Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries Second Quarter 2016 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I will now turn the call over to Chris O’Neal. Please begin, sir. Chris O’Neal: Thank you, Kelly. Good morning and welcome to EnPro Industries’ quarterly earnings conference call. I’ll remind you that our call is also being webcast at enproindustries.com, where you can find the slides that accompany the call. Steve Macadam, our President and CEO; Milt Childress, our Senior Vice President and CFO will begin their review of our second quarter performance and our outlook in a moment. Also joining us on the call today is Ken Walker who is our Senior Vice President and COO. But before we begin our discussion, I will point out that you may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor statement included in our press release and are described in more detail along with other risks and uncertainties in our filings with the SEC, including the Form 10-K for the year ended December 31, 2015 and our Form 10-Q for the quarter ended March 31, 2016. 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…

Thanks, Chris and good morning, everyone. Before I begin my comments, I’d like to take this opportunity to formally introduce Chris O’Neal, whose voice you just heard at the open of the call. Chris joined in probably about eight years ago and served in a verity of corporate and divisional roles before succeeding Milt as Head of EnPro’s Strategy and Corporate Development function when Milt assumed his position as CFO about a year ago. Chris added Investor Relations to his responsibility a couple of months ago. He knows a lot about our businesses and we’re pleased to have him engaged in Investor Relations and I expect to enjoy working with Chris. I also would like to take this opportunity to formally thank Dan Grgurich, our prior Head of Investor Relations for all of his contributions to EnPro. Now, let’s begin. As an opening comment, I want to share that I’m pleased about what our team accomplished during the second quarter despite overall market conditions that continue to be quite challenging. Our total normalized pro forma segment profit for the quarter increased by 7.8% despite a 4.3% decline in normalized pro forma sale. This improvement was driven by a combination of cost reduction, restructuring, production efficiency improvements, a record aftermarket parts sales quarter for Power Systems and lower input costs as a result of supply chain optimization. Total pro forma sales for the quarter increased by 2.8% and pro forma adjusted EBITDA increased by 3.1%. The market environment in the second quarter as summarized on slide five can be characterized as more of the same. We’ve seen negative year-over-year trends in many of our markets. Despite some recent positive trends, commodity prices in general remained down significantly versus the second quarter of 2015. And we have yet to see an increase…

Thank you, Steve. As Chris mentioned in the introduction, this quarter, we will continue to focus most of our remarks on pro forma results. The pro forma segment results that I will discuss are prepared as if GST had been reconsolidated on the basis described in our earnings release. It’s important to note that the pro forma results do not represent a projection of the financials as of the future date of reconsolidation. Also as a reminder, most of the difference between consolidated and pro forma segment information is in Sealing Products with only small differences in Engineered Products and Power Systems stemming from foreign operations of those segments included in GST’s foreign subsidiaries. Our pro forma second quarter results or sales of $352.3 million were up 2.8% from the same period of 2015. Net of divestitures, acquisitions contributed $25.3 million and foreign currency translation reduced sales by $900,000. Excluding the impact of these factors, pro forma sales for the quarter were 4.3% lower compared to a year ago. The organic sales decline was driven primarily by continued soft demand we’re facing in many of our end markets. And I will cover each segment in more detail in a moment. Pro forma gross profit for the quarter of a $126.8 million was 2.7% higher than in the second quarter of 2015 and pro forma gross profit margins remain constant at 36% year-over-year. Excluding the impact of the acquisitions made during the last year, which in aggregate have a lower margin profile, pro forma gross profit margin was 100 basis points higher for the quarter, reflecting improved results from previously completed restructuring actions, realized gains from recent cost control initiatives and lower input costs as a result of supply chain optimization. In total dollars, pro forma SG&A remained flat in the…

Thanks Milt. We’ll close with the discussion of the current market conditions and our outlook for the remainder of the year and then take questions. As we’ve described in the past, we do not have much visibility to future demand for most of our businesses, and the current volatility in global markets makes the industrial demand picture extremely difficult to forecast. Most of the markets that we serve have continued to show weakness and the strong dollar continues to affect our results. Only a few markets are showing signs of modest strength. It’s also important to note that the record aftermarket parts sales that we enjoyed in Power Systems during the second quarter are not sustainable for the rest of the year. The increase in shipments in the second quarter was a result of the convergence of marine vessel maintenance schedule orders received late last year and early this year. Our current order backlog suggests that aftermarket parts sales will be approximately at historical levels for the remainder of the year. We are now close enough [ph] to the end of the year that our backlog, order trends and customer feedback give us some level of confidence in providing the following guidance. We expect pro forma sales to be roughly flat on a currency neutral basis with the growth attributable to acquisitions completed since early 2015 offset by general market-related weakness. Excluding the cost associated with the AVL Powertrain Engineering lawsuit that we discussed last quarter, we expect flat to low single-digit decline in pro forma adjusted EBITDA compared to 2015. Both pro forma sales and pro forma adjusted EBITDA assume constant currency for the rest of the year. I want to emphasize that market developments and company performance could cause our results to deviate either positively or negatively relative to this guidance. Now, we will open the line for your questions.

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

Yes. Hi, this is Dan filling in for Ian. Thanks for giving me the opportunity to ask a question. In terms of the oiler contract, can you just give a better sense as to what that might mean for EBITDA going forward and ultimately how that will affect some defense related businesses? Thank you.

Yes. Hi Dan, it’s Milt. One of the things important to note as Steve mentioned, this is a significant win for us. We’re very, very excited about it. It is spread out over a long period of time. It’s expected to be 17 ships over 17 years, so roughly one per year, if you look at it with our order -- contracts that have in hand and approximately $13 million in revenue. It will have a modest impact as we look year-to-year, but it’s a very important win as it does help solidify as evident as evident our position with the U.S. Navy. Our experience with new programs is that we typically see with a learning curve a ramp up in margins as we go from the early engines in a program to the later engines in a program, and we would expect the same to be here. So, typically would see gross margins in the half, single-digit to low double-digit range initially and then with some ramp up over time. So, that’s a little bit of guide and hopefully that helps you put this in perspective.

Great, thank you. And just a follow-up, given where the stock price is and clearly a good quarter, any thoughts on capital allocation and buybacks and how that might look going forward?

We’re committed to continuing with our $50 million authorization that the Board placed, we’re roughly half way through with that. We think that’s working well. We’re dollar cost averaging as we go with and we’re doing it in a methodical way without we have to go and see in the market. So, we’re committed to continuing that. And then we will sit back with the Board and have discussions at the end of that program based on our balance sheet at the time and other opportunities we have for investments, keeping this balanced capital allocation strategy as our foundation and see what makes sense at that time.

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

So, on the sealing business and I guess just looking at the legacy sealing ex-GST, you guys put up your best margin quarter since 2013, really against the backdrop of declining sales. So, I just want to understand better what changed 1Q to 2Q to kind of drive that 500 basis points of margin improvement sequentially.

So, Jeff, your question is if you look at it on a consolidated basis as opposed to pro forma basis, there are couple of things. If you look at the lines of volume, big part of the volume weakness we had in the quarter came from GST, which, so you see a more significant year-over-year change in volume when you look at pro forma than if you look at consolidated. But we had a pretty strong -- we’ve had a bright spot in the pipeline part of the Garlock, so parts business part of our consolidated results, the midstream oil and gas business, the project work has been stronger on a year-over-year basis. So, we’re benefiting from that. Granted, we did have a reduction in overall volume. We worked hard, as you know, on cost containment. And while most of our restructuring to-date, at least until the recent initiatives were focused on Engineered Products, we have had some restructuring activities in Sealing Products. And so, we’re seeing the benefit of that. We did have one item where we benefited in the quarter this year from a settlement we received on a product patent infringement case that we were defending, we were pursuing actually, because the TrailerTail business that we acquired, we had a competitor in the marketplace who was infringing on our technology. And we did realize a settlement in conjunction with that case in the quarter. And while I don’t have the kind of the impact of what that would be on a consolidated basis on margins, if you look at the pro forma margin expansion for the quarter of about 120 basis points that affected, about a third of that pick-up in margin expansion was related to this patent infringement outcome.

Okay. That’s helpful. And then, just back to power systems, you mentioned that the high mix of aftermarket, you kind of had a low first quarter on the margins. How should we be thinking about the margin trajectory in that business into the back half?

Well, Steve mentioned we don’t expect the record parts month in quarter if we had to continue. So, we would expect the balance of the year for Power Systems on the parts side to be more in line with our typical average. So, given that, we’re not going to have the same mix in the second half of the year that we had -- certainly than we had in the second quarter. So, we would expect margins to be lower in the third and the fourth quarter than what you saw in the second quarter. So, it’s important when you’re looking at the model to keep that in mind.

I think there is also -- Jeff, we have really talked about this, so there is no way you would know or anybody. And it’s kind of so difficult to quantify, we really haven’t talked about it much. But the EDF contract is extremely demanding. They are the most demanding customer we’d ever serve. And as you know, we’ve sold a lot of engines over the years, both to the U.S. Navy and to the domestic nuclear power industry but EDF really sets the global standard, to be honest with you, for rigor around the procedures and inspections and all the documentation required to put together in engine reliably, far exceeded our organizational capability to do that in the beginning. And so, as we have been working hard to deliver the first actual production unit for EDF, it has really been a significant drain on the organizational resource at Fairbanks. Probably -- I would take it back to the second half of last year and really through the first half of this year, and it’s kind of -- we’re now looking where that engine has either shipped or is going to shift in another day or two, but it’s ready to go, EDF has approved it so forth and so on. So, we have been really climbing up a very steep learning curve at Fairbanks. And that has -- while again it’s not necessarily -- it kind of affects the whole the shop because it affects the organization and puts stress on the organization. So, I am really hopeful that -- and then of course on top of that -- actually do know about which is we’ve made all this currency issue with respect to EDF and having to do the full contract accounting with any time the damn currency…

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

My first question, I just wanted to ask you relative to some of your comments, Milt, regarding the multiple that you’re getting on the stock and relative to sort of your thinking on the consolidation with GST over the next year and such. Just wondering what if at all risks are there with ACRP?

Well, let me address that Joe, I’m closer to Milt. Now that the judge has issued the order approving the disclosure statement, the voting procedures and so forth and setting the date, at this point, the major risk would be, if we had a third-party that came out of somewhere and tried to enter this case as an objector and they would have to do that also by the end of the year essentially to be valid. Now nobody’s done that yet. We’ve gotten no indication that anyone would do that. And in past cases, W.R. Grace is the perfect example; there were a number of legitimate objectors in that final confirmation including us, including Garlock as well as the city of Libby, Montana and many, many others that were impacted by the Grace settlement. And during that time, the District Court essentially through all those objectors out basically said were confirm this plan, including us that said Garlock didn’t have standing in the case. And so, our view, our legal team view is at this point for an objector to come in -- first of all, we don’t see where they would come -- a lot of time, an insurance company that comes in and objects to these things but in our case, we don’t anticipate that based on where we stand with our insurance companies. And there is really no other debtors involved in this thing, or there is no other -- we don’t owe anybody else anything. So, there is no -- it’s really not, there is no other contingent party I guess I should say. And if somebody did come in, they would be coming in so late in the game, there has been so much work done on case as you know, it’s been going…

Okay, great. Thanks. That’s very helpful. Thanks. Regarding the $20 million of restructuring, I was just wondering if you could -- if you could quantify, that’d be great, but at least may be you could steer some in the right direction of the weighting of where that’s hitting amongst the three segments and the corporate line?

Hold on, let’s get it. That’s a good question. We hadn’t anticipated that Josh.

We’ve -- I can give you kind of a rough approximation.

And while you’re looking for that, was there any restructuring being done in the second quarter that you didn’t realize fully the benefit from other than this new $20 million of…

No, I think the vast majority of restructuring from programs that we’ve been working on like the CPI deal, the DGP deal we talked about, other ongoing cost reductions in Garlock, and so forth and so on. You would see pretty much the full benefit of that in Q2. So that’s been likewise on the $20 million, we actually implemented the actions. Our goal was to get as much of it done and in place by the end of June as we could. And so, the lion’s shares of the action by far are in place. But the benefits didn’t have been and frankly won’t be fully in place even in Q3; that will be through the end of Q4. As you know, when we do restructuring in the European markets and other locations where we operate, A, it’s more expensive and B, it takes a longer time, there is more of the legal process to go through, it takes more time to get it done in Europe. And so that’s really what will cause it to spill into Q3 and to Q4 in terms of the restructuring charge that Milt indicated.

Right.

Yes. So none of the 20 event but -- and that 20 is on a run rate basis, in Q3 I would guess we’ll see 70%, is that Ken?

70% to 80%

70% to 80% of it, and in Q4 probably 90% or maybe higher in Q4.

But what remains -- this is Ken, Joe, what remains is really the European piece. All the other actions have been completed. So, it’s really just working through the European parts of our business, which is GGB and CPI most part.

Okay, assuming you’re still…

I can give it to you kind of roughly. This is directional. Now, we’ll see a big chunk of it, 45% roughly somewhere in that range in sealing and engineered roughly 20%, roughly 20% in Power Systems, a little bit more than that; and there is 14% or 15% of that amount corporate office.

Okay.

So, that’s 100 but that’s almost [multiple speakers] good number.

It’s good enough. Thank you. Lastly, I wanted to ask you regarding sort of the year-over-year comps in terms of revenue for the Sealing and Engineered Products segment. Just wondering, I mean, I know the comps do get a little easier in the back half of the year but then you’re also talking about how maybe heavy duty trucking, it seems like a little weaker sequentially in sealing. So, I’m just trying to get an idea of how you’re thinking about revenue in the back half of the year in terms of the year-over-year comps, mainly at the sealing Segment and Engineered Products segment. Because it seemed like in the Sealing segment, things did get worse sequentially year-over-year at sealing as well as I guess Engineered Products. But do they get better, do the year-over-year comps get better in the back half or how are you thinking about that?

Well, this is all on a pro forma basis. I think if you look in the second half of the year what we expect to see this year, compared to the second half of last year, we’re going to be down; our volume is going to be down. It will be some of the same factors that we’ve discussed this year. Because remember the second quarter of last year, we were starting to see weakness in our markets. And so, in the second quarter this year, even though Q2 we saw some further deterioration, as we’ve been talking about throughout this year. So, I expect we’re going to see that. And I believe a chunk of it will be in heavy duty, because some of the trends we’re seeing there, but we’ll see. So that’s Sealing. And then Engineered, we believe we will be maybe flat to slightly down compared to the year ago. And the dynamics are just a little bit different in that segment versus Sealing. So, that’s general direction there.

Okay. That’s exactly what I was wondering. Thank you. Appreciate it for taking my questions.

Your next question comes from the line of Justin Bergner of Gabelli & Company. Your line is open.

Good morning and thank you all for taking my questions following a pretty good quarter. First question, I have a couple of quick questions here. Within your pro forma Sealing Products business, it might be helpful just to remind us the breakdown within oil and gas between upstream, midstream and downstream?

There is not much upstream and there is certainly not much left I mean. We had some product lines that we sold into upstream that I mean is off over 50% from its peak year and a half ago. So, I think the amount that we have left in upstream has got to be fairly negligible for the segment. And then I would say kind midstream and versus downstream, I would still say it’s kind of 50-50.

Our overall direct oil and gas exposure for the company is roughly 12% or 13%. And I don’t Ken or Steve, I don’t have a data in front of me at it. Justin, you can follow-up with either me or Chris after the call and we can give you what that percentage of exposure is specifically for the Sealing Products segment. I just don’t have it front of me right now.

Yes, I have given you my estimate Justin for Sealing Products because in Engineered Products, it’s call CPI and that is probably more 40% midstream and 80% downstream.

Okay. That’s helpful. Thank you. Different dynamics for different parts of the oil and gas market these days.

No question.

I know that you don’t want to specifically quantify what the raw material sort of benefit was to the second quarter Sealing Products margins. But when we look at sort of the first quarter and the second quarter combined on a first half basis, is it sort of safe to assume that the margin level in Sealing Products will look similar in the second half to the first half?

Yes, it’s a reasonable; I think that’s a reasonable estimate.

Okay, great. And then switching to Power Systems, do any of the businesses in this new contract plan existing business in your Fairbanks Morse business or is this all incremental?

You’re talking about the new engine, the T-AO program?

Yes, the new engine contract.

No, it’s all replaced. I mean we benefited in -- if you go back to the period of let’s call it 2008, 2009, 2010, 2011, 2012 we benefitted by large wave of engines, new engine builds for the Navy. They were building a lot of ships, and then we I think we shared with folks that have been following us for over -- consistently over a long period of time that kind of -- we were going to have a loll and a significant loll in new ship for the Navy engines in the 2015, 2016, 2017 kind of window, really 2016 and 2017 primarily. And that in fact -- I mean we saw that coming because of the next wave of new engine -- new ship programs that the Navy was working on like the T-AO program, like the LXR program and others. And the new offshore control [ph] covers with the Coast Guard and so forth, are all things we’re working on, we obviously won the T-AO program. But those -- that’s the next wave of government shifts that will happen beginning kind of in 2017, 2018, 2019 in that time period. So, it’s important for us to win these programs, to have that base of that we have enjoyed in the past. Obviously, we have the aftermarket parts benefit for all the engines that we put in the field in the earlier in the timeframe that I mentioned right. But the way, the nature of this business works in the government is we get on a work, and how remaining -- typically, how remaining ships are built in that program, they don’t redesign the ship and engine and power propulsion system for everyday, just build multiple ships that are the same configuration. So, once you are in the program, you pretty much stay on the program through the life of it. But once the program is over, that’s it, the volume’s gone and you’ve got to win the next one that follows on behind it. And that of course is lumpy; it’s not a constant that Navy is going to spend so much on -- the Navy budget remains relatively constant. But how much of that money is on new ships and what of ships and whether the ships take our engines or not at all up in the air. So, I would say all of the Navy stuff will be replacement, depending on what periods you look at. Obviously, it’s new and incremental relative to last year and where we are today.

I think Steve said this, but I want to reiterate one point, it goes back to Dan’s comment earlier, question earlier about the profitability impact. When we win the programs, we are really seeding the future aftermarket and that is -- that mark will have in future years a significant impact on our business and profitability.

Great. Thank you for that perspective. One more, which I think will be a benefit to people on the call, and then I’ll follow-up offline with respect to other questions. But you mentioned that the guidance for 2016 excludes the legal costs associated with the Power Systems lawsuit. I just want to verify that was the case and understand where those costs show up in your financial reporting?

Yes. That was in our segment results in Q1 and it was about $2.7 million charge that we recognized in conjunction with that, and that was in Power Systems.

Okay. And there won’t be further charges as the year progresses?

Not related to that, none that we know about, Justin. There is always the stuff that we don’t know about but that we don’t see anything on the horizon.

And the reason we separated that out is because we are referring to adjusted EBITDA. And as you know, we don’t just out for these legal things, even though that was a big one, we know from what we see things of that size. But we wanted to stay consistent with how we’ve always reported adjusted EBITDA, which only adjusts really for restructuring and the legacy environmental stuff and discontinued ops related things. So that’s why we called that out special to be consistent, because it’s not normally in the adjustments we make.

And there are no further questions at this time. I’ll turn the call back over to Mr. O’Neal. Chris O’Neal: Thank you, Kelly. And thank you all for joining us this morning. If you have any additional questions, please give me a call at 704-731-1527. Have a good day.