Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Don Washington, you may begin your conference.

Thank you, Lisa, and good morning everyone. Welcome to our quarterly earnings conference call. In just a minute, Steve MacAdam, our President and CEO, and Alex Pease, our Senior Vice President and CFO will review the results for the second quarter of 2012. And I’ll remind you that our call is being webcast at enproindustries.com, where you’ll also find the slides that accompany the call. This morning, you may hear statements during the course of this call that express a belief, expectation or intention, as well as those that are not historical fact. These statements are forward-looking, and involve a number of risk and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risk and uncertainties are referenced in the Safe Harbor statement included in our press release, and are described in more detail along with other risk and uncertainties in our filings with the SEC, including the Form 10-K for the year ended December 31, 2011 and the quarter ended March 31, 2012. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management’s expectations or any change in assumptions or circumstances on which such statements are based. You should also note that EnPro owns a number of direct and indirect subsidiaries. From time-to-time, we may refer collectively to EnPro and one or more of its subsidiaries as “we,” or to the business assets, debts or affairs of EnPro or a subsidiary as “ours.” These and similar references are for convenience only, and should not be considered to change the fact that EnPro and each subsidiary is an independent entity, with separate management, operations, obligations and affairs. I want to remind you that our financial results reflect the deconsolidation of Garlock Sealing Technologies LLC, Garrison Litigation Management and their subsidiaries effective June 5, 2010. These entities have been deconsolidated from EnPro’s results and will remain deconsolidated during dependency of the Chapter 11 legal proceedings to resolve asbestos claims against GST. We refer to this as the Asbestos Claims Resolution Process or ACRP, and you’ll hear us use that acronym during the call today. GST’s results are presented separately in our earnings release. With that, I’ll turn the call over to Steve.

Thanks, Don, good morning everyone. I’ll start with an overview of our financials before Alex goes through his detailed review. Our top line grew about 14% from the second quarter of 2011 with much of our growth coming from Tara, PI Bearing, and Motorwheel acquisitions. They combined to contribute about $33 million or 13% improvement in sales. Additionally, our organic growth was a healthy 6%, primarily the result of higher demand in certain of our sealing products markets and higher engine revenues at Fairbanks Morse. In the Engineered Products segment, sales at both GGB and CPI were down, demand declined in both company’s European operations and it remained weak in CPI’s North American natural gas markets. Foreign exchange translation reduced sales by about 5%. By geography, sales were up about 4% in North America from last year excluding Fairbanks Morse, but down about 7% in Europe. Most of the softness that we saw in Europe came in the second of the quarter. Segment profits and margins were lower than the second quarter of last year for several reasons. Although GGB produced good results in the quarter, demand decreased and volumes were lower in its European operations. CPI also felt the effect of weaker European demand in addition to the continued effect that low natural gas prices had on its Canadian operations. The combination of the Tara Technologies acquisition, sluggish after market activity at Stemco, and higher engine revenues at Fairbanks Morse, all contributed to a higher mix of lower margin OEM business. Finally, segment profits and margins reflected expenses of $2.1 million for restructuring and an inventory step-up at the Motorwheel acquisition. Adjusting for those expenses, segment margins would be 13.1%. Excluding the restructuring expense and the inventory step-up, acquisitions completed since the second quarter of last year generated more…

Thanks, Steve. As Steve mentioned, we continue to show a nice top line growth in the quarter. Sales were up 14% from the second quarter last year with the bulk of the growth coming from acquisitions. Organic growth was also healthy at 6% and more than offset the effect of foreign currency translation which reduced sales by about 5% from a year-ago. Organic growth came from the Sealing Products segment and also from FME where percentage of completion accounting for new engines increased revenues in 2012. Last year, before we began to use POC accounting, no engines were shipped in the second quarter and no engine revenues were recorded. Sales also benefited from pricing actions throughout the company and those actions help to offset volume declines. When we look at the geographical breakdown, sales in North America were up at all operations except Stemco were aftermarket and brake replacement activity continues to be soft. Excluding FME, North American sales were up about 4%. As you would expect, Europe was significantly softer and sales there were off about 7%. All of our European operations reported decline even when sales are normalized for foreign exchange. On the positive side, our European nuclear markets remained firm and Asia was slightly stronger than last year. We also feel as though we are outperforming the broader market even in the soft economic environment. To round off my comments on sales, Tara, Motorwheel and PI combined to contribute $33 million in sales and as Steve indicated, their integration is going well on all fronts. Now let’s take a look at some of the detail around profitability. As you see, gross margins are down about 3.5 points, predominantly driven by a shift in mix, Stemco’s sales were more heavily weighted to lower margin OEM sales than they…

[Operator Instructions] Your first question comes from the line of Brett Lindsay [ph].

Just as it relates to the Sealing Products segment, I think while we anticipated some slowing in Europe, your comment point to lower activity in global oil and gas, I think was, somewhat of a surprise. You give a little bit of color in your remarks. Could you just give us a little more detail on what you’re seeing there across the different pockets of those businesses?

Sure, I think it sort of depends as you look market-by-market. In North America, we actually feel very good about the refineries at petrochemical spending. The maintenance levels have stayed strong. We did see some pre-buying in the distribution channel, but the volumes in the channel remain strong. So we feel quite good about the refinery markets in North America. Similarly, for the GPT business, our pipeline technology business; in North America, we’re continuing to see very good infrastructure investments in natural gas and oil pipelines, which really benefits that business. So overall, the North American oil and gas market feels pretty good. In Europe, we’re seeing a little bit of softness and that softness is driven both by more conservative maintenance spending in the refineries but more significantly by reduction in infrastructure investments predominantly in water and sewer, which is obviously driven by the state of the economy there. So does that help?

No, that's helpful. And then on Stemco, maybe just a little bit of color as to what you’re seeing and hearing from operators in some of the fleets you work with, and just kind of expectations for the balance of the year within the legacy Stemco business. And then any update on the Motorwheel acquisition, integration and some of cross selling opportunities there would be helpful?

Yes. The first part of your question kind of what the fleets are saying and what we’re seeing just in market demand, I think our best view would be that kind of our aftermarket business, which is driven by revenue miles and truck loadings and so forth, basically freight movement activity, is fairly steady. It's not showing strength, it's not showing weakness, I think it's up just slightly from a year ago if you look at the first half. So I think it will be based on what we're hearing in that same order of magnitude. We benefited in the first half of the year through increased OEM trailer builds. As you probably know, if you know Stemco, our share of new OEM versus aftermarket is much lower. So our business is dominated by aftermarket. But we did see a big benefit, because the truck - new trailer builds were up pretty good even when you comparing to last year. We are seeing some fleets that are kind of deferring those purchases a little bit or taken delivery a little bit later. So I don't think it will go back down to where it was a year ago, but I don't think it will be quite as strong as it was in the first half of the year. So that's the core Stemco business, and that's really where we have the best view of what's happening, because as you know, the other adjacent products that we’ve acquired and been growing though different vehicles, joint ventures, partnerships, acquisitions and so forth. In some cases, our share’s still pretty low, and so we can be seeing gains in share that’s not necessarily reflective of what the market is doing. But in terms of Motorwheel acquisition, it's gone great, that is a great product, it's nice that we have a group of employees that now feel like they have a permanent home, because they were owned by a financial sponsor. And so there is always a tenuous view, they know that they’re now part of the Stemco family. And in terms of our cross selling opportunities, we have one go-to-market model in Stemco. So we essentially cross sell and bundle all of our product offering, and that’s really why we did the Motorwheel acquisitions. So this gives us a high performance brake drum, lightweight brake drum that we have now integrated into our sales approach, and so it's being actively sold by our fantastic group of 40 Stemco sales reps that are out in the field doing the performance clinics with fleets every day of the week. So that's why one of the reasons, I’m so optimistic about it, because I'm pretty confident, we’re going to be able to grow the percentage of brake drums that are - these high-performance lighter weight brake drums, so value proposition is fantastic, so I’m very encouraged with that.

Your next question comes from the line of Ian Zaffino.

Just a quick question, I know you had mentioned the U.S. being flat borrowing any capacities over in Europe. Does that then mean that I guess what you’ve seen through July and maybe beginning of August, and then similar to what you’ve seen in May and June, because you’ve seen some of the manufacturing data get a little bit worse recently, but I know your short cycle. So I’m just wondering if you’ve seen that yet?

Yes, you’re talking about broadly not just in transportation?

Correct, yes.

Yes, to be honest with you, we saw actually in the second half of May and early June kind of almost a bit of a knee-jerk reaction in the market where it was like - what’s going on, because all of a sudden orders were affected pretty dramatically relative to where they had been. And then once we got into June second, third week and beyond, things stabilized a little bit, my goodness because we were like, oh, my goodness. And so when you balance it, yes, we did see the weakness in the second half of the quarter, but I would, yes, things seemed to level out a little bit in June, and we have not seen our July numbers yet. So, really can’t comment on July. I don’t just anecdotally; I don’t feel it’s a whole lot different than where we were in the second half of June.

Your next question comes from the line of Todd Vencil.

Housekeeping item, Alex. The margin guidance that you gave, saying it looks similar to the 12.8% for the segments for last year, was that for the full-year or for the second half in particular?

That’s for the full year.

Okay, great. One of the themes that I sort of think I gleaned from reading the press release and hearing you talk about it, is that aftermarkets...

That’s right, Todd. Todd, the reported margins for 2011 were $12.8 million. The forecast is for around basically $12.5 million, $12.6 million.

Got it. One of the themes in sort of softness in the aftermarket business. I mean am I reading that right and that’s across sort of engines where I think you might have had a tough comp and then in the Sealing, various parts of the sealing business as well, I mean am I right to think that that was sort of a theme. And would that be driven by sort of uncertainty in the market or how are you thinking about all that?

Yes. I think that’s right. Let me take that - I think that’s right, Todd. As you know, it’s never dramatic weakness in the aftermarket relative to OEM. We’ve seen in the first half of the year particularly in Q2, we saw a 2 counterbalancing effects. We saw the surprising strength in some of our OEM markets, which we articulated in the script. And so that was raising that part of the mix, plus we’re just going to have to get everyone re-calibrated that Tara comes to us as we said before, so which is obviously within Sealing comes to us with a very, very high mix of OEM business, a bunch of which is semiconductor. It’s to applied materials, which makes the equipment for semiconductor chips and it’s very cyclical over time. And we feel that cyclicality even more than the equipment folks, because we’re supplying to the equipment folks. They feel it more than the end users. And it’s OEM stuff, and it’s not great margins. We still make money on it. And in addition to that, we do this pass through revenues. So, it’s just that part of the business while still profitable. We got it for a good price. It makes good sense returns and so forth had just kind of structurally lowered a little bit. The Technetics margin expectation, when the semiconductor business is at kind of mid-cycle and normal level. It was good in the first half. It’s going to be weaker in the second half. So we saw a combination of both increase in some of our OEM businesses or share of that within the company, and in addition to that we saw just I don’t know if I call it weakness in aftermarket, it’s just more reflective of where the global economy is right? I mean things are not robust out there, as you guys know, not just from us. But anybody you talk to, right. Stronger in North America than Europe, but I think everywhere folks in the aftermarket are starting to really be extremely cost-conscious because they don’t see what’s coming, and they can’t anticipate, again worse in Europe than in North America. But as Alex said, certainly North America is not immune to the effects of what’s going on in Europe. So that’s how I would characterize it. You want to add anything to that Alex?

No, I think you got it.

Okay. Todd, does that help?

Yes, it does. You mentioned, I think the GSTs U.S. markets were little soft and I don’t think I heard this kind of color onto that. Can you give me a little bit and talk about which of their businesses or which of their markets were particularly soft?

You talking about GST…?

GST the bankrupt, yes.

Yes, well obviously, that is mostly U.S. operation as well as a little bit in Australia and Mexico, well Mexico is in North America. So, it doesn’t include any of the European operations.

Yes, that business is quite long. I think we said organic was 3% to 4%, in that 3% growth. So that’s a mature business. We bought the Gore ONE-UP Pump Diaphragm product line in middle or last, so that’s going very well, not huge, but it's integrating. So we continue to perform better in that business, you saw operationally with our on-time delivery and so forth. We’re working hard on product development. So, yes, the business is healthy and given the mature nature of those products, we’re never going to see a huge bump quarter-to-quarter. But if we can keep cranking there at 3%, 4%, 5% growth period over period, we’ll be very pleased with that.

Todd, let me just give some additional color to Steve’s remarks just because I've made that point to Brad and I wanted to be clear. We sell in that business predominantly through a distribution. We've had a number of pricing initiatives at the beginning of the year, which pulled forward some sales. And what we saw, because we have to get the sales numbers from our distributors as a mechanism for them to get rebates, what we saw was actually the volumes from the distributors were quite a bit, reflected a very healthy petrochemical refinery market. So we actually feel pretty good about the state of the refinery petrochemical markets, which is a huge portion of GST’s business here in North America. So to the extent that’s not purely baked into the number, there is sort of this slight effect of the pull forward into distribution channel. So I just wanted to clarify that.

Got it. So I think I may have caught it wrong, Alex. I thought you called out a little bit softness in GST in the U.S., but am I right that you said that in your prepared remarks, if am I right is that reflective of the timing difference maybe between what they're selling and what they bought?

Yes, I think that's right, Todd.

Okay. So final one from me, just to be kind of make sure we calibrated right on FME with the percentage of completion accounting, I mean can you talk about how much of the revenue in the quarter was from percentage of completion versus aftermarket.

Well the percentage of completion accounting contributed basically $17.5 million. We don't break down the split between aftermarket and new engines.

Is there new engine revenue in there at this point other than percentage of completion?

There wasn’t in Q2, but there will be going forward, because when we shifted last July or August when we shifted, if you recall Todd, what we did is we put it in kind of on as new engines were starting in the shop to be fabricated. And we didn't switch over the ones that were already in. So, I think we got just a couple more that are left, that are like - that are on the old accounting method that will ship in Q3.

Okay.

But to answer your question Todd, no there is no revenue in that number that wasn't percentage of completion revenue.

And after Q3, at least according to what your shipments schedule is for right now. We're all looking to be our percentage of completion?

And I think there might be…

It is a little bit of mix, in Q3 we’ll have a completed contract engine that shipped. And then we'll - then the remainder will be percentage of completion, what happened is, it's not a 100% clean back and forth.

Even after Q3, I think we got, do we have one more next year is that...

No, and then the fourth quarter will be all percentage of completion.

Yes. Next year, I think there's a couple more, we can get you the details on that Todd, I just don't remember when they’re scheduled to ship, and then we'll be done and fully converted…

Well, I appreciated that.

Yes.

[Operator Instructions] Your next question comes from the line of Chris Bamman.

Can you maybe talk about the Stemco business, you’ve increased that adjustable market. Is there going to be more OEM business in that market going forward? Can we perhaps see margins come down going forward with that business?

We will still do smaller acquisitions as we go forward. We hope to sell more OEM business because that’s a nice seed for aftermarket. But in terms of what we have Chris right now in the portfolio, I would not expect margins to go down because of mix below where we are - where we were in Q2. If anything I would expect the opposite, because we were dominated by more of an OE mix at this point, plus we’ll see additional benefits, the integration of as well as Motorwheel as we go forward. We’d like to sell more lightweight brake drums for motor wheel in both new units as well as aftermarket. So we don’t differentiate our strategy trying to drive margins. We try to sell as much as we can to whoever we can sell it to, so.

That is very helpful. And can you perhaps just talk a little bit more about some of the pricing initiatives that you’ve implemented? Maybe give a little bit more color to that, please?

Yes, so generally speaking there is a handful of things that we do to make sure we’re capturing the full value for our products. The first is obviously just being very, very clear with our customers where the value was added and pricing much more on a value basis than a cost plus basis and we’ve seen that had a significant impact, because the customers due recognize the premium nature of the product to specialized engineering that goes into it, the performance improvement and so forth. And so we’re able to share a portion of that value with the customers quite effectively. The second thing that we are quite effective at doing is using raw material, raw material increases to the extent that they exist as a mechanism for clawing back from a bad inflation if you will. So we had seen particularly in last year as an effective of the raw material environment, we were able to again get compensated for that with our customers. The third thing that we’ve done is basically increase our analytic capacity, so that we can now look and very clearly understand our customer profitability. And we’re very proactive in terms of making sure that our most attractive customers were getting the maximum value out of those and for customers that are not quite as attractive, we’re being a little bit more discerning in terms of how we interact with those customers. So, obviously it’s a sensitive topic. I don’t want to get into too, too much detail, but hopefully that helps you understand that 3 different levers we try to pull.

Right and that’s right helpful. And I guess sort of in this environment, do you get pushback?

We’ll look at…

The environment.

Yes, it would be nice if it weren’t so, but...

Your next question comes from the line of Joe Mondillo.

Real quickly, I just wanted a clarification on in terms of the one-time expenses, where did the restructuring and acquisition related expenses fall on the income statement, in terms of what line?

Yes, so it will be below growth above OI.

Okay. All of it? All of the $2.4 million and then I guess it’s, what is it about 600 or 650 on restructuring?

Yes. The inventory step-up to $1.4 million of the inventory step-up will actually be embedded in the gross margin and then the restructuring will be below gross margin above OI.

Okay. And so you mentioned $2.4 million of acquisition related expenses in the Sealing segments, $1.4 million of that is the inventory. What is the other million and where does that fall?

Well, let’s see, you’re going to have a portion of that is going to be related to some restructuring activity in PSI. Then another portion of that is going to be retention payments and amortization. So, I believe it’s about $600,000 in retention payments and amortization, rough numbers and about $400,000 in PSI related restructuring, and so...

Okay. Okay, great. My next question regarding the Sealing segment just trying to understand better picture in sort of expectations going through the rest of the year, we’ve seen 15% plus sort of operating margin in the first half. Last year you saw the - seasonality especially in the fourth quarter where margins fell off drastically due to seasonality. Could you just talk us through that and are we expecting a drastic fall off like we saw last year in terms of seasonality of margin in that segment?

Well, I’ll let Steve to add some addition color. Typically, did you ask sealing or for engineer?

Sealing?

Yes for sealing, so typically for the Stemco business, you do see that the sales cycle is more heavily weighted towards the first half of the year, because that's when a lot of those in the maintenance activity takes place, the break season, is typically in the first half of the year. That said, as we've indicated on the call, lot of our aftermarket activity was soft. The break season was essentially non-existent because of the mild winter. So I would anticipate that, there is probably quite bit less aftermarket seasonality effect this year relative to last year. And Garlock you tend to not see, particularly seasonal pattern, you do see the turnaround cycle for the oil and gas segment, tends to be in the milder weather but there isn’t huge seasonality pattern there. And then, Technatics, again is really not a particularly seasonal business although it is a very cyclical business. And so as we indicated second half the year for Technatics is likely to be down given that where we are in the semiconductor cycle. So all of that sort of and then you obviously have vacations in Europe and you have a short month in December. So all of that sort of combined would indicate that - the second half of the year does see a slight down tick, just based on normal seasonality and that obviously given the scale and so forth has an impact on the margin performance.

Okay. So, I think…

So if you - you want to roll all that together you are going to see - if I were guessing at the point to point and a half of margin reduction from last year to this year in Sealing in Q3.

Okay, okay great. And then I just wanted to sort of ask sort of similar question in terms of engineered products. And I guess you can talk about it just broad-based top line to bottom line just expectations there. obviously, the CPI business is what it is in the GGB having an exposure in Europe is. But the top line didn’t really see much of a change in the second quarter from first quarter. How are you looking at that in the back half of the year compared to the first?

Well, I’d say given the environment we’re still, I’d say, call it cautiously optimistic or I mean not at least cautiously not pessimistic. Let me just say that. So because I don’t want to mislead you, I think we’re going to see some big rebound. But I think hopefully we’ll be relatively stable in both GGB and CPI will perform better margin-wise than they did a year-ago. We’ve invested a lot in CPI for restructuring already. We’re going to be benefiting from the stuff we did in the first half of the year. Most of the facility consolidation costs will probably not hit until Q4 actually just because of the timing of the schedule for us to do that. And GGB continues to just perform better overall. So borrowing a significant reduction in demand at GGB in Europe which is, GGB is 2/3 Europe. So, if borrowing a huge decline and demand in Europe, GGB holds recently constant to where they are now. I would anticipate engineered margins to be in actually better than they were a year-ago in Q3.

Okay, perfect. And then real quickly, I apologize if I missed this. But the Engine segment, your expectations for the year. Is it still the same that you’ve had in the past before?

Yes. The Engine Product and Services is more of a historical, so I think what we said in the remarks was just Shaw is 17% around 16.5%, or you can go back, I can look it up that’s the ballpark back-to-back right?

Is that margin or the top line?

No, margins.

What about the top line expectations?

It's certainly consistent with where we've been, so we're not kind of revising that.

There are no further questions. I'll turn the call back to the presenters.

All right, well thank you, everybody. We appreciate you to joining in this morning, and please give me a call if you have any further questions (704) 731-1527. Thanks.

This concludes today's conference call, you may now disconnect.