Enpro Inc (NPO) 2011 Q1 法說會逐字稿

Good morning. My name is Beth and I will be your conference operator today. At this time, I would like to welcome everyone to EnPro Industries first quarter earnings results. (Operator Instructions). John Washington, you may begin your conference.

Thank you, Beth, and good morning, everyone. Welcome to EnPro Industries quarterly earnings call. In a moment, Steve Macadam, our President and CEO, and Alex Pease, our Senior Vice President and CFO, will review the results for the first quarter of 2011. But before we begin, I'll remind you that our call is being webcast at www.enproindustries.com, where you'll also find the slides accompanying the call. You can access the presentation through the webcast link on our homepage, and a replay will also be available on the website.

You may hear statements during the course of this call that express a belief, expectation or intention, as well as those that are not historical fact. These statements are forward-looking and involve a number of risk and uncertainties that may cause actual events and results to differ materially from such forward-looking statements.

These 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, 2010. We do not undertake to update any forward-looking statements made on this call to reflect any change in management's expectations or any change in assumptions or circumstances on which such statements are based.

You should also note that EnPro owns a number of direct and indirect subsidiaries. From time to time, we may refer collectively to EnPro and one or more of its subsidiaries as We, or to the business' assets, debts, or affairs of EnPro, or a subsidiary, as Ours. These and similar references are for convenience only and should not be construed to change the fact that EnPro and each subsidiary is an independent entity with separate management, operations, obligations, and affairs.

Finally, I want to remind you that comparisons of our financial results for the first quarter of 2011 to the comparable period of 2010 reflect the deconsolidation of Garlock Sealing Technologies LLC, Garrison Litigation Management and their subsidiaries, effective June 5, 2010. These entities will be deconsolidated from EnPro's results during the pendency of the Chapter 11 legal proceedings to resolve asbestos claims against GST. We refer to this as the Asbestos Claims Resolution Process, or ACRP, and you will hear us use that acronym during the call today.

Accounting principles don't allow us, or don't permit us to restate prior periods to reflect the deconsolidation, however, our earnings release and the slides accompanying today's call contain information we believe will help you understand the effect of the deconsolidation. We'll conclude the call with a question and answer session after Steve and Alex make their remarks, and if your questions aren't answered on the call, or if you have follow up questions, please contact me at (704) 731-1527.

With that, I'll turn the call over to Steve.

Thanks, Don, and good morning, everyone. Before we review the quarter, I want to point out that you'll hear a new voice with us here on the call today. As you know, Bill Dries is retiring after more than nine years of service to EnPro, which dates back to the months before we were spun out of Goodrich.

He is succeeded by Alex Pease, who joined us at the end of February. Alex was officially named Chief Financial Officer yesterday at our Board meeting, and he'll review the first quarter results this morning. Bill built very strong systems and processes, along with a very capable financial organization, which Alex has inherited. I want to personally thank Bill for all he did for our Company, and for his support to ensure a smooth transition of his responsibilities to Alex. I know all of you join me in wishing Bill well.

Alex joined us from McKinsey and Company. At McKinsey, he helped us set up a number of our continuous improvement initiatives, so he knows our Company and our culture. He and Bill have spent significant time over the past few months visiting many of our locations around the world and transitioning responsibilities. I feel very good that this has been an orderly and effective CFO transition.

I also want to mention that Bill Holland has reached the mandatory retirement age and retired from our Board of Directors after nine years as our non-Executive Chairman. Bill was instrumental in recruiting a very engaged and effective Board of Directors for EnPro and in establishing high standards for Corporate Governance. We appreciate his service and dedication to our company.

Gordon Harnett succeeds Bill as non-Executive Chairman. Gordon has been a member of our Board since 2002, and served as Chairman of the Audit Committee for the past five years. Gordon is the former Chairman and CEO of Brush Engineered Materials, he knows our company well, he understands our markets and our strategy, and I look forward to working with him in his new role.

Now let's talk about the quarter. One of our goals today is to provide information that will help you more clearly understand the performance and value of our Consolidated Operations. As a result, you'll hear us talk about 2010 excluding GST, which is somewhat a shift in the way we've described earnings in recent quarters.

This is not a shift in the status of GST or the ACRP. Rather, we want to make sure you have information that will help you place an appropriate value on the operations that are currently included in our Consolidated Results, independent of the view you might have about the value of GST.

The GST case continues to move forward, and we're confident that GST will be reconsolidated once the case concludes. We also continue to believe that the value of GST is greater than the ultimate cost of ACRP resolution. And we will maintain our practice of providing you with information that will help you understand the operating value of this business.

Our Consolidated sales in Q1 were up 18%, despite the deconsolidation of GST. Including -- sorry, excluding GST from 2010, third party sales increased 44%. A number of factors drove that improvement.

Demand increased across a broad range of our markets. We shipped six engines at Fairbanks Morse Engine compared to two last year, and we had a significant contribution to sales from acquisitions. All told, acquisitions we've made in the past year contributed sales of nearly $27 million to the first quarter.

Profits increased as conditions improved and as acquisitions made a contribution to segment profits of about $1.5 million. Margin showed a nice year-over-year trend, with the Sealing Products segment margins improving to 16.9% from 15.6%, and Engineered Products improving to 10.7% from 8.5%.

The decline in margins at FME is attributable to the shift in mix as engine shipments increased, but they were still quite strong at 18.6%. Our margins also reflect the impact of improvements in operational efficiency and our commercial excellence efforts. Earnings before interest, taxes, depreciation, amortization, asbestos-related expenses, and other selected items improved to $42.6 million from about $29.2 million last year.

Excluding GST from last year's numbers, EBITDAA margins were about the same as last year, reflecting the less-profitable mix at Fairbanks Morse Engine and a minimal contribution so far from acquisitions in Q1. In the past 12 months, we've invested about $180 million in seven acquisitions, including the $152 million we spent on the three deals we've closed so far this year.

We have now fully reinvested the $140 million of after-tax proceeds we received from the sale at Quincy Compressor in businesses that we are confident give us an opportunity for better growth in returns. To help you understand the valuations involved, we sold Quincy for a multiple of 7.6x our estimate of mid-cycle EBITDA.

Including the benefit of Synergies we expect to achieve, we paid about 5.3x mid-cycle EBITDA for the businesses we acquired. And of course, the difference in trailing 12-month multiples of EBITDA is much more dramatic, given that Quincy was sold at the low-point in the cycle.

Each of these deals has a strong strategic rationale. Looking at the three we've closed this year, PSI joined the Consolidated Garlock Companies and significantly strengthens our position in the upstream oil and gas markets, and also broadens our product portfolio by expanding our presence in water and waste water.

As we have mentioned in the past, Stemco's acquisition strategy is designed to add products to the portfolio and leverage its powerful go-to-market model. Rome Tool & Die adds brake shoes, and continues Stemco's expansion beyond the wheel end.

Since early 2008, we've added suspension products including king pins, spring pins, and urethane bushings, and also established a brake products group with the addition of Duraline Friction products, automatic brake adjusters through the [Crusen] Joint Venture, and now new brake shoes at Rome. We expect about 35% of Stemco's 2011 sales will be from these two new product groups, and we're-well positioned for the recovery that is underway in the trucking market.

Finally, the Midwestern Companies provide significant operational synergies with CPI, and give us the dominant market position in western Canada. The acquisition also complements the Lubrication Businesses we acquired for CPI last year, which are strong additions to CPI's core reciprocating compressor ware-parts business.

The integration of the acquired companies is well underway. We've already identified substantial procurement savings at PSI, which was the largest of these. At Rome, our Stemco team has cut lead times by nearly 70%, dramatically reduced inventory, and increased sales by nearly 40% compared to 2010. At CPI, we've already completed the consolidation of a CPI facility with a Midwestern facility, and have two more consolidations underway.

Turning to other recent events, we renewed our credit facility in early April and now have up to $125 million in borrowing capacity through 2016, subject to a borrowing base. The initial interest rate for borrowing against a facility is LIBOR plus 2%. Between the revised facility and our cash balance, we're comfortable that we have sufficient resources to adequately support our growth.

Some of you have asked about the effect of the recent disaster in Japan on our nuclear business. In the short term, we expect to lose about $3 million in after-market sales of high performance seals that would have gone in to nuclear power plants outside the United States that have now been shut down, including the damaged reactors in Japan.

At Fairbanks Morse Engine, we're still sorting out the effect. As we've discussed, FME is under contract to supply emergency generators for the South Texas Nuclear Project. NRG, the planned operating company for South Texas, has cancelled its participation in the project, but our customer, Toshiba, has only asked that FME go into a slow-down mode until at least August. Beyond August, Toshiba hasn't announced what it intends to do.

The first engine shipments from this project were not scheduled until early 2013, so the slow-down will not have any effect on FME this year. But even if the contract is cancelled, the customer is obligated to cover any costs we have incurred. Beyond the situation with the nuclear power industry, there's been no significant disruption so far in either customer demand or supply chain activities.

Before I turn the call over to Alex, let me take one more minute to update you on the ACRP, which is now in its twelfth month. Although not much activity is visible to the outside world, a lot is happening. GST and representatives of the Asbestos Claimants are now in the discovery process seeking information to support their respective positions regarding the amount of GST's liability for both present and future asbestos claims.

This information will form the basis to fund a trust that would assume and pay GST's obligation for asbestos claims. Later this month, the bankruptcy court will hold a status conference that we believe will allow the discovery process to continue into the third quarter and perhaps later.

GST will continue to seek information necessary to make a fair determination of its liability, as it's right under the law, and we believe this information will fully support our fundamental contention that, when claims are fairly valued, GST's resources are more than sufficient to fund a trust that is able to pay the full value of claims.

As you know, we contend the number and value of asbestos claims against GST have been inflated by the absence in the tort system of numerous producers of insulation and other pliable, asbestos-containing products. These companies paid the majority of compensation for asbestos claims before seeking bankruptcy protection in the early 2000s.

Since then, plaintiff lawyers have transferred the substantial liability of these major asbestos producers to GST and other formally peripheral defendants. They have exaggerated clients' exposures to these defendant's products, while minimizing exposure to the bankrupt company's products. By doing so, they manipulate joint and several liability laws to perpetuate a highly profitable source of significant income.

Many of these same lawyers also profit by making claims and seeking compensation for their clients from the billions of dollars now available from bankruptcy trusts. They make these claims, even though they previously received full settlements for clients in the tort system, by minimizing or even concealing evidence of their client's exposure to the products of the bankrupt companies that funded those trusts. This is unfair, and wrong, and we intend to expose it.

Absent an opportunity for GST to settle its case for a reasonable amount to put this chapter of its history behind it once and for all, and be reconsolidated into EnPro, we will continue to fully support GST's contention that any determination of its liability should reflect a reality, which we believe GST will clearly demonstrate; Asbestos gaskets and packing products produced by GST could not possibly have contributed in any significant way to asbestos-related disease.

Alex?

Thank you, Steve, and good morning, everyone. I'm happy to be here this morning and I feel very fortunate to be taking over as the CFO at this point in time. It's obviously a great time to be joining the Company, as we announce what has been one of our strongest quarters in recent memory.

As Steve mentioned, many of the investments we've made in people, processes, customer relationships, and new business opportunities have really begun to pay off, as you will see. Also as Steve noticed, on a like-for-like basis, excluding GST from 2010, our 2011 third-party sales were actually 44% stronger than the same period one year ago. Of that 44% improvement, about 18 points came from organic growth in our Sealing Products and Engineered Products segments, and an additional 15 points came from acquisitions.

The remainder came from the increase in sales at Fairbanks Morse. By segment, Sealing Products contributed a little over half of our growth and Engineered Products and Engine Products contributed about equally to the balance.

Gross margins for the quarter were 34.9%, which was four points lower than our reported number in Q1 2010. This drop is driven by the deconsolidation of GST, the less-profitable product mix at Fairbanks Morse Engine, and about $1.7 million of one-time inventory expense associated with the acquisition of PSI.

Even though we saw increases in the cost of raw materials, we've been able to pass through these costs effectively. While we expect raw material costs to continue to be a challenge, we have programs in place to mitigate the effects.

SG&A in the quarter was basically flat at $62.3 million, compared to $62.5 million in Q1 of 2010. As a percent of sales, this number was down more than four points year-over-year as we see the positive leverage effect.

SG&A also included about $1 million of expense-related transaction fees, as well as $1.3 million of amortization related to the acquisition. Steve discussed EBITDAA, so I won't repeat those numbers expect to add that depreciation and amortization in the first quarter of 2011 was $10.6 million.

Over the 12 months ending with the first quarter of 2011, our pre-tax operating ROIC was 24.9% versus a pre-tax operating ROIC of 19.1% in the trailing 12 months of Q1 2010, indicating that our core businesses continue to generate healthy returns. The calculations are based on consolidated results that include GST through June 4, 2010.

Now let me discuss our detailed segment results. In Sealing Products, adjusting to exclude GST sales in 2010, you would see 52% growth. Of this, about $19 million was related to acquisitions, leaving an organic growth rate of 27%.

Again, excluding GST from the 2010 base line shows segment operating profit increased by 62%. Segment operating profit margins were 16.9% and EBITDA margins were just greater than 20%.

Now let me provide some more detail on the individual businesses. Excluding GST from both periods, sales in the Consolidated Garlock operations were up more than 40%. A significant portion of this growth came from acquisitions, but the largest portion came from very strong, project-related investments by our customers in power generation and oil and gas, as well as a rebound in maintenance spending across the board.

Demand from our customers who rely on construction activity continues to be somewhat slow. On the same basis, profits in the Consolidated Garlock increased by more than 60%, largely driven by improved leverage of scale and a number of operational improvement initiatives.

At Stemco, sales were up nearly 75%. About half of this growth was organic, reflecting higher levels of activity on both the OEM and after-market sides of the heavy-duty truck market. The other half of the growth is attributed to the acquisition of Rome Tool & Die. Stemco's profits were up roughly 85%, primarily due to higher volume, but also due to a contribution from Rome Tool & Die.

In the Engineered Product segment, sales were up nearly 26% from a year ago, with ten points of growth coming from acquisitions. Segment operating income improved by 58% to $10.1 million, or 10.7% of sales compared to margins of 8.5% last year.

EBITDA margins in the segment improved to 15.8% from 14.6% last year. Within the segment, GGB drove a nearly 25% increase in year-over-year sales, and that business has recovered nicely from the lows it reached in 2009.

As volumes increased and productivity improved, profits at GGB were nearly double and GGB appears to be well positioned. As CPI, sales growth was over 25%, driven primarily by acquisitions in the lubrication market. Profits at CPI were relatively flat with last year, and margins slightly lower, reflecting continued weak volumes in the natural gas markets.

Profits and margins at CPI were also impacted by on-going costs associated with the implementation of the ERP system, amortized costs associated with acquisitions, and the early ramping-up of service centers. Excluding these growth-related costs, the segment profit margins would have been nearly a full point higher.

We believe strongly in our long term strategy for that business and we're confident that the investments we made at CPI will bring very attractive returns. We believe we are on track to achieve our mid-teen target for profit margins in the Engineered Products segment.

Lastly, in the Engine Products and Services segment, the increase in engine shipments this year led to a 52% increase in sales. However, higher engine sales created a less profitable product mix, and the segment's operating profit margins were 18.6% compared to the record level of 25.3% a year ago. For the same reason in the segment, EBITDA margins declined to 20.3% from 27.8%.

If you roll everything up and apply our first quarter effective tax rate to our consolidated results, you'll see we reported net income of $15.2 million in the first quarter of 2011. In the first quarter of 2010, we reported income from continuing operations of $5.6 million.

This comparison is affected by several factors, including higher interest expense in 2011 due to the deconsolidation of GST and the recognition of interest on the note due to GST from other EnPro subsidiaries, as well as the inclusion of GST and expenses related to asbestos claims in the first quarter of 2010 that were not present in 2011.

Before selected items, net income in the first quarter of 2011 was $19.7 million. We've presented adjusted net income this way to maintain consistency with the way we presented it in recent quarters by removing the impact of inner-company interest expense, which was about $4.3 million after tax in the quarter.

In the first quarter of 2010, when GST was included in our consolidated results, adjusted net income was $15 million, including a contribution of $3.9 million from GST. With those adjustments and the contribution of GST to last year's results in mind, the performance of our Consolidated Operations in the first quarter of 2011 improved by more than 75% over the first quarter of last year.

Looking briefly at the deconsolidated results of GST, third-party sales there were about $52.4 million, or 18% higher than they were a year ago. EBITDAA rose to $11.6 million, or 22.1% of third-party sales, compared to 17.6% last year.

A significant portion of the higher margin came from productivity increases generated by continuous improvement programs at GST's Palmyra facility, with higher volumes and a more profitable product mix also contributing. Net income adjusted for intercompany interest income and expenses associated with the ACRP was $6.9 million in the first quarter of 2011 compared to $3.9 million a year ago.

GST continues to generate cash and closed the quarter with about $97 million, compared to $87 million at the end of 2010. I'll close with a review of our consolidated cash flow. The $35 million working capital increase you see here reflects higher levels of activity in most of our markets.

As you know, we manage working capital very effectively. DSOs increased moderately compared to the same period in 2010, and inventory turns actually improved over the prior year. So our mechanism for managing working capital is very strong.

The other item of note is the $152 million we spent on acquisitions in the first quarter of 2011, which was the primary driver in the reduction of our cash balance to $46 million at the end of March from $219 million at the end of December. That concludes my remarks so I'll turn the call back over to Steve.

Thanks, Alex. Looking to the second quarter and into the rest of 2011, we will continue to focus on our continuous improvement programs, and on the successful integration of our acquisitions.

As I mentioned earlier, the integration of these acquisitions is going well, and we expect the process will continue to yield benefits. We also see favorable market conditions in our heavy-duty truck markets, which tend to be a leading indicator, after-market demand continues to improve, and the outlook for new trailer builds in 2011 has increased steadily since the beginning of the year.

Demand from our petroleum refining and petrochemical markets are also healthy. Automotive and general industrial demand should also continue to increase over the levels we saw a year ago. Under these conditions we expect demand for our Sealing Products and Engineered Products to remain steady throughout the year.

These segments will also benefit from acquisitions completed this year, which we expect to contribute more than $100 million to 2011 sales. In our Engines business, the outlook is unchanged. No engines are currently scheduled for shipment in the second quarter, which means we'll see a sharp drop in sales in that segment followed by an increase in the third quarter, when customers' current delivery schedules call for shipments that will return Engine Sales to first quarter levels.

Looking specifically at the second quarter, we expect Consolidated sales to be less than they were in the first quarter of 2011 because of the decline in shipments from the Engine Products and Services segment, and the deconsolidation of GST. However, both our Sealing Products and Engineered Products segment will report increases over the first quarter as they benefit from acquisitions and current levels of demand. We also expect segment margins to be in line with the first quarter.

In summary, we're off to a very encouraging start to 2011. We expect the momentum we've achieved in the first quarter will continue into the second quarter and through the remainder of 2011.

Although the year-over-year growth rate in our industrial markets will likely moderate as the year progresses, we will continue to work to pursue our growth initiatives, offset raw material cost escalation, integrate our acquisitions, drive continuous improvements, and deliver strong results. That concludes our prepared remarks.

Now I'll open the line for your questions.

(Operator Instructions). your first question comes from the line of Todd Vencil, Davenport. Your line is open.

Thanks, good morning. Is Bill Dries in the room?

He is not, he's on the golf course.

All right. Well, tell him I said congratulations, and thanks for all his help. And Alex, congratulations to you.

Thank you.

All right. So you gave the -- I appreciate you giving the quarterly impact from acquisitions both at the top line and at the margins. And you reiterated the $100 million this year at the top line. Can you talk about how the contribution from the acquired businesses at the operating line auto-progressed? I assume there's some amortization and other issues that are going to be rolling off?

I'm not sure it was in the script. We had about $4 million in Q1 of acquisition-related expenses, Todd, that include the inventory. We had inventory expense in PSI, and then transaction expense in amortization, all told for the acquisition (inaudible) $4 million impact in the quarter. Most of that will go away and we won't see it again in Q2. However, we're still doing consolidation at facilities in CPI, so we'll still have some acquisition-related expenses really for all three of them, probably more in CPI than the other businesses. Does that help? Does that answer your question?

It does. Let me come at it from a slightly different angle and say, if I look at the margin, the applied margin and the numbers you gave for the acquired businesses in the first quarter, was it between 5% and 6%? Which is understandable that it's going to be -- that you're going to have all those costs in there. Over what kind of period should we look for before it normalizes? Is it going to be the next couple quarters?

Really, the way I would think about it Todd, is for the year, you should anticipate margins from acquisitions somewhere in the low teens. And then probably reaching steady state the following year after that.

Got it. Got it. That's perfect, thanks. And then, I appreciate the comments on the acquisition integration. Where are we on the broader acquisition program? Are you guys taking a pause while we work on the integrations substantively, or how are you thinking about that?

Well, the way it works for us, is it comes in cycles anyway, because it's really more of a human capital limitation anyway. So, as you know, the divisions are really the ones working with our corporate team that drives the acquisition targets in terms of the ideas and where their strategic plans lead them. We kind of go in waves, if you will, with a lot of cultivation and activity, trying to work the pipeline. And then we're successful with some of those and going through the integration mode while we rebuild the pipeline.

And so the reason we had all three of these hit when they did, quite frankly I think I've talked about this before, but two of the three that we did, Midwestern and PSI, we've had discussions with those two companies on and off that would date back several years, including Midwestern where we essentially had a letter of intent and were ready to do that right before the market just collapsed and we entered the global recession where we said we just can't pay what we had agreed to pay because the bottom was falling out. That's been a target of ours because it's such a great strategic fit for us in Canada for CPI.

Likewise, PSI, we went down the path with them even before I joined the company, so that predates even three years. And decided to back away from that because, at that time, the Company didn't have the resources to do it and other reasons why we couldn't do it at the time. But we've continued to maintain dialogue with those owners all through that period of time and then reignited it.

So those two had a long history to them and are both fantastic fits for those businesses. Both owned by -- well, not the case in Midwestern, but then in Rome, all three of these companies were owned by private folks. So when the tax cuts were still teed up to expire at the end of last year, both in the case of Rome and PSI, they were obviously anxious to get those done in 2010. So, I forget the exact timing, but in November, late November when Congress pushed that law and extended that situation, then those deals spilled over to the first part of this year.

So, but we got them all closed in late January, early to mid-February. But anyway, that's why they got backed up. It was a little -- normally, you wouldn't see us closing three deals of such -- that large a size all in such a short period of time. But it really doesn't represent any change in our strategy or anything other than what I just said, quite frankly. So our plan is just to continue to roll along with the same pace of targeted, bolt-on acquisitions to our businesses that you've seen over the past few years, I'd say that straddle the recessionary time period.

We've got several, good opportunities in the pipeline and we will likely announce the closing of one or two more, either in -- that we'll finish in late the second quarter or early in the third quarter. Not near the size that we're talking about, or that you've seen with these three, but more back to the normal size. If you take the average over the last three years, one's a little smaller than that because it's just the product line that we're acquiring.

And the other is a company that would be probably right at the average, or maybe a little bit bigger, but not much. So those are two that we're working on right now. We still have the pipeline that, you never know when it might break, but when something might break. Those are the two that we're moving through at this point.

Got it. That's great color. Thanks for that. Final question for me. How are you feeling about the balance sheet at this point? We're looking at 40ish net debt to cap. Are you going to be working that down with cash flow, or how far would you take that, Alex?

Well, you're considering the intercompany notice as real debt.

That's a good point.

Really, the only real interest we're paying is four-something on the -- what's the interest rate on the -- ?

Converts. Just south of four.

Right around 4% on the converts. It's pretty cheap debt.

Okay. I will take that --

Todd, you're asking about it specifically around the cash. We feel as though we continue to have very strong cash position, and we're generating very strong cash. So we don't have any worries on the balance sheet.

Got it. Okay. Thanks a lot.

Todd, let me just clarify. I didn't mean to just blow-off the intercompany debt because, obviously, it's real debt that NPOs, the GST entity. But again, the whole ACRP is really about the sizing of the trust. So that is an asset owned by the filed entity, so I don't want to minimize the importance of that and the fact that it is money that NPO owes to the filed entity.

Got it. Thanks a lot.

Your next question comes from the line of Gary Farber, CL King. Your line is open.

Okay, good morning. Just two questions. One, can you talk a little bit on the sales and marketing side? Have you made any changes to the organization since you started integrating these acquisitions? Do you plan to? Do you plan on selling your products any differently? And what are the leverage points you see in selling them, given that these things do fit on nicely?

Unfortunately, it's a more complicated answer. There's a different answer for all three of the acquisitions. In the case of Rome Tool & Die, that's the easiest one because that just fits right into the Stemco sales model, and we will sell that through the existing, strong go-to-market model and strong sales force we have in Stemco. And that's already been integrated. Again, this allows us to sell new brake shoe kits, we had been, as you know, selling primarily just the friction product that we get through our partnership with Duraline. But we're now going to sell new shoes, new shoe kits, all out of Rome. So, that will go through the existing Stemco sales force.

In the case of Midwestern and CPI, those sales forces will be merged into one, and the guy that will be running, and is running that sales force, is the previous owner of Midwestern. Fantastic guy, and we're fortunate to have him on our team, and he's built a great business, and he's now running all of that combined sales force really in all of Western Canada. And then the third, which is PSI, is a little bit more complicated integration because that's one where we had -- again, we have competing products and salespeople that were competing. So that sales force is also in the process of being merged into the broader [dwelling], what we call the Oil and Gas segment of the Garlock family of companies. And we've basically merged those sales forces together and we're in the process of sorting out territories, account responsibility, and so forth.

Right. Okay, great. Can I also speak to, you talked about having a fair amount of acquisitions still potentially on your plate. When you look out beyond this year, are there any end-markets that you're not in that you'd like to be in or contemplate being in further on down the line?

I don't want to -- I hope I didn't say a fair amount. We've got a few acquisitions that we're working on and we still have some in the pipeline. But we certainly have to spend some time rebuilding the pipeline. So, I don't want to make anyone on the call feel like we're about to close ten deals the rest of the year, because we won't do that. But yes, there are markets that we want to continue to grow in, and again, it's different for each of the segments and each of the businesses within the segments. We still target the aerospace business through Garlock, we'd still like to be bigger in oil and gas, particularly more upstream activities.

We'd still like to grow -- we'd be open to growing in -- we have a little bit of semiconductor business in our high-performance portion of Garlock that we could go after. We're starting to look at some nice add-ons to GGB. We have not done that in the past because GGB was not performing. As you remember, we got hit very hard in the recession at GGB because most of what they do is OEM sales. But that business is actually doing quite well and continues to improve nicely. We've made some really great operational improvements in that business, and we believe that they're now ready to add some inorganic growth to their organic growth. So, we'll look for opportunities in that business as well.

Okay. Then just one last one. You spoke about your end-markets. It sounds like they upticked during the course of the quarter. Can you speak to the month of April? Is there any end-markets in particular that continue to be beyond what you thought, or just continuing to strengthen a fair amount in April?

I don't think the first quarter was particularly an anomaly on the demand side. I still feel like all of our markets, in general, have continued with the same characteristic that we've seen since we started to dig out of the recession in the second half, late 2009. We have seen a steady increase in demand with the continued fits and starts in some businesses and some geographies. But when you look at EnPro overall, with the diversified end-uses and end-markets that we have, and if you just looked at demand by month through the last few months of '09 through 2010 and continuing into 2011. It's a pretty steady average across the system.

So, it wasn't like all of a sudden demand was unusually high in the first quarter. As you know, first and second quarters tend to be good quarters for us. There were a lot of turnarounds that had been, maintenance that had been put off in the petrochem and oil and gas segments that was done this quarter. But it wasn't enough to make it look like, oh, gosh, this is never going to happen again. I just would characterize it as a continued, steady rate of growth.

Now certainly, the year-over-year comps are not going to be what they've been, because you're comparing to stronger year ago quarters. But in terms of sequential activity, I think we expect to see -- I expect to see what we've seen. Certainly April, the order pattern in April and what we've seen so far bears that out.

Okay great. Thanks for your answers.

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

Good morning, guys. I just have one question that has to do with the ARCP. I was just wondering if, one, you could just go into a little more detail on where you're at. You said you were holding a discovery conference later this month. That just buys you more time on doing the research information. Just a little more color on that. Then also, one of the biggest pushbacks I get is, why you're so confident that GST will come back to EnPro. If you could just go over the logistics on that process, that would be great.

Okay, let me just make a statement on that, and then I'm going to actually let our General Counsel, Rick Magee, who's in the room, address the more complexities around the ACRP. Let me just speak. The reason that I'm confident it's going to come back is very simple. I still, maybe naively, believe that we live in a country of fairness, and that ultimately courts, there's some court in this land, that will look at this sham and realize it for what it is, which is all about plaintiff lawyers making money.

Our products did not make anyone sick. It's that simple. And any reasonable and credible scientist or industrial hygienist that looks at this corroborates that. A gasket spent its entire useful life wedged between two phalanges. It was encapsulated, non-friable asbestos product. We operated a facility in Mexico for 30 years where employees dealt with raw asbestos going into our products and no one, not one person, has contracted mesothelioma.

So the idea that a pipefitter or someone walking through a chemical plant or petrochemical plant, and there was a Garlock gasket used in that product or in that pipeline, who has contracted asbestos-related disease from our product is so ludicrous, it's just almost unbelievable. And I believe, ultimately, someone will listen to that and size, help us size the liability for gaskets and packing material appropriately. And when that happens, GST will have way more than sufficient resources to fund that liability. That's my belief.

Now, that's just an objective view. Some would say not so objective, but it's an objective view. It's a scientific-based view. But now let me let Rick talk about the actual status of the case and get more into the specifics of your question.

Okay. Thanks, Steve. Joe, just to answer your question about the status conference. It was scheduled about six months ago with the idea that things, that we'd be further along in discovery than we actually are. So I think, as Steve said in the script, that the likely result on discovery will be that the discovery period will continue for several more months.

I do believe that at the status conference, hopefully, we will get some views from the judge about how he sees the case proceeding, putting some color, maybe, to the decisions he's made on discovery and other things about the process of the case. So we hope to see some of that in the status conference. We'll also share our concerns with the progress of discovery and the process, the discovery process, today, and get his reactions to our concerns. But for the most part, we think it will just result in his talking about where things are and continuing the discovery process to allow both sides to continue to gather and understand the data that we're seeking in the case.

Okay. And any estimate on a timeline? Any closer estimate on a timeline of the whole thing? Or not really at this point?

No.

Okay. All right. And one last thing. Just in terms of my question in terms of being confident that GST will return. I know that's been a caution or a worry of some investors. Can you address that?

Well, once we emerge from this process, the only way that it does not return is if we're wrong, and we lose on all these points that we've made. Because as long as Garlock has sufficient -- as long as GST has sufficient resources to fund the liability that's assigned, there's nowhere else for it. We own 100% of it, so it automatically comes back to us. The only condition which would preclude that from happening would be that if a trust is sized to essentially consume all of the value of Garlock, of GST, and then I guess we would have to see. Obviously, the other side is going to concoct all kinds of crazy stuff about the corporate veil and so forth. But we've had that -- we've reviewed that in detail, and we're not that concerned about defending ourselves on that front. So, anyway, that's the answer.

All right. Thank you very much.

Your next question comes from the line of Ted Wheeler, Buckingham Research. Your line is open.

Thank you. Good morning everyone. If I could lob in a few questions that relate to some of the other material you've talked about. Back on the acquisitions, I think you commented 5.3 acquisitions cost times mid-cycle EBITDA. What would be the revenue, mid-cycle level, compared to the revenues now, percentage-wise, just roughly? What would we be looking at for those acquired revenues? I assume they're not at mid-cycle revenues cycles now.

Okay, Ted, I'm going to have to peel apart your question a little bit. First of all, the businesses that we bought are not near as cyclical as what we sold, Quincy Compressor. Because obviously, Quincy was selling new air compressors. Also had an after-market business, but it was dominated by new compressor sales. And so, yes. So we would think that the revenues of the current businesses, or , sorry, the acquired businesses that we now own, have maybe more like a 10% upside to what we're seeing today to get to mid-cycle, whereas Quincy would have been

Okay. Great. Thanks. And on the state of business, you gave a lot of detail. I just wondered if we could slice it up a little bit and look at the short-cycle product lines you've got, and just maybe in the last six months or so, is there a change in trend one way or the other in the orders for those? I guess there's not. They're very short-cycle, but just the pace of the short cycle stuff I'm wondering about.

Not really. We look at, as you know, our businesses are dominated by short cycle stuff, so it's primarily what we do other than the engine business. So far, the order rate has been fairly steady and consistent to what we've seen in the first quarter.

Again, we have a little bit of a seasonable fluctuation. It depends on the business. In total, for all of EnPro, it's not hugely significant. You'd see a point or two higher percentage of our total year that would show up in Q1 or Q2. But, no. It's fairly steady.

Okay. Thanks. Is there any impact on the auto -- the oil folks slowing things down as a result of parts shortages, and the impact they're discussing through the summer anyway? Are you seeing any of that?

Well, we really haven't. We've seen a little bit -- most of our auto exposure is from GGB in Europe, in the European auto. I guess within that segment, overall automotive is about 35% or 40% of GGB's total demand, and of that 35%, 40%, I'm guessing that 75% or 80% of it is going to be European auto, and the balance is going to be US auto. So we did have, there was one GM facility that shut down for a while and then started back up that does pull parts from some of our bearings, but it was really minimal. So, we're not really seeing a huge impact there.

Okay, and one other one. On Stemco, new truck orders are finally exploding here in the last six months or so. When those start -- and they're starting to be produced, do you think there will be a change in the mix? I'm sure OE goes up, but will the after-market growth be slowed because you're taking out old trucks and replacing them with new trucks? As you go through fast cycles, is that something that happens?

Well, Stemco is much, much more tied to the trailer side, and so we have a good presence. Obviously, there's a lot more wheels on the trailer than the tractor, anyway. But same thing has happened with trailer demand. The FTR, who we follow, forecast for new trailer builds this year has basically been increasing every month as they've been raising their forecast for the year. It's up substantially from last year.

But, no, we're still seeing after-market miles and truck loadings and so forth. There's a lot of equipment that's been idle through the recession that has to now come back online, and usually it requires maintenance as it's returned to the active fleet. So that's good for us. Loadings are good for us and new trailer builds are good for us. We're very optimistic about the trucking business, and remember, we've added two other product groups, the Suspension group and the Brake group, really, through the downturn.

And so, the core business, we think activity in just the core side of Stemco is still a good 10% below what we saw pre-recession in just that segment. We hope to see nice growth and not only benefit from it in our core lines, but now these two new lines that we've added.

The after-market should continue going along with the economy.

Yes, it's still a cyclical business, but I don't think we're anywhere near the peak yet.

Just one last one on the ACRP. I recall, I think, that you wanted to get, have available, case documentation from prior, some of the bankrupt processes, et cetera, and I think you were working toward getting access to those? To that information? Where does that stand?

That's the discovery battle that's underway currently. All's we're seeking, which again, we believe we are fully entitled to by the law and ultimately there will be a court that allows us to get that, which is simply the data that the existing bankrupt company trusts. So, for instance, when Johns Manville and Owens Corning and all the gypsum companies and everybody else, when they file, there's a 524-G Trust that's established to pay their claims, both current and future claims. Just exactly like the one GST is seeking to have established.

Well, unfortunately the plaintiff lawyers have gotten to write the rules about how those proceeds are distributed from the trusts, and so it's protected in secrecy. So you never know, okay, XYZ person got X amount of dollars from this trust. And so, what the plaintiff's lawyers have figured out how to do is to collect money in the tort system from the solvent defendants while denying and/or concealing claims to products of those trusts.

And then, after they collect money in the tort system, subsequently they will go collect money from those trusts. Now, all of a sudden, magically remembering exposure to the products of those trusts. What we're trying to do is get the data on simply who is being paid and how much they're being paid. Obviously, we keep it confidential in our system, so it doesn't have any -- and the other side is, they know that this is huge exposure to them because it, quite frankly, could lead to the unraveling of this whole trust -- this whole scheme.

So they're fighting that discovery with everything they have, and so far, our judge has not really made a decision on what he's going to allow and what he's not. That's where the protracted discovery battle is. It can't go on forever, and again, I just want to reiterate, our legal team is extremely confident that ultimately we are entitled to that discovery. It's just going to continue to take a while to fight through the legal opposition that the other side is throwing at us.

And the issue of, no one's been sick with your product is a separate one to that.

Yes. Absolutely separate. That's correct.

You're not even on to that -- you're not having that conversation. No one's really even (multiple speakers) --

We're not even in court arguing that today.

That's still to come, maybe, if this other --

Yes. That will be part of our defense if and when we enter the actual estimation trial in the bankruptcy court.

Thanks for the color. Appreciate it. Great performance

Your last question comes from the line of Todd Vencil, Davenport. Your line is open.

Thanks guys. I'm going to make it easy because I had a question, but then I found the answer to it. That's it for me. Thanks.

I think we're about out of time anyway. Obviously if anybody has any follow-up questions, Don is available. We're all available. Just call Don and we can chat.

We thank everybody for tuning in this morning. As Steve said, if you have any other questions, give me a call at (704) 731-1527 and we'll try to take care of you. Thanks a lot.

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