Enpro Inc (NPO) 2010 Q2 法說會逐字稿

Good morning. My name is Jeri and I will be your conference operator today. At this time I would like to welcome everyone to the EnPro Industries' second-quarter earnings release teleconference. 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.

I would like to turn the call over to your moderator, Mr. Don Washington.

Good morning, everyone, and welcome to EnPro Industries quarterly earnings conference call. In just a moment Steve Macadam, our President and CEO, and Bill Dries, our Senior Vice President and CFO, will review the quarter. Then we will open the lines for questions.

As you probably are aware, there are slides accompanying our call on our website, which you can access through our homepage. Before Steve and Bill make their remarks I would like to remind you that you may hear statements during the course of this cause that express a belief, expectation, or intention as well as those that are not historical facts.

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 risks 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 our Form 10-K for the year ended December 31, 2009, and our Form 10-Q for the quarter ended March 31, 2010.

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 the assumptions or circumstances on which such statements are based.

In addition, EnPro owns a number of direct and indirect subsidiaries; and from time to time we may refer collectively to EnPro and one or more of our 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 construed to change the fact that EnPro and each subsidiary is an independent entity with separate management, operations, obligations, and affairs.

The call is also being webcast on our website, and a replay will also be available on the website. As usual, we will conclude the call with a question-and-answer session. If your questions aren't answered on the call or if you have any follow-up questions, you can contact me at 704-731-1527.

And now I will turn the call over to Steve.

Thanks, Don. Good morning, everyone, and thanks for taking the time to dial in this morning. The second quarter of 2010 was a very positive period for EnPro.

First, the process of permanently resolving all asbestos claims against Garlock Sealing Technologies got underway on June 5. The ultimate result will be the establishment and funding of a trust to resolve all current and future claims against GST. When this is accomplished we expect GST to emerge free of any liability for asbestos claims. Obviously, resolving these claims would have very positive implications for EnPro's future and our perception in the financial markets.

In the meantime, the expenses and cash flows GST has historically incurred to defend and resolve asbestos litigation came to a stop on June 5. As of that date all pending and future asbestos claims against GST can be pursued only in the bankruptcy court.

We expect GST to incur costs of administration in the case; but those costs will be much, much lower than GST's historical defense costs. In addition, the court has issued an order preventing asbestos claimants from proceeding against any other EnPro subsidiary.

In addition to the asbestos claims resolution process, we've got strong financial results to talk about. All of our operations recorded healthy increases in sales as our markets continue to recover from the 2009 recession.

Compared to a year ago, sales were up by 22% or about $45 million. And this is even without including $12 million of third-party sales at GST after it was deconsolidated beginning June 5, 2010.

Our segment profit margins in the second quarter exceeded 15% for the second consecutive quarter and improved by more than 5 percentage points over the second quarter of last year, even after last year was adjusted to eliminate the $5 million of restructuring charges that we incurred.

Our earnings before asbestos-related expenses and other selected items almost doubled to $18 million or $0.87 a share. Again, this is after the deconsolidation of GST, which earned an additional $1.4 million between the filing date and the end of the quarter.

Just as we reported in the first quarter, the costs we took out of our business last year and our ongoing enterprise excellence initiatives were important contributors to the improvement in our profitability. These efforts, combined with the volume increases from stronger markets, led to improved profits and margins across-the-board.

We believe the improvements we have seen in our markets will be sustained for the rest of the year and that our results will reflect these benefits. I want to underscore that this statement, as well as when I speak about our Company's operations in total, I am referring to all EnPro businesses including the deconsolidated operations of GST LLC.

The most significant event in the quarter was the initiation of GST's asbestos claims resolution process, which we will refer to as the ACRP. Business at GST has continued as usual without disruption since the announcement of the ACRP.

This reflects the strong support for businesses received from its customers and vendors, who have almost unanimously accepted the claims resolution process as an effective means to solve the asbestos problem. We truly appreciate their response.

In addition, we also appreciate the hard work and support of the GST employees as well as the encouraging response of our shareholders and others in the financial community. The ACRP is still very early in what is likely to be a long and complex legal process to determine, value, fund, and resolve all pending and future asbestos claims against GST.

Also since the end of the second quarter, we have completed three acquisitions that broadened CPI's product line and expand its customer base. The size and strategic rationale behind these deals is very consistent with deals we've completed in the past. They bring to CPI a new line of lubrication products and associated services and will be an important platform for CPI's continued growth in the reciprocating gas compressor markets.

We also have a number of other acquisition prospects currently under review. And we hope to close more transactions as we approach the end of the third quarter and move into the fourth quarter.

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

Thanks, Steve. As Steve said the second quarter was a good one, as we produced strong gains in sales and earnings over the second quarter of 2009 as well as over what was a solid first quarter of 2010.

Before I discuss the operating results for the quarter, I want to briefly review the impact of the ACRP on our accounting and reporting going forward. I expect that many of you have heard this before, but since it has a significant impact on the way we will report our results going forward, I think it is worth repeating.

As a result of the claims resolution process, we have deconsolidated the results of GST and its subsidiaries in Canada, Mexico, and Australia. They are shown here on the left.

These entities are a subset of the Garlock family of companies, which includes all the entities you see here. The entities involved in the ACRP accounted for about 20% of EnPro's total sales and segment earnings in 2009, which is in line with their relative contribution for each of the past three years.

This slide summarizes the principal impact on EnPro's accounting and reporting going forward. Effective June 5, we stopped consolidating the operating results of GST and its subsidiaries, and they will not be included in an EnPro's results for the duration of the claims resolution process.

All of the assets and liabilities associated with these entities, including the asbestos liability and insurance receivables, have been collapsed into one line on our balance sheet and shown separately as an investment in GST. The carrying value of this investment has been adjusted to its estimated fair value, which resulted in a $54 million non-cash pretax gain in the second quarter. The adjusted investment will be frozen on our books for the duration of the claims resolution process, but it will be subject to periodic reviews for recoverability.

Upon a successful conclusion of the ACRP, we will reconsolidate the assets and liabilities and again include the operating results of GST and its subsidiaries in our overall consolidated numbers.

Finally, the balance sheet reflects intercompany notes payable to GST, and our income statement reflects the related interest expense. Previously, these notes and interests were eliminated and did not show up on our financial statements.

You should note that we will not restate our previously published financial results to reflect these changes. Even though, as Steven mentioned, we continue to operate Garlock with business as usual, the accounting rules require deconsolidation and the new accounting is required to be adopted on a prospective basis. This will impact our year-to-year comparisons for the next several quarters, but we will try to lay out the effects for you as clearly as possible.

You should note that in the appendix to the presentation that goes with today's call, there is a slide showing pro forma sales and segment income as if deconsolidation had occurred on January 1, 2009. We hope you will find this helpful in making comparisons as we go through the next several quarters.

We will be happy to work with you the details of the comparisons as questions come up. But unfortunately, we won't be able to share pro forma results for EnPro that include GST during the ACRP. As much as we would like to do this, we have been advised that it would not be appropriate, even though the business continues to be owned 100% by EnPro.

We expect it to grow and thrive during the claims resolution process, and it will once again be part of our consolidated results when the ACRP is successfully completed. Under those circumstances we will do all we can to provide you with the information necessary to reach conclusions about our performance and what EnPro will look like in the future when the ACRP is complete.

Now we will review the results for the second quarter. The results in the second quarter improved over a strong first quarter and increased significantly over the second quarter of 2009. As Steve mentioned, compared to 2009, sales were 22% higher even without the sales of GST for the month of June.

Virtually all of the increase represented organic growth. Foreign exchange and acquisition essentially offset each other.

Most of the organic growth was due to increased unit volume across all of our businesses. I will talk specifically about them a little later.

Gross margins were 36.6% this quarter, which was 3.3 percentage points higher than the second quarter of 2009. We saw margin improvement primarily at GGB, FME, and Garlock, largely due to the positive volume leverage on our fixed costs, particularly at GGB where gross margins almost doubled.

Our SG&A spending increased by about $6.5 million or 12% to $61 million in the second quarter of 2010. About 25% of the increase from last year is related to acquisitions. FX had a slightly positive impact.

As a percentage of sales, SG&A decreased from 2009's second quarter by over 2 points, 24.4% from 26.6% in the second quarter last year. The decline is largely a function of leveraging on the sales growth. The 24.4% is also 3 points lower than the 27.4% reported in the first quarter this year.

The segment income improved by more than 2 times to $39 million, 15.6% of sales from $16.5 million or 8% of sales in the second quarter of 2009. Net income for the quarter amounted to $45 million or $2.20 a share.

This includes the non-cash pretax gain on the deconsolidation of GST of $54 million. After-tax the gain equates to $33.8 million or $1.64 per share.

As I noted earlier, this gain results from restating our investment in GST to its estimated fair value. In restating our investment, the value of its net operating assets was written up to fair value and the value of insurance assets was written down in order to discount it to present value.

The asbestos liability was not adjusted, primarily because the value will ultimately be determined in the claims resolution process either through negotiation with the claimant representatives or by the court. At this point any new estimate of GST's ultimate liability would be somewhere in a wide range of possible outcomes, and we believe the liability reflected prior to June 5 is somewhere within that range.

In any case, we continue to believe that when the liability is fairly valued it will be less than the cost to GST remaining in the tort system.

$54 million deconsolidation gain has been tax effected in our marginal tax rate, which caused our effective tax rate for the quarter to be almost 37%. Absent the gain, our effective tax rate would be about 33%, which is very much in line with the expectations we have shared with you in the past.

In the second quarter of 2009, we reported a loss of almost $106 million, $5.30 a share, primarily because of a charge for goodwill impairment. Our net income before asbestos-related expenses and other selected items amounted to $17.9 million.

This does not include the earnings of GST from June 5 until the end of the quarter, which were about $1.4 million on the same basis. Added together, these numbers would compare to the $9.1 million of adjusted earnings we reported the second quarter of 2009 when GST was included for the full quarter. That result would reflect an increase of more than 100%.

On a per-share basis and not including GST after June 5, these earnings were $0.87 in the second quarter of 2010 compared to $0.45 in the second quarter of 2009.

The impact of de consolidation on the second quarter was relatively small since we didn't deconsolidate until early June. In future quarters, it will be larger because GST will be deconsolidated for the full quarter. As I mentioned, we expect to continue to provide you with pro forma income information for each of an EnPro and GST to help you make year-over-year comparisons on a consistent basis.

Next we will look at our segment results. In the Sealing Products segment, our reported sales including GST prior to June 5 were up 15% or about $15 million to $113 million. Segment profits increased by $7 million or almost 50% to $21 million.

GST generated an additional $12 million in sales and $1.9 million in EBIT after June 5 that are not reflected in these results. In the Garlock family of companies including GST for the full quarter, sales increased about 22% over the second quarter last year on strong organic growth.

The division saw strength in most key markets including energy, power generation, nuclear, aerospace and pharmaceutical. And with higher volumes, profit improved strongly.

For the second of second quarter, Stemco saw big improvements. Sales were up 35% and segment profits were up substantially. Increased activity in Stemco's heavy-duty truck markets led to higher sales of core products to OEM and aftermarket customers, as well as increased sales in the new brake product line.

In the Engineered Products segment, sales were up 32%, and the segment made a significant swing from a $7.5 million loss a year ago to a $5.3 million profit this year.

GGB reported a dramatic improvement in both sales and segment profits. Demand improved in almost all of its markets in North America and Europe, and sales were up about 40%. With increased volumes, GGB moved back to profitability from a sizable loss last year, when volumes were low and the business was incurring restructuring costs as it dealt with very difficult market conditions.

Sales in Compressor Products International were up just under 20%. The increase came from acquisitions and organic growth in about equal proportions. Activity in CPI's core petrochemical markets remained strong, and they benefited from demand from those customers. However, natural gas prices remain low due to excess inventories, and activity in those markets -- primarily in Western Canada -- was weak.

In the Engine Products and Services segment, Fairbanks Morse Engine continued to perform well. Sales were up 24% and earnings were up over 30%. As a result, their margins improved by over 1 point to 20.7%. FME's parts and service sales were up strongly in the second quarter, but the business also benefited from engine shipments that were accelerated into the quarter in the second half of the year at the request of the customer.

We generated over $30 million of pre-asbestos free cash flow in the first half of 2010, more than twice what we generated in the first half of 2009. This came despite a significant swing in working capital levels in support of higher sales volumes this year and as we experienced the seasonal upswing that is typical for the first half of the year.

Even so, our working capital metrics are going in the right direction, with the working capital sales ratio down 1.5% from a half from a year ago and our DSOs and DSIs down 8% to 9% each.

At the modest net asbestos cash outflows, our free cash flow was $27 million dollars. We generated $124 million of cash in the first half of the year, largely reflecting the net after-tax proceeds from the sale of Quincy Compressor. However, I should also note that our cash balance was reduced by almost $30 million as of June 5 when we deconsolidated GST.

Turning to the balance sheet, the biggest impact is the deconsolidation of GST and the reclassification of all its assets and liabilities into one line. We now reflect an investment in GST of $236 million. As I said earlier, the investment will be frozen for the duration of the claims resolution process, subject to periodic reviews for recoverability as it will be accounted for using the cost method.

Let me point out a couple of other items of interest. First, we had just over $200 million of cash on EnPro's books at June 30. This does not include over $40 million of cash at GST.

While the claims resolution process is proceeding, this cash will remain in GST and will be invested in its business. We expect that GST will continue to be a strong cash generator during the claims resolution process.

The second item relates to the intercompany debt, most of which is reflected on our line called Notes Payable to GST. As we previously explained, the debt is associated with the transfer in 2005 of certain businesses by GST to other EnPro subsidiaries.

The note compensated GST for the fair value of such businesses, as determined by an independent appraisal, prior to June 5, since the Company debt was eliminated and did not show up on our consolidated balance sheet.

That wraps up my comments on a very good quarter. Our markets and our results continued to move in the right direction, and we are very pleased with where we are as we head into the second half of the year.

Now I will turn the call back to Steve for his concluding remarks.

Thanks, Bill. As Bill and I both mentioned we are pleased with our prospects for the second half of 2010. The deconsolidation of GST LLC will have a significant effect on the way year-over-year comparisons of our results are reported, but the slide and the appendix to our presentation should help you understand that effect. As Bill said, within the limitations imposed on us, we will do everything we can to help you make year-over-year comparisons on a consistent basis.

I will also remind you that in the past we have always called your attention to the fact that FME shipments can be very lumpy from quarter to quarter. This year is no different, and the acceleration of $21 million of engine shipments into the second quarter from our original plan will also affect our second half, since activity at Fairbanks Morse will be lower in the third quarter because of this.

Our outlook for FME's full-year results in 2010 has not changed. We continue to expect sales will be about the same as in 2009, which was a record year. However, we expect sales to reach their low point in the third quarter of 2010 before they pick up in the fourth quarter on higher engine shipments.

Our market shows signs for sustained recovery, and our businesses are performing well across the board. We are especially encouraged by the year-over-year growth that we have seen at Stemco and at GGB.

The increase at Stemco should be a good leading indicator of improvement in general economic conditions, since Stemco's aftermarket demand is driven by increases in the heavy-duty truck loadings and truck ton miles. At GGB, it is not only pleasing to see markets recover but also to see that we are benefiting from the measures we took last year to help improve the cost structure and performance of that business.

Those are only two examples of the encouraging developments we see throughout EnPro. I remain optimistic not only about the rest of 2010 but about 2011 and beyond.

Our businesses are performing well and improving. Our markets are healthy. Our acquisition program has regained traction after slowing down during the recession, and we have ample resources to fund it.

With the initiation of the ACRP, we finally have the prospects of an asbestos-free Garlock and the resulting benefits to the value of EnPro. So we have a lot to be excited about, and we look forward to sharing it with you as we move ahead.

So with that, we can open the lines for your questions.

(Operator Instructions) Todd Vencil, Davenport & Company.

Thanks. Good morning, guys. Bill, you gave us a lot of detail on the deconsolidation, and I appreciate that. I completely understand that it's inappropriate for you guys to comment on what a pro forma number would look like, assuming the reconsolidation of GST; and I wholly support that.

That having been said, I think it is completely appropriate for me to do it. So if you can -- if you wouldn't mind helping me out, Bill, I just want to make sure that I am thinking about this the right way.

You guys reported $0.87 of net income before asbestos-related expenses and other selected items. If I am looking at the math right, I think that the GST operating profit that you talk about would be about $0.07 a share if it was tax effective. Is that the way to think about that?

Yes, that's exactly right.

Okay, so if I add that back, then if I am looking at it the right way I need to take away the $0.06 from interest expense and royalties with GST that is already added back into that $0.87. Is that correct?

No, I don't think you need to do anything. The $0.87 does not include that $0.06.

Okay. So it would be $0.87 plus $0.07, which would be $0.94?

Exactly.

Okay, perfect. Thanks for that. I'm glad I asked.

All right. Thank you.

Moving on to things that are more fundamentally interesting, I guess, on the engine side, am I correct in remembering that margins on the original equipment are lower than the aftermarket margins?

Yes, that's right.

Okay, but you guys had a really nice margin quarter, even including what I think by anybody's measure would be an outsized contribution from original equipment.

Yes, that's right.

So, should we be thinking about -- how should we think about that going forward? Is there some reason that these higher levels of margin that we have seen wouldn't be sustainable?

No, I don't -- I think the first -- I think if you take last year of FME and bake in a little bit of improvement in the operations of the business, that's really, quite frankly, a reflection of a lot of our -- a lot of their work on improving operations and so forth, I think you will come to a reasonable number for 2010.

And then just back out the first half and you ought to be able to figure out what the second half is going to be.

Got it.

Yes, I think, Todd, if you look, obviously our engine margins are maybe a little more than half of what our typical aftermarket would be. We had good, strong margins in second quarter, but they were down from the first quarter.

If you recall, our first-quarter margins at FME were 25%, so we're a little over 20%, almost 21% in the second quarter. So there was some mixing down because of that disproportionate share of the engines in that quarter. But your point is still a good one.

So just to circle around on that, there was some mixing down in the second quarter from the first quarter. But I think from 25% to 20% --

Because we had a disproportionately larger share of engine shipments in the second quarter than we did in the first quarter.

Sure. Okay, good. Good, good.

Then I, Steve, appreciate your general comments about the continued strength in the market. I assume you would have let us know if there was some intra-quarter shift in '10 or there, either -- or since the end of the quarter.

But since I have got you, did you see any improvement or softening of the market time either as you moved through the quarter or since the end of the quarter, if you want to talk about that, in any of your end markets?

No, as we have always said on this call with you guys, that our businesses -- other than FME -- are pretty short cycle visibility. So we don't have great visibility outside of the next 30 or so days, 30 to 45 days.

But we certainly haven't seen anything really change from the end of the quarter till now in our order pattern. That is not saying that it won't; I am not the best economic forecaster in the world. I read the same thing that everybody on the call reads in terms of concern about the slowing growth of the economy and GDP and so forth.

But in terms of our businesses, things seem to be holding up just fine.

Perfect. Okay. Thanks a lot, guys.

Joe Mondillo, Sidoti & Company.

Good morning, guys. My first question has to do with the Engineered Products side of the business. If I am not mistaken it looks like margins did increase year-over-year, but sequentially it looks like they ticked down just on the top line there.

I was expecting a little more growth than expected. It looks like it is over there at that CPI business. Could you just give some more color on what is going on there?

The margins were down a little bit, but I think that is more -- sequentially anyway, I think that is more a function of the mix of the product in terms of a little more higher mix on the OEM side than the aftermarket though.

So we have also incurred some expenses in the CPI side related to opening up some service centers. We have also been incurring some expenses as well. We're putting in a new ERP system there, so there was some margin pressure at CPI level, although it's not -- like I said more a function of mix and some expenses associated with activities that will actually help us going forward.

And the demand on that side of the business, do you expect that to somewhat accelerate in the back half? Or what are you seeing in terms of demand?

I wouldn't say, Joe, that we expect it to accelerate. I think things seem to feel pretty stable and solid.

Bill did indicate in his remarks that we have not seen a strong gas market. CPI competes in a number of different markets for gas reciprocating compressors, one of which is the natural gas market. And that has continued to be weak because gas prices are still low. And that is mostly in Western Canada, as he mentioned.

We don't see that changing, so -- we don't feel like getting worse, but it is not going to -- we don't think it will get better, at least not in the short term.

So I think that I would describe the demand for Engineered Products as pretty stable. We're starting to see some of the European industrial markets that GGB serves come back a little bit, but auto has weakened a little bit. But that is being offset by finally some recovery in the industrial side of what GGB does in Europe.

Joe, I would caution you too. You mentioned you didn't see the sequential growth. First quarter was very strong.

These businesses don't tend to be as seasonal as some of the others and so I think -- we look at it as second quarter compared to a very strong first quarter and we basically pretty much held steady. So I wouldn't read anything into that sequential change from Q1.

Okay. Great. In terms of -- I guess my second question just has to do with the Fairbanks Morse business. Looking at your backlog today compared to say a year ago, how does that compare? How is your outlook six to 18 months down the road of that business?

The backlog is up substantially from a year ago, Joe. You could recall earlier this year we announced the booking of an almost $100 million contract, a nuclear contract down in south Texas. So it is well ahead of where we were at the end of the year.

We are about -- our total backlog is a little over $300 million at June 30. About two-thirds of that is at Fairbanks. We have got in excess of $200 million there.

Down a little bit from March. Obviously, we had the big shipment next quarter that we talked about before. But the backlog is still in great shape.

I will let Steve talk about the longer-term outlook, but I think we're still very sanguine about FME and its prospects.

Yes. I mean I think that's right. You know, we feel like we are positioned well for the nuclear side of the business as we have talked about before. There is still a lot of new nuclear plants that are being proposed and being worked on, and we are pretty much talking to all the folks that are building them.

So not saying we are going to win them all, but there have been two nuclear awards let in the last 30 years and we have gotten both of them. Both within the last year.

So we are pretty well positioned there, and I think that will be a nice supplement for new engines to the ongoing Navy work.

Okay, great. Then my last question just has to do with the Garlock scenario here. I know you said that it's going to be a long process here. I just wanted to ask if there was any update to the timeline that you have put out in the past?

No, there is really not. We're still really too early in it to have any new read on the timeline. It is going to be a three- to five-year process, in our view.

Okay. Then I know I have asked this in the past as well, but what is your outlook of Garlock returning? Just if you can reiterate I guess what you have said in the --

What do you mean outlook of it returning?

Returning to the EnPro business?

In terms of what? Timing, or --?

No, if it will in fact return.

Oh, absolutely. Of course it will return. We still own 100% of it. And once we fund the trust it's -- yes. And remember it is not all of Garlock that filed; it is only -- it's GST LLC, which is about half of Garlock.

So all the international operations and other parts of its family of companies are not in the process. So there is really no question about whether it will return to EnPro. It never -- in a sense it has not left.

We have to deconsolidate it for reporting purposes, but same team is running Garlock that was running Garlock before the process. And like I said, if you went to visit the facility and talked to the customers and employees and vendors and so forth, they have already moved on.

We are still running -- they are still running the business the way they run the business. This is an asbestos program that handles that litigation.

So there is no doubt it will come back to us, Joe. That has never been a question.

All right. I think I understand that. I just wanted to hear you reiterate it.

Yes, okay. Fine. No, good. Thanks. Yes.

Lastly, I just was wondering if you have the sales and net income for Garlock for the entire quarter.

Boy, I am thinking it is kind of mid-30-ish, mid-30s in sales and about 6.5% to 7% segment OI.

Okay. Lastly, the asbestos receivable. As this went into a frozen state what was that receivable at?

About $190 million.

$190 million? Okay, great. All right, great. Thanks a lot, guys.

Gary Farber, C. L. King.

Good morning. Just had a couple of questions. One, as it pertains to the EnPro corporate, are there any legal actions or anything going on specific to your Company excluding Garlock?

No.

No? Okay, and there is no --?

Not that I have been informed about, Gary. Unless you know something I don't know.

No, I am just asking. I mean I thought there was -- is there a stay in place or something like that in regards to anybody pursuing action against the Company itself?

Oh, I'm sorry. Yes, that is -- as part of the asbestos resolution process, we asked the court and they granted an injunction, which prevents any asbestos claims from being filed against any part of EnPro.

We were concerned that the adversaries would try to retaliate on the asbestos front in other aspects of EnPro. So we asked the court to step in and rule an injunction to prevent that from happening, should it.

We don't know if it would have happened or not, but that tends to be the way the other side operates. And the Court did in fact grant that injunction. So what that means is nobody can concoct an asbestos claim against any part of EnPro during this process.

And that is the permanent one or a temporary one? A permanent injunction?

It is temporary, but it is through the duration of the process.

Okay. Then if you could just comment on raw materials, if we are seeing any changes in trends as far as your input costs.

I mean we are feeling a little bit of pressure, but certainly not as much pressure as we felt -- as we were starting to see build in the first quarter. So you know, year-to-date we have seen copper go up 1% or 2%. We have seen cold-rolled steel is down now since the beginning of the year; still up 20% from last summer, but --.

So we have seen things flatten out, whereas in the beginning of the year we were concerned that commodities were going to show some strength. So that has really leveled off. It is a bit of a mixed bag, but I would say on balance it has certainly leveled off and some are even down a few percentage points.

Great. Then lastly just on these acquisitions you've announced recently, how much leverage is there to put all those products through your distribution network?

Well, those are CPI deals. What we did is we bought two companies that both do lubrication system products. These are the lubrication systems that distribute lubrication onto natural gas reciprocating compressors.

CPI's core business is directly on those same machines, and we have historically sold the sealing products and wear products. So the packing rings and rider rings and piston rings as well as compressor valves and piston rods, etc., into that market.

What typically happens is when you have an issue -- when a customer, a user or operator, has an issue with a compressor performance, obviously the sealing system and the lubrication system are integrally related. So the problem is many times when you have an issue the wear ring people point to the lubrication, and the lubrication people point to the wear rings.

So we basically brought these two companies that do lubrication systems. And our hope is to really now go to the market with a integrated and combined package, so a value proposition that says -- look, we are going to take care of your lubrication and sealing needs. And we are responsible for the performance of the compressor so that you don't have to worry about whether it was a lubrication problem or a sealing component problem, because we own both of them.

So we think there is a ton of synergy between what we have just bought and what we do in CPI. We are actually quite excited about it. It is a whole new product line for CPI and just very, very synergistic with our core CPI business.

Sold to the exact same customers. And really, like I said, the performance of the two are really integrally linked from a technical standpoint.

How quickly can you integrate those into your offering? Immediately, or does it take a couple of months?

Oh, no. They will be -- they are being integrated as we speak. We closed one of them last Friday and closed one of them on Monday, so we have got one of our guys that's going in and operating it.

We are inheriting a good team, by the way. They are both good companies. A couple of the really key technical leaders of the businesses are staying with us.

We are going to figure out how to get those guys working together. They had been competitors before. We're trying to figure out how to get them, combine those product lines, take the best of both those companies and integrate it with everything that we offer in CPI.

So it will probably start out more -- those businesses are both US-based. So it will probably -- will start out being mostly a US-based business for the first several months, and then we'll take it globally. Take that value proposition globally as well.

And that is what you would expect with the additional acquisitions, primarily US-based products that you'll leverage overseas?

In this case. Obviously we have done different. We have done that in reverse as well in some cases we bought.

We have done the opposite. We've bought companies that are international and brought it the other way. So our strategy in CPI and in Garlock is to go both ways with that.

Right. Okay, thanks.

There are no further questions at this time.

Thank you, everyone, for dialing in. We appreciate your participation, and if you have any further questions please give me a call.

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