Good morning. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries Fourth Quarter and Year End 2015 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. Dan Grgurich, our Director of Investor Relations, you may begin your conference.

Thank you, Tiffany and good morning. Welcome to EnPro Industries' quarterly earnings conference call. I'll remind you that our call is also being webcast at enproindustries.com, where you can find the slides accompanying the call. Steve Macadam, our President and CEO; and Milt Childress, Senior Vice President and CFO, will begin their review of our fourth quarter performance and our outlook in a moment. But before we begin our discussion, I will point out that 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 risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor statement included in our press release and are described in more detail along with other risks and uncertainties in our filings with the SEC, including the Form 10-K for the year ended December 31, 2014 and the Form 10-Q for the quarter ended September 30, 2015. 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. Our earnings release and conference call presentation materials contain additional disclosures regarding non-GAAP financial information, collective references to EnPro and our subsidiaries, the deconsolidation of Garlock Sealing Technologies or GST and pro forma financial information presented as if GST was re-consolidated for financial reporting purposes. These disclosures are important to understanding comments we will make on today's call, and we urge you to read them carefully. Please also note that during the call, we will be using the terms normalized sales and normalized segment profit. Normalized sales refers to actual or pro forma sales adjusted for year-over-year differences in foreign exchange translation and the impact of acquisitions and divestitures. Normalized segment profit refers to actual or pro forma segment profit adjusted for foreign exchange translation, the impact of acquisitions and divestitures, acquisition related expenses, restructuring charges and reflects the impact of the multi-year EDF, foreign exchange loss provision in proportion to the percentage of completion. The intent of providing normalized result is to provide greater clarity of results in the current period compared to prior year period. And now, I'll turn the call over to Steve.

Thanks, Dan and good morning, everyone. Our results for the year exceeded the guidance we gave during the third quarter call, primarily due to the strong fourth quarter in Power Systems and cost control measures at both Sealing Products and Engineered Products. For the full year, consolidated segment profit was moderately above the high end of the range provided during our second quarter call after adjusting 2015 results for the impact of foreign exchange, acquisition expense and restructuring differences from the stated guidance assumptions. Notwithstanding this, 2015 was a challenging year for our company like other industrial manufacturers. Oil and gas, steel, metals and mining, agricultural equipment and other capital goods sectors contracted significantly from the prior year, as a result of slowing economic growth and low commodity prices. Other markets that we serve, such as aerospace, nuclear, trucking and automotive were stable to moderately higher and some including semiconductor turned down in the second half of the year following growth in the first half. Government spending on ships and maintenance remained steady. In large part, our results for the quarter mirrored these macroeconomic conditions. In the fourth quarter, our consolidated sales were up 2%, and pro forma sales, which include the results for deconsolidated GST were about even with the fourth quarter of 2014. On a normalized basis, consolidated sales were down 4% for the quarter and GST's net sales were down 3%. Our consolidated adjusted EBITDA of $42.8 million for the quarter was up 4% from a year ago, and our pro forma adjusted EBITDA of $51.6 million was almost equal to last year's fourth quarter. Consolidated EPS of $0.30 a share was up significantly from the $0.15 a share reported in the fourth quarter of 2014. Contributing to the earnings per share improvement, is a 14% reduction…

Thanks, Steve. You'll recall at the beginning with our second quarter 2015 earnings release, we began providing normalized net sales and normalized segment profit and margin information in order to provide greater clarity of organic sales and year-over-year earnings changes. Normalized sales and segment earnings adjust reported sales and segment earnings for currency translation, acquisitions and divestitures and restructuring. While I'll refer to both reported and normalized financial information, most of my comments on year-over-year quarterly and full-year changes from prior periods will be on a normalized basis. Our consolidated fourth quarter sales were $321.9 million, up about $6 million from the same period of 2014. Normalized sales declined 4% with Sealing Products and Power Systems each declining 3% and Engineered Products declining by 7%. In the latter case largely due to softness -- the overall comment is largely due to softness in North American oil and gas and general industrial markets. I will cover each segment in more detail in a moment. Gross profit for the quarter of $103 million was $2.9 million or 3% lower than in the fourth quarter of 2014. And gross profit margins decreased to 32% from 33.5%. Adjusting for the impact of the lower margin businesses acquired this year, the gross profit margin was 33.8% for the quarter, which in light of unfavorable volume in the quarter reflects the beneficial impact of restructuring actions and other cost control initiatives. The lower margins of the two businesses acquired this year, reflect their current margin characteristics, which we expect to improve overtime. As Steve noted, we're very pleased with the addition of these strategic bolt-ons and our integration progress and we expect these businesses to add considerable value relative to the prices paid within a short period of time. SG&A was down $3.1 million or 4%…

Thanks, Milt. We'll close with a discussion of current market conditions and our outlook for the year and then we'll open the line for questions. As we described in the past, we don't have much visibility to future demand for most of our businesses and the current volatility in global markets makes industrial demand picture extremely difficult to forecast. In the near-term apart for some pockets of growth, we expect continuing volume pressure in several of our businesses that serve oil and gas, metals and mining, commodities in general and other global industrial markets. Currently demand levels in aerospace, European automotive and engine parts and service markets are stable and semiconductor is showing some signs of recovery from its decline in the second half of last year. However, overall soft conditions in many of our markets and the strong dollar continue to affect our results. For the year, subject to our limited visibility, we expect pro forma sales, which include the results of GST to be 3% to 5% higher on an FX-neutral basis. Much of the growth is attributable to acquisitions completed in 2015. Pro forma segment markets are expected to be comparable to 2015 with improvements in Engineered Products offset by declines in Sealing Products and Power Systems. Corporate expenses, which benefited in 2015 from the reversal of incentive compensation accruals from prior periods and other one-time items, will be closer in 2016 to the prior five-year average of approximately $33.5 million. Based on these estimates, we expect low-single digit growth in pro forma adjusted EBITDA for the year. Longer-term, we expect continued benefits from our strategic growth initiatives, including growth from recent and future strategic acquisitions and continued emphasis on improving operational efficiencies. Now, we'll open the line for your questions.

[Operator Instructions] Your first question comes from the line of Ian Zaffino with Oppenheimer. Your line is open.

Thanks for all the details on the call. Question for you Steve, I know you talked a lot about in the past about Fairbanks Morse and its opportunity to expand into other areas. What's been going on there? How the discussions been progressing? I know, you're still as bullish as you have been in the past?

Within Fairbanks, Ian?

Yes. Exactly.

Yes. No, I think I feel very, very good about it. This coming year we'll see a little bit of a margin reduction for a couple of reasons; one, is we have a fair number of engine sales this year, most of which is EDF, that will essentially be -- assuming exchange rates stay the same, for the year, they'll be essentially sold at zero margin. And that will hurt us on the new engine mix margin, we still feel pretty good about parts and service. And the second thing is we'll make a bigger investment this year in OP 2.0 development, simply because we're running the engine and consuming fuel, which is just costly. But the testing is on track. We also have made a bunch of proposals about -- with our gas engine partnership with MAN and we're hopeful that this year we'll see the first actual win. Of that we haven't sold it yet, but we've got -- these are long-term projects. It takes couple of years in development and we're participating in a number of these projects with proposals and engineering work. So we've also got -- there's a couple of big government programs that while, they won't impact 2016, we need to win them in 2016. We'd like to win them and we hope to win them. It's the offshore patrol cutter for the coastguard and the new TAO(X) oiler program for the Navy. And we feel like we're well positioned for both of those and both of those awards should happen before the end of the year. Again they won't affect any results in 2016 but they will set the stage, if we're successful set the stage for a very good 2017, 2018 and 2019 independent of success in the OP 2.0. So even with moderate success in OP 2.0, we should have a -- we're hoping that by 2019-2020, we'll have a much, much different business in Fairbanks and I still feel actually quite good about. So does that answer your question?

Yes, that's very helpful. I appreciate the details. Thank you.

Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Hey, guys, this is James on for Jeff. Congratulations on a good quarter. So if I could just go back to the 2016 outlook, can you provide just whatever color you feel comfortable with in terms of -- by segment? And maybe also just by geography, I mean for instance, if you take a look at oil and gas and downstream refinery maintenance spending, you guys did confirm that, that continues to get pushed out. To what extent do you anticipate that returning and when, I'll leave it there.

Milt, why don't you take that.

Okay. Well James, this year unlike last year we had determined, given the limited visibility that we have and the volatile markets that we're in to leave our guidance at the high level for the total Company, as Steve went over earlier. So we're not going to provide specific guidance by segment as we did last year, but we can talk a little bit about the color. If you look at the sealing segment, to your question on the refinery activity, we think it's going to continue to be soft. I think there's good reason to believe that there will be a stronger spring maintenance season this year than last year. Refineries for a number of reasons there's a little bit of a glut of gasoline, which is probably going to encourage refineries to go offline for maintenance, which is by the way will end up having probably a suppressing impact on the cost of oil in the near-term and maybe you don't have a crystal ball, but perhaps with some bounce back in the second half of the year, cost of oil. So, we think that there could be – there is some likelihood that there could be a stronger spring maintenance season this year, but time will tell. Once again we just have such limited visibility. But looking at the industry and the industry data that's what it would suggest. In the trucking business, we know that the OE business, which has been strong over the past several years will decline on a year-over-year basis this year. Our presence in OE is more on the trailer side than the tractor side. But even with trailers, we expect a 15% decline or so in the market in OE trailer production. So that obviously will have some impact in our…

No, I think, that covers it, unless you have a follow-up question?

I do, that's right. And thank you for that, that was very helpful. Regarding semiconductor, what signs are you seeing that might lead to strengthening this year? I mean, is it just feedback from customers or there are some indicators?

Yes. No, we have one large primary customer that makes up our semiconductor business and they give us kind of a rolling six-month look at their build schedule. And after that declining in the second half of last year, that's been -- they brought that up first half of this year. It changes every month on a look forward basis, but it's stronger in the first half than what we saw in the second half last year. So assuming that stays where it is, we'll ship more.

And if I could just ask a third. We have seen some headlines regarding EDF looking to cut spending, cut costs. Have you seen anything in terms of deferrals or maybe a reduction in the size of the existing contracts that you have with them?

No, no. With EDF, we -- well, in Power Systems with EDF we have one big engine program which is the redundant backup generators for all the nuclear sites and as you'll probably remember we won 21 of those total sites which produce 23 engines, I believe is the number. And we're well into that program. I mean, we shift the qualification engine. We're working on the next set of engines. That's all 100% completion and we're on track. That schedule has not changed. They need those engines than they originally said. The issue there is all FX related and as we've explained in the past, it's kind of, you got to kind of look through the accounting of that, because since it's all one contract, we have to take this multi-year loss provision and I think we explained before, we have a natural hedge that actually worked last year, in fact, we probably benefited in the segment slightly not much, because we procured more parts than the percent of completion that we did in EDS last year. However, because of the accounting rules, we can't look forward through the life of the EDF contract on all the other stuff that we buy, it's only -- it hurts us on the sale of EDF. But we can't take credit for the future reduction in procurement items. That obviously happens each year as we roll forward. So, we'll have to continue to adjust that loss provision for EDF up or down based on where the euro-dollar exchange rate is at the end of any given quarter. So, but anyway, but we have not seen and then we also sell fair bit of gaskets and sealing products through out of sealing into EDF from France and that business has been very steady. So, yes, the nice thing about nuclear power plants is that it's base load, so they always run. The weakness that Milt mentioned nuclear for 2016, it's just simply the kind of refueling schedule that we see in reactors where we have large reactor seals. That just kind of varies naturally year-to-year, just in terms of how many refuelings are scheduled and we had a pretty good year last year. This year is not quite as strong. That is not a share loss by any extreme and it's not – quite frankly, it's not demand fluctuations. It's just -- I mean, it's not demand differences based on market, it's demand differences based on just maintenance schedule. But that's a pretty profitable line for us and so when it slows a little bit, it effects our margin.

Thanks, guys. I will get back in queue.

Your next question comes from the line of Joe Mondillo, Sidoti & Company. Your line is open.

Hi, good morning, guys. So I wanted to talk a little bit focus more on sort of the internal operations of the company. First off, in terms of the restructuring that you mentioned in the Engineered Products segment, where are we in terms of that and what's the timing of realizing those full benefits?

Yes. We are 75% or 80% rate, Joe. We've still got – we're still in the process of moving the GGB facility from Chicago into the existing plant in Thorofare. Last year we moved -- we have two plants in Thorofare, the filament wound and big metal-backed. The filament wound, we moved into an owned facility, the lease expired, the building was too small, it's in the same industrial park. So we moved the filament wound last year and we've begun the consolidation of Chicago into that. That will be done by the middle of the year and is underway currently. That will conclude the efforts in GGB. We're also in GGB in the process of relocating the Suzhou, China facility. It's a co-owned -- it's a facility that's co-locate or co-occupied rather by GGB and Stemco. That is almost complete as well, certainly will be complete in the first half of this year. So that's GGB. CPI, we've essentially exited the facilities that we were planning. We have one more that we're looking at that would be on top of the nine, it would make it 10. That if we do that, that will happen in the first half of the year. And we're also in the middle of negotiating the sale of a facility that will -- of the original CPI nine and hopefully that transaction will close in the first half of the year as well. So I anticipate this last, call it 25% or 30% of the restructuring efforts to be done in by the middle of the year. We are saying that the number is $7 million of restructuring in 2016 is what we're estimating.

And I was going to say, $5.4 million of that is in the Engineered Products segment.

Right.

Okay. And so just estimating excluding restructuring, how much of this – can you tell how much of this $4 million to $5 million you saw or realized in the fourth quarter?

Well, I don't think really anything just, or sorry Joe, because we were doing it in the fourth quarter. So the fourth quarter is always slow in CPI. We didn't try to peel back and see. I mean, certainly we were [indiscernible] we were paying severance but that was happening during the quarter. I don't know, Ken, do you have a sense of whether we would have seen any actual savings to the bottom line in Q4 on Engineered?

No, it would have been in minimal in Q4. I would expect the run rate to be, to have all of the restructuring optimized by second half this year.

Yes.

And so just sticking with Engineered, I know these plans were I think baked in. I mean, we talked about them last conference call. So since then to now, how do you feel about where the environment has gone and the things that you've put in place? In other words, do you feel like, have things gone worse and to the point where you feel like maybe you're going to have to do more or how do you feel over the last three to four months, and how that played out with the environment?

I think we're probably in good shape. I don't think we're going to have to do more on top of this one additional facility that I just mentioned in CPI, which we'll know pretty soon, and it's a small service center, so it's not a huge deal. But beyond that, I mean the demand in CPI is weak, very weak, still relatively stable. And in GGB it's weak for everything except automotive. As you know automotive is about half that business from a volume perspective. So, I think once we get this restructuring behind this, and then we're continuing to drive pretty aggressively on some internal operational improvements, just in terms of effectiveness, I'm expecting improvement in Engineered Products this year, certainly improvements in margin with a relatively flat top line, if you exclude some of the volume from the facilities that we exited.

And then just sticking sort of with the same sort of theme at the Sealing segment, how are you -- just tell us how you're managing that business? The environment seems to be sort of mixed. The balance between improving semiconductor and then Stemco obviously is going to see a tick down. You were investing a lot in that Stemco business in 2013-2014 time period and since then, obviously the cycle has turned. How are you feeling about the operations, the cost structure and how the environment has transitioned over the last three, four months?

Yes. I think if you -- that business Sealing is made up of Garlock, Technetics Group and Stemco. And so, in the Technetics Group that we expect that to be pretty solid. We'll get back a little on nuclear as I described, but we should gain in semiconductor. We've got the benefit of the new Fabrico acquisition that we did a year ago and that's exceeding our expectations on both the top and bottom line. So we expect that to be a solid part of that segment. Stemco, I wouldn't characterize it quite as weak as maybe you had interpreted, because yes, new builds will be down on truck and trailer side, but that's -- we're mostly an aftermarket company there. I think it's anybody's guess on what the aftermarket will really look like, it's just completely driven by domestic economic activity, so -- and the margins in the aftermarket are considerably better than the OE market. So even though -- and the builds were strong last year, so we expect a little bit of pressure on that side. On the other hand, we had issues with the TrailerTail business. Last year we talked about in terms of some quality issues and other issues in the field. Those are all behind us. We expect much better results out of acquisitions this year. The Air Springs business that we bought in the middle of the year, we've got significant cost reduction plans in place, mostly supply chain. Those are under qualification, those will be coming in, in the first half of this year. The margin profile already improved in Q4 of that business relative to what we bought. And we have -- our whole strategy in Stemco was to take advantage of adjacent products through our existing go-to market model. And…

So of the $7 million of expenses related to restructuring, it's about a $1.6 million, that I'm assuming goes all towards the Sealing segment outside of -- the rest that goes to Engineered. So of that, is the savings less than $1 million, what you say or--?

Milt, what do you way?

Yes, it's less than -- it will be less than $1 million, Joe.

And then just lastly, the corporate expense line rebounding, I know in the second quarter and maybe even in the third quarter of 2015, I think it was largely related to employee compensation or bonuses and such, is that basically why it's sort of bouncing back, just bouncing to more of a normalized level?

Yes. That's exactly right.

Okay.

There's nothing unusual to that, it's just reverting back to what we would expect on an average basis.

Okay. Great. Thanks a lot.

[Operator Instructions] Your next question comes from the line of Justin Bergner with Gabelli & Company. Your line is open.

Good morning and congratulations on the strong performance particularly on your recent acquisitions.

Thanks, Justin.

My first question this morning relates to the truck and trailer aftermarket. I know you discussed it earlier, but could you give us a sense as to whether or not you're assuming positive flat or negative sales trends for your truck and trailer aftermarket business in 2016 within your guidance?

We're assuming slightly negative in the aftermarket, Justin, but quite frankly we have seen that yet. This year so far it has not been coming to -- it hasn't looked that way, but yes, we follow the industry publications and the industry forecasters and everybody is saying it's going to be down marginally. So that's what we've got built into our plan.

Okay, great. And if I sort of track the M&A implicit in your 3% to 5% sales guidance, I guess I end up somewhere close to flat, is that accurate?

Yes. I think that's a good assumption.

Okay, great. My second question relates to price and price cost. I noticed in the presentation you called out sort of this 1% price, which particularly in a declining input cost environment is rather strong. Do you expect that price to continue and how should we think about price cost looking into 2016?

Steve, I'll make a comment and if you can want add to it. I think what we're going to see is still some favorable dynamics on material costs as there will be -- there's typically a little bit of lag between the time we're looking at our material cost and when commodities come down, so that will continue to be a benefit. Along with it, we expect that there will be and we're already seeing it increasing price pressure. So we're not building a plan that's based on any kind of positive contribution differential between price and cost going into 2016 because of those pressures that we're starting to see.

Okay. Thank you. My final question just relates to M&A. I guess, on your existing acquisitions it's very comforting that you're able to deliver according to plan despite the macro environment is getting more challenging. I mean, I guess that sort of reflects very positively on M&A performance. Maybe if you could talk to what's driving that and any future plans for a bolt-on M&A in 2016 or is that something you plan to put on hold over the course of this year?

No, we still are looking selectively. It's not broadly across the company, but we are -- we do have a backlog of opportunities that we are nurturing along the way. So it would be our hope that we'd be able to bring one or two strategic add-ons into the -- into our Company over the course of the next year. Of course as you know, it can be very difficult to predict what will happen, but we -- in Sealing Products, we continue to look at a number of opportunities and we'll see how those how those play out. But by no means are we putting anything on hold, we are being more selective and we're being very disciplined Justin. We have walked away from some opportunities that we like strategically because of pricing in the market. And as you mentioned, it's been a really strong M&A market over the past year, multiples have been up, we'll see if that moderates a little bit in this year, I would expect it would, but we'll see. So we are maintaining our discipline but we're still actively pursuing acquisitions as a vehicle for growth. As you know, the way we have viewed acquisitions in the past is no different than how we're looking at it now. It's -- if we believe we can accomplish a growth objective that's consistent with our strategy through an acquisition, we'll do that but we're not interested in acquiring just for the sake of growth.

Thank you. That’s it for me.

Your next question comes from the line of Joe Mondillo with Sidoti & Company. Your line is open.

Hi guys, thanks for taking my follow-up question. I was just wondering, I know you don't want to comment too much, but just wondering if you could update us or your thoughts on if tomorrow you were to say, reach a settlement on the asbestos resolution. Your thoughts on timing of reconsolidation and how that plays out?

Yes, I think if we do reach an agreement in the near-term, what we're thinking is that, to step through all the legal requirements and what would be necessary to include the entire company in this process. It would be probably re-consolidated and concluded sometime between the middle of 2017 and the end of 2017. Our current estimate is closer to the middle of 2017. But we've gone through a timeline on that Joe, but until we get an actual deal with the structure known, and so forth and so on, we can't get, we can't tighten up that timing any more than that. But certainly the end of next year, the end of 2017 is very conservative.

Okay. Great. Thanks a lot. Appreciate it.

But again as you know, if we do get a three-way deal, the economics become very transparent and very clear and the kind of certainty of finality also goes way, way up, so it's easy to kind of model and look at the company on a fully, as if it were re-consolidated basis.

Sure, definitely. All right. Thanks for it. I appreciate it.

There are no further questions in queue at this time. I turn the conference back over to our presenters.

Okay, thank you. Well that concludes our call for today. If you have further questions, feel free to call me at 704-731-1527. Thank you for joining us and have a good day.