial results.

7



5.
Earnings Per Share
 
Three months ended March 31,
 
2020
 
2019
 
(in millions, except per share amounts)
Numerator (basic and diluted):
 
 
 
Income from continuing operations attributable to EnPro Industries, Inc.
$
10.1

 
$
7.8

Income from discontinued operations
208.6

 
5.3

Net income attributable to EnPro Industries, Inc.
$
218.7

 
$
13.1

Denominator:
 
 
 
Weighted-average shares – basic
20.6

 
20.8

Share-based awards

 
0.1

Weighted-average shares – diluted
20.6

 
20.9

Basic earnings per share attributable to EnPro Industries, Inc.:
 
 
 
Continuing operations
$
0.49

 
$
0.37

Discontinued operations
10.13

 
0.26

Net income per share
$
10.62

 
$
0.63

Diluted earnings per share attributable to EnPro Industries, Inc.:
 
 
 
Continuing operations
$
0.49

 
$
0.37

Discontinued operations
10.10

 
0.26

Net income per share
$
10.59

 
$
0.63



6.
Inventories
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Finished products
$
74.1

 
$
80.6

Work in process
24.7

 
23.7

Raw materials and supplies
57.9

 
56.1

 
156.7

 
160.4

Reserve to reduce certain inventories to LIFO basis
(3.3
)
 
(3.3
)
Total inventories
$
153.4

 
$
157.1


We use the last-in, first-out (“LIFO”) method of valuing certain of our inventories. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs, which are subject to change until the final year-end LIFO inventory valuation.
7.
Goodwill and Other Intangible Assets
The changes in the net carrying value of goodwill by reportable segment for the three months ended March 31, 2020, are as follows:
 
Sealing
Products
 
Engineered
Products
 
Total
 
(in millions)
Goodwill as of December 31, 2019
$
474.4

 
$
10.9

 
$
485.3

Acquisition of business
(0.1
)
 

 
(0.1
)
Foreign currency translation
(10.4
)
 
(0.2
)
 
(10.6
)
Goodwill as of March 31, 2020
$
463.9

 
$
10.7

 
$
474.6




8



The goodwill balances reflected above are net of accumulated impairment losses of $27.8 million for the Sealing Products segment and $154.8 million for the Engineered Products segment as of March 31, 2020 and December 31, 2019.
Identifiable intangible assets are as follows:
 
 As of March 31, 2020
 
 As of December 31, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
(in millions)
Amortized:
 
 
 
 
 
 
 
Customer relationships
$
460.2

 
$
169.0

 
$
470.1

 
$
166.2

Existing technology
114.0

 
51.5

 
117.5

 
50.8

Trademarks
38.9

 
24.1

 
39.4

 
24.1

Other
33.3

 
24.2

 
33.6

 
24.0

 
646.4

 
268.8

 
660.6

 
265.1

Indefinite-Lived:
 
 
 
 
 
 
 
Trademarks
70.8

 

 
71.4

 

Total
$
717.2

 
$
268.8

 
$
732.0

 
$
265.1


Amortization for the three months ended March 31, 2020 and 2019 was $9.0 million and $6.8 million, respectively.

8.
Accrued Expenses
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Salaries, wages and employee benefits
$
39.1

 
$
43.7

Interest
10.7

 
5.1

Environmental
10.7

 
25.2

Warranty
4.1

 
4.1

Taxes other than income
11.0

 
9.1

Operating lease liabilities
9.0

 
9.3

Other
24.7

 
27.3

 
$
109.3

 
$
123.8


9.
Long-Term Debt
Revolving Credit Facility
On September 25, 2019, we entered into a First Amendment (the "First Amendment") to our Second Amended and Restated Credit Agreement (the "Credit Agreement”) among EnPro Industries, Inc. and EnPro Holdings, Inc., a wholly owned subsidiary of the Company (“EnPro Holdings”), as borrowers, the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer. The Credit Agreement provides for a five-year, senior secured revolving credit facility of $400.0 million (the “Revolving Credit Facility”) and a five-year, senior secured term loan facility of $150.0 million (the "Term Loan Facility" and, together with the Revolving Credit Facility, the "Facilities"). The Amended Credit Agreement also provides that the borrowers may seek incremental term loans and/or additional revolving credit commitments in an amount equal to the greater of $225.0 million and 100% of consolidated EBITDA (as defined) for the most recently ended four-quarter period for which we have reported financial results, plus additional amounts based on a consolidated senior secured leverage ratio.
Initially, borrowings under the Facilities bore interest at an annual rate of LIBOR plus 1.50% or base rate plus 0.50%, with the interest rates under the Facilities being subject to incremental increases based on a consolidated total net leverage ratio.  In addition, a commitment fee accrues with respect to the unused amount of the Revolving Credit Facility at an annual rate of 0.175%, which rate is also subject to incremental increase or decrease based on a consolidated total net leverage ratio.
The Term Loan Facility amortizes on a quarterly basis in an annual amount equal to 2.50% of the original principal amount of the Term Loan Facility in each of years one through three, 5.00% of such original principal amount in year four, and

9



1.25% of such original principal amount in each of the first three quarters of year five, with the remaining outstanding principal amount payable at maturity.
The Facilities are subject to prepayment with the net cash proceeds of certain asset sales, casualty or condemnation events, and non-permitted debt issuances.
EnPro and EnPro Holdings are the permitted borrowers under the Revolving Credit Facility.  We have the ability to add foreign subsidiaries as borrowers under the Revolving Credit Facility for up to $100.0 million (or its foreign currency equivalent) in aggregate borrowings, subject to certain conditions.  Each of our domestic, consolidated subsidiaries are required to guarantee the obligations of the borrowers under the Revolving Credit Facility, and each of our existing domestic, consolidated subsidiaries has entered into the Credit Agreement to provide such a guarantee.
Borrowings under the Revolving Credit Facility are secured by a first-priority pledge of certain assets. The Credit Agreement contains certain financial covenants and required financial ratios including a maximum consolidated total net leverage and a minimum consolidated interest coverage as defined in the Credit Agreement. We were in compliance with all covenants of the Credit Agreement as of March 31, 2020.
The borrowing availability under the Revolving Credit Facility at March 31, 2020 was $387.4 million after giving consideration to $12.6 million of outstanding letters of credit. We have $149.1 million outstanding on our Term Loan Facility borrowings.
Senior Notes
    
In October 2018, we completed the offering of $350.0 million aggregate principal amount of 5.75% Senior Notes due 2026 (the "Senior Notes").

The Senior Notes are unsecured, unsubordinated obligations of EnPro and mature on October 15, 2026. Interest on the Senior Notes accrues at a rate of 5.75% per annum and is payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing on April 15, 2019. The Senior Notes are required to be guaranteed on a senior unsecured basis by each of EnPro's existing and future direct and indirect domestic subsidiaries that is a borrower under, or guarantees, our indebtedness under the Revolving Credit Facility or guarantees any other Capital Markets Indebtedness (as defined in the indenture governing the Senior Notes) of EnPro or any of the guarantors.

On or after October 15, 2021, we may, on any one or more occasion, redeem all or part of the Senior Notes at specified redemption prices plus accrued and unpaid interest. In addition, we may redeem a portion of the aggregate principal amount of the Senior Notes before October 15, 2021 with the net cash proceeds from certain equity offerings at a specified redemption price plus accrued and unpaid interest, if any, to, but not including, the redemption price. We may also redeem some or all of the Senior Notes before October 15, 2021 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, but not including, the redemption date, plus a "make whole" premium.

Each holder of the Senior Notes may require us to repurchase some or all of the Senior Notes held by such holder for cash upon the occurrence of a defined "change of control" event. Our ability to redeem the Senior Notes prior to maturity is subject to certain conditions, including in certain cases the payment of make-whole amounts.

The indenture governing the Senior Notes included covenants that restrict our ability to engage in certain activities, including incurring additional indebtedness, paying dividends, and repurchasing shares of our common stock, subject in each case to specified exceptions and qualifications set forth in the indenture. The indenture further requires us to apply the net cash proceeds of certain asset sales not invested in acquisitions, assets, property or capital expenditures or used to repay or otherwise reduce specified indebtedness within a specified period, in the event of the net proceeds exceeding a specified amount, to offer to repurchase the Senior Notes at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest. This requirement applies to the net cash proceeds received in the divestiture of Fairbanks Morse and could require us to make such an offer to repurchase the Senior Notes in the second quarter of 2021 to the extent we do not sufficiently invest in acquisitions, assets, property or capital expenditures or repay or otherwise reduce specified indebtedness by then.

10.
Pensions and Postretirement Benefits
The components of net periodic benefit cost for our U.S. and foreign defined benefit pension and other postretirement plans for the three months ended March 31, 2020 and 2019, are as follows:

10



 
Pension Benefits
 
Other Benefits
 
2020
 
2019
 
2020
 
2019
 
(in millions)
Service cost
$
1.0

 
$
1.1

 
$

 
$
0.1

Interest cost
2.8

 
3.0

 

 

Expected return on plan assets
(4.7
)
 
(4.0
)
 

 

Amortization of net loss (gain)
1.3

 
1.6

 
(1.1
)
 

Curtailment loss
0.3

 

 

 

Net periodic benefit cost
$
0.7

 
$
1.7

 
$
(1.1
)
 
$
0.1


No contributions were made in the three months ended March 31, 2020 to our U.S. defined benefit pension plans and we currently do not expect to make any contributions in the remainder of 2020.
11.
Shareholders' Equity
Changes in shareholders' equity for the three months ended March 31, 2020 are as follows:
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Permanent Shareholders' Equity
 
Redeemable non-controlling interest
(in millions, except per share data)
Shares
 
Amount
 
 
 
 
 
 
Balance, December 31, 2019
20.6

 
$
0.2

 
$
292.1

 
$
632.2

 
$
(36.4
)
 
$
(1.2
)
 
$
886.9

 
$
28.0

Adoption of new accounting standard

 

 

 
(0.1
)
 

 

 
(0.1
)
 

Net income

 

 

 
218.7

 

 

 
218.7

 
0.1

Other comprehensive income (loss)

 

 

 

 
(22.5
)
 

 
(22.5
)
 
0.9

Dividends ($0.26 per share)

 

 

 
(5.3
)
 

 

 
(5.3
)
 

Share repurchases
(0.1
)
 

 
(5.3
)
 

 

 

 
(5.3
)
 

Incentive plan activity

 

 
1.0

 

 

 

 
1.0

 

Other

 

 
(1.5
)
 

 

 

 
(1.5
)
 

Balance, March 31, 2020
20.5

 
$
0.2

 
$
286.3

 
$
845.5

 
$
(58.9
)
 
$
(1.2
)
 
$
1,071.9

 
$
29.0

Changes in shareholders' equity for the three months ended March 31, 2019 are as follows:

11



 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Shareholders' Equity
(in millions, except per share data)
Shares
 
Amount
 
 
 
 
 
Balance, December 31, 2018
20.7

 
$
0.2

 
$
301.0

 
$
603.3

 
$
(45.5
)
 
$
(1.3
)
 
$
857.7

Adoption of new accounting standard

 

 

 
11.5

 
(11.5
)
 

 

Net income

 

 

 
13.1

 

 

 
13.1

Other comprehensive income

 

 

 

 
6.8

 

 
6.8

Dividends ($0.25 per share)

 

 

 
(5.3
)
 

 

 
(5.3
)
Share repurchases

 

 
(2.4
)
 

 

 

 
(2.4
)
Incentive plan activity
0.1

 

 
1.2

 

 

 

 
1.2

Balance, March 31, 2019
20.8

 
0.2

 
299.8

 
622.6

 
(50.2
)
 
(1.3
)
 
871.1


We intend to declare regular quarterly cash dividends on our common stock, as determined by our board of directors, after taking into account our cash flows, earnings, financial position, debt covenants and other relevant matters. In accordance with this policy, total dividend payments of $5.5 million were made during the three months ended March 31, 2020.
In April 2020, our board of directors declared a dividend of $0.26 per share, payable on June 17, 2020 to all shareholders of record as of June 3, 2020.
In October 2018, our board of directors authorized the repurchase of up to $50.0 million of our outstanding common shares. During the three months ended March 31, 2020 we repurchased 0.1 million shares for $5.3 million. In light of the COVID-19 pandemic, we suspended share repurchases under the program during March 2020. The remaining amount of authorized purchases in the program at March 31, 2020 was $29.7 million. The board of directors' authorization expires in October 2020.
In February 2020, we issued 0.1 million shares of stock options with an exercise price of $53.78 to certain key executives. The options vest pro-rata at the end of years one, two, and three from the grant date, subject to continued employment. No options have a term greater than 10 years.
We determine the fair value of stock options using the Black-Scholes option pricing formula. Key inputs into this formula include expected term, expected volatility, expected dividend yield, and the risk-free interest rate. This fair value is amortized on a straight line basis over the vesting period.
The expected term represents the period that our stock options are expected to be outstanding, and is determined based on historical experience of similar awards, given the contractual terms of the awards, vesting schedules, and expectations of future employee behavior. The fair value of stock options reflects a volatility factor calculated using historical market data for EnPro's common stock. The time frame used was approximated as a six-year period from the grant date for the awards. The dividend assumption is based on our current expectations for our dividend policy. We base the risk-free interest rate on the yield to maturity at the time of the stock option grant on zero-coupon U.S. government bonds having a remaining life equal to the option's expected life. When estimating forfeitures, we consider voluntary termination behaviors as well as analysis of actual option forfeitures.

The option awards issued in 2020 had a fair value of $13.64 per share at their grant date. The following assumptions were used to estimate the fair value of the 2020 option awards:
Average expected term
6 years

Expected volatility
31.53
%
Risk-free interest rate
1.17
%
Expected dividend yield
1.93
%

12.
Business Segment Information

We aggregate our operating businesses into two reportable segments. The factors considered in determining our reportable segments are the economic similarity of the businesses, the nature of products sold or services provided, the production

12



processes and the types of customers and distribution methods. Our reportable segments are managed separately based on these differences.

Our Sealing Products segment designs, manufactures and sells sealing products, including: metallic, non-metallic and composite material gaskets, dynamic seals, compression packing, resilient metal seals, elastomeric seals, custom-engineered mechanical seals for applications in the aerospace industry and other markets, hydraulic components, expansion joints, flange sealing and isolation products, pipeline casing spacers/isolators, casing end seals, modular sealing systems for sealing pipeline penetrations, sanitary gaskets, hoses and fittings for the hygienic process industries, fluid transfer products for the pharmaceutical and biopharmaceutical industries, hole forming products, manhole infiltration sealing systems, bellows and bellows assemblies, pedestals for semiconductor manufacturing, PTFE products, and heavy-duty commercial vehicle parts used in the wheel-end, braking, and suspension. In addition to these products, we also provide cleaning and refurbishment services for critical components and assemblies used in state-of-the-art semiconductor equipment. The equipment serviced is used to produce advanced microchips for smartphones, autonomous vehicles, high-speed wireless connectivity, artificial intelligence, and other applications.
Our Engineered Products segment includes operations that design, manufacture and sell self-lubricating, non-rolling metal-polymer, solid polymer and filament wound bearing products, aluminum blocks for hydraulic applications, and precision engineered components and lubrication systems for reciprocating compressors.
Segment profit is total segment revenue reduced by operating expenses, 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, gains and 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 EnPro.
Segment operating results and other financial data for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(in millions)
Sales
 
 
 
Sealing Products
$
216.1

 
$
224.5

Engineered Products
67.9

 
79.5

 
284.0

 
304.0

Intersegment sales
(1.3
)
 
(1.0
)
Net sales
$
282.7

 
$
303.0

Segment Profit
 
 
 
Sealing Products
$
25.7

 
$
20.8

Engineered Products
3.4

 
6.2

Total segment profit
29.1

 
27.0

Corporate expenses
(8.5
)
 
(9.6
)
Interest expense, net
(4.0
)
 
(4.5
)
Other income (expense), net
1.3

 
(2.3
)
Income from continuing operations before income taxes
$
17.9

 
$
10.6



Segment assets are as follows:
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Sealing Products
$
1,317.2

 
$
1,337.6

Engineered Products
235.2

 
238.3

Corporate
489.2

 
205.1

Discontinued operations

 
254.1

 
$
2,041.6

 
$
2,035.1

 


13




Backlog

As of March 31, 2020, the aggregate amount of transaction price of remaining performance obligations, or backlog, on a consolidated basis was $202.9 million. Approximately 96% of these obligations are expected to be satisfied within one year. There is no certainty these orders will result in actual sales at the times or in the amounts ordered. In addition, for most of our business, this total is not particularly predictive of future performance because of our short lead times and some seasonality.

Revenue by End Market

Due to the diversified nature of our business and the wide array of products that we offer, we sell into a number of end markets. Underlying economic conditions within these markets are a major driver of our segments' sales performance. Below is a summary of our third party sales by major end market with which we did business for the three months ended March 31, 2020 and 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2020
(in millions)
Sealing Products
 
Engineered Products
 
Total
Aerospace
$
12.5

 
$
2.3

 
$
14.8

Automotive
0.2

 
20.5

 
20.7

Chemical and material processing
12.9

 
10.1

 
23.0

Food and pharmaceutical
11.2

 
0.5

 
11.7

General industrial
46.0

 
19.4

 
65.4

Medium-duty/heavy-duty truck
68.8

 
0.1

 
68.9

Oil and gas
15.0

 
10.4

 
25.4

Power generation
9.9

 
4.4

 
14.3

Semiconductors
36.5

 

 
36.5

Other
1.9

 
0.1

 
2.0

Total third party sales
$
214.9

 
$
67.8

 
$
282.7


 
Three Months Ended March 31, 2019
(in millions)
Sealing Products
 
Engineered Products
 
Total
Aerospace
$
12.1

 
$
2.7

 
$
14.8

Automotive
1.0

 
23.3