Enpro Inc (NPO) 2009 Q4 法說會逐字稿

Good morning. My name is Beverly, and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries fourth-quarter 2009 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. Washington, you may begin your conference.

Thank you and good morning, everyone. Welcome to EnPro Industries quarterly earnings conference call. In just a moment, as is our usual practice, Steve Macadam, our President and CEO, and Bill Dries, our Senior Vice President and CFO, will review the quarter, the fourth quarter of 2009, for you. Then we'll open the lines for a question-and-answer session.

For those of you who have dialed in today we have added a slide presentation to our call this quarter. If you have dialed in, you can access the presentation through the webcast link on our Internet homepage, which is www.enproindustries.com. You will see a link to the webcast of the earnings call there and you can find the slides by following that link.

Before Steve and Bill make their remarks, I would like to remind you that you may hear statements during the course of this call that express the 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, 2008 and the 10-Q for the third quarter of 2009.

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. This call is also being webcast on enproindustries.com, as I mentioned, and a replay of the call will be available on the website.

If your questions aren't answered during the call or if you have any follow-up questions, please feel free to contact me later after the call at 704-731-1527.

With that, I will turn the call over to Steve.

Thanks, Don, and good morning, everyone. Thanks for joining us. The fourth quarter provided an encouraging finish to a difficult year. We recorded an 18% sequential increase in sales from the third quarter of 2009 in part because of increased shipments in the Engine Products and Services segment. But sales in our other segments increased as well, providing more evidence that our market have stabilized and even improved modestly in some cases.

Compared to the fourth quarter of 2008, sales were down 8% and that is significantly better than the 20% plus declines we saw in the first three quarters of the year. When conditions began to deteriorate in 2008, we dealt with the demand contraction quickly and took out more than $30 million in annualized costs over the course of 2009. The benefits of those actions were clear in the fourth quarter as our profit margins reached their 2009 peak and returned to levels that we last saw at the end of 2008.

A couple of important events occurred during the quarter. In mid-December, we reached agreements to sell Quincy Compressor to Atlas Copco for $190 million. The antitrust review of the transaction was completed without objection and we expect to close before the end of first quarter. The sale should result in a gain of about $140 million.

As we pointed out at the time we announced our intent to sell Quincy, we had more attractive opportunities for growth in other parts of our Company where we have stronger market positions. At the same time as part of Atlas Copco, Quincy will have opportunities that would not have as part of EnPro. We got very fair and midcycle price for the business and we will use the proceeds to support our acquisition strategy.

At the end of the fourth quarter, we completed the acquisition of Technetics. This was our largest transaction of the year and it brings us a very attractive product line that enhances our presence in the aerospace and power generation industries. Including Technetics, we completed five acquisitions in 2009, each of which improves our position in a strategic market.

Three of the acquisitions complement the Sealing Products offered by Garlock and expand our presence in the pharmaceutical industry as well as in aerospace and power generation markets. The other two acquisitions broaden Compressor Products International's product offering and geographic coverage.

At STEMCO, we created the base for a new heavy-duty truck brake products business through an alliance and a joint venture. STEMCO's brake products now include brake shoes supplied by our alliance partner, Duroline, and automatic brake adjustors provided through a joint venture with Tramec. Both of these companies have industry-leading technology which will benefit from STEMCO's strong sales team and wide distribution network.

In fact, I am actually speaking to you today from Tampa, Florida, where I am attending the heavy-duty trucking industry's annual trade show. We are formally introducing our new line of STEMCO brake products at the show and highlighting STEMCO's expansion over the past three years into new segments of the heavy-duty truck market.

As a result of this expansion, we expect brake products, suspension system components, and other products that STEMCO did not offer in 2007 that they will account for more than 25% of STEMCO sales in 2010.

Fairbanks Morse Engine reported record engine sales and earnings in 2009 and finished the year with some exciting prospects especially in the nuclear power industry. In fact, last fall FME was awarded a contract to supply engines to the Department of Energy nuclear site in 2011 and this month we received a letter of intent that could result in the delivery of multiple engines for a commercial nuclear power project in 2013 and 2014.

As we discussed in our quarterly calls throughout the past year, much of our financial focus in 2009 was on preserving our liquidity in a very difficult economy and managing our costs while also continuing to strengthen the internal processes for long-term success.

We ended the year with $77 million in cash, which is equal to our cash balance at the end of 2008 and only about $6 million less than our balance at the end of the third quarter of 2009 even though we spent a little over $40 million on acquisitions in the fourth quarter.

Our current cash balance and our $75 million credit facility give us substantial liquidity which will grow significantly with the proceeds from the Quincy sale. With these resources, we can increase the pursuit of acquisitions and improve and expand on our core strengths. This strategy has been very effective to date and we expect acquisitions will make more contributions to our growth in the future.

As you see in our earnings release, we increased Garlock's estimated asbestos liability during the fourth quarter and took a total charge of $94 million. The increase reflects adjustments to several of the assumptions that we use to estimate the liability including the number of mesothelioma claims filed against Garlock and the extent to which Garlock settlements will be offset by payments from trust established by other companies through bankruptcy courts.

A number of these 524G trusts have been established and funded to resolve claims against former codefendants who sought relief through bankruptcy proceedings. As we have explained in the past, epidemiological studies indicate that we should be seeing a decline in the incidence of serious asbestos-related diseases. However, the number of mesothelioma claims filed against Garlock increased slightly for the third consecutive year because claims haven't declined as we expected -- payments haven't declined as we expected. As a result, we have adjusted the assumptions regarding new claims filed against Garlock.

We are also concerned about the lack of transparency in claims and funding from the 524G trust. Among the assumptions included in our estimate of the liability is the expectation that if these former defendants emerge from bankruptcy proceedings and their trusts are established, the Garlock payments would decline as payments from the trust began to offset and reduce the damages sought from Garlock. Unfortunately even though we know wealthy trusts have been established and are now paying claims, we have not seen a reduction in the damages sought from Garlock.

We are investigating the reasons why the demands haven't declined and like other asbestos defendants as well as experts and advisers involved in this issue, we are working on a variety of strategies to bring fairness to the trust payment system. Although assumptions we use in the estimation process have changed, we maintain a strong posture in the courtroom and in settlement negotiations.

We won a number of defense verdicts in 2009 and our strong showing in the courtroom is an important asset in our settlement strategy. While the asbestos charge was certainly important to our fourth-quarter results, it shouldn't overshadow the performance of our operations in the quarter or our accomplishments in 2009. We dealt very effectively with the circumstances we encountered last year and we ended the year on a very high note and we are looking forward to a successful 2010.

Now I will turn the call over to Bill for his financial review.

Thanks, Steve. Looking at our financial performance in the fourth quarter, our adjusted earnings from continuing operations were $0.60 a share or about the same as the $0.59 a share we learned from continuing operations in the fourth quarter of 2008. Our adjusted earnings reflected an effective tax rate of about 28% compared to over 37% in the fourth quarter of '08.

As we've pointed out previously, we expect our tax rate to stabilize in 2010 at a somewhat higher rate than last year but lower than our historical rate. Our adjusted earnings also excludes Quincy Compressor, which we have classified as a discontinued operation pending its sale. Quincy earned about $0.03 per share in the fourth quarter of '09 compared to $0.18 a share in the fourth quarter of the prior year. The sharp drop is a clear reflection of the difficult markets Quincy faced last year.

On a GAAP basis, we reported a loss of $1.93 a share in the fourth quarter compared to earnings of $0.26 a share in the fourth quarter of '08. The loss primarily reflects the $94 million pretax charge for asbestos-related expenses. Asbestos-related expenses. The charge consisted of $81 million to increase our liability based on changes in several of our assumptions and $6 million for the normal quarterly update necessary to maintain the estimate of 10 years.

Both of these amounts were non-cash in nature. The remaining $7 million related to ongoing charges for administrative and legal expenses.

As a result of the adjustment, our estimate of Garlock's asbestos liability over the next 10 years increased to $492 million from about $465 million at the beginning of the year. As you know, the estimated liability does not include an estimate of future fees and expenses. In 2009, those expenses were about $30 million.

As Steve mentioned, sales in the quarter were down 8% from the fourth quarter of 2008. Even though volumes remained low in most of our businesses, the rate of decline slowed and the year-over-year decrease in fourth-quarter sales was a considerable improvement over the 20-plus% declines we experienced in previous quarters. Excluding foreign exchange, sales were down 10% in the fourth quarter and 16% for the full year.

Lower volumes were the primary driver behind the year-to-year decline in sales. However, to reiterate what Steve said earlier, we are encouraged by the sequential increase in the third quarter. All three segments reported improvements in sales as engine shipments increased at FME and Garlock and GGB both benefited from higher volumes.

Even though sales volumes decreased, gross profit dollars improved slightly over the fourth quarter of 2008 and gross margins improved by 3.5 percentage points as we benefited from lower costs and modest improvement in selling prices.

Although foreign exchange and acquisitions contributed to an increase in SG&A from the fourth quarter of 2008, for the full year, SG&A decreased by 7% reflecting our cost reduction initiatives.

Our segment income in the fourth quarter of '09 dropped by about $2 million from the prior year as markets weakened and volumes declined. Price improvements and cost reductions largely offset the impact of lower volumes.

Looking in more detail at our segment results, sales in the Sealing Products segment were down 10%. Nearly half of the decline came from Garlock's rubber business, which is heavily tied to construction. The segment sales into heavy-duty truck markets were also down primarily because of the decline in OEM demand. Demand from the segment's industrial and energy markets was down as well compared to 2008. However, the segment's EBITDAR margins actually improved slightly, largely due to our cost reduction activities.

The engineered product segment reported a sales decrease of 3% although excluding foreign exchange sales were down 9%. Demand from European automotive markets served by GGB actually improved over the fourth quarter of 2008 but overall volumes were down as GGB's industrial markets remained soft. CPI also reported decreased sales volumes especially in its North American natural gas markets.

Cost reductions at GGB helped the segment achieve a marginal improvement in profitability in the fourth quarter of 2009 despite increased restructuring expenses.

Engine Products and Services segment continued to perform well in the fourth quarter. Lower engine shipments led to a drop in sales but the segment again recorded strong profits and profit margins. In fact, the segment set new annual records for both sales and profitability in 2009.

As a result of the drop in earnings, our cash flows declined as well. Earnings before interest, taxes, depreciation, amortization, asbestos-related expenses, and other non-cash charges declined by $61 million or nearly 40%. The decline was largely offset by a $20 million reduction in working capital levels and a 50% decrease in capital spending. As a result, our pre-asbestos free cash flow was only about $5 million less than in 2008.

Our total spending for asbestos claims and expenses was approximately the same in both years but net outflows for asbestos increased in 2009 primarily because insurance collections were down about $3 million. That gave us about $55 million in free cash flow, most of which we put to use in connection with the acquisitions that Steve discussed earlier.

That concludes my review. I will turn the call back to Steve for his comments on our outlook.

Thanks, Bill. We are looking forward to a much more stable year in 2010. We believe that the worst of the recession is behind us and there are enough signs of improvement for us to expect modest growth in the first half of 2010. Demand should pick up as project-related work increases in some of our oil and gas markets and as we see improved seasonal demand as typical the first half of the year. These factors should benefit both Garlock and CPI, as should the acquisitions that we completed in 2009.

Although we expect activity in the heavy-duty truck markets to remain at low but stable levels, STEMCO will benefit from its expansion into brake products. The automotive and industrial markets served by GGB appear to be slowly regaining their health and should be more active than they were in the first half of 2009.

At Fairbanks Morse, the 2010 engine shipments are weighted towards the second half of the year, so we expect to ship fewer new engines in the first six months than we shipped in the first half of 2009. The product mix is also likely to be less profitable than it was in the first half of last year. However, Fairbanks Morse will continue to be a strong and important contributor to our results.

Our ability to control our cost was important to us in 2009 and will remain a focus in 2010 as our markets improve. We will continue to benefit from our operational and manufacturing efficiencies, our pricing, our sourcing strategies, improvements we made in working capital management and our commercial excellence program. We will also continue to manage our cash wisely and look for acquisitions and other attractive business combinations that will complement our core strengths especially in our higher-margin businesses.

In summary, we are looking forward to a better 2010 and we are confident that we are well positioned for the future. With that, we can open the line for your questions. Operator, would you please instruct everyone how to ask a question?

(Operator Instructions) Todd Vencil, Davenport.

Good morning, guys. You know, you gave some comments about your end markets and I just wanted to maybe drill down a little bit. You know, are you seeing -- I think one of the things that -- as I've been paying a bit of attention to is you had said since I guess the second quarter of last year, nothing had really weakened in terms of the end markets that you are selling into. Is that still a fair statement?

Do you mean weakened from where they were in the middle of the year, Todd?

Weakened from where they were at the middle of the year.

Yes, that is definitely the case.

Has anything sort of noticeably maybe moved up in the second half and they've gotten a bit weaker? Has there been any notable movement?

You mean, come up and then gone back down?

Yes, or anything else.

No, not really. I think probably -- Bill, you can pile on when I'm done, but I think we have certainly seen improvement in the automotive industry and a lot of the industrial markets served by GGB because they got hit so hard in the first half of last year and they also destocked a bunch of inventory. So we have seen that. So we've seen that come back. That has probably been the most robust trend off the bottom, if you will.

But we haven't seen anything go down. Everything is either stable, slightly up, or a little bit more up like the case of GGB. Bill, do you want to add anything?

Yes, I think you captured it well. We have seen some improvement, some isolated instances, but I think we have seen things stabilize and maybe trend slightly upward. But generally stable.

Okay, thanks for that. Steve, you mentioned that I think the comment was that heavy-duty trucking would stay sort of -- I don't remember what the word was and I don't want to put words in your mouth -- but weak or at a low level, although you are going to benefit from some of the expansion that you guys did in that business. Since you're down there in Tampa, are you hearing anything that kind of gives you a sense of timeframe or directionality or anything in that business?

Yes, the fact of the matter is our view of the industry is very much weighted by FTR and the Mackay Report and others who protect new truck and trailer builds as well as aftermarket revenue miles and so forth. So our view of the year really is based on that because we don't do any fundamental market research or forecasting. We just look at that, but quite frankly our experience with the order pattern at STEMCO in January as well as the sentiment down here that I have heard from fleet owners and whatnot, I think there's far more risk on the upside to those estimates than there is on the downside.

So I can't imagine it is not going -- I can't imagine it is going be worse than what they are forecasting because they are only forecasting a slight increase over 2009. If anything, it will be more robust than that.

That said, nobody down here is doing cartwheels saying it's going to be a great year. So I don't know if that helps, but --

No, that's very helpful. Thanks for that. You talked about overall the comment was for modest growth in the first half of the year. I mean when you think about that, is it safe to assume that that comment is related to volumes in general or is that comment more about revenues? Or --?

No, no, volume in general.

And then given your comment about engines, I guess I would take away from that volume in general but not engines in the first half. Is that fair enough?

Not new engines, because as we've mentioned a number of times on the call, the lead time for a new engine is measured in years, so we know pretty much what the new engine shipments in 2010 will look like. So we know what the schedule is and whatnot. And as we have said before, some of those tend to get pushed and pulled a month, several weeks or a month in and out of a quarter. So FME is always lumpy quarter-to-quarter.

But -- so as I mentioned in the remarks, the new engine revenue will be shifted to the second half of the year.

Got it, okay, good.

But we have had some very -- I just want to emphasize we have had some very promising activity in the nuclear power industry. Now that is not going to be -- we won't ship those engines until in some cases 2012 to 2013 and 2014 but it's very encouraging to us because that really adds a whole new end market for FME that obviously we've continued to -- that we have a pretty substantial installed base in nuclear power plants, but we haven't sold a new engine into that because no nuclear power plants have been built.

As you know, there's another wave of those coming and so our goal has been to be speced on those early units. So we are pretty encouraged about that.

Good. Is there any competition emerging or are you guys still pretty much the ballgame?

You know, I think I would say we are in the lead position.

Okay, good. Switching over to Bill, just real quick, what do you think CapEx -- obviously you've got some benefit in '09 as you noted in the slides from lower CapEx in '09. What does CapEx look like for the next couple of years?

I think we've got to look at the '09 number as being unusually low. You can see it's half of what was a year ago. If you just look at that in the context of as a percent of the depreciation it was half of what we spent in the last two or three years. We were averaging about 107% of depreciation in '07 and '08. It dropped down to 80% last year.

So I think you will see that come up. I think it will be north of 30% but it won't be at the levels -- again the '07, '08 levels we had a number of very discreet but large projects going on that put us very over 40 in each of those two years. I don't see it there, so I see it somewhere in the 30s.

Got it, and then is there -- as you are looking for some growth this year, are we going to see working capital flip around and be a use of cash this year?

Likely yes. Right now our preliminary indications are that because of the anticipated volume increases we will see some increase, although again we've got a working capital initiative. I think, Todd, we've talked about it before. A team in place right now that over the course of a couple years will -- is it to implement really standard and fairly disciplined processes and procedures in working capital management and we are seeing some very positive results in that effort.

So although we do anticipate a turnaround this year and some increase, it will be tempered somewhat by the benefits that we have been seeing from our working capital initiative.

Great. Thanks for that, guys.

Joe Mondillo.

First, I just wanted to ask you if you could give me a little bit more color on the asbestos, what you think the net payments for this year could be, where the claims are actually at? And what kind of rate of decline have you recalculated that to be over the next 10 years?

You are talking about the number of claims, Joe?

Yes, yes, the number. The rate of decline and the rate of claims, correct?

Well, as is typically our practice in this area, we have got Rick Magee, who is our general counsel and runs our asbestos defense program, on the line as well. So I'm going to let Rick address those questions.

Good morning, Joe. How are you doing? Let me try to take those one at a time sort of to help you understand the claims against Garlock versus the anticipated claims.

According to our expert, who we meet with regularly and who we had a meeting with in January, the rate of the instance of the disease mesothelioma, which is where most of the dollars are spent, as you know, has declined in the United States from its peak of about 3000 claims a year to where it's just north of 2500 in recent years.

Unfortunately, we haven't seen that rate of decline at Garlock, where we've seen slight increases in claims, mesothelioma claims filed against Garlock for each of the last three years.

So part of the -- as Steve said, part of the reason for our adjustment to the estimate is that the claims against Garlock have not trended consistent with the overall claims, at least the prediction of the claims that we've heard from our experts.

So obviously we believe that will lead to more dismissals in the tort system and we believe that ultimately our claims at Garlock will start to decline consistent with the claims decline and the overall incidence of disease. We have moderated, as has our expert, Bates White, we have moderated the rate of decline given what's been happening in the last three years, and that was probably the most significant -- had the most significant impact on the estimate going forward.

So I think that addresses one of your questions. You had a couple more in there so give me those again.

Yes, I was wondering what your net payments could be for this year, what you are expecting that to be? And if you could give some sort of an idea or color on what kind of decline in your claims over the next 10 years will be?

And then finally, I'm not sure if you want to comment on this, but where your total payments on asbestos could be at the end of the next 10 years, where you think that could be?

Well, the latter part of that obviously is highly speculative but let me start at the beginning. We anticipate that our payments this year will drop slightly from our payments in 2009 and our insurance also drops, our insurance collections also drops slightly from last year. So we expect the net outflows to be roughly the same for this year as they were in 2009.

As you know, we have a significant decline in our insurance collections anticipated for 2011 and we also hope and expect to have a more significant decline in our payment outflows. A lot of this obviously is negotiation and we are negotiating hard for those declines consistent with the decline in our insurance and the adversaries that we deal with understand that our insurance proceeds are going to decline.

As Steve said, there are also significant dollars now available to claimants from these 524G trusts of our former codefendants who filed for bankruptcy in the early 2000s and whose money for payments has been on the sidelines for most of the decade. And there is significant payments available now that our estimate, that our experts estimate is that those amounts are over $20 billion and approaching $30 billion, so we obviously expect eventually to be able to get a benefit from that.

Those things are factored into our estimate, much tempered from where they were again leading to our increase in the estimate. And so we do anticipate a decline in our total payments in each year for the next decade and that goes into our 10-year estimate. We are confident there are lots of reasons for those declines to occur and it's up to us to negotiate for the declines in those payments.

It's hard really to say with any kind of certainty or predictability where they will be 10 years from now, though.

Okay, great. Just to switch subjects, I was just wondering if, Steve, you could give a little information or some color on what you are seeing over in Europe. If you saw any speed bumps over the last month or so or couple months, just with the sovereign debt problems, anything over there or is that not really affecting you guys?

That is not really affecting us, Joe. Our markets in Europe are recovering just like in the US and depending on which sector you are talking about, it's a different pace of recovery. But I would say, first of all, we haven't been affected at all by the goings-on in the last month. We have a very strong power, a nuclear power base business over there and that has continued to be strong all through this time.

So you know, and GGB is one of our biggest businesses in Europe and that's where we have seen some recovery in the auto and industrial markets. That is going to take a while though to fully play out because as you know, as we talked about a lot last year, GGB is an OEM supplier much different than our total mix, where we have a much healthier aftermarket.

So it's still going to take awhile in our view for capital spending to return to kind of pre-recession levels. But it will certainly be a lot better than it was in 2009.

Bill, do you want to add anything to that?

No, I think you summarized it pretty well, Steve. The only thing I would kind of throw in there as well is keep in mind we took some fairly significant actions last year, Joe, at GGB in particular from a cost-reduction perspective. It took a lot of costs out. The major chunk of the restructuring charges we took in excess of $10 million last year were at GGB.

So we have seen a -- we will see some slight uptick in the markets that Steve alluded to, but we are also -- we will see the benefits of the cost reduction programs we put in place as well.

While you are on that subject, I was wondering what was the restructuring that you spent in the fourth quarter? What was that in regards to?

It was -- we continued to again cut back and took some headcount reductions in both -- primarily in Garlock and GGB. Some of the programs we announced earlier in the year, particularly at GGB, the accounting rules did not allow us to take the full charge then. We had to take the charges as the people -- as people actually left and as they were incurred. So they were really charges that -- a residual of what we had announced back earlier in the year.

Okay. Then last question just has to do with the Quincy business. I was just wondering if you could tell me what the total sales in that business were for the fourth quarter?

We did a little over $30 million in sales.

And was that up from the third quarter?

I think it was about flat. I think they were fairly flat all year long.

Okay, great.

We ended up finishing the year at about -- a little over $120 million, so I think they averaged about $30 million a quarter.

Okay, great. Thanks a lot, guys. That's it.

Gary Farber, CL King.

Just a few questions. The net payment on the asbestos was how much in fiscal '09?

It was just shy of $40 million.

Okay, and you are saying similar for fiscal '10?

Yes.

And the Bates White estimate which was -- I thought it was in the $400 million to $600 million range previously. Is that still the range of assets that they are using?

Rick, do you want to cover that?

No. For the same reasons that we increased our estimate, Gary, they also increased theirs. In fact, their range is a significant factor as we work through to determine ours and their new estimate for the range for the next 10 years is $480 million to $602 million.

Okay, so they came up from the bottom. They left the top sort of about the same then.

That's right.

And then can you provide -- if it's possible just a little more color on the acquisitions? What kind of expectations you can lay down for fiscal '10, as to how people should think about it?

Do you care about -- Gary -- do you want to hear about the business and how it fits in or do you want us to kind of guide you on the numbers?

Should we expect a couple or is it too early to say or --?

Oh you mean additional acquisitions in 2010.

Yes.

Oh, okay. No, no, no, we are going to be very active. It's a good market for acquisitions. We've got a lot of opportunities. We are going to have -- we're going to end the first quarter if you just do the math well over $200 million in cash, probably over $250 million in cash once we get the net net of the Quincy transaction assuming that closes as scheduled.

So no, we are going to be very active with the businesses that we have mentioned before, CPI, STEMCO, and Garlock. So we're looking at a number of opportunities. I would say at this point our view is the opportunities will continue to look and feel like the ones that we have done. It might range anywhere from a $5 million to $50 million investment and again, our average for multiples that we have paid historically has been in the 6 to 6.5 times range. So we certainly would expect to continue to find opportunities that are that attractive. That is before any synergy is supplied.

So no, we sold Quincy. As we said before when we announced it in December, we said that's the one business that we have where we are very challenged strategically. We are up against very, very big players, big global players like Ingersoll-Rand and Atlas Copco and Gardner Denver that are literally orders of magnitude larger than we are and we have tried and reasonably successfully to carve out a niche, mostly US-based, a lot focused on offshore platforms and the oil industry and other kind of applications that require a very robust technology.

But the fact of the matter is, you know, we are not unique in air compressors and we are in a third tier position. And so the valuation that we got from Atlas Copco was very, very good. We didn't sell it at bottom of the cycle economics. We communicated that with them right at the beginning of the process.

But when you compare that to the other businesses that EnPro has, the STEMCO business we are the leader in the aftermarket sealant and wheel hub businesses and we have -- I don't know if you focused on it in my remarks, but in 2007 all we sold us what we now call core products, which are oil seals and hubcaps and protork nut and so forth, bearings.

And this year we expect a new product lines that we have acquired and entered into over the last couple of years to be 25% of the sales of that unit and that unit continues to perform very, very well in what has been the bottom of really the worst housing -- sorry -- heavy-duty truck cycle that we have had ever.

So that market we know is going to recover and when it recovers we are very well positioned. We have gained share in the core products and we have added from some very exciting product lines that were taken through the exact same go to market strategy that has made us successful in the aftermarket of our core products.

So STEMCO is just -- we are going to redeploy that money into STEMCO and Garlock is still even today the leading brand name worldwide in the static sealing business. And we are going to really capitalize on that.

And then CPI, as we've said before, they are really the leading aftermarket component supplier for large natural gas reciprocating compressors. We opened three or four new service centers last year. We did a couple of acquisitions. We are looking at a bunch of acquisitions. We're going to open more service centers this year and we are just a very, very well positioned in that.

So we are going to grow where we are higher margin, where we've got a distinctive competitive advantage globally or in the markets where we play and that's how we are going to redeploy the Quincy proceeds.

Right. Can I ask one other question on that? You ended the year with, what, like about $80 million in cash, right? And you will net from Quincy like $140 million?

Right.

So that's $220 million, and then Technetics was $40 million, is that right?

That was done in the fourth quarter, so that's already -- yes.

We basically were more or less just rough numbers flat cash in fourth quarter. The cash that we generated we spent on Technetics and there was one other acquisition in the fourth quarter. Most of it was Technetics. So we spent over $40 million which we had generated in the fourth quarter, so yes, we ended with $77 million after funding the Technetics deal.

So that's like $220 million between Quincy, what you had on your balance sheet, and first quarter would generally be a use of cash or a source?

Generally it's flattish.

Okay, so you should be north of $200 million in cash somewhere in the first quarter, then, right?

Right.

Right, okay, and then the last question is on the pricing.

Just the net of tax proceeds on Quincy, we actually won't end up paying the tax until after the fourth -- after the first quarter, so we will actually end up pretty rich at the end of Q1 but we will have a tax payment in Q2.

But I should think about it in terms of just $200 million plus of capital to reinvest in the business?

Yes, that's right.

And then the last question is on the pricing side. Can you just give a sense of what the pricing environment is for you to try to go get pricing on your products and then what you are seeing on raw material input costs?

Well, we are seeing -- let me handle those in reverse. We are seeing a little pressure on the raw materials. That is I think consistent with what you would see in commodities, steel and bronze powder and Teflon and so forth. But we are still pretty confident that we are going to be able to hold pricing. We have talked last year about our pricing initiative, which is really -- we had pretty good success with it in 2009. It continues into 2010. It's a tactical pricing program that we are running, so we're still planning on some margin benefit in 2010.

Right, okay. Thanks again for your time.

(Operator Instructions) Todd Vencil, Davenport.

My question was answered, thanks.

(Operator Instructions)

Operator, if there are no more questions, I think we can sign off now.

There are no further questions at this time. Do you have any closing comments?

No, we just thank everybody for joining in and again if you have any follow-up questions, please feel free to contact me at 704-731-1527.

This concludes today's conference call. You may now disconnect.