EnPro Industries, Inc. (NPO) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries Fourth Quarter and Year End Results Conference Call. [Operator Instructions] Don Washington, Director of Investor Relations and Corporate Communications, you may begin your conference.

Well, good morning everyone and welcome to the EnPro Industries' quarterly earnings conference call. In a moment, Steve Macadam, our President and CEO, and Alex Pease, Senior Vice President and CFO will review the results for the fourth quarter of 2011. But before we begin, I will remind you that the call is being webcast on enproindustries.com, where you will also find the slides accompanying in the call. You may hear statements during the course of this call that express a belief, expectation or intention, as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties are referenced in the safe harbor statement included in our press release and are described in more detail, along with other risk and uncertainties, in our filings with the SEC, including the Form 10-K for the year ended December 31, 2010 and the 10-Q for the quarter ended September 30, 2011. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which such statements are based. You should also note that EnPro owns a number of direct and indirect subsidiaries. From time-to-time, we may refer collectively to EnPro or one or more of its subsidiaries as we, or to the businesses, 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 our financial results reflect the deconsolidation of Garlock Sealing Technologies LLC, Garrison Litigation Management and their subsidiaries, effective June 5, 2010. These entities have been deconsolidated from EnPro's results and will remain deconsolidated during the pendency of the Chapter 11 legal proceedings to resolve asbestos claims against EST. We refer to this as the asbestos claims resolution process or ACRP and you will hear us use that acronym during the call today. GST's results are presented separately in our earnings release. And now, I will turn the call over to Steve, who by the way is participating in today's call remotely from Austin, Texas, where he is attending the Stemco Annual Sales Meeting. Steve?

Thanks, Don, and good morning everyone. The fourth quarter capped off a successful year for EnPro. We made a number of acquisitions in 2011, and so they have full impact on our top line, as they contributed nearly 2-thirds of our year-over-year sales growth. Cost associated with consolidating and reorganizing facilities and other measures we are taking to improve the performance of the acquired businesses affected our profitability in the fourth quarter. However, we are making very good progress towards realizing their full value and we expect their performance to improve in 2012. We also saw broad-based improvements in our markets compared to the fourth quarter of last year of 2010 and recognized an organic growth rate of 16%. Growth was strong across the Board. Sales grew in all of our businesses, but we are especially encouraged by the organic growth in our Sealing Products and Engineered Products segments. Given the general uneasiness about the economy that prevailed in the news early in the fourth quarter of 2011, the growth rate in those segments gives us an increasing level of confidence for 2012. If you are following along with our slide presentation, slide 4 gives you an insight into how our pro forma results have improved over the past 3 years, adjusted for the deconsolidation of GST by removing it from the previous year's numbers as well. Since 2009, when the recession was at its worst, our pro forma sales are up 65% or more than $425 million. About $195 million of that increase came from acquisitions while the majority came from organic growth as our market strengthened. And as we gained share, sharpened our pricing strategy and introduced new products. With the benefits of increased volumes and the success of our operating commercial strategies, measures of profitability also improved. Segment profits and adjusted earnings per share nearly tripled over the past 3 years. And our EBITDA more than doubled despite the fact that we've yet to realize a full benefit of acquisitions on our earnings. Although they are shown -- although they are shown of the slide, GST's results have improved with equal strength. Pro forma sales at GST were up nearly 45% from 2009. The operating income is up nearly 130%. Adjusted net income has improved by more than 90% and EBITDAA is up more than 80%. In short, we have recovered nicely from the recession and we are confident there is more improvement to come. Looking at our acquisition activity in 2011, we invested a total of about $240 million to buy businesses that bring us access to new faster growing markets or the market segments where we were not present or underrepresented. In many cases, they also expand our footprint in the fast growing geographic markets such as Singapore and Southeast Asia as well as in established markets of North America and Europe. Altogether, the deals we closed last year have over $200 million in annualized sales with a contribution to profits that we are confident will grow. As these businesses are fully integrated into our enterprise excellence programs and demand improves in their markets. Turning to the ACRP, I want to spend a few minutes updating you on events we previewed for you in past quarter's call. Late last year, GST proposed to plan a reorganization, which would provide approximately $250 million to permanently resolve all present and future asbestos claims against GST. To expedite approval of a plan and move the ACRP forward, GST asked the bankruptcy court to set a schedule for a trial to estimate GST's aggregate legal liability. At the trial, GST intends to demonstrate that the proposed amount in the plan substantially exceeds any reasonable estimate of GST's actual liability. The judge was initially skeptical about the plan, but he stated the GST would have an opportunity to convince them to approve it. The plan currently -- or the plan certainly has very unique provisions compared to other previous asbestos related plants, but GST is a very different defendant compared to defendants in prior cases. And its products are very different products compared to the other products. In other cases, reorganization plans came about through settlements between the defendants and asbestos claims. GST hopes that it will also reach a settlement, but if it doesn't we are confident that the innovative plan GST has proposed is solidly rooted in the bankruptcy court and ultimately can be confirmed. At a minimum, the plan demonstrates that GST is willing to pay a significant sum to resolve asbestos claims despite a strong conviction that the relevant scientific evidence will demonstrate conclusively that its products were safe. Last month, the judge also learned about disappointing response rates to court approved questionnaires, since the GST's mesothelioma claimants. Many of these questionnaires were either not returned or returned incomplete. And the judge ordered claimants who had not fully complied to supply the requested information. He also directed GST and claimant representatives to file briefs regarding their proposed approaches to estimation and he specifically stated that at estimation, he intends to allow GST to present its science-based causation case. We believe that accurate responses to the questionnaires and GST's compelling presentation of the science of asbestos exposure will combine to demonstrate GST's position convincingly. Most people asserting claims against GST were not exposed to GST's products at all. And those who did work around GST's products were injured not by GST's products, but instead by exposure to friable asbestos installation and other dangerous products produced by other companies. We are confident that at the conclusion of the estimation trial, the court will determine that as a matter of law, the company's products could not have been the substantial contributing cause of any asbestos-related disease. The same conclusion reached last year by the United States Court of Appeals for the Sixth Circuit. We discussed that decision in our last conference call, but I want to repeat what the Chief Justice wrote when the court reversed a jury verdict against Garlock and I quote, "saying that as exposure to Garlock gaskets was a substantial cause of the claimant's mesothelioma would be akin to saying that one who pours a bucket of water into the ocean has substantially contributed to the ocean's volume." We will continue to keep you updated on the progress in GST's case. We believe that GST will ultimately be reconsolidated into EnPro with significant value intact and will remain an important part of our company for the future. Now, I'll turn the call over to Alex.

Thanks, Steve. As Steve mentioned, we had strong year-over-year sales growth in the fourth quarter. Sales were up $80 million from the fourth quarter of 2010. About a $50 million of the increase came from acquisitions, which was in line with our expectations going into the quarter, but organic growth was better than expected. On a percentage basis, sales were up 42% with 26 points coming from acquisitions and 16 points coming from organic factors. Organic growth was broad-based across most of our markets and in all global regions. Sales were up 18% in North America and about 4% in Europe. As you recall, our outlook for the fourth quarter was fairly cautious, so we are pleased to see those kinds of results. I'll discuss GST's results separately and in more detail, but you should know fourth quarter results there were strong as well with a 20% sales increase and operating profits almost doubled the fourth quarter of 2010. Our sequential results showed a decline in sales from the third quarter -- from the third quarter of above 10%, which was slightly better than our expectations. In our Sealing Products and Engineered Products segment, sales were down relatively modestly compared to Q3 with organic declines of 3% and 6% respectively. That's slightly better than we expected going into the quarter. As we anticipated, engine shipments were lower in Q4 than in Q3. And sales in the Engine Products and Services segment were down 31%. Our gross margins for the quarter were 32.8% compared to 36.8% in the fourth quarter of last year. The margin reflects cost associated with the increase of acquisitions and other growth related investments as well as our penetration of OEM markets, which are core to our growth strategies at Stemco and the Technetics Group. While OEM margins are less than the margins we are able to achieve in the aftermarket, the OEM businesses that we have acquired are healthy and attractive and we expect their performance to improve across the board. On a sequential basis, gross margins were slightly higher than in the third quarter, which is encouraging given the fact that mix is usually less profitable and margins typically compressed from Q3 to Q4. SG&A expenses were $74.7 million in the fourth quarter of 2011, a little more than $11 million higher than last year. The increase in spending came almost entirely from companies we acquired during 2011. As a percentage of sales, SG&A expenses dropped to 27.5% from 33.1% a year ago as sales growth gave us better leverage on our fixed cost. EBITDA reached $153 million in 2011, up 45% over 2010 when pro forma EBITDA excluding GST was $105 million. As a percent of third-party sales, EBITDA was 13.9% in 2011 compared to 13.3% of pro forma sales in 2010. Stronger markets, acquisitions, and improvements in both Sealing Products and Engineered Products segments contributed to the increase. Our business has continued to provide good returns with ROIC reaching 20.5% for the full year of 2011, 3 points better than in 2010. Now, let's turn to the performance of our individual segments. Compared to the fourth quarter of 2010, sales in the Sealing Products segment were up $51 million or 58%. Acquisitions contributed 45 points or $40 million of the increase, while the remaining 13 points reflect increased volumes and better pricing. The effect of foreign exchange on the segment sales was negligible. The segment's profits were just less than $15 million as the benefit of higher volumes and price increases were offset by several factors. Expenses increased as we added resources to support the segment's growth. Material cost and other operating cost also increased. The product mix reflected higher OEM sales as we execute on our growth strategies for Stemco and Technetics. Finally, acquisition-related cost including restructuring and asset consolidations were almost $3.5 million with amortization making up $2.5 million of the total. Now, let me provide some detail on the individual businesses. At the consolidated Garlock companies, sales were up almost 80% with organic growth of nearly 20% and the balance coming from the PSI acquisition. Activity increased across most of the businesses markets, especially in Asia and North America. Although profits and margins were about the same at operations that were included in the fourth quarters of both years, expenses associated with the acquisition of PSI resulted in lower profits in the fourth quarter of 2011. These expenses included the consolidation and relocation of PSI manufacturing operations to other EnPro facility, where we will be able to improve efficiencies. In the Technetics Group, sales were up about 50%. Most of the growth came from the acquisition of Tara Technologies in the third quarter of 2011, but sales grew 6% organically driven by demand for products sold into power generation, aerospace, oil and gas, other high performance markets. Tara made a small contribution to process. Technetics profit climbed in the fourth quarter of 2010, because of lower sales of high margin products into the nuclear power markets and the addition to Tara's pass-through sales. Technetics' nuclear order book is currently very strong, so the change in nuclear sales from the fourth quarter of 2010 appears to be a matter of timing. Stemco sales were up more than 45% compared to the fourth quarter of 2010 and were more than 30 points from the acquisition of Rome Tool and Die. The business reported organic growth of 15% as OEM markets grew and sales of brake products increased. Profits at Stemco were about the same as the year ago while margins reflected the increase in brake products sales and expenses associated with the Rome acquisition. Compared to earlier quarters of 2011, Stemco's margins were also impacted by seasonal shift in sales from after-market braking products to OEM braking products, which is typical in the latter part of the year. As we've said in the past, we are encouraged by increases in activity at Stemco, which we feel is an indication of good things to come in 2012. In the Engineered Products segment, sales were up 19% from a year ago to just over $92 million. Acquisitions accounted for growth of 12% over the fourth quarter of 2010 as the Mid-Western Companies and PI Bearings combined contribute just under $10 million in sales. After a modest negative effect from foreign exchange, the segment reported an organic growth rate of 8%. Segment profit improved to $3.1 million as the segments core businesses strengthened. Acquisition-related costs in the fourth quarter were about 600,000 mostly reflecting amortization expenses. GGB sales were up about 8% compared to the fourth quarter of 2010 with about half of the increase coming from the acquisition of PI Bearings and half from organic improvements. It's worth noting that GGB's organic growth came against the strong fourth quarter in 2010 when demand was recovering from the dramatic de-stocking that occurred in 2009. GGB's profitability improved year-over-year and then GGB's market segments are generally showing positive trend, even though our European customers appear to be proceeding cautiously. At CPI, sales were up nearly 40% over the fourth quarter of 2010. The acquisition of the Mid-Western Companies in the first quarter of 2011 accounted for nearly 25 points of the increase, but for the third consecutive quarter, we saw healthy year-over-year increases in volume -- increases in volume at operations that have been part of CPI for over a year. Organic growth was 14% in the quarter and CPI continues to report higher volumes in most regions where it operates. Although, fourth quarter margins were higher in 2011 than in 2010 at both GGB and CPI, they remained below our targets for those businesses. At GGB, we made a number of operational improvements and we are confident that the performance of the business will continue to improve and margins will grow as volumes return. At CPI, the current price of natural gas and our geographic expansion into Western Canada are both affecting margins. Activity in CPI's natural gas markets is low, because weak natural gas prices are leading producers to cap wells while they wait for prices to improve. In addition, CPI's expansion into Western Canada has resulted in duplication of facilities and other inefficiencies that we are working to resolve. Resolution of these issues will require additional investments in 2012. But long-term, we are confident the natural gas market has substantial potential and that CPI will capitalize on it and we are also confident CPI's performance will improve in the near-term regardless of natural gas prices. Sales at Fairbanks Morse Engines were $40.3 million, an increase of 52% or about $14 million over the fourth quarter of 2010. Higher parts and service revenue was responsible for just more than half of the increase with the remainder coming from the use of percentage of completion accounting for new engine sales, which began in the third quarter of 2011, while the segment shipped 2 engines in the fourth quarter of 2011, compared to one in the fourth quarter of 2010. These were small commercial engines and their combined value is slightly less than the value of engines shipped in 2010. SME's profit improved $7.3 million in the fourth quarter of 2011 and 83% increase over 2010. Higher aftermarket parts and services sales, which typically are more profitable, help to raise the segment profit margin to 18.1% from 15% a year ago. The backlog at SME stood $209 million at the end of the year compared to $248 million a year ago, when the backlog included more than $95 million for the South Texas nuclear project, which was cancelled following the Fukushima disaster in Japan. After net interest expense of $10.6 million, which includes interest on our convertible debt and the interest due to GST as well as the small tax benefit. Net income in the fourth quarter was $2.6 million or $0.12 a share. Those earnings compared to net income of $6.3 million, or $0.30 a share in the fourth quarter of 2010, when there was tax benefit of $9.5 million. The tax benefit I am referring to in the fourth quarter of both years was recorded in order to adjust the full year tax rate. Before selected items, net income in the fourth quarter of 2010 was $7.7 million or $0.37 a share, up $0.07 a share over the fourth quarter of 2010, when income before selected items was $6.4 million, or $0.30 a share. These earnings are calculated to remove the effect of items including the inter-company interest expense due to GST, which in the fourth quarter of 2011 was about $0.21 a share after tax, compared to $0.19 a share in the fourth quarter of 2010. The effect of these items on our earnings in both quarters, are presented in the schedule attached to our press release. Our consolidated operations generated cash at $78.6 million in 2011 and even though sales grew by over $240 million, the increase in working capital was actually lower in 2011 than in 2010. Capital spending was $31.5 million in 2011, nearly $10 million higher than in 2010 as we made investments to accelerate growth and improve productivity. We spent about $230 million in acquisitions in 2011, as Steve mentioned earlier not including the acquisition made by GST. After completing acquisitions in 2011, our cash balance at the end of year was about $31 million compared to about $219 million at the end of 2010, when we are just beginning to reinvest the proceeds from the sale of Quincy Compressor. Our current cash balance is sufficient to meet our near term needs for capital, but we also have capacity to drive additional funds from our revolving credit facility should we need them. That review of our consolidated results. Let's take a look at the deconsolidated results of GST. As I mentioned earlier, GST's third-party sales increased by 20% over the fourth quarter of 2010 and reached $54.1 million. Sales benefited from healthy demand in GST's industrial markets in the United States and with higher volumes in price optimization program, profits improved to $11.3 million, nearly double a year ago, when profits were $5.9 million. As a percent of sales, profit increased to 20.9% from 13.1% in the fourth quarter of 2010. GST's net income was $7.4 million in the fourth quarter of 2011, after adjusting for inter-company interest income and expenses associated with the ACRP. That's an improvement of about 51% over 2010, when adjusted net income was $4.6 million. For the full year of 2011, GST sales increased by about 17% to $214.4 million. Operating profits improved by more than 45% to $44.8 million and adjusted net income was up 40% to $28.8 million. GST generated EBITDAA of $50.1 million in 2011 and completed the year with a cash balance of $126 million. That concludes my financial review. So, I will turn the call back to Steve for a review of our outlook closing remarks.

Okay. Thanks, Alex. And listeners, before we turn the call over to your questions, I want to just take a little time here to just kind of summarize the year and how I see the company now and then give you a little bit on our outlook for 2012. So, as I step back and just reflect on 2011, I think it was a really successful year for our company. If you just look at the entire family of EnPro companies irregardless of the accounting required by the ACRP and just look at all the assets that we've had over the years, here is how I see it. Sales in 2011 were up $337 million over 2010 on a combined total family of company basis, it's a 35% increase in sales. EBITDA -- pre-asbestos EBITDA was up $62.2 million, which is 44% improvement in 2011 over 2010. We did 7 significant acquisitions deploying $240 million of capital, which of course includes the acquisition within GST, that's over 5 times our average investment in acquisitions over the past several years. All of these acquisitions are important strategic fits for the businesses that we have. And in aggregate, they were purchased at attractive multiples of less than 7.5 times trailing EBITDA and have margin potential similar to EnPro's average EBITDA margins on a run rate basis as we capture all the synergies. We obviously completed all of these transactions without needing to raise any new capital. So, we did it with the proceeds of Quincy as well as our own internal cash generated and essentially ended the year in a positive net cash position with an expanded revolver. Our teams have worked hard throughout the year. These acquisitions brought 14 new facilities to us and 560 new employees. So, those don't get integrated without a lot of work. And I want to take this opportunity to thank, recognize our success and thank the hard work and dedication of our employees around the world. I will also readily admit to you that in few of these integration cases, we had our hands full. We had a lot of improvement work to do in some cases more than we even thought in the due diligence period. But we've done that extremely effectively, it in some cases it required a little bit more capital and a little bit more operating expense and a lot more human capital resources, our team is really, really stepped up in a positive way to work those integrations. So, we are on the good shape going into 2012. There is more work to do, but we're a stronger and more profitable company today than we were a year ago by wide margin. And this gives me great confidence going into 2012. So, we currently expect 2012 to bring moderate improvement in industrial production in North America compared to last year and we think growth in Europe is going to be flat to slightly higher than last year. Under these conditions, our consolidated sales should increase by more than 10% over 2011. Sales will benefit from growth in our Sealing Products and Engineered Products market, a full year's contribution from all our acquisitions along with market share gains from our commercial excellence programs. We also expect sales to grow to record levels in our Engine Products and Services segment due to a combination of both the percentage completion accounting and organic growth. In 2012, we expect our consolidated segment profits and profit margins to improve over 2011 as a benefit from higher volumes increases in productivity, greater contributions from acquisitions and improvements in price, which will help us offset inflationary cost increases. Our reported margins will continue to reflect our growth in the OEM markets and some more cost associated with the integration of our acquisitions, especially during the first half of the year. Based on these factors, we currently expect the margin on our total segment profits for the year of 2012 to be in the low to mid-teens, but above the 12.8% we reported in 2011. Comparisons of our consolidated results in the first quarter of 2012 to the first quarter of 2011 should reflect improving demand in Sealing Products and Engineered Products as well as seasonal activity increases in a larger contribution from our 2011 acquisitions as a contribute to our consolidated results for the full quarter and a modest increase in sales in Fairbanks Morse Engine. The segment profit and profit margins that we report in the first quarter will continue to reflect higher integration cost in the Sealing Product segment and somewhat lower margins at FME as mixed shift to increase new engine sales. We're excited about our position as we begin 2012 and about the opportunities that lie ahead. We're committed to capturing every opportunity we see for improvement and our performance and we're looking for to another very good year. So with that, we'll open your lines up for questions.

[Operator Instructions] Your first question comes from Jeff Hammond with KeyBanc Capital Markets.

If you could just on the onetime items, early acquisition related cost, how much of this 3.5 and 0.6 in the 2 segments, would you characterize as onetime versus recurring amortization?

Yes, Alex wants to rundown both for the fourth quarter Jeff ask and the full year for acquisition -- one-time acquisition expenses broken into both amortization and OpEx.

So for 2011, we basically had acquisition related expenses of about $16 million, about $8.8 million of that was amortization related and about $7.2 million of that were other costs and in Q4 that number breaks down to about $3 million of amortization and about $1.2 million in other cost, now the way to think about so, amortization obviously will be with us for quite some time. On the other cost, the way to think about that is in 2 buckets, one would be retention payments that we paid to the former owners to keep them with the company for generally a period of 1 to 2 years following the deal. The other would be cost related to the consolidation of facilities increased legal expenses and so forth. So in the fourth quarter for that the vast majority of the other cost that I'm referring to would be retention related payments although there were some cost associated with the facility movement of PSI from used into a number of other facilities and then the remainder would be the retention payments that I'm talking about.

Did that help?

Yes, so the $60 million what is that number look like in '12, and you keep all the 8.8 amortization and then what if the 7.2 goes away?

So, I don't have that number off of my head, I would say that probably call it some more between $5.5 million to $6 million of the 7.2 goes away and then there is probably around the million in retention payments that would be with us through 2012 and then those would probably roll off in 2013.

Okay, yes, that's helpful. And then just on -- I think the biggest [indiscernible] were the Sealing margins and you talked about a number of things including these acquisition related cost. But I just want to get a better sense of where margins came in versus your expectations particularly given the much better sales than you were protecting and may be a little bit more color on some of these SG&A and higher material costs and any kind of surprises within the margins.

Alex, let me put some color on the margin question and you can handle the rest of it. But Jeff, here is what happened in the fourth quarter within Sealing. So you have a bunch of affects that I need to breakdown for each of the 3 businesses within the segment Stemco, then Garlock, then Technetics. So, within Stemco, so that what we expected we thought we might do a little bit better in brakes, but look what happens at the end of the year, one, brakes slow down; and two, it's almost all OEM business, the brake season mirrors to some extent to Stemco core business oilfield cyclicality, which is strong in Q2 and Q3, but the brake -- the seasonality is more extreme and it shifts dramatically to OEM in the fall so, or in the winter of fourth quarter time period. And so we will see that continuing into Q1, but and we saw operating improvement work to do enrollment, I mean that was something we bought about a year ago and I think we talked about this in previous calls, but we had a lot of our TCV operations work to do there and it's ongoing. So, you got that effect coming in from Stemco. Then in Garlock, we had PSI acquisition. And what we ended up doing actually ahead of schedule you all will know our original schedule, but we anticipated from the beginning of the transaction that we were going to close the Houston facility for PSI. And take that operation and move it into an existing more and more existing facilities within Garlock. Our regional timeframe to do that was 18 months, but because the facility needed so much improvement in productivity and help, it just was not a well-run facility. We accelerated that. And so that move started to take place in Q4 again well ahead of our internal schedule and continued into the first few weeks well relief through January. And we took the product lines that were made in PSI and moved equipment in operation for part of those product lines into our Pikotek facility in Denver. And the rest of it we moved into a facility that's located in Houston that had to have a fair bit of retrofit. The retrofit and equipment moves to get ready to accept that new equipment. So, we had a time of disruption in both in PSI and in the core Garlock business in Q4 as we executed on that move. So, that is -- we try to capture some of that in Alex's numbers, but quite frankly is a very difficult to capture all the effects of that because there is a lot of activity for the team to try to absorb and get done in the fairly short period of time. Then the third is within Technetics obviously we bought Tara in the fall, the semiconductor business which is a decent margin portion of their business was a little -- was slow as you know, but we -- the good news is we don't actually 3 months ago we were worried about that be in a pretty rough in 2012 as well but that is stabilized and we're now thinking if you follow any of the semicon trade material, we're thinking the 2012 will not be as good as 2011, but certainly not as much of a correction that many of the industry forecast as we were predicting 3, 4 months ago. So, that's good and obviously Tara brings with it pass through businesses, which is at substantially lower margins within the broader Technetics business. The nuclear orders that we got, which again our fairly long lead-time part and it's a very profitable part of the Technetics business overall. Those ran into pretty significant headwinds after the Fukushima issue. And so believe it or not that started showing up in both Q3 and Q4, because of -- versus the history, because that's how long you get these orders for these large nuclear [indiscernible] in advance. Now, as Alex mentioned in his remarks, the orders we got were great. We do it in the shipping product. They are going to be shipping in 2012. So, the shipments were low and because there is a high margin specialized seals, the margins for Technetics were low because of those 2 effects. So you have all 3 of these businesses all with those very independent effects all combining for difficult margins in Sealing for Q4. So I'll let Alex address the other parts of your question.

Maybe what I'll do is just get into some of the specifics. I think Steve gave a pretty good overview of what's going on. I would highlight one point that Steve didn't make. It's actually not atypical for us to see margin compression when we look sequentially from Q3 to Q4. So, if you were to look over the last 6 years what you'd see in 4 of those 6 years, you'd see margin compression ranging, this is a OI margin, compression ranging from 1.5 points to 3.5 points. So what you're all seeing is not that atypical and a lot of its driven by the mix related issue that Steve is referring to. I'll just give you a couple of numbers to give you a handle on what's going on with SG&A and corporate expenses since I believe, Jeff you asked that question specifically. If I look from Q4 of 2010 to Q4 of 2011 on the SG&A line, you'd see about a $10 million little bit more than a $10 million increase, about a $11 million increase. The vast majority of that is coming from the acquisitions. So, that's a number that we can certainly address, as we eliminate some of the redundancies through our systems and asset consolidations that we talked about. If you look on the corporate expenses from Q3 to Q4 you will note as an increase of about $10 million or so and you will recall last quarter, I had mentioned to you that the decrease we saw in Q3 was actually somewhat atypical and was driven by the decline in the share price predominantly. As we had to adjust some of the Board of Directors phantom shares down. And so the increase that you saw this quarter a largest piece of it was driven by about $2.5 million increase in medical claims. There is again a little bit about of a pickup in the Phantom shares that I referred to earlier. There is about $1 million or so in consulting cost and then sort of some dribs and drabs of other things, including some incentive compensation and some severance related fees. So, the $10 million number that you see in the fourth quarter is a much more normal number for us. So, just keep that in mind, when you benchmark that relative to the third quarter. Does that help, Jeff, or do you have more specific question.

No, that's a lot of good color. I guess maybe just wrap it up on Sealing. If you did 10.7 of margin, I mean what would your thought would have been, given all these disruptions. I mean you should we look at the sequential move somewhere in the 1.5% to 3.5% and then anything over and above that is kind of noise in disruption?

No, look I think we believe that the Sealing the sort of normal margins for Sealing are in the mid-teens, that's sort of if you were to look annually, I think that's a good number to sort of plug end your model. There were certainly some of these one item effects that Steve mentioned. There is also I think some measure of us strategically focusing on more OEM. So, remember large portion of almost all of the Tara businesses targeting OEM and is deliberately lower margin as some of the pass-through revenue that are refer to. There Rome Tool and Die is break margin, break products which are lower margin as well as OEM products. So, there is some strategic focus on these attractive OEM markets, which have a little bit of an effect on margins, but I think what going forward Sealing should be a upper mid-teens type business.

Your next question comes from Fred Buonocore with Rodman & Renshaw.

Just to I think we've gotten a good view on margin going forward there so we appreciate that. And then just maybe drilldown a little bit more on the top line expectation and Steve I think you said that in your thought you see growth an excess of 10% in 2012. And I'm assuming that just a general comment for total revenue growth including acquisitions. Can you give us a sense for where you think organic growth it can be something similar to maybe what you saw in Q4?

We'll I don't know this going to be that's strong, Fred. I mean obviously we're trying to, as you know, our businesses are very short cycle. So for us to get a gauge on the full year, we are looking at the same kind of industry forecasting economic growth forecasts that you are. The just north of 10% number that's our expectation, what I framed up is a very modest growth year in terms of U.S. and basically Europe being essentially flat maybe a little bit up and includes the full year effective acquisitions that we have done, does not include any effect from acquisitions that might happen in 2012. So, it just a full year effect and improvements of what we've already acquired. Is that helpful?

Sure. I guess in that regard you talked about your expectations from a regional standpoint.

Yes.

For those markets, how should we think about your businesses in terms of how they grow relative to the growth in those markets if you're getting market share and introducing new products and such?

Well, I think over time we've always said that we're, when you look at EnPro on whole we're basically, organically a GDP growth business. But as the year, our expectations already pick up a point or 2 in price and a point or 2 in net price and a point or 2 in share growth. And so, I think if you take your GDP and add that and give us a full year effect for acquisitions you'll get in just north of 10% range.

Great. And it's around 50, 60 year so million a good number, I'm not sure if -- I apologize if you said it in the prepared remarks. But in terms of acquisition contribution, do you think it's in somewhere in the $50 million to $70 million range?

So, in the annualized number next year for full year run rate?

Yes.

What -- Alex did we say what that was specifically?

We did, I mean, I think ballpark I'd probably look in the $50 million range.

Okay. That's great. Then turning to your CPI business and you talked about obviously natural gas prices are certainly slumping and that's impacting the activity in that market, but in terms of your own initiatives with your -- you'd required a number of branches over the last couple of years and you've been working on improving the efficiency of how they operate from a client relationship fails operational standpoint. Can you update us on that part of the business specifically in terms of how you think that's doing operationally and how -- what kind of room there is to improve there because I would think that would be a with or without improvement in natural gas prices, I think that would be a lever for margin improvement at some point along the line here.

Oh yes, well certainly yes, certainly I think even in Alex's remarks, he said we certainly expected to go out regardless of what gas prices do so. And our growth strategy, Fred, as you know in CPI is really in large part tied to the fact that we have a point of view as a company that gas and related NGL is coming out of gas, gas wells, the shale formations is a fundamental shift in the U.S. energy picture and petrochemical picture. And that's why you see the ethylene crackers that have been announced and so forth. And so we have both -- in CPI, we have markets both in the gas patch as well as in petrochemical and refining and both of those should benefit by the increased extraction of gas along with the NGL to come along with them. So, this is a long-term strategy for us and it has been really the underlying strategic premise behind the -- a lot of the CPI growth story. So, now within CPI, we are probably 65% through an ERP implementation across that whole system that will continue through all of 2012 and conclude in the first part of 2013. It's going very well with full-time team putting that in place and this is to really knit together and run this business as one global business. We consolidated 3 facilities from Mid Western's acquisition some cases we moved into their shops and some cases we moved into our legacy shops. We've got additional restructuring to do in Western Canada that will happen in the first half of this year and we relocated the German's CPI facility just a couple of miles because they ran out of space and it's an old building. They have moved that construction and activity to move that facility happened in Q4 and in the first couple of weeks of January of this year. So, there is a lot of really good work going on in CPI we -- as you know we opened a new manufacturing and service center facility in Shanghai a year ago. They shipped the first product in February. We actually had budgeted for them to lose money for the year. We think they would get to breakeven until close to now. They actually got the breakeven over the summer and actually ended up making a little bit of money. In the year so, we are excited about that new addition to us and that bring to field facility. So, all that said, I think our margin expectations for CPI are still consistent what we've said in the past, which we would certainly expect that to move to a mid-teens margin over time and that's probably a 2-to-3 year journey, because we need to finish the system and all the integration. And by the way a lot of these costs that Alex talked about, where we have retention payments for previous owners of businesses a lot of that is within CPI because these businesses are typically owner operated business and we need those guys on our team for some period of time. So, I don't think our expectations on margins there have really shifted and that's where they are in regardless really with the gas price does.

Your next question comes from Todd Vencil with Sterne Agee.

Thinking coming back around just sort of the segment margins, you talked about the mid-teens, the high mid-teens being sort of the normal margin that we're going get back to in these Sealing Products. What kind of timeframe we're looking at that excess any other acquisitions that we might do in the future just kind of going from where we are now. How long does it take us to ramp back to there?

Well, Alex, you want to give your answer to that, why don't you give your answer and then I will add some color.

Todd, I actually think it's reasonably, reasonably short cycle. If you look at lot of what drove, what you saw in the fourth quarter this year was really mix related. There was some of these sort of cost pressure that Steve talked about and some anomalous effects related to the acquisitions. But a large portion of it was both mix related and this phenomena moving from Q3 to Q4 that I talked about earlier. So, I think that if we assume the markets continue to perform the way they performed last year. I have no reason to believe that our by second quarter you wouldn't see sort of the mid-teens type margins for Sealing and certainly that's we are anticipating in terms of what we're budgeting for and what we're planning for. So that's certainly our expectation.

Yes, I agree completely with that.

Got it and that's very helpful. And then I guess second question for Engineered Products, I mean you guys I think the last thing you said there on a long run margin for the segment was also sort of mid-teens maybe a little lower than Sealing?

Yes.

And but you talked about sort of 2-, 3-year process in CPI. So, if you think about CPI and GGB together in the whole segment, how do you see that plan out time-wise and I'm still right on that level?

Yes, and I think that's indicates GGB it's probably a little bit quicker than that. But still it's now like Sealing, because Sealing is not -- Sealing was an anomaly in the fourth quarter, because of all these effects. It wasn't a structural shift, whereas Engineered Products, is on a journey to improve performance on both GGB and in CPI, absorb these integration activities and so forth and GGB of course is still recovering in volume and still working on some operational issues we have in our French -- one of our French facilities et cetera. So, I think GGB is probably I don't know maybe a little bit more accelerated than CPI, Todd, but I think that ballpark of 2 to 3 years is reasonable in aggregate.

Got it. So, if I look at the segment I mean the 2011 start and again I'm just trying to get sort of calibrated right to where these things ought to be. And if I look at the segment, I mean start of the year over 10% at least bit of an adjusted basis in that segment and then sort of come steadily down integrated put in the acquisition and things like that. Should we think about this year high single-digit number?

Yes, we look. GGB was extremely busy in Q1 of last year. Extremely busy, we are not going to be that busy, because part of what we saw, you can't just look at it year-over-year because part of what we saw in both Q4 -- Q4 of '09 and Q1 of 2010 was the supply chain recovering from the recession and so it kind of fill. There were some restocking effects. So we ran hard. I mean we were sold out across the globe in GGB in Q1 of last year. Right now although volume in order seem to be pretty good. We are not seeing that kind of sequential growth that we're seeing in those time periods. It's going to return to more of the normal GDP relevant growth and quite frankly GGB it's a lot of it's going to depend on European automotive because that's big core what they do. So, that you can reach does about that is easily as I can. So and as Alex mentioned in his remarks, the European customers are be in a little bit cautious about what's going on. So, I would not lock in on Q1 of last year as the Engineered Products base for thinking about margins.

Yes, sure.

Yes.

Understood. But I mean, if we look at the year though that came in?

If you look at the year and that's certainly what we ought to be. I think that's very reasonable I'm going to adjust a little bit for CPI for some of the ongoing integration costs and acquisition costs we talked about and that's probably pretty good estimate.

Your next question comes from Joe Mondillo with Sidoti & Company.

In terms of ARPOs just wondering if you could go over that and just I guess, one, if you could, I don't even know if you can give sort of the likelihood of that sort of accelerated trial that you were talking about of that being completed or that being a success. And if not, if you could at least sort of address maybe a timeline I don't know you can sort of?

Yes Joe, what we can do is I'm going to ask Rick to step through this, but what we can do is we can tell you what we know about the process and how it's likely to unfold in terms of the next step in the core and so forth. If he would be doing that that would be great. And that's going to have to be our last question I think. We're about out of time so.

Joe, this is Rick Magee. Just to tell you a little bit about process and I think Steve hit it in his prepared remarks, but just to layout. There is going to be a hearing late this quarter or early next quarter, not exactly late out yet, but probably near to end of this quarter, where the judges going to hear from both of lawyers for GST and also the lawyers for the claimant representatives about their approaches to estimation, they proposed to approaches to estimation and what that will entail and what that will need to look like in terms of both discovery to get ready for those approaches to estimation and the estimation trial and also in terms of time for the actual trial. We think that the purpose for that estimation trial would be to demonstrate that the plan, the GST has proposed is feasible in other words that the plan that is proposed is sufficient to meet its liability obligation. And as Steve said we believe it's well in excess of any liability that it has. And we think that trial will involve the causation evidence that GST will put on and we believe that the timing of that trial will be late in 2012 or early in 2013, probably more likely early in 2013. The claimant representatives believe that should be a much simple process and pushing for that trial to occur without any further discovery of note and for that to happen during the summer or early fall. So, that's sort of where we are on process. We are confident that the judge is going to give GST a fair opportunity to present its case. And we believe that if that's going to take a little time to get prepared for and to get all the relevant discovery for and it will likely be at least the fourth quarter if not the first quarter of 2013. I think, Steve laid out our optimism about our positions. The judge did indicate some skepticism about the plan itself, but that didn't change anything about our positions, about GST's positions and about its liability and we really think that the case that GST will put on will be compelling and will demonstrate that the $250 million that we are talking about is more than sufficient to pay any possible liability that GST would have.

So, the verdict would likely be by maybe early 2013 and then at that point, if it's a favorable ruling the settlement or what you have come to would take another 3 to 6 months or something, is that fair to say?

I think, it's probably a longer time period that, that just because a couple of things. As you know, in all of these other cases ultimately the price has settled on a number. And then it's taken as much as a year to a year and a half and in some cases like the Grace case, I think there is settlement over 3 years ago and still haven't closed that confirmation. I don't think it will be anything like that, but we think that -- we continue to hope that GST and the claimants will reach a compromise result and that will expedite things and that, that can happen around the time of that trial. But we do believe it would be another year after that before it would all get implemented. Of course, if that happen you'd have more certainty about what that ultimate result would be once any kind of compromise was reached. In the event, the judge making a determination and a verdict, it's probably likely that one side, the other is not going to be happy with that. And there is lots of the pellet avenues available both to the district court and then at the 4 Circuit Court of Appeals. So, in the event, it's a trial and there is not a compromise. I think you could look at a longer period.

There are no further questions. At this time, Don Washington, I turn the call back over to you.

Well, we thank you all for tuning in today. I realized some of you may have questions that we didn't have time to respond to, but please feel free to give me a call later today at (704) 731-1527. Thanks again for attending this morning and we'll look forward to talking to you next quarter.

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