Annual Report to Shareholders
Major Accomplishments in 2020
Reshaping our portfolio of businesses through a series of divestitures and a
strategic acquisition to reposition EnPro towards more durable businesses that
serve faster growing markets and generate higher margins and cash flow
Expanding adjusted EBITDA margin by 170 bps to 15.7% and growing adjusted
diluted earnings per share to $4.07, or 4.4% as compared to 2019, despite the
ongoing impact of COVID-19 on the broader global economy and a resulting
sales decline of 10.9% to $1.1 billion
Maintaining a strong balance sheet with net debt to adjusted EBITDA of 1.6x and
ample liquidity consisting of $230M cash and an undrawn revolver with $389M
available at the end of December
Reaffirming our dedication to an inclusive and diverse workforce as evidenced
by a 10% increase in female promotions in the U.S. since January 2019 and a five-
percentage point increase in female and minority representation on our senior
leadership team since December 2019 to 35%
Achieving the safest year in the history of our company as measured by medical
treatment case rates
Adhering to our values of Safety, Excellence, and Respect as we navigated the
COVID-19 pandemic and responded to systemic inequality and racism, including
hosting 32 weekly sessions open to all employees globally that provided a
platform for small groups to talk openly about biases, belief systems, and the
importance of valuing different perspectives
Establishing the EnPro Foundation with an initial commitment of $1 million in
support of education, equality, diversity, and the preservation of human dignity
To Our
Shareholders
Marvin A. Riley
President and
Chief Executive Officer
For EnPro, 2020 was a defining year marked by resilience,
agility, and achievement as we honored our deep commitment
to our stakeholders. We focused relentlessly on keeping our
employees safe during the unprecedented COVID-19 pandemic
while reshaping our portfolio to transform EnPro into a leading
industrial technology company using materials science to
push boundaries in semiconductor, life sciences, and other
technology enabled sectors. Despite considerable headwinds
and challenges, we have demonstrated an unmatched level of
engagement, focus, and execution.
2020 BUSINESS REVIEW
At EnPro, our primary objective is to allocate capital in a
way that drives long-term value creation and shareholder
returns. We use this lens to make all decisions and judge
our success in managing business operations. We seek to
maximize financial returns, generate cash, and minimize
waste. This approach also guided how we reshaped our
business portfolio and made operational decisions during
the COVID-19 pandemic.
2020 was a year of continuing transformation, build-
ing upon actions begun in 2019 to reposition our port-
folio while supporting our overall business strategy and
successfully navigating the challenges created by the
COVID-19 pandemic.
At the onset of the pandemic, we rapidly redesigned
manufacturing processes and developed a number of
enhanced safety practices across the company so teams
could conduct their work safely. We quickly procured
personal protective equipment, and our supply chain
remains a notable strength with no significant disrup-
tions throughout 2020. Early in the year, we enacted our
Working Together from Anywhere initiative, which enabled
us to respond with agility and continue working collab-
oratively in a socially distanced environment. Given the
success of this initiative, we will continue to work this way
through year-end 2021, and beyond where it makes sense
to do so. As the pandemic is brought under control and
markets recover, the structural improvements to our cost
base, productivity, supply chain, and portfolio in 2020
position us for success in the years ahead.
2020 ANNUAL REPORT |
1
| ENPRO INDUSTRIES, INC.
Our
Strategy
EnPro Is a Leading Industrial Technology
Company Using Materials Science to Push
Boundaries in Semiconductor, Life Sciences,
and Other Technology-Enabled Sectors
Focusing on niche, high-margin materials-science-related businesses
with strong cash flow
Maintaining our high aftermarket exposure and investing in faster
growth end markets
Leveraging the EnPro Capability Center to increase margins and cash
flow return on investment
Maximizing long-term shareholder returns through commitment to
disciplined capital allocation
Our focus on our strategic objectives led to adjusted EBITDA
margin expansion of approximately 170 basis points for
the year, in the face of the ongoing impact of COVID-19
on the broader global economy and a resulting sales
decline of 10.9% to $1.1 billion. Growth in semiconductor, food
and pharma, and power generation, including contribu-
tions from the acquisitions of LeanTeq, The Aseptic Group,
and Alluxa, was more than offset by market weaknesses
driven by the global COVID-19 pandemic, including in
the general industrial, oil and gas, heavy-duty truck,
aerospace, and automotive markets. Our sales decline
also reflected business divestitures during the year as
we continued to reshape our portfolio.
Over the past 18 months, we identified several businesses
that did not align with our strategic objectives. As a result,
we have taken actions to reposition our portfolio toward
more durable businesses that serve faster-growing markets
and generate higher returns on invested capital.
Fairbanks Morse was our largest divestiture in 2020. This
business manufactures large, complex power systems,
primarily for the U.S. Navy. In January 2020, we sold the
division for $450 million in cash and used the net proceeds
to pay down our revolving credit facility and provide
liquidity for strategic investments such as the fourth-
quarter acquisition of Alluxa.
Our strategic review of the Sealing Technologies segment
resulted in several additional divestitures. In 2019, we
divested our brake shoe business and eliminated three
underperforming product lines. In 2020, we sold several
additional product lines, including the Motor Wheel,
Crewson, and Air Springs businesses. All these actions
reshaped the heavy-duty truck portion of our portfolio,
which is now focused on high-margin wheel-end sealing
systems and suspension components.
Within our Engineered Materials segment, in late November
2020 we completed the sale of GGB’s bushing block
business in Dieuze, France, to refocus the business on higher-
margin product lines. The purchaser plans to continue
operating this business, which is a positive outcome for
the employees and customers of that business.
2020 ANNUAL REPORT |
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| ENPRO INDUSTRIES, INC.
Divestitures
Completed in 2020
Fairbanks Morse
division » JANUARY 21
Assets related to
STEMCO’s Motor
Wheel® and Crewson®
businesses » SEPTEMBER 2
STEMCO’s
Air Springs business
unit » NOVEMBER 20
GGB’s bushing block
business » NOVEMBER 30
businesses acquired
in 2019 and 2020
3
JULY, 2019
OCTOBER, 2020
SEPTEMBER, 2019
In addition to streamlining our business portfolio, we
continue to prioritize attractive acquisitions, as well as
continued organic investments in commercial excellence,
operations, and innovation.
semiconductor markets. Alluxa strengthens EnPro’s exist-
ing thin-film product offerings by focusing on challenging
applications in high-growth technology markets.
refurbishment services
In 2019, we acquired LeanTeq, a Taiwan-based business
for critical
that provides
components used
leading-edge semiconductor
equipment. Also, in 2019, we acquired The Aseptic Group,
which designs, manufactures, and distributes aseptic
fluid transfer products to support manufacturing of
the world’s
next-generation biopharmaceuticals by
largest pharma companies.
in
All these transactions were consistent with our strategy to
focus our portfolio on materials-science-based businesses
with leading technologies, compelling margins, strong
cash flow, and high aftermarket exposure that serve
markets with favorable secular tailwinds. We will continue
to allocate capital, organically and inorganically, to drive
growth in businesses with these characteristics with
the goal of maximizing long-term shareholder returns
and will apply the EnPro Capability Center to enable
continuous improvement.
In October 2020, we completed the acquisition of Alluxa, a
leading provider of specialized optical filters and thin-film
coatings for the industrial technology, life sciences, and
2020 ANNUAL REPORT |
3
| ENPRO INDUSTRIES, INC.
In 2020, we also revised our reporting segments to align
cross-company technical and operational expertise for better
collaboration, performance measurement, and decision-making,
as well as increased transparency for investors.
Sealing
Technologies
Advanced
Surface
Technologies
Engineered
Materials
SAFEGUARDING
CRITICAL
ENVIRONMENTS
ADVANCING
PRECISION SERVICES
AND SOLUTIONS
ENABLING HIGH-
PERFORMANCE POLYMER
APPLICATIONS
OUR CORE VALUES
Our three core values of Safety, Excellence, and Respect
have been brought into sharp focus as, together, our
EnPro colleagues, customers, communities, and families
navigated the challenges of 2020. EnPro has
long
understood that keeping our workforce safe, always
striving for excellence, and respecting each other results
in a happier, more creative, and productive team.
Additionally, I want to make clear that EnPro stands against
racism and discrimination of any type, which violate our
core values and what we stand for as a company. Over
the last year, we took several concrete actions to increase
diversity and inclusion at EnPro, as articulated in our “EnPro
Standing Together” letter—and we’ll continue to do so.
We stand together in solidarity in response to systemic
2020 ANNUAL REPORT |
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| ENPRO INDUSTRIES, INC.
racism and social injustice and are committed to being
part of an enduring solution and creating real, sustainable
change, starting right here at EnPro.
Safety will always be our highest priority at EnPro. We have
worked hard to develop a world-class safety program
and culture. Our commitment to safety has resulted in our
being the only public company to have been recognized
on three separate occasions by EHS Today as “America’s
Safest Company.” 2020 was the safest year in the history
of our company as measured by medical treatment case
rates. Our goal is zero safety incidents, and we move closer
to that goal every year. We look out for each other’s safety,
all the time. Annually, our employees sign the EnPro Safety
Pledge to demonstrate their commitment to uphold safety
every day, in everything they do.
Excellence at EnPro refers to our drive to achieve world-
class performance through our actions as individuals and
as a team. We want all employees to think of themselves
as business owners. When our colleagues understand
their roles and importance to the company’s greater
success, they are empowered to contribute, advance their
skills and careers, and build a stronger company.
Respect for one another is fundamental to our mindset,
our behavior, and how we interact with each other and
customers every day. When we value each other, safety is
ensured, ideas flourish, success by everyone is celebrated,
and both customers and stakeholders benefit. There is
no limit to what we can accomplish when we share the
credit, recognize the inherent value in our co-workers, and
encourage colleagues to develop themselves while working
together to build a strong future for our company.
Employees make a commitment to safety each year
with the EnPro Safety Pledge
I pledge to personally be involved to create
an injury-free workplace. My dedication to
creating a safe workplace free of all injuries will
be absolute and clear through my actions.”
THE ENPRO OPERATING SYSTEM AND
CAPABILITY CENTER
We deploy our capabilities, which are based on lean
manufacturing concepts, across the company to improve
productivity, efficiency, and innovation, as well as drive
increased margins and cash flow return on investment by:
ALENT
T
STRATEGY
E X CELLENC
E
• Maintaining world-class standards
•
•
Empowering every employee to continually learn
and adopt an ownership-based mentality
Learning from others, contributing to others,
and ensuring companywide commitment and
accountability
At the center of the EnPro Operating System is the EnPro
Capability Center, which deploys internal experts in their
fields throughout the entire organization to share deep
knowledge, expertise, and best practices. This collab-
orative approach to problem solving and continuous
improvement is now fully integrated from the C-suite all
the way to the shop floor.
S
A
F
E
T
Y
O
P
E
R
A
T
I
O
N
S
2020 ANNUAL REPORT |
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| ENPRO INDUSTRIES, INC.
I
N
N
O
V
A
T
I
O
N
T
C
E
R E S P
C ELLEN CE
X
COM M E R C I A L E
SUSTAINABILITY AT ENPRO
At EnPro, we believe our enduring commitment to sustain-
ability will create long-term value for our stakeholders and
position our business for success in the future. Our approach
to sustainability is based in engaging team members
across departments and finding collaborative ways to
achieve our high standards for environmental, social, and
governance excellence—all guided by our core values of
Safety, Excellence, and Respect. We strive to create an
environment where all employees can flourish through
our forward-thinking Dual Bottom Line culture, where human
development is viewed as being equally important to
financial results. This Dual Bottom Line philosophy is the
backbone from which we operate.
Our senior leadership is committed to an inclusive and
diverse workforce as a core part of our talent strategy,
which is exemplified by our direct involvement in many
key Diversity and Inclusion initiatives. In 2020, our senior
leadership team delivered bias awareness training to
our global employee population and led several of our
platforms that foster an inclusive workplace.
Our talent acquisition practices further support our
commitment to an inclusive and diverse workforce. As a
result, our percentage of female promotions in the U.S.
has increased by 10% since January 2019. Female and
minority representation among our senior leadership
team has increased by five percentage points, to 35%,
since December 2019. During 2020, we hosted 32 weekly
“Courageous Conversations/Mid-Week Mindfulness
Sessions”, which were open to all employees globally
and provided a platform for small groups to talk openly
about biases, belief systems, and the importance of
valuing different perspectives. We host quarterly calls for
our employee resource groups, including Women@EnPro,
Women in Engineering, LGBTQ+, and Community of Color.
These platforms further create and promote spaces at
EnPro that encourage our colleagues to bring their whole
selves to work.
In 2020, we also established the EnPro Foundation with
an initial commitment of $1 million to support nonprofit
entities and initiatives focused on education, equality,
diversity, and preserving human dignity that provide
opportunities for individuals, particularly those who are
disadvantaged, to grow into their full potential. Through
the EnPro Foundation, we intend to create real and
sustainable change in our society while building on our
longstanding support of local communities.
Sustainability is also woven into our portfolio strategy. We
have divested certain carbon-intensive lines of business
and selectively disengaged with market sectors that are
highly carbon-intensive. We have acquired businesses
that are less carbon intensive and sell into less carbon
intensive markets. We are committed to diligently
exploring all opportunities to reduce our energy usage
and minimizing the resulting greenhouse gas emissions
wherever economically and technically feasible. Many
of our products, such as gaskets and seals, protect our
environment by helping to contain and prevent the release
of harmful substances. We also design, manufacture,
and sell numerous products that support the supply of
electricity from sustainable sources, including seals for
nuclear power plants and bearings that enable wind and
solar power.
In mid-2021, we plan to issue our next sustainability report
to update stakeholders on progress since our initial
comprehensive report in 2019. Our sustainability reports
highlight the ways our company cares for the people who
work with us, the communities in which we operate, and
the planet we all live on. We monitor data from our global
facilities and seek to improve our energy usage, greenhouse
gas emissions, water usage, and waste generation.
2021 OUTLOOK AND BEYOND
responders, grocery
While the past year was challenging, 2021 holds promise
for a brighter future. We have made dramatic strides
toward achieving our strategic objectives, reshaping our
portfolio of businesses, driving profitable growth, and
successfully navigating the pandemic. I sincerely thank
the heroes who have been on the front lines battling
the COVID-19 pandemic—the healthcare professionals,
emergency
store employees,
government officials, and our EnPro colleagues working
in our factories around the world. I am very proud of our
employees for adopting new ways of working and
enhanced safety practices while also taking concrete
steps to live EnPro’s values every day, including advancing
sustainability, giving back to our communities, and
addressing social issues. We will work hard to achieve
our performance, strategic, and sustainability goals in
2021 and beyond. As we seek to provide value to our stake-
holders, we appreciate your support and encouragement.
“For EnPro, 2020 was a defining
year marked by resilience,
agility, and achievement.”
Marvin A. Riley
President and Chief Executive Officer
2020 ANNUAL REPORT |
6
| ENPRO INDUSTRIES, INC.
The EnPro
Portfolio of Businesses
We revised our reporting segments in 2020 to align cross-company
technical and operational expertise for better collaboration,
performance measurement, and decision-making, as well as
increased transparency for investors.
SEALING TECHNOLOGIES: SAFEGUARDING CRITICAL ENVIRONMENTS
Composed of the Garlock, Stemco, and Technetics businesses, which leverage a high degree of materials science application
expertise, extensive proprietary knowledge, and deep customer relationships to create innovative sealing solutions
complemented by value-added systems integration.
Garlock consists of two companies: Garlock
Sealing Technologies and Garlock Hygienic
Technologies, which includes Rubber Fab
and The Aseptic Group. Together, they design,
manufacture, and sell a variety of sealing
products for critical applications.
Stemco designs, manufactures, and
sells commercial vehicle components
and systems, which primarily serve the
medium- and heavy-duty commercial
vehicle market.
Technetics Sealing designs, manufactures,
and sells high performance metal seals,
mechanical seals, elastomeric seals, sealing
systems & materials; polyetheretherketone
(PEEK) products and polytetrafluoroethylene
(PTFE) products for a variety of industries.
ADVANCED SURFACE TECHNOLOGIES: ADVANCING PRECISION SERVICES AND SOLUTIONS
Composed of the Technetics Semiconductor, LeanTeq, and Alluxa businesses, which utilize proprietary technologies,
processes, and capabilities with highly differentiated services and products to serve the most challenging applications
for semiconductor equipment, specialized optical filters, and thin-film coatings.
Technetics Semiconductor designs and
manufactures complex front-end wafer
processing sub-systems, new and
refurbished electrostatic chuck pedestals,
thin film coatings, and edge-welded metal
bellows for the semiconductor equipment
industry, as well the space, aerospace, and
defense markets.
LeanTeq provides cleaning, coating,
testing, refurbishment, and verification
services for critical components and
assemblies used in state-of-the-
art advanced node semiconductor
manufacturing equipment.
Alluxa uses proprietary technologies,
processes, and designs to manufacture
and sell specialized optical filters
and thin-film coatings for the most
challenging applications in the
industrial technology, life sciences, and
semiconductor markets.
ENGINEERED MATERIALS: ENABLING HIGH-PERFORMANCE POLYMER APPLICATIONS
Composed of the GGB and CPI businesses, which leverage their extensive global footprints and applications engineering
capabilities to solve customers’ most difficult challenges.
GGB designs, manufactures, and sells
self-lubricating, non-rolling, metal polymer,
engineered plastics, and fiber-reinforced
composite bearing products for a wide
variety of markets.
CPI designs, manufactures, sells, and
services components for reciprocating
compressors and engines, as well as
critical products used in oil and gas
applications.
2020 ANNUAL REPORT |
7
| ENPRO INDUSTRIES, INC.
INTENTIONALLY LEFT BLANK
Form 10-K
INTENTIONALLY LEFT BLANK
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-K
_____________________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-31225
_____________________________________________________
ENPRO INDUSTRIES, INC.
(Exact name of registrant, as specified in its charter)
_____________________________________________________
North Carolina
(State or other jurisdiction of incorporation)
5605 Carnegie Boulevard
Suite 500
Charlotte
North Carolina
(Address of principal executive offices)
01-0573945
(I.R.S. Employer Identification No.)
28209
(Zip Code)
(704) 731-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.01 par value
Trading Symbol(s)
NPO
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_____________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
☐
Accelerated filer
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes ý No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ý
The aggregate market value of voting and nonvoting common stock of the registrant held by non-affiliates of the registrant as of
June 30, 2020 was $1,009,608,894. As of February 19, 2021, there were 20,754,267 shares of common stock of the registrant
outstanding, which includes 181,826 shares of common stock held by a subsidiary of the registrant and accordingly are not
entitled to be voted.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the 2021 annual meeting of shareholders are incorporated by reference
into Part III.
TABLE OF CONTENTS
Page
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15
Item 16
Exhibits and Financial Statement Schedules
Form 10-K Summary
Exhibit Index
Signatures
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Balance Sheets
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
1
9
16
16
17
17
17
20
21
22
50
51
51
52
53
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INTENTIONALLY LEFT BLANK
ENPRO INDUSTRIES, INC.
PART I
ITEM 1.
BUSINESS
As used in this report, the terms “we,” “us,” “our,” “EnPro” and “Company” mean EnPro Industries, Inc. and its
subsidiaries (unless the context indicates another meaning). The term “common stock” means the common stock of EnPro
Industries, Inc., par value $0.01 per share.
Background
We were incorporated under the laws of the State of North Carolina on January 11, 2002, as a wholly owned subsidiary
of Goodrich Corporation (“Goodrich”). The incorporation was in anticipation of Goodrich’s announced distribution of its
Engineered Industrial Products segment to existing Goodrich shareholders. The distribution took place on May 31, 2002.
Today, we are a leader in designing, developing, manufacturing, servicing, and marketing proprietary engineered
industrial products and serve a wide variety of customers in varied industries around the world. Over the past year and a half,
we have executed several strategic initiatives to change the portfolio of businesses that we operate to focus on materials
science-based businesses with leading technologies, compelling margins, strong cash flow, and high levels of recurring revenue
that serve markets with favorable secular tailwinds. These initiatives, described in “Acquisitions” and “Dispositions” below,
have increased our ability to provide solutions to the semiconductor, life sciences, and other technology industries. As of
December 31, 2020, our continuing operations had 45 primary manufacturing and service facilities located in 13 countries,
including the United States.
Our sales from continuing operations by geographic region in 2020, 2019 and 2018 were as follows:
United States
Europe
Other
Total
2020
2019
(in millions)
2018
$
$
555.7 $
244.2
274.1
1,074.0 $
630.2 $
301.2
274.3
1,205.7 $
736.2
278.6
259.3
1,274.1
We maintain an Internet website at www.enproindustries.com. We will make this annual report, in addition to our other
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports,
available free of charge on our website as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission (the "SEC"). Our Corporate Governance Guidelines and the charters for
each of our Board Committees (Audit and Risk Management, Compensation and Human Resources, Executive, and
Nominating and Corporate Governance committees) are also available on our website, and copies of this information are
available in print to any shareholder who requests it. Information included on or linked to our website is not incorporated by
reference into this annual report.
Acquisitions
On October 26, 2020, a subsidiary of EnPro formed for this purpose (the "Alluxa Acquisition Subsidiary") acquired all of
the equity securities of Alluxa, Inc. ("Alluxa"), a privately held, California-based company. Alluxa is an industrial technology
company that provides specialized optical filters and thin-film coatings for the most challenging applications in the industrial
technology, life sciences, and semiconductor markets. Alluxa's products are developed through a proprietary coating process
using state-of-the-art advanced equipment. Alluxa is included as part of the Advanced Surface Technologies segment.
Alluxa works in collaboration with customers across major end markets to provide customized, complex precision coating
solutions through its specialized technology platform and proprietary processes. Alluxa has long-standing customer
relationships across its diversified customer base, serving customers across the Americas, Europe, and Asia. Founded in 2007,
Alluxa has two locations in California and is headquartered in Santa Rosa, California.
The cash purchase price of Alluxa was $238.4 million, net of cash acquired. We funded the purchase with available cash
and rollover equity from Alluxa executives. In connection with the completion of the transaction, we entered into a limited
liability operating agreement with respect to the Alluxa Acquisition Subsidiary in connection with the rollover transaction, with
1
three equity owners of Alluxa, who were also executives of Alluxa, receiving approximately 7% of the equity interests of the
Alluxa Acquisition Subsidiary in return for their contribution of the rollover shares of Alluxa.
In September 2019, Lunar Investment LLC ("Lunar"), a subsidiary of EnPro, acquired all of the equity securities of
LeanTeq Co, LTD. and its affiliate LeanTeq LLC (collectively referred to as "LeanTeq"). As part of the transaction, two of the
equity owners of LeanTeq, who were executives of the acquired entity (the "LeanTeq Executives"), acquired approximately a
10% ownership share of Lunar in the form of rollover equity. Founded in 2011 and headquartered in Taoyuan City, Taiwan,
LeanTeq has two locations in Taiwan and one in the United States (Silicon Valley). LeanTeq primarily provides refurbishment
services for critical components and assemblies used in state-of-the-art semiconductor manufacturing equipment. This
equipment is used to produce technologically advanced microchips for smartphones, autonomous vehicles, high-speed wireless
connectivity, artificial intelligence, and other leading-edge applications. LeanTeq partners closely with original equipment
manufacturers throughout the development and production lifecycle to achieve Process of Record qualifications, enabling long-
term, recurring aftermarket revenue. Aftermarket refurbishment services have historically represented approximately 65% of
LeanTeq's total sales. LeanTeq’s suite of services includes cleaning, coating, analytical testing, inspection and verification, kit
assembly, failure analysis, and other value-added services. LeanTeq is included as part of our Advanced Surface Technologies
segment.
In July 2019, we acquired 100% of the stock of The Aseptic Group (comprising Aseptic Process Equipment SAS and
Aseptic Services SARL, collectively referred to as “Aseptic”), a privately-held company which distributes, designs and
manufactures aseptic fluid transfer products for the pharmaceutical and biopharmaceutical industries. Aseptic, headquartered in
Limonest, France, is included as part of our Garlock division within the Sealing Technologies segment.
The combined purchase price of the LeanTeq and The Aseptic Group acquisitions was approximately $338.5 million, net
of cash acquired and including the equity rollover from the LeanTeq Executives.
Dispositions
On December 31, 2020, we sold the shares of Technetics Group UK Limited ("Technetics Group UK") for a nominal cash
purchase price. As part of the agreement with the buyer, we delivered to the buyer £148,000 of cash to fund value added tax
("VAT") payments due for VAT liabilities already incurred and £50,000 for working capital. We incurred a loss upon the sale
of approximately £976,000 ($1.3 million).
On November 30, 2020, we closed on the sale of our bushing block business of our Engineered Materials segment
principally located in Dieuze, France. The products of the bushing block business were sold into general industrial and
automotive markets. Prior to finalizing the sale of the business, we determined the assets to be impaired and recorded a $6.2
million impairment charge in the third quarter that consisted of $1.8 million of non-cash impairments of long-lived assets and
$4.4 million of cash payments due to the buyer at closing. The impairment charge was recorded in other operating expenses on
our consolidated statement of operations. Upon closing of the business, we recorded a $0.1 million gain on the sale of business
in other non-operating expense on our consolidated statement of operations. Total charges related to the exit of our bushing
block business were $6.1 million.
On November 20, 2020, we completed the sale of the Air Springs portion of our heavy-duty trucking business for $23.1
million in cash, net of an estimated working capital adjustment and fees, and a long-term promissory note with a fair-value of
$6.4 million (face value of $7.5 million). As part of the agreement with the buyer, we retained the U.S. accounts receivable for
the business, which created a large working capital adjustment at closing. The amount of retained accounts receivable in the
U.S. was approximately $8.6 million, of which approximately $2.0 million was outstanding at December 31, 2020. The
purchase price is subject to final working capital adjustments. In the fourth quarter, we recorded a $0.1 million non-cash loss on
sale of business to in the fourth quarter of 2020.
In August of 2020, subsequent to announcing the exit of our Motor Wheel® brake drum and Crewson® brake adjuster
brands in the second quarter of 2020, we identified a buyer and entered into a definitive agreement to sell the assets related to
the businesses. On September 2, 2020, we completed the sale for $8.9 million, net of transaction fees. This transaction resulted
in a $3.1 million loss on sale of the business in other non-operating expense on our consolidated statements of operations,
composed of a $3.0 million non-cash loss on the sales of assets and a $0.1 million loss on other expenses. Prior to finding a
buyer of the brands, we determined the assets were impaired and recorded restructuring and impairment charges of $7.4 million
in other operating expenses on our consolidated statements of operations. Total losses on the exit of our Motor Wheel® brake
drum and Crewson® brake adjuster brands recorded in 2020 were $10.5 million.
In the second quarter of 2020 we entered into an agreement to sell the Lunar® air disc brake business located in both the
U.S. and in Shanghai, China. The sale of the U.S. assets of the business closed in the third quarter of 2020 for $0.3 million,
resulting in a gain of $0.2 million recorded in non-operating income on our consolidated statement of operations. The sale of
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the Lunar® manufacturing facility located in Shanghai, China closed in the fourth quarter of 2020 for $0.9 million, resulting in
no gain or loss. Prior to closing on the sale of the business, we determined the assets to be impaired and recorded a $2.1 million
impairment charge, of which $1.6 million was related to impairment of long-lived assets and $0.5 million related to the
impairment of inventory. The impairment of long-lived assets was recorded in other operating expense and the impairment of
inventory was recorded in cost of sales on our consolidated statement of operations. Total net loss related to the exit of the
Lunar® air disc brake business was $1.9 million.
On December 12, 2019, certain of our subsidiaries entered into a Membership Interest Purchase Agreement with Arcline
FM Holdings, LLC (“Arcline FM Holdings”), an affiliate of Arcline Investment Management, LP, pursuant to which we sold
all of the outstanding equity interests in our indirect subsidiary, Fairbanks Morse, LLC (“Fairbanks Morse”), to Arcline FM
Holdings and caused one of our subsidiaries to sell certain related Canadian assets to an affiliate of Arcline FM Holdings, for an
aggregate sales price of $450 million. This divestiture transaction was completed on January 21, 2020. Fairbanks Morse
manufactured heavy-duty, medium-speed reciprocating engines used primarily in marine and power generation applications and
comprised our entire Power Systems segment. In light of the entry into the definitive agreement in December 2019 to divest
Fairbanks Morse, we classified the Power Systems segment as a discontinued operation for the fourth quarter and full year
2019, and all prior quarterly and annual financial results of EnPro have been recast to reflect the Power Systems segment as a
discontinued operation. Unless otherwise indicated, amounts provided in Part I pertain to continuing operations only (see Note
2 to our Consolidated Financial Statements in this Form 10-K for information on discontinued operations and the disposition of
Fairbanks Morse). We recorded a pretax gain of $274.3 million in the first quarter of 2020 as a result of this transaction.
In September 2019, we sold certain assets and certain liabilities of our brake products business unit located in Rome,
Georgia, which was included in our Sealing Technologies segment. The aggregate sales price for the transaction was $6.8
million, of which we received $3.6 million in September 2019 at the closing of the sale of the business and $0.1 million in the
fourth quarter of 2019 that was applied to the sale of the building, which closed in February 2020. On the closing of the sale of
the building, we received $2.9 million and received the balance of $0.2 million in the fourth quarter of 2020.
In the second quarter of 2018, we commenced the exit from our industrial gas turbine business in the Sealing
Technologies segment located in Oxford, Massachusetts ("Technetics Group Oxford"). Technetics Group Oxford was a supplier
of components for industrial gas turbines. We sold the land and building at this location in June 2018, resulting in a realized
gain of $21.7 million. We incurred severance expenses of $3.8 million, net tangible asset write downs of $1.8 million, write-
offs of customer relationship intangible assets associated with the business of $19.1 million, and other costs related to the
restructuring of $0.5 million. The exit resulted in total net restructuring costs of $3.5 million.
After attempts to sell the ATDynamics business during the fourth quarter of 2019, in January 2020, we decided to shut
down the ATDynamics business, which manufactured aerodynamic products for the commercial trucking industry and was
included in the Stemco division of our Sealing Technologies segment. As a result of the unsuccessful sales process, we
reviewed the carrying amounts of long-lived assets at December 31, 2019 and determined the carrying amounts were not
recoverable. As a result of this assessment, we recorded a $2.6 million impairment loss in the fourth quarter of 2019. In
connection with the decision to shut down the business, we decided to not complete and sell the inventory we had on hand and
recognized an additional $1.5 million inventory impairment.
Operations
We manage our business as three segments: a Sealing Technologies segment, an Advanced Surface Technologies
segment and an Engineered Materials segment. Our reportable segments are managed separately based on differences in their
products and services and their end-customers. For financial information with respect to our business segments, see Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations,” and Note
19 to our Consolidated Financial Statements. Item 7 contains information about sales and profits for each segment, and Note 19
contains information about each segment’s sales by major end market, capital expenditures, depreciation and amortization, and
assets.
Sales by market for the year ended December 31, 2020 were as follows:
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Sealing Technologies Segment
Overview. Our Sealing Technologies segment includes three operating divisions, Garlock, Technetics and Stemco, that
serve a wide variety of industries where performance and durability are vital for safety and environmental protection. Our
products are used in many demanding environments, such as those characterized by high pressure, high temperature and
chemical corrosion, and many of our products support critical applications with a low tolerance for failure.
Garlock consists of two companies: Garlock Sealing Technologies and Garlock Hygienic Technologies, which includes
Rubber Fab and The Aseptic Group. Together, they design, manufacture and sell sealing products, including: single-use
hygienic seals, tubing, components and assemblies; metallic, non-metallic and composite material gaskets; dynamic seals;
compression packing; hydraulic components; expansion joints; and pipeline casing spacers/isolators.
Gasket products are used for sealing flange joints in chemical, petrochemical and pulp and paper processing facilities
where high pressures, high temperatures and corrosive chemicals create the need for specialized and highly engineered sealing
products. Our products are also used in sanitary markets such as food and beverage and pharmaceuticals where product
integrity and safety are extremely important. We sell these gasket products under the Garlock®, Gylon®, Blue-Gard®, Stress-
Saver®, Bio-Pro®, Tuf-Steel®, Detectomer®, LINK-SEAL®, and Flexseal® brand names. These products have a long-standing
reputation for performance and reliability within the industries we serve.
Dynamic elastomeric seals are used in rotating applications to contain the lubricants that protect the bearings from
excessive friction and heat generation. Because these sealing products are utilized in dynamic applications, they are subject to
wear. Durability, performance, and reliability are, therefore, critical requirements of our customers. These rotary seals are used
in demanding applications in the steel, mining and pulp and paper processing industries under well-known brand names
including Model 64®.
Compression packing is used to provide sealing in pressurized, static and dynamic applications such as pumps and valves.
Major markets for compression packing products are the pulp and paper, mining, petrochemical and hydrocarbon processing
industries. Branded products for these markets include EVSP™, Synthepak® and Graph-lock®.
Technetics Sealing designs, manufactures and sells high performance metal seals, mechanical seals, elastomeric seals,
edge-welded bellows, and a wide range of polytetrafluoroethylene (PTFE) products. These products are used in extreme
applications for a variety of industries, including semiconductor, aerospace, power generation, oil and gas, life sciences and
other markets. Brands include HELICOFLEX®, FELTMETAL™, TEXOLON®, CEFILAC GPA®, VITAFLEX®,
CEFIL'AIR®, and ORIGRAF®.
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Aerospace, 4.6%Automotive, 6.4%Chemical and MaterialProcessing, 9.0%Food and Pharmaceutical, 5.0%General Industrial, 22.0%Medium-Duty/Heavy-Duty Truck, 22.5%Oil and Gas, 8.1%Power Generation, 5.9%Semiconductors, 16.0%Other, 0.6% Stemco designs, manufactures and sells commercial vehicle components and systems including: preadjusted hub systems;
seals; hubcaps; mileage collection products; bearings; locking fasteners; suspension components, such as steering knuckle king-
pins and bushings, spring pins and bushings and other polymer bushing components. Its products primarily serve the medium
and heavy-duty commercial vehicle market. Product brands include STEMCO®, STEMCO Kaiser®, GritGuard®, Guardian
HP®, Voyager®, Discover®, Pro-Torq®, Zip-Torq®, Sentinel®, Defender™, DataTrac®, and QwikKit®.
Customers. Our Sealing Technologies segment sells products to industrial agents and distributors, original equipment
manufacturers (“OEMs”), engineering and construction firms and end users worldwide. Solutions are offered to a broad range
of global customers, with approximately 43% of sales delivered to customers outside the United States in 2020. Representative
customers include Saudi Aramco, Motion Industries, Applied Industrial Technologies, Electricite de France, AREVA, Bayer,
BASF Corporation, Chevron, General Electric Company, Georgia-Pacific Corporation, Eastman Chemical Company, Exxon
Mobil Corporation, Minara Resources, Queensland Alumina, AK Steel Corporation, Volvo Corporation, Wabash Trailer, Great
Dane Trailer, Mack Volvo Corporation, Daimler Corporation, PACCAR, Carlisle Interconnect Technologies, Schlumberger,
and Flextronics.
Competition. Competition in the markets we serve is based on proven product performance and reliability, as well as
price, customer service, application expertise, technical support, delivery terms, breadth of product offering, reputation for
quality, and the availability of product. Our leading brand names, including Garlock®, Technetics®, and STEMCO®, have been
built upon long-standing reputations for reliability and durability. In addition, the breadth, performance and quality of our
product offerings allow us to achieve premium pricing and have made us a preferred supplier among our agents and
distributors. We believe that our record of product performance in the major markets in which this segment operates is a
significant competitive advantage for us. Major competitors include A.W. Chesterton Company, Klinger Group, Teadit,
Lamons, SIEM/Flexitallic, SKF USA Inc., Consolidated Metco, Firestone, Saint-Gobain, Eaton Corporation, Parker Hannifin
Corporation, and Miropro Co. Ltd.
Raw Materials and Components. Our Sealing Technologies segment uses PTFE resins, aramid fibers, specialty
elastomers, elastomeric compounds, graphite and carbon, common and exotic metals, cold-rolled steel, leather, aluminum die
castings, nitrile rubber, powdered metal components, and various fibers and resins. We believe all of these raw materials and
components are readily available from various suppliers.
Advanced Surface Technologies Segment
Overview. The Advanced Surface Technologies segment includes three operating businesses, Technetics Semiconductor,
LeanTeq, and Alluxa, that apply proprietary technologies, processes, and capabilities to deliver highly differentiated suites of
products and services for the most challenging applications in high growth markets. Our products and services are used in
highly demanding environments requiring performance, precision and repeatability, with a low tolerance for failure.
Technetics Semiconductor designs and manufactures complex front-end wafer processing sub-systems, new and
refurbished electrostatic chuck pedestals, thin film coatings, and edge-welded metal bellows for the semiconductor equipment
industry. These capabilities are also leveraged for high reliability in critical applications for space, aerospace and defense
markets.
LeanTeq provides cleaning, coating, testing, refurbishment and verification services for critical components and
assemblies used in state-of-the-art advanced node semiconductor manufacturing equipment. LeanTeq offers highly
differentiated, proprietary, technology-enabled processes through a comprehensive service offering, market-leading process tool
expertise, and broad materials proficiency. These capabilities extend the service life cycle of parts and shorten the time for
cleaning of chamber components.
Alluxa manufactures specialized optical filters and thin-film coatings for the most challenging applications in the
industrial technology, life sciences, and semiconductor markets. Its products are developed through a proprietary coating
process using state-of-the-art, advanced equipment. Alluxa partners with customers across major end markets to provide
customized, complex precision coating solutions through Alluxa’s specialized technology platform and proprietary processes.
Customers. Our Advanced Surface Technologies segment sells products and services to original equipment
manufacturers (“OEMs”), industrial agents and distributors, and end users worldwide. Advanced Surface Technologies
products and services are offered to global customers, with approximately 31% of sales delivered to customers outside the
United States in 2020. Representative customers include leading global manufacturers of semiconductor manufacturing
equipment, such as Applied Materials and ASML, as well as manufacturers of equipment used in the life sciences and industrial
technology industries and government defense contractors. Due to consolidation in the semiconductor manufacturing equipment
industry, a small number of companies control a significant majority of the global production of semiconductor manufacturing
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equipment. As a result, the segment is dependent on certain key relationships with customers in that industry and the loss of one
or more of those key customers or other adverse changes in the segment’s relationships with those customers could have a
material adverse effect on our business, financial condition, results of operations and cash flows.
Competition. Competition in the markets we serve is based on proven performance and reliability, as well as price,
customer service, application expertise, technical support, delivery terms, breadth of product and service offerings, reputation
for quality, global footprint and the availability of products and services. Our leading brand names, including AlluxaTM,
LeanTeq™ and Belfab®, have been built upon long-standing reputations for high performance, reliability and repeatability. In
addition, the breadth, performance and quality of our product and service offerings have made us a preferred supplier among
our end users, OEMs, agents and distributors. We believe that our significant competitive advantages include our technological
knowledge, proprietary processes, manufacturing and analytical capabilities and record of performance, which enable us to
satisfy the substantial upfront qualification processes required by many of our customers. In the semiconductor cleaning space,
our competitors include a limited number of other providers of cleaning services, primarily in Taiwan, Japan, Korea and the
United States, with no provider having a dominant global market position. The optical coatings market is highly fragmented,
with numerous small competitors to Alluxa. Competitors of Technetics Semiconductor include Mirapro, FMI/NGK, KSM and
Senior Flexonics.
Raw Materials and Components. Our Advanced Surface Technologies segment uses ultra-high purity chemicals,
fluoropolymers, elastomeric compounds, technical ceramics, rare earth materials, specialty substrates, common and exotic
metals. We believe all of these raw materials and components are readily available from various suppliers.
Engineered Materials Segment
Overview. Our Engineered Materials segment includes two high performance engineered material businesses: GGB and
Compressor Products International (CPI).
GGB designs, manufactures and sells self-lubricating, non-rolling, metal polymer, engineered plastics, and fiber
reinforced composite bearing products. The bearing surfaces are often made of PTFE or a mixture that includes PTFE to
provide maintenance-free performance and reduced friction. GGB's bearing products typically perform as sleeve bearings or
thrust washers under conditions of no lubrication, minimal lubrication or pre-lubrication. These products are used in a wide
variety of markets such as the automotive, aerospace, pump and compressor, construction, power generation and general
industrial markets. GGB has approximately 12,000 bearing part numbers of different designs and physical dimensions. GGB is
a leading and well-recognized brand name and sells products under brand names including DU®, DP4®, DX®, DS™, HI-EX®,
EP®, SY™, HPMB®, and GAR-MAX® .
CPI designs, manufactures, sells and services components for reciprocating compressors and engines. These components,
which include packing and wiper rings, piston and rider rings, compressor valve assemblies, divider block valves, compressor
monitoring systems, lubrication systems and related components are utilized primarily in the refining, petrochemical, natural
gas gathering, storage and transmission, and general industrial markets. Brand names for our products include Hi-Flo™,
Valvealert™, EMISSIONGUARD™, ProFlo®, SAFEGUARD®, Neomag®, CVP®, XDC™, POPR®, Twin Ring™, Liard™
and Proven Solutions for the Global Compression Industry™. CPI includes the oil and gas component of Garlock Pipeline
Technologies, Inc.'s (GPT) business, which designs, manufactures, and sells critical service flange gaskets, seals and electrical
flange isolation kits used in high-pressure wellhead equipment, flow lines, water injection lines, sour hydrocarbon process
applications, and crude oil and natural gas pipeline/transmission line applications. GPT products are sold under brand names
including Evolution®, VCS®, VCFS®, VCXT®, PGE™, LineBacker®, Riser-Wrap®, ElectroStop®, ElectroSeal™, and
ElectroJoint®.
Customers. The Engineered Materials segment sells its products to a diverse customer base worldwide, with
approximately 72% of sales delivered to customers outside the United States in 2020. GGB has customers worldwide in all
major industrial sectors, and supplies products directly to customers through GGB’s own local distribution system and
indirectly to the market through independent agents and distributors. CPI sells its products and services globally through its
internal sales force, independent sales representatives, distributors, and service centers.
Competition. In the markets in which GGB competes, competition is based primarily on performance of the product for
specific applications, product reliability, delivery, and price. GGB’s competitors include Kolbenschmidt Pierburg AG, Saint-
Gobain’s Norglide division, and Federal-Mogul Corporation. In the markets served by CPI, the primary competitive drivers are
trusted solutions with personalized customer care, product quality, availability, engineering support, and price. CPI competes
against other component manufacturers and service providers, such as Cook Compression, Hoerbiger Corporation, Graco, and
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numerous smaller component manufacturers, and, with respect to GPT, other providers in the isolation market space, including
competitors that have endeavored to reverse-engineer GPT's products.
Raw Materials. GGB’s major raw material purchases include steel coil, bronze powder, bronze coil, PTFE and aluminum.
GGB sources components from a number of external suppliers. CPI’s major raw material purchases include PTFE,
polyetheretherketone (PEEK), compound additives, bronze, steel, and stainless steel bar stock. With respect to GPT, CPI also
purchases glass reinforced epoxy sheets, tubes and washers, fluoroelastomer, EPDM rubber, metallic E-ring seals and C-ring
seals, as well as proprietary coatings. We believe all of these raw materials and components are readily available from various
suppliers, though there are limited suppliers for certain other minor, but critical, raw materials.
Research and Development
The goal of our research and development effort is to strengthen our product portfolios for traditional markets while
simultaneously creating distinctive and breakthrough products and services. We utilize a process to move product and service
innovations from concept to commercialization, and to identify, analyze, develop and implement new product concepts and
opportunities aimed at business growth.
We employ scientists, engineers and technicians throughout our operations to develop, design and test new and improved
products. We work closely with our customers to identify issues and develop technical solutions. The majority of our research
and development spending typically is directed toward the development of new sealing products for the most demanding
environments, the development of technology to support the cleaning and refurbishment of process critical semiconductor
manufacturing equipment components, and the development of bearing products and materials with increased load carrying
capability and superior friction and wear.
Backlog
At December 31, 2020, we had a backlog of orders of continuing operations valued at $212.5 million compared with
$190.7 million at December 31, 2019. Approximately 6.1% of the backlog is expected to be filled beyond 2021. Backlog
represents orders on hand we believe to be firm. However, there is no certainty the backlog orders will result in actual sales at
the times or in the amounts ordered. Because of our short lead times and some seasonality, for most of our business backlog is
not a meaningful indicator of future performance.
Quality Assurance
We believe the quality of our products and services is among the most important factors in developing and maintaining
strong, long-term relationships with our customers. In order to meet the exacting requirements of our customers, we maintain
stringent standards of quality control. We routinely employ in-process inspection by using testing equipment as a process aid
during all stages of development, design and production to ensure product quality and reliability. These include state-of-the-art
CAD/CAM equipment, statistical process control systems, laser tracking devices, failure mode and effect analysis, and
coordinate measuring machines. We are able to extract numerical quality control data as a statistical measurement of the quality
of the parts being manufactured from our Computer Numerical Control ("CNC") machinery. In addition, we perform quality
control tests on parts that we outsource. As a result, we are able to significantly reduce the number of defective parts and
therefore improve efficiency, quality and reliability.
As of December 31, 2020, 37 of our manufacturing and service facilities were ISO 9000, QS 9000 and/or TS 16949
certified. Sixteen of our facilities are ISO 14001 certified. OEMs are increasingly requiring these standards in lieu of individual
certification procedures and as a condition of awarding business.
Patents, Trademarks and Other Intellectual Property
We maintain a number of patents and trademarks issued by the U.S. and other countries relating to the name and design
of our products and have granted licenses to some of these patents and trademarks. We routinely evaluate the need to protect
new and existing products through the patent and trademark systems in the U.S. and other countries. We also have unpatented
proprietary information, consisting of know-how and trade secrets relating to the design, manufacture and operation of our
products and their use. Except for proprietary formulations and know-how in our Advanced Surface Technologies segment, we
do not consider our business as a whole to be materially dependent on any particular patent, patent right, trademark, trade secret
or license granted or group of related patents, patent rights, trademarks, trade secrets or licenses granted.
In general, we are the owner of the rights to the products that we manufacture and sell. However, we also license certain
intellectual property from various entities. These licenses are subject to renewal and it is possible we may not successfully
7
renegotiate these licenses or they could be terminated in the event of a material breach. If this were to occur, our business,
financial condition, results of operations and cash flows could be adversely affected.
Human Capital
As of December 31, 2020, we had approximately 4,400 employees, of which approximately 55% are in North America,
28% in Europe, 16% in Asia Pacific, and 1% in South America.
Approximately 14% of our employees are members of trade unions. Union agreements relate, among other things, to
wages, hours, and conditions of employment.
We strive to create an environment where all employees can flourish. We are a dual bottom line company where human
development is viewed as being equally important to financial results. This "Dual Bottom Line" philosophy is the backbone
from which we operate. We believe human development leads to financial performance and the pursuit of financial
performance results in human development. Our core values of Safety, Excellence and Respect drive our focus on the way we
do business and care for our people.
Our culture is focused around four primary intentions: Deliberately Dual Bottom Line, Deliberately Doubling,
Deliberately Developmental and Deliberately Diverse. “Deliberately” underscores the importance and focus we place on these
intentions as our company evolves. As noted above, "Deliberately Dual Bottom Line" represents our commitment to helping
people learn to develop themselves as a co-equal goal to financial performance. “Deliberately Doubling” emphasizes our intent
to grow EnPro through innovative approaches that lead to significant customer benefits and positive returns for EnPro.
“Deliberately Developmental” describes our focus on using our daily work to help our employees develop themselves and
achieve their career goals. We foster a culture of learning and development because we believe that continuously improving
ourselves will lead to personal and company success. Finally, "Deliberately Diverse" underscores our belief that a diverse
workforce is critical to our success and we have increased our focus on growing an inclusive workplace.
Our senior leadership is committed to an inclusive and diverse workforce, which is exemplified by our CEO’s direct
involvement in many of our key Diversity and Inclusion ("D&I") initiatives. In 2020, our senior leadership team delivered bias
training to our global employee population and our CEO leads several of our platforms that foster an inclusive workplace. Our
talent acquisition practices further support our commitment to a diverse workforce. We require diverse candidate slates as well
as diverse interview panels and have implemented tools and structures to reduce bias during the interview and selection process.
As a result, our percentage of female promotions in the U.S. has increased by 10% since January 2019. Female and minority
representation among our senior leadership team has increased by 5% since December 2019. During calendar 2020, we hosted
32 weekly “Courageous Conversations/Mid-Week Mindfulness Sessions”, which are open to all employees globally. We host
quarterly calls for our employee resource groups, such as Women@EnPro, Women in Engineering, LGBTQ+ and community
of color employees. These platforms further create and promote spaces at EnPro that encourage our colleagues to bring their
whole selves to work.
As part of our commitment to our people, we provide a comprehensive compensation and benefits program that is
designed to attract and retain employees. Our programs are designed to meet the changing needs of our employees and their
families. In the U.S., this includes a company-wide minimum wage of $15 per hour, a 401k plan with company match, an
award-winning wellbeing program, flexible vacation and time off policies that include a new “take what you need” program for
salaried employees, enhanced employee assistance programs, paid family leave, tuition assistance, and comprehensive
healthcare benefits that includes medical, prescription drug, dental, life, disability, health savings accounts, flexible spending
accounts, critical illness, and accidental, death and dismemberment coverages.
We have demonstrated extreme care and compassion for our employees during the COVID-19 crisis. We delivered
programs that cared for our employee’s physical needs, while also implementing several initiatives that provided emotional
connection, and fostered psychological safety during these challenging times. The positive impact of our care, compassion and
flexible programs is demonstrated by our employee retention rates. In particular, the retention rate of women (in the United
States) at EnPro has remained the same over the past year, which is a remarkable achievement for a year in which hundreds of
thousands of women have left the U.S. workforce, disproportionately to men, due to impacts of the pandemic.
In connection with our commitment to promoting diversity and improving the communities where our employees live and
work, in 2020, we officially launched the EnPro Foundation to support charitable, educational, and other organizations working
to advance education, equality, diversity, and the preservation of human dignity. We have initially funded the foundation for $1
million.
Safety remains one of our three core values and we have worked hard to develop a world-class safety program and
culture. Our commitment to safety has resulted in our being the only public company to have been recognized on three separate
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occasions by EHS Today as “America’s Safest Company”. 2020 was the safest year in the history of our company as measured
by medical treatment case rates.
ITEM 1A.
RISK FACTORS
In addition to the risks stated elsewhere in this annual report, set forth below are certain risk factors that we believe are
material. If any of these risks occur, our business, financial condition, results of operations, cash flows and reputation could be
harmed. You should also consider these risk factors when you read “forward-looking statements” elsewhere in this report. You
can identify forward-looking statements by terms such as “may,” “hope,” “will,” “could,” “should,” “expect,” “plan,”
“anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of those terms or other
comparable terms. Those forward-looking statements are only predictions and can be adversely affected if any of these risks
occur.
Risks Related to COVID 19
COVID-19 has, and is expected to continue to, adversely affect our business and results of operations
The impact of COVID-19 pandemic adversely affected our business and financial results for 2020, and we expect that it
will negatively impact our business and financial results into 2021 and possibly in subsequent years depending on the length of
the pandemic and its economic repercussions. As COVID-19 has spread, it has significantly impacted the health and economic
environment around the world. Our customers are principally global manufacturers and the impact of the COVID-19 pandemic
on general economic conditions, and more deleterious effects on certain markets, such as oil and gas, aerospace, and
automotive, are having and may continue to have negative implications on demand for their goods and consequently on their
demand for our products and services. Certain of our businesses are experiencing reduced levels compared to prior-year level,
expectations of further reductions in sales levels could result in asset impairment charges. Because of uncertainties with respect
to the severity and duration of the COVID-19 outbreak, the duration and terms of related governmental orders restricting
activities, and the timing and pace of any economic recovery as COVID-19 impacts ultimately abate, we cannot predict with
precision the extent and duration of any future decreased demand for our products and services and the consequent impact on
our business and financial results.
In addition, our facilities and the facilities of our customers and suppliers may be prevented from conducting business
activities for an indefinite period of time, and our customers may be prevented from purchasing our products, and we may be
unable to purchase necessary materials from vendors, due to shutdowns, shelter-in-place orders, import restrictions or other
preventative measures that may be requested or mandated by governmental authorities. Certain of our facilities have been
required to temporarily close in light of governmental orders restricting business activities, and we temporarily closed certain
facilities to facilitate disinfection procedures and the implementation of social distancing protocols, as well as in response to
employee absences driven by COVID-19 concerns. Although most of our operations have been treated as “essential” operations
under applicable government orders restricting business activities that have been issued to date, and accordingly have been
permitted to continue to operate, it is possible that they may not continue to be so treated under future government orders, or,
even if so treated, site-specific health and safety concerns might otherwise require certain of our operations to be halted for
some period of time. The operations of all of our facilities have been affected in terms of employee protection measures,
including social distancing and personal protection equipment measures. These measures will continue to affect the efficiency
of our operations for the foreseeable future.
In 2020, approximately 48% of our revenues were generated outside the United States. We operate businesses with
manufacturing and service facilities around the world. Accordingly, to the extent that general economic conditions in the United
States may improve over time, our results of operations may continue to be adversely affected in other areas of the world that
may continue to experience COVID-19 outbreaks, including as a result of delays in the administration of vaccines, and that
remain subject to governmental or other health-related restrictions affecting business activities that impact the demand for our
products and services or prevent us from resuming full operations in those jurisdictions.
Risks Related to Our Business
Our business and some of the markets we serve are cyclical and distressed market conditions could have a material adverse
effect on our business.
The markets in which we sell our products and services, particularly chemical companies, petroleum refineries, heavy-
duty trucking, semiconductor manufacturing, capital equipment and the automotive industry, are, to varying degrees, cyclical
and have historically experienced periodic downturns. Prior downturns have been characterized by diminished product demand,
excess manufacturing capacity and subsequent erosion of average selling prices in these markets resulting in negative effects on
9
our net sales and results of operations. A prolonged and severe downward cycle in our markets could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We face intense competition that could have a material adverse effect on our business.
We encounter intense competition in almost all areas of our businesses. Customers for many of our products and services
are attempting to reduce the number of vendors from which they purchase. To remain competitive, we need to invest
continuously in manufacturing, marketing, customer service and support and our distribution networks. We also need to
develop new products and services to continue to meet the needs and desires of our customers. We may not have sufficient
resources to continue to make such investments or maintain our competitive position. Additionally, some of our competitors are
larger than we are and have substantially greater financial resources than we do. As a result, they may be better able to
withstand the effects of periodic economic downturns. Certain of our products and services may also experience transformation
from unique branded products to undifferentiated price sensitive products and services. This commoditization may be
accelerated by low-cost foreign competition. Changes in the replacement cycle of certain of our products and services,
including because of improved product and service quality or improved maintenance, may affect aftermarket demand for such
products and services. Initiatives designed to distinguish our products and services through superior service, continuous
improvement, innovation, customer relationships, technology, new product acquisitions, bundling with key services, long-term
contracts or market focus may not be effective. Pricing and other competitive pressures could adversely affect our business,
financial condition, results of operations and cash flows.
If we fail to retain the independent agents and distributors upon whom we rely to market our products, we may be unable to
effectively market our products and our revenue and profitability may decline.
The marketing success of many of our businesses in the U.S. and abroad depends largely upon our independent agents’
and distributors’ sales and service expertise and relationships with customers in our markets. Many of these agents have
developed strong ties to existing and potential customers because of their detailed knowledge of our products. A loss of a
significant number of these agents or distributors, or of a particular agent or distributor in a key market or with key customer
relationships, could significantly inhibit our ability to effectively market our products, which could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
Increased costs for raw materials, the termination of existing supply arrangements or other disruptions of our supply chain
could have a material adverse effect on our business.
The prices for some of the raw materials we purchase increased in 2020. In addition to organic changes in the prices of
raw materials, the prices of some of our raw materials may increase due to the imposition (or announcement of the intended
imposition) of new or increased tariffs or changes in trade laws. While we have been successful in passing along some of these
higher costs, there can be no assurance we will be able to continue doing so without losing customers. Similarly, the loss of a
key supplier, the unavailability of a key raw material, or other disruptions of our supply chain could adversely affect our
business, financial condition, results of operations and cash flows.
If we are unable to protect our intellectual property rights and knowledge relating to our products and services, our business
and prospects may be negatively impacted.
We believe that proprietary products, processes, and technology are important to our success. If we are unable to
adequately protect our intellectual property and know-how, our business and prospects could be negatively impacted. Our
efforts to protect our intellectual property through patents, trademarks, service marks, domain names, trade secrets, copyrights,
confidentiality, non-compete and nondisclosure agreements and other measures may not be adequate to protect our proprietary
rights. Patents issued to third parties, whether before or after the issue date of our patents, could render our intellectual property
less valuable. Questions as to whether our competitors’ products or services infringe our intellectual property rights or whether
our products and services infringe our competitors’ intellectual property rights may be disputed. In addition, intellectual
property rights may be unavailable, limited or difficult to enforce in some jurisdictions, which could make it easier for
competitors to capture market share in those jurisdictions.
Our competitors may capture market share from us by selling products that claim to mirror the capabilities of our
products or technology. Without sufficient protection nationally and internationally for our intellectual property, our
competitiveness worldwide could be impaired, which would negatively impact our growth and future revenue. As a result, we
may be required to spend significant resources to monitor and enforce our intellectual property rights.
10
Failure to maintain or renew licenses to certain intellectual property rights could adversely affect our business, financial
condition, results of operations and cash flows.
In general, we are the owner of the rights to the products and services that we manufacture and provide. However, we
also license certain intellectual property from various entities. These licenses are subject to renewal and it is possible we may
not successfully renegotiate these licenses or they could be terminated in the event of a material breach. If this were to occur,
our business, financial condition, results of operations and cash flows could be adversely affected.
Our business with the U.S. government is subject to government contracting risks.
Our business with government agencies, including sales to prime contractors that supply these agencies, is subject to
government contracting risks. U.S. government contracts are subject to termination by the government, either for the
convenience of the government or for default as a result of our failure to perform under the applicable contract. If terminated by
the government as a result of our default, we could be liable for additional costs the government incurs in acquiring undelivered
goods or services from another source and any other damages it suffers. In addition, if we or one of our divisions were charged
with wrongdoing with respect to a U.S. government contract, the U.S. government could suspend us from bidding on or
receiving awards of new government contracts pending the completion of legal proceedings. If convicted or found liable, the
U.S. government could subject us to fines, penalties, repayments and treble and other damages, and/or bar us from bidding on
or receiving new awards of U.S. government contracts and void any contracts found to be tainted by fraud. The U.S.
government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or
other seriously improper conduct.
Our products and services are often used in critical applications, which could expose us to potentially significant product
liability, warranty and other claims and recalls. Our insurance coverage may be inadequate to cover all of our significant
risks or our insurers may deny coverage of material losses we incur, which could adversely affect our profitability and
overall financial condition.
Our products and services are often used in critical applications in demanding environments, including in the nuclear, oil
and gas, automotive, aerospace and pharmaceutical industries. Accordingly, product and service failures can have significant
consequences and could result in significant product liability, warranty and other claims against us, regardless of whether our
products and services caused the incident that is the subject of the claim, and we may have obligations to participate in the
recall of products in which our products are components, if any of the components or services we supply prove to be defective.
We endeavor to identify and obtain in established markets insurance agreements to cover certain significant risks and liabilities,
though insurance against some of the risks inherent in our operations (such as insurance covering down-stream customer
product recalls) is either unavailable or available only at rates or on terms that we consider excessive. Depending on
competitive conditions and other factors, we endeavor to obtain contractual protection against uninsured risks from our
customers, including limitations on liability and indemnification. In some cases, we are unable to obtain such contractual
protections, and when we do, such contractual protection may not be as broad as we desire, may not be supported by adequate
insurance maintained by the customer, or may not be fully enforceable in the jurisdictions in which our customers are located.
Such insurance or contractual protection may not be sufficient or effective under all circumstances or against all hazards to
which we may be subject. A successful claim or product recall for which we are not insured or for which we are underinsured
could have a material adverse effect on us. Additionally, disputes with insurance carriers over coverage may affect the timing of
cash flows and, if litigation with the carrier becomes necessary, an outcome unfavorable to us may have a material adverse
effect on our results of operations.
Our business may be adversely affected by information technology disruptions.
Our business may be impacted by information technology disruptions, including information technology attacks.
Cybersecurity attacks, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain
unauthorized access to data or corporate funds, and other electronic security breaches that could lead to disruptions in systems,
unauthorized release of confidential or otherwise protected information and corruption of data (our own or that of third parties).
We have been subject to these attacks, including attempts to redirect otherwise valid payments to fraudulent accounts, and
although we believe that we have adopted appropriate measures and procedures to mitigate potential risks to our systems from
information technology-related disruptions, it is possible that a cybersecurity attack could be successful in breaching the
measures and procedures designed to protect our systems. In such an event, we could potentially be subject to production
downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our
customers, the compromising of confidential or otherwise protected information, misappropriation, destruction or corruption of
data, security breaches, misappropriation of corporate funds, other manipulation or improper use of our systems or networks,
financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
11
Many of the products that we manufacture are sold to industries and used in applications that are susceptible to challenges
from trends to address climate change or other trends favoring “clean” energy solutions.
International trends favoring “clean” energy solutions to address climate change, sustainability and other environmental
concerns may present challenges to a number of industries that we supply. These trends include increasing market replacement
of vehicles powered by internal-combustion engines with electric-powered vehicles and increasing implementation of solar and
wind energy solutions. In some jurisdictions, these trends have been spurred by applicable government regulation (including tax
incentives), and similar or additional regulations may be adopted in the future in other jurisdictions. Furthermore, technological
advances may accelerate the pace of these trends. Many of the products that we manufacture are used by industries and in
applications that may face challenges from, and may be adversely affected by, these trends and, as a result, the demand for
certain of our current products could be similarly adversely affected by these trends. Accordingly, we are subject to risks and
uncertainties with respect to these trends. While we anticipate considering these trends in the continued development and
implementation of our long-term strategy, our business and results of operations could be adversely affected by these trends if
they continue or accelerate at a pace that we do not anticipate.
Our failure to develop new or improved products and services may result in a significant competitive disadvantage.
In order to maintain our market positions and margins, we need to continually develop and introduce high-quality,
technologically advanced and cost-effective products and services on a timely basis, in many cases in multiple jurisdictions
around the world. The failure to do so could result in a significant competitive disadvantage that could materially adversely
affect our results of operations.
The loss of key personnel and an inability to attract and retain qualified employees could have a material adverse effect on
our operations.
We are dependent on the continued services of our leadership team. The loss of these personnel without adequate
replacement could have a material adverse effect on our operations. Additionally, we need qualified managers and skilled
employees with technical and industry experience in many locations in order to operate our business successfully. From time to
time, there may be a shortage of skilled labor, which may make it more difficult and expensive for us to attract and retain
qualified employees. If we were unable to attract and retain sufficient numbers of qualified individuals or our costs to do so
were to increase significantly, our operations could be materially adversely affected.
We identified a material weakness in our internal control over financial reporting and there can be no assurance that
another material weakness will not be identified in the future.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. During 2019, management identified
deficiencies in the Company’s internal control over financial reporting that existed on December 31, 2018, and these
deficiencies constituted a material weakness in our internal control over financial reporting. A material weakness (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim
financial statements will not be prevented or detected on a timely basis. As a result of this material weakness, management
concluded that the Company’s internal control over financial reporting was not effective based on criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control-Integrated Framework (2013
version)” and accordingly that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended) were not effective. This material weakness resulted in a revision to our
consolidated financial statements as of and for the year ended December 31, 2018, though the errors corrected in such revision
were not material, and were related solely to the determination of the provision for income taxes. We have been actively
engaged in developing and implementing a remediation plan designed to address the deficiencies in our internal control over
financial reporting that led to this material weakness, and measures necessary to fully remediate the identified deficiencies were
in place as of December 31, 2020. Although we have remediated these deficiencies, we cannot assure you that other material
weaknesses will not occur in the future. Ineffective internal control over financial reporting could cause investors to lose
confidence in our reported financial information, which could have a negative effect on the value of our common stock.
Our business could be materially adversely affected by numerous other risks, including rising healthcare costs, changes in
environmental laws and other unforeseen business interruptions.
Our business may be negatively impacted by numerous other risks. For example, medical and other healthcare costs may
continue to grow faster than general inflation or employees may receive more or higher cost services in future periods.
Initiatives to address these costs, such as consumer driven health plan packages, may not successfully reduce these expenses to
12
the extent expected or required. Failure to offer competitive employee benefits may result in our inability to recruit or maintain
key employees. Other risks to our business include potential changes in environmental rules or regulations, which could
negatively impact our manufacturing processes, or changes to the magnitude of costs at existing environmental sites. Use of
certain chemicals and other substances could become restricted or such changes may otherwise require us to incur additional
costs which could reduce our profitability and impair our ability to offer competitively priced products. Additional risks to our
business include global or local events which could significantly disrupt our operations. Terrorist attacks, natural disasters,
political insurgencies, pandemics and electrical grid disruptions and outages are some of the unforeseen risks that could
negatively affect our business, financial condition, results of operations and cash flows.
Risks Related to Our M&A Activities
We have made and expect to continue to make acquisitions, which could involve certain risks and uncertainties.
We expect to continue to make acquisitions in the future. Acquisitions involve numerous inherent challenges, such as
properly evaluating acquisition opportunities, properly evaluating risks and other diligence matters, ensuring adequate capital
availability and balancing other resource constraints. There are risks and uncertainties related to acquisitions, including:
difficulties integrating acquired technology, operations, personnel and financial and other systems; unrealized sales expectations
from the acquired business; unrealized synergies and cost savings; unknown or underestimated liabilities; diversion of
management attention from running our existing businesses and potential loss of key management employees or customers of
the acquired business. In addition, internal controls over financial reporting of acquired companies may not be up to required
U.S. public company standards. Our integration activities may place substantial demands on our management, operational
resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired
business, technology, service or product could also have a material adverse effect on our reputation and business.
Risks Related to Our Prior Ownership of Disposed Businesses
We have exposure to some contingent liabilities relating to previously owned businesses, which could have a material
adverse effect on our financial condition, results of operations, and cash flows in any fiscal period.
We have contingent liabilities related to discontinued operations, such as Fairbanks Morse, and previously owned
businesses of our predecessors, including environmental liabilities and liabilities for certain products and other matters. In some
instances we have indemnified others against those liabilities, and in other instances we have received indemnities from third
parties against those liabilities. For example, in 2014 when our then Fairbanks Morse division and a consortium partner entered
into a multi-year arrangement with Electricite de France ("EDF") to supply opposed-piston, diesel engine generator set to EDF
for emergency backup power at 20 of EDF's nuclear power plants in France, EnPro Industries, Inc. guaranteed the performance
of Fairbanks Morse's obligations under agreements with our consortium partner, which guarantee continues to be in place
following our sale of Fairbanks Morse, though both Fairbanks Morse and the purchaser of Fairbanks Morse have agreed to
indemnify us for any payments we are required to make pursuant to such guarantee.
Claims could arise relating to products, facilities or other matters related to our discontinued operations. Some of these
claims could seek substantial monetary payments. For example, EnPro has entered into an Administrative Settlement
Agreement and Order on Consent for Interim Removal Action with the Environmental Protection Agency for the assessment
and potential remediation of eight surface uranium mines in Arizona on the basis that our EnPro Holdings subsidiary, through
which we hold most of our operating subsidiaries, was a potentially responsible party under federal environmental laws as the
successor to a former operator in the 1950s of those mines. Similarly, in connection with a facility located in Water Valley,
Mississippi, which was divested in 1996 and has trichloroethylene soil and groundwater contamination, EnPro has entered into
an Agreed Order with the Mississippi Department of Environmental Quality pursuant to the requirements of which EnPro has
developed and is implementing a corrective action work plan addressing both the sources of contamination at the facility and
areas where the contamination has migrated, which include areas with residential homes and commercial and local government
facilities. Further, we could potentially be liable with respect to firearms manufactured prior to March 1990 by Colt Firearms, a
former operation of a corporate predecessor of EnPro Holdings, and electrical transformers manufactured prior to May 1994 by
Central Moloney, another former operation of that corporate predecessor.
We have established reserves related to some of these liabilities based upon our best estimates in accordance with
generally accepted accounting principles in the United States. However, if our insurance coverage is depleted or our reserves
are not adequate, environmental and other liabilities relating to discontinued operations could have a material adverse effect on
our financial condition, results of operations and cash flows.
13
Risks Related to Our International Operations
We conduct a significant amount of our sales and service activities outside of the U.S., which subjects us to additional
business risks, including foreign exchange risks, that may cause our profitability to decline.
Because we sell our products and provide services in a number of foreign countries, we are subject to risks associated
with doing business internationally. In 2020, we derived approximately 48% of our net sales from sales of our products and
services outside of the U.S. Outside the U.S., we operate 26 primary manufacturing and service facilities located in 12
countries. Our sales and operating activities outside of the U.S. are, and will continue to be, subject to a number of risks,
including:
•
•
•
•
•
•
•
•
unfavorable fluctuations in foreign currency exchange rates, including long-term contracts denominated in foreign
currencies;
adverse changes in foreign tax, legal and regulatory requirements;
difficulty in protecting intellectual property;
government embargoes, tariffs and trade protection measures, such as “anti-dumping” duties applicable to classes of
products, and import or export licensing requirements, as well as the imposition of trade sanctions against a class of
products imported from or sold and exported to, or the loss of “normal trade relations” status with, countries in
which we conduct business, could significantly increase our cost of products or otherwise reduce our sales and harm
our business;
cultural norms and expectations that may sometimes be inconsistent with our Code of Conduct and our requirements
about the manner in which our employees, agents and distributors conduct business;
differing labor regulations;
political and economic instability, including instabilities associated with European sovereign debt uncertainties and
the future continuity of membership of the European Union; and
acts of hostility, terror or war.
Any of these factors, individually or together, could have a material adverse effect on our business, financial condition,
results of operations and cash flows. For example, tapered roller bearings manufactured at our facilities in China that are
imported into the United States before re-sale to customers are currently subject to “anti-dumping” duties imposed by the U.S.
Department of Commerce based on its periodic review and analysis of our manufacturing and selling activities or the
manufacturing and selling activities of larger Chinese suppliers of these products. Such duties, if imposed at higher levels,
could materially adversely affect the commercial competitiveness of these products, which could adversely affect the business
and results of operations of our Sealing Technologies segment.
Our operations outside the United States require us to comply with a number of United States and international
regulations. For example, our operations in countries outside the United States are subject to the Foreign Corrupt Practices Act
(the “FCPA”), which prohibits United States companies or their agents and employees from providing anything of value to a
foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or
retain business, direct business to any person or corporate entity, or obtain any unfair advantage. Our activities in countries
outside the United States create the risk of unauthorized payments or offers of payments by one of our employees or agents that
could be in violation of the FCPA, even though these parties are not always subject to our control. We have internal control
policies and procedures and have implemented training and compliance programs with respect to the FCPA. However, we
cannot assure that our policies, procedures and programs always will protect us from reckless or criminal acts committed by our
employees or agents. In the event that we believe or have reason to believe that our employees or agents have or may have
violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel
investigate the relevant facts and circumstances. In addition, we are subject to and must comply with all applicable export
controls and economic sanctions laws and embargoes imposed by the United States and other various governments. Changes in
export control or trade sanctions laws may restrict our business practices, including cessation of business activities in
sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs and increase
compliance costs, and violations of these laws or regulations may subject us to fines, penalties and other sanctions, such as loss
of authorizations needed to conduct aspects of our international business or debarments from export privileges. Violations of
the FCPA or export controls or sanctions laws and regulations may result in severe criminal or civil sanctions, and we may be
subject to other liabilities, which could negatively affect our business, financial condition, results of operations, and cash flows.
We intend to continue to pursue international growth opportunities, which could increase our exposure to risks associated
with international sales and operations. As we expand our international operations, we may also encounter new risks that could
14
adversely affect our revenues and profitability. For example, as we focus on building our international sales and distribution
networks in new geographic regions, we must continue to develop relationships with reputable and qualified local agents,
distributors and trading companies. If we are not successful in developing these relationships, we may not be able to increase
sales in these regions.
Failure to properly manage these risks could adversely affect our business, financial condition, results of operations and
cash flows.
Risks Related to Our Capital Structure
Our debt agreement and the indenture governing our senior notes impose limitations on our operations, which could impede
our ability to respond to market conditions, address unanticipated capital investments and/or pursue business opportunities.
The agreement governing our senior secured revolving credit facility and the indenture governing our senior notes impose
limitations on our operations, such as limitations on certain restricted payments, investments, incurrence or repayment of
indebtedness, and maintenance of a consolidated net leverage ratio and an interest coverage financial ratio. In addition, the
indenture governing our senior notes contains limitations on certain restricted payments, investments and incurrence or
repayment of indebtedness. These limitations could impede our ability to respond to market conditions, address unanticipated
capital investment needs and/or pursue business opportunities.
We may not have sufficient cash to fund a required repurchase of our senior notes upon a change of control.
Upon a change of control, as defined under the indenture governing our senior notes and includes events that may be
beyond our control, the holders of our senior notes have the right to require us to offer to purchase all of our senior notes then
outstanding at a price equal to 101% of their principal amount plus accrued and unpaid interest. In order to obtain sufficient
funds to pay the purchase price of the outstanding notes, we expect that we would have to refinance our senior notes. We
cannot assure you that we would be able to refinance our senior notes on reasonable terms, if at all. Our failure to offer to
purchase all outstanding notes or to purchase all validly tendered notes would be an event of default under the indenture
governing our senior notes. Such an event of default may cause the acceleration of our other debt.
Risks Related to Ownership of Our Common Stock
The market price of our common stock may be volatile.
A relatively small number of shares are normally traded in any one day and higher volumes could have a significant
effect on the market price of our common stock. The market price of our common stock could fluctuate significantly for many
reasons, including in response to the risks described in this section and elsewhere in this report or for reasons unrelated to our
operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors
or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political
instability.
Because our quarterly revenues and operating results may vary significantly in future periods, our stock price may fluctuate.
Our revenue and operating results may vary significantly from quarter to quarter. A high proportion of our costs are fixed,
due in part to significant selling and manufacturing costs. Small declines in revenues could disproportionately affect operating
results in a quarter and the price of our common stock may fall. Other factors that could significantly affect quarterly operating
results include, but are not limited to:
•
•
•
•
•
•
•
•
•
demand for our products and services;
the timing and execution of customer contracts;
the timing of sales of our products and services;
contractual penalties for late delivery of long lead time products;
increases in costs due to equipment or labor issues;
changes in foreign currency exchange rates;
changes in applicable tax rates;
an impairment of goodwill or other intangibles at one of our reporting units;
unanticipated delays or problems in introducing new products;
15
•
•
•
announcements by competitors of new products, services or technological innovations;
changes in our pricing policies or the pricing policies of our competitors;
increased expenses, whether related to sales and marketing, raw materials or supplies, product development or
administration;
• major changes in the level of economic activity in major regions of the world in which we do business;
•
•
•
•
costs related to possible future acquisitions or divestitures of technologies or businesses;
an increase in the number or magnitude of product liability or environmental claims;
our ability to expand our operations and the amount and timing of expenditures related to expansion of our
operations, particularly outside the U.S.; and
economic assumptions and market factors used to determine postretirement benefits and pension liabilities.
Various provisions and laws could delay or prevent a change of control.
The anti-takeover provisions of our articles of incorporation and bylaws and provisions of North Carolina law could delay
or prevent a change of control or may impede the ability of the holders of our common stock to change our management. In
particular, our articles of incorporation and bylaws, among other things:
•
•
•
•
require a supermajority shareholder vote to approve any business combination transaction with an owner of 5% or
more of our shares unless the transaction is recommended by disinterested directors;
limit the right of shareholders to remove directors and fill vacancies;
regulate how shareholders may present proposals or nominate directors for election at shareholders’ meetings; and
authorize our board of directors to issue preferred stock in one or more series, without shareholder approval.
Future sales of our common stock in the public market could lower the market price for our common stock.
In the future, we may sell additional shares of our common stock to raise capital. In addition, a reasonable number of
shares of our common stock are reserved for issuance under our equity compensation plans, including shares to be issued upon
the vesting of restricted stock or unit grants. We cannot predict the size of future issuances or the effect, if any, that they may
have on the market price for our common stock. The issuance and sales of substantial amounts of common stock, or the
perception that such issuances and sales may occur, could adversely affect the market price of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
We are headquartered in Charlotte, North Carolina and have 45 primary manufacturing and service facilities located in 13
countries, including the U.S. The following table outlines the location, business segment and size of our largest facilities, along
with whether we own or lease each facility:
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Location
U.S.
Palmyra, New York
Longview, Texas
Thorofare, New Jersey
Foreign
Annecy, France
Suzhou, China
Mexico City, Mexico
Heilbronn, Germany
Sucany, Slovakia
Saint Etienne, France
Neuss, Germany
Segment
Sealing Technologies
Sealing Technologies
Engineered Materials
Engineered Materials
Engineered Materials
Sealing Technologies
Engineered Materials
Engineered Materials
Sealing Technologies
Sealing Technologies
Owned/
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Size
(Square Feet)
690,000
219,000
171,000
196,000
152,000
128,000
127,000
109,000
108,000
97,000
Our manufacturing capabilities are flexible and allow us to tailor the manufacturing process to increase performance and
value for our customers and meet particular specifications. We also maintain numerous sales offices and warehouse facilities in
strategic locations in the U.S., Canada and other countries. We believe our facilities and equipment are generally in good
condition and are well maintained and able to continue to operate at present or higher than current levels.
ITEM 3.
LEGAL PROCEEDINGS
Descriptions of environmental and other legal matters are included in Item 7 of this annual report under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contingencies” and in Note 20 to
our Consolidated Financial Statements, which descriptions are incorporated by reference herein.
In addition to the matters noted above and discussed in those sections of this report, we are from time to time subject to,
and are presently involved in, other litigation and legal proceedings arising in the ordinary course of business. We believe that
the outcome of such other litigation and legal proceedings will not have a material adverse effect on our financial condition,
results of operations and cash flows.
We were not subject to any penalties associated with any failure to disclose “reportable transactions” under
Section 6707A of the Internal Revenue Code.
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable
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EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning our executive officers is set forth below:
Name
Marvin A. Riley
J. Milton Childress II
Robert S. McLean
Steven R. Bower
Jerry L. Johnson
Susan E. Sweeney
Ronald R. Angelillo
__________________
Age
46
63
56
62
50
57
50
Position
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial
Officer
Executive Vice President, Chief Administrative
Officer, General Counsel and Secretary
Senior Vice President, Controller and Chief
Accounting Officer
Senior Vice President, Strategy, Corporate
Development and Investor Relations
Senior Vice President and Chief Human
Resources Officer
Vice President, Tax
Marvin A. Riley is currently President and Chief Executive Officer and has held the position since July 2019, after
previously serving as Chief Operating Officer since July 2017. Mr. Riley served as President, Fairbanks Morse division from
May 2012 to May 2018. Prior to that, he served as Vice President of EnPro’s manufacturing function; and Vice President of
Global Operations for its GGB Bearing Technology division. Prior to joining EnPro in 2007, Mr. Riley was an executive with
General Motors Corporation, working within the General Motors Vehicle Manufacturing Group where he held multiple
positions of increasing responsibility from 1997 to 2007.
J. Milton Childress II is currently Executive Vice President and Chief Financial Officer and has held this position since
July, 2017. Mr. Childress previously served as Senior Vice President and Chief Financial Officer since March 2015, after
having previously served as Vice President, Strategic Planning and Business Development since February 2006. Mr. Childress
joined the EnPro corporate staff in December 2005. He was a co-founder of and served from October 2001 through December
2005 as Managing Director of Charlotte-based McGuireWoods Capital Group. Prior to that, Mr. Childress was Senior Vice
President, Planning and Development of United Dominion Industries, Inc. from December 1999 until May 2001, having
previously served as Vice President. Mr. Childress held a number of positions with Ernst & Young LLP’s corporate finance
consulting group prior to joining United Dominion in 1992.
Robert S. McLean is currently Executive Vice President, a position he has held since July 2017, as well as Chief
Administrative Officer, a position he has held since January 2016, and General Counsel and Secretary of EnPro, positions he
has held since May 2012. Mr. McLean served as Vice President, Legal and Assistant Secretary from April 2010 to May 2012.
Prior to joining EnPro, Mr. McLean was a partner at the Charlotte, North Carolina law firm of Robinson Bradshaw & Hinson
P.A., which he joined in 1995, and where he chaired the firm’s corporate practice group. Prior to joining Robinson Bradshaw &
Hinson, Mr. McLean worked with the Atlanta office of the King & Spalding law firm and the Charlotte office of the Smith,
Helms, Mullis & Moore law firm (now part of McGuireWoods, LLP), after which he was the Assistant General Counsel and
Secretary of the former Carolina Freight Corporation (now part of Arkansas Best Corporation).
Steven R. Bower is currently Senior Vice President, Controller and Chief Accounting Officer and has held this
position since July 2017. Mr. Bower previously served as Vice President, Controller and Chief Accounting Officer since
joining the Company in October 2014. Immediately prior to joining the Company, Mr. Bower was Corporate Controller of
Polymer Group, Inc. (PGI) from July 2014 through October 2014. Prior to joining PGI, Mr. Bower was Vice President, Finance
and Accounting and Corporate Secretary for HITCO Carbon Composites, Inc., (a subsidiary of SGL Group), from April 2003 to
February 2014. Prior to HITCO, Mr. Bower served at SGL’s global headquarters in Germany as Controller - Central Planning
and Coordination, from July 2001 to April 2003; and prior to that; as Corporate Controller - North America from August 1996
to June 2001. Prior to his positions with SGL Group, Mr. Bower served Collins & Aikman Corporation and its predecessor
companies from November 1989 through August 1996 in accounting, public reporting and investor relations roles. Prior to
Collins & Aikman, Mr. Bower was with Price Waterhouse LLP from July 1983 through November 1989, where he departed as
an Audit Manager. Mr. Bower is both a Certified Public Accountant and a Certified Management Accountant.
18
Jerry L. Johnson was appointed as EnPro’s Senior Vice President, Strategy, Corporate Development and Investor
Relations in September 2020. Immediately prior to joining the Company, Mr. Johnson was a founding member and Partner of
the private equity firm RLJ Equity Partners since 2007. Mr. Johnson’s career also includes experience as a White House
Fellow, merchant banker with Donaldson, Lufkin & Jenrette, and as a management consultant with McKinsey & Company.
Susan E. Sweeney is currently Senior Vice President and Chief Human Resources Officer, having been appointed to
those positions in February 2020. She served as President, GGB division, from September 2013 until September 2020. In 2014,
she was conferred an Ed.D degree in Organizational Leadership. Dr. Sweeney served as Vice President of Global Operations
GGB from November 2011 to September 2013 and served as Director of Operations, North America GGB from April 2010 to
November 2011. Prior to joining EnPro, she held positions of increasing responsibility with General Motors Corp. from 1985 to
2009.
Ronald R. Angelillo joined EnPro in October 2019 and has served as Vice President, Tax, since December 2019.
Immediately prior to joining the Company, Mr. Angelillo served as Senior Director Global Tax Operations with XPO Logistics,
from November 2018 through October 2019. Mr. Angelillo also served as Senior Vice President, Accounting for Income Tax
Operations with Bank of America from June 2016, through September 2018 and as Director, Global Tax Reporting with
Stanley Black & Decker from July 2011 through June 2016. Mr. Angelillo also served as Tax Senior Manager with Deloitte
from October 2006 through July 2011. Prior to that Mr. Angelillo held tax roles with increasing levels of responsibility from
June 1996 through October 2006, with PricewaterhouseCoopers, United Technologies Corporation and Aetna Inc. Mr.
Angelillo is a Certified Public Accountant.
19
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “NPO.”
As of December 31, 2020, there were 2,352 holders of record of our common stock.
The following table sets forth all purchases made by us or on our behalf or any “affiliated purchaser,” as defined in Rule
10b-18(a)(3) under the Exchange Act, of shares of our common stock during each month in the fourth quarter of 2020.
Period
October 1 –
October 31, 2020
November 1 –
November 30, 2020
December 1 –
December 31, 2020
Total
(a) Total Number
of Shares (or
Units) Purchased
(b) Average Price
Paid per Share
(or Unit)
—
—
—
—
685 (2)
685 (2)
$
$
75.31 (2)
75.31 (2)
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
(2)
(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
(2)
—
—
—
—
$29,674,397 (1)
$29,674,397 (1)
$29,674,397 (1)
$29,674,397 (1)
(1)
(2)
In October 2018, our board of directors authorized a two-year program for expenditures of up to $50.0 million of our
outstanding common shares. Prior to the expiration of this authorization in October 2020, we repurchased a total of 0.3
million shares. In October of 2020, our board of directors authorized a new expenditure program of up to $50.0 million
for the repurchase of our outstanding common shares through October 2022. We have not made any repurchases under
the new authorization.
In December 2020, a total of 685 shares were transferred to a rabbi trust that we established in connection with our
Deferred Compensation Plan for Non-Employee Directors, pursuant to which non-employee directors may elect to defer
directors’ fees into common stock units. EnPro Holdings furnished these shares in exchange for management and other
services provided by EnPro. Of these shares, 89 shares were valued at a price of $73.91 per share, the closing trading
price of our common stock on December 16, 2020, and 596 of these shares were valued at a price of $75.52 per share,
the closing trading price of our common stock on December 31, 2020. Accordingly, the total 685 shares were valued at a
weighted average price of $75.31. We do not consider the transfer of shares from EnPro Holdings in this context to be
pursuant to a publicly announced plan or program.
CUMULATIVE TOTAL RETURN PERFORMANCE GRAPH
Set forth below is a line graph showing the yearly change in the cumulative total shareholder return for our common
stock as compared to similar returns for the Russell 2000® Stock Index and a group of peers including Altra Industrial Motion
Corp., Barnes Group, Inc., Chart Industries, Inc., Circor International, Inc., Columbus McKinnon Corporation, Crane Co.,
Curtiss Wright Corp., Enerpac Tool Group Corp., Graco Inc., IDEX Corporation, ITT Inc., Mueller Water Products, Inc.,
Nordson Corporation, Rexnord Corporation, SPX Corporation, SPX FLOW, Inc., Standex International Corporation, TriMas
Corporation, Watts Water Technologies, Inc. and Woodward, Inc.
Each of the returns is calculated assuming the investment of $100 in each of the securities on December 31, 2015, and
reinvestment of dividends into additional shares of the respective equity securities when paid. The graph plots the respective
values beginning on December 31, 2015, and continuing through December 31, 2020. Past performance is not necessarily
indicative of future performance.
20
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable. The Company has elected early compliance with the changes effected to Items 301 and 302 of Regulation
S-K by Securities and Exchange Commission Release No. 33-10890 (effective February 10, 2021).
21
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors that have affected our consolidated
financial condition and operating results during the periods included in the accompanying audited Consolidated Financial
Statements and the related notes. You should read the following discussion in conjunction with our audited Consolidated
Financial Statements and the related notes, included elsewhere in this annual report.
Forward-Looking Statements
This report contains certain statements that are “forward-looking statements” as that term is defined under the Private
Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the SEC. The words “may,” “hope,” “will,”
“should,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” and
other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters
identify forward-looking statements. We believe that it is important to communicate our future expectations to our
shareholders, and we therefore make forward-looking statements in reliance upon the safe harbor provisions of the Act.
However, there may be events in the future that we are not able to accurately predict or control, and our actual results may
differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to
differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking
statements. These risks and uncertainties include, but are not limited to: impacts from the COVID-19 pandemic and
governmental responses to limit the further spread of COVID-19, including impacts on our operations, and the operations and
businesses of our customers and vendors, including whether our operations and those of our customers and vendors will
continue to be treated as “essential” operations under government orders restricting business activities or, even if so treated,
whether site-specific health and safety concerns might otherwise require certain of our company’s operations to be halted for
some period of time; uncertainty with respect to the duration and severity of these impacts from the COVID-19 pandemic,
including impacts on the general economy and the markets served by our customers; the extent to which the impacts from the
COVID-19 pandemic could result in a reduction in demand for our products and services; general economic conditions in the
markets served by our businesses and those of our customers, some of which are cyclical and experience periodic downturns,
such as recent disruptions in the pricing of oil and gas, prices and availability of its raw materials; uncertainties with respect to
our ability to achieve anticipated growth within the semiconductor, life sciences and other technology-enabled markets; the
impact of fluctuations in relevant foreign currency exchange rates; unanticipated delays or problems in introducing new
products; announcements by competitors of new products, services or technological innovations; changes in pricing policies or
the pricing policies of competitors; and the amount of any payments required to satisfy contingent liabilities related to
discontinued operations and discontinued operations of our predecessors, including liabilities for certain products,
environmental matters, employee benefit obligations and other matters. We advise you to read further about certain of these
and other risk factors set forth in Item 1A of this annual report, entitled “Risk Factors.” We undertake no obligation to publicly
update or revise any forward-looking statement, either as a result of new information, future events or otherwise, except as may
be required by law. Whenever you read or hear any subsequent written or oral forward-looking statements attributed to us or
any person acting on our behalf, you should keep in mind the cautionary statements contained or referred to in this section.
Overview and Outlook
Overview. We design, develop, manufacture, service and market proprietary engineered industrial products. We have 45
primary manufacturing and service facilities located in 13 countries, including the United States. Over the past year and a half,
we have executed several strategic initiatives to change the portfolio of businesses that we operate to focus on materials
science-based businesses with leading technologies, compelling margins, strong cash flow, and high levels of recurring revenue
that serve markets with favorable secular tailwinds. These initiatives, which are described below, have increased our ability to
provide solutions to the semiconductor, life sciences, and other technology industries.
We manage our business as three segments: a Sealing Technologies segment, an Advanced Surface Technologies
segment, and an Engineered Materials segment.
Our Sealing Technologies segment designs, manufactures and sells sealing products, including: metallic, non-metallic and
composite material gaskets, dynamic seals, compression packing, resilient metal seals, elastomeric seals, custom-engineered
mechanical seals for applications in the aerospace industry and other markets, hydraulic components, expansion joints, sanitary
gaskets, hoses and fittings for the hygienic process industries, fluid transfer products for the pharmaceutical and
biopharmaceutical industries, hole forming products, bellows and bellows assemblies, PTFE products, and heavy-duty
22
commercial vehicle parts used in wheel-end and suspension components. These products are used in a variety of industries,
including chemical and petrochemical processing, pulp and paper processing, power generation, food and pharmaceutical
processing, primary metal manufacturing, mining, water and waste treatment, heavy-duty trucking, aerospace, medical,
filtration and semiconductor fabrication. In many of these industries, performance and durability are vital for safety and
environmental protection. Many of our products are used in highly demanding applications, e.g., where extreme temperatures,
extreme pressures, corrosive environments, strict tolerances, and/or worn equipment make product performance difficult.
Our Advanced Surface Technologies segment applies proprietary technologies, processes, and capabilities to deliver
highly differentiated suites of products and services for the most challenging applications in high growth markets. The
segment’s products and services are used in highly demanding environments requiring performance, precision and repeatability,
with a low tolerance for failure. The segment’s services include cleaning, coating, testing, refurbishment and verification
services for critical components and assemblies used in state-of-the-art advanced node semiconductor manufacturing
equipment. The segment also designs, manufactures and sells specialized optical filters and thin-film coatings for the most
challenging applications in the industrial technology, life sciences, and semiconductor markets and complex front-end wafer
processing sub-systems, new and refurbished electrostatic chuck pedestals, thin film coatings, and edge-welded metal bellows
for the semiconductor equipment industry and for critical applications in the space, aerospace and defense markets.
Our Engineered Materials segment includes operations that design, manufacture and sell self-lubricating, non-rolling
metal-polymer, engineered plastics, and fiber reinforced composite bearing products, precision engineered components and
lubrication systems for reciprocating compressors and engines, critical service flange gaskets, seals and electrical flange
isolation kits used in high-pressure wellhead equipment, flow lines, water injection lines, sour hydrocarbon process
applications, and crude oil and natural gas pipeline/transmission line applications. These products are used in a wide range of
applications, including the automotive, aerospace, pharmaceutical, pulp and paper, natural gas, health, power generation,
machine tools, air treatment, refining, petrochemical and general industrial markets.
In the fourth quarter of 2020, we evaluated our internal reporting and determined to have a new segment as the result of
internal reorganizations and the acquisition of Alluxa. Our new segment, Advanced Surface Technologies, is composed of
Alluxa and our semiconductor businesses, which includes our LeanTeq and Technetics Semiconductor businesses, previously
reported in our Sealing Technologies segment within our Technetics reporting unit. The change involved the transfer of
$180.1 million of goodwill from the Sealing Technologies segment to our Advanced Surface Technologies segment.
As a result of this transition, our Technetics reporting unit was tested for impairment both before and after the allocation
of goodwill and the newly formed Semiconductor reporting unit (composed of LeanTeq and Technetics Semiconductor
businesses) was tested after the allocation. We determined that the Technetics reporting unit was not impaired prior to the
transfer of goodwill. After the transfer, the Technetics Sealing reporting unit was allocated $67.7 million of goodwill and, as of
our allocation date of December 1, 2020, we determined it was not impaired as its fair value exceeded its carrying value by
26%. We also determined that our Semiconductor reporting unit, allocated $180.1 million of goodwill as of our allocation date
of December 1, 2020, was not impaired and its fair value exceeded its carrying value by 2%. Any change in assumptions,
including forecasted performance or external market information used in our fair value calculation, including the determination
of our discount rate, could result in a future impairment of the goodwill allocated to the Semiconductor reporting unit.
We determined our weighted average cost of capital ("WACC") for our Semiconductor reporting unit, used in our
discounted cash flow analysis, to be 12.0% at our allocation date of December 1, 2020. If the WACC used in this assessment
would increase by one percentage point, we estimate that the carrying value of the Semiconductor reporting unit would exceed
the fair value by approximately $20.0 million and would result in a corresponding impairment.
To estimate the fair value of our reporting units, we use both a discounted cash flow and market valuation approach. The
discounted cash flow approach uses cash flow projections to calculate the fair value of each reporting unit while the market
approach relies on market multiples of similar companies. The key assumptions used for the discounted cash flow approach
include projected revenues and profit margins, projected capital expenditures, changes in working capital, discount rates and tax
rates. The discount rate we use is based on its weighted average cost of capital. For the market approach, we choose a group of
peer companies we believe is best representative of each reporting unit. We used a 75% weighting for the discounted cash flow
valuation approach and a 25% weighting for the market valuation approach, reflecting our belief that the discounted cash flow
valuation approach provides a better indicator of a reporting unit's value since it reflects the specific cash flows anticipated to be
generated in the future by the business.
We will continue to monitor its performance as well as other market factors and test for impairment if we determine a
triggering event has occurred. All other reporting units were tested at our annual test date of October 1, 2020 and their fair value
exceeded their carrying value by at least 20%. We will test all reporting units again at our next test date of October 1, 2021 or
earlier as circumstances may require.
23
In the second quarter of 2020 we reclassified the oil and gas component of our Garlock Pipeline Technologies ("GPT")
business from the Sealing Technologies segment to the Engineered Materials segment. This reclassification allowed us to group
our two oil and gas businesses, GPT and Compressor Products International, together to be managed as one business unit. The
change also involved the transfer of $5.8 million of goodwill from the Sealing Technologies segment to the Engineered
Materials segment. As a result of the transition of this component of the GPT business, an interim goodwill impairment test was
performed in the second quarter of 2020 for all reporting units. We determined that the carrying amount of our goodwill was
not impaired either before or after the reclassification.
These changes are reflected in all periods presented in Note 19, "Business Segment Information". The goodwill transfer
is reflected in all periods presented in Note 9, "Goodwill and Other Intangible Assets"
In connection with the decision in the fourth quarter of 2020 to realign our reporting segments, we determined that the
primary metric used by management to allocate resources and assess segment performance had shifted from segment profit to
Adjusted Segment EBITDA, which is segment profit excluding acquisition and divestiture expenses, restructuring and
impairment costs, non-controlling interest compensation, and depreciation and amortization.
Acquisitions
On October 26, 2020, a subsidiary of EnPro formed for this purpose (the "Alluxa Acquisition Subsidiary") acquired all of
the equity securities of Alluxa, Inc. ("Alluxa"), a privately held, California-based company. Alluxa is an industrial technology
company that provides specialized optical filters and thin-film coatings for the most challenging applications in the industrial
technology, life sciences, and semiconductor markets. Alluxa's products are developed through a proprietary coating process
using state-of-the-art advanced equipment. Alluxa is included as part of the Advanced Surface Technologies segment.
Alluxa works in collaboration with customers across major end markets to provide customized, complex precision coating
solutions through its specialized technology platform and proprietary processes. Alluxa has long-standing customer
relationships across its diversified customer base, serving customers across the Americas, Europe, and Asia. Founded in 2007,
Alluxa has two locations in California and is headquartered in Santa Rosa, California.
The cash purchase price of Alluxa was $238.4 million, net of cash acquired. We funded the purchase with available cash
and rollover equity from Alluxa executives. In connection with the completion of the transaction, we entered into a limited
liability operating agreement with respect to the Alluxa Acquisition Subsidiary in connection with the rollover transaction, with
three equity owners of Alluxa, who were also executives of Alluxa (the "Alluxa Executives"), receiving approximately 7% of
the equity interests of the Alluxa Acquisition Subsidiary in return for their contribution of the rollover shares of Alluxa.
In connection with the consummation of the Alluxa acquisition, the Alluxa Executives entered into a limited liability
operating agreement (the “Alluxa LLC Agreement”) with respect to Alluxa Subsidiary. Under the LLC Agreement, the Alluxa
Executives have certain governance and information rights with respect to the Alluxa Acquisition Subsidiary and are subject to
transfer restrictions with respect to their equity interests in the Alluxa Acquisition Subsidiary. Each Alluxa Executive also has
the right to sell to the Company, and the Company has the right to purchase from each Alluxa Executive (collectively, the
“Alluxa Put and Call Rights”), one-third of the Alluxa Executive’s equity interests in Alluxa Acquisition Subsidiary during
each of three exercise periods commencing on January 1 and ending on June 30 of each of 2024, 2025 and 2026, with any
amount not sold or purchased in a prior exercise period being carried forward to the subsequent exercise periods. The Alluxa
LLC Agreement also provides for the purchase by the Company of all of an Alluxa Executive’s equity interests in the Alluxa
Acquisition Subsidiary in connection with the termination of employment of the Alluxa Executive under specified
circumstances, with payments in certain circumstances to be made in annual installments. In connection with a Alluxa
Executive’s death, disability, or incapacity at any time prior to December 31, 2023 or a separation from employment for cause,
including the Alluxa Executive’s breach of the non-competition and non-solicitation agreement, or a voluntary separation from
employment without good reason, the consideration payable under the Alluxa LLC Agreement in connection with any such
purchase by the Company of an Alluxa Executive’s equity interests in the Alluxa Acquisition Subsidiary is equal to the fixed
value of the equity interests as set forth in the Alluxa LLC Agreement. In all other cases, including upon any exercise of the
Alluxa Put and Call Rights, the consideration payable under the Alluxa LLC Agreement in connection with any such purchase
by the Company of an Alluxa Executive’s equity interests in the Alluxa Acquisition Subsidiary is equal to the greater of the
fixed value of the equity interests as set forth in the Alluxa LLC Agreement or a price based upon a multiple of twelve-month
adjusted EBITDA based upon certain financial metrics of the Alluxa Acquisition Subsidiary, plus cash and less indebtedness of
the Alluxa Acquisition Subsidiary prior to the relevant payment, and subject to certain adjustments dependent upon the
circumstances of the purchase and sale.
On July 2, 2019, we acquired The Aseptic Group (comprising Aseptic Process Equipment SAS and Aseptic Services
SARL). Headquartered in Limonest, France, The Aseptic Group distributes, designs, and manufactures aseptic fluid transfer
24
products for the pharmaceutical and biopharmaceutical industries. The Aseptic Group has been included as part of EnPro’s
Garlock division within the Sealing Technologies segment.
On September 25, 2019, we acquired the outstanding equity securities of LeanTeq, LLC and LeanTeq Co., Ltd.
(collectively "LeanTeq"), a privately-held, Taiwan-based company. LeanTeq provides refurbishment services for critical
components and assemblies used in state-of-the-art semiconductor equipment. The equipment is used to produce the latest and
most technologically advanced microchips for smartphones, autonomous vehicles, high-speed wireless connectivity (5G),
artificial intelligence, and other leading-edge applications.
LeanTeq was founded in 2011, is headquartered in Taoyuan City, Taiwan, and has two locations in Taiwan and one in the
United States (Silicon Valley). LeanTeq partners closely with original equipment manufacturers throughout the development
and production lifecycle to achieve Process of Record qualifications, enabling long-term, recurring aftermarket revenue.
Aftermarket refurbishment services have historically represented approximately 65% of LeanTeq's total sales. LeanTeq’s suite
of services includes cleaning, coating, analytical testing, inspection and verification, kit assembly, failure analysis, and other
value-added services. LeanTeq is included as part of EnPro's Advanced Surface Technologies segment.
In connection with the consummation of the LeanTeq acquisition, two LeanTeq equity holders who are managers of
LeanTeq (the “LeanTeq Executives”) applied approximately 10% of the total transaction consideration paid in the acquisition to
purchase equity interests of our subsidiary (the “LeanTeq Acquisition Subsidiary”) acquiring LeanTeq pursuant to an
agreement (the “LeanTeq LLC Agreement”) entered into upon the closing of the LeanTeq acquisition (the “LeanTeq Closing”).
Under the LeanTeq LLC Agreement, each of the LeanTeq Executives will also have the right to sell to us, and we will have the
right to purchase from each of the LeanTeq Executives, the LeanTeq Executive’s equity interests in the LeanTeq Acquisition
Subsidiary, following the third anniversary of the Closing, a change-of-control of the LeanTeq Acquisition Subsidiary or
EnPro, dissolution of the LeanTeq Acquisition Subsidiary, termination of employment, death or disability of the LeanTeq
Executive, and certain other circumstances such as a dispute regarding our performance of the LeanTeq LLC Agreement. The
consideration, which is payable in two installments, in such purchase and sale arrangements is generally to be based upon a
multiple of twelve-month adjusted EBITDA based upon certain financial metrics of the LeanTeq Acquisition Subsidiary, plus
cash and less indebtedness of the LeanTeq Acquisition Subsidiary prior to the relevant installment payment, subject to certain
adjustments dependent upon the circumstances of the purchase and sale.
The combined purchase price of the LeanTeq and The Aseptic Group acquisitions was approximately $338.5 million, net
of cash acquired and including the equity rollover from the LeanTeq Executives.
Dispositions
On December 31, 2020, we sold the shares of Technetics Group UK Limited ("Technetics Group UK") for a nominal cash
purchase price. As part of the agreement with the buyer, we delivered to the buyer £148,000 of cash to fund value added tax
("VAT") payments due for VAT liabilities already incurred and £50,000 for working capital. We incurred a loss upon the sale
of approximately £976,000 ($1.3 million).
On November 30, 2020, we closed on the sale of our bushing block business in our the Engineered Materials segment
principally located in Dieuze, France. Prior to finalizing the sale of the business, we determined it to be impaired and recorded a
$6.2 million impairment charge that consisted of $1.8 million of non-cash impairments of long-lived assets and $4.4 million of
cash payments due to the buyer at closing. The impairment charge was recorded in other operating expenses on our
consolidated statement of operations. Upon closing of the business, we recorded a $0.1 million gain on the sale of business in
other non-operating expense on our consolidated statement of operations. Total charges related to the exit of our bushing block
business were $6.1 million.
On November 20, 2020, we completed the sale of the Air Springs portion of our heavy-duty trucking business for $23.1
million in cash, net of an estimated working capital adjustment and fees, and a long-term promissory note with a fair-value of
$6.4 million (face value of $7.5 million). As part of the agreement with the buyer, we retained the U.S. accounts receivable for
the business, which created a large working capital adjustment at closing. The amount of retained accounts receivable in the
U.S. was approximately $8.6 million. The purchase price is subject to final working capital adjustments. In the fourth quarter
of 2020, we recorded a $0.1 million non-cash loss on sale of business to in the fourth quarter of 2020.
In August of 2020, subsequent to announcing the exit of our Motor Wheel® brake drum and Crewson® brake adjuster
brands in the second quarter of 2020, we identified a buyer and entered into a definitive agreement to sell the assets related to
the businesses. On September 2, 2020, we completed the sale for $8.9 million, net of transaction fees. This transaction resulted
in a $3.1 million loss on sale of the business in other non-operating expense on our consolidated statements of operations,
composed of a $3.0 million non-cash loss on the sales of assets and a $0.1 million loss on other expenses. Prior to finding a
buyer of the brands, we determined the assets were impaired and recorded restructuring and impairment charges of $7.4 million
25
in other operating expenses on our consolidated statements of operations. Total losses on the exit of our Motor Wheel® brake
drum and Crewson® brake adjuster brands recorded in 2020 were $10.5 million.
In the second quarter of 2020 we entered into an agreement to sell the Lunar® air disc brake business located in both the
U.S. and in Shanghai, China. The sale of the U.S. assets of the business closed in the third quarter of 2020 for $0.3 million,
resulting in a gain of $0.2 million recorded in non-operating income on our consolidated statement of operations. The sale of
the Lunar® manufacturing facility located in Shanghai, China closed in the fourth quarter of 2020 for $0.9 million, resulting in
no gain or loss. Prior to closing on the sale of the business, we determined the assets to be impaired and recorded a $2.1 million
impairment charge, of which $1.6 million was related to impairment of long-lived assets and $0.5 million related to the
impairment of inventory. The impairment of long-lived assets was recorded in other operating expense and the impairment of
inventory was recorded in cost of sales on our consolidated statement of operations. Total net loss related to the exit of the
Lunar® air disc brake business was $1.9 million.
On December 12, 2019, certain of our subsidiaries entered into a Membership Interest Purchase Agreement with Arcline
FM Holdings, LLC (“Arcline FM Holdings”), an affiliate of Arcline Investment Management, LP, pursuant to which we agreed
to transfer all of the outstanding equity interests in our indirect subsidiary, Fairbanks Morse, LLC (“Fairbanks Morse”), to
Arcline FM Holdings and to cause one of our subsidiaries to sell certain related Canadian assets to an affiliate of Arcline FM
Holdings, for an aggregate purchase price of $450 million. This divestiture transaction was completed on January 21, 2020.
Fairbanks Morse manufactured heavy-duty, medium-speed reciprocating engines used primarily in marine and power
generation applications and comprised our entire Power Systems segment. In light of the entry into the definitive agreement in
December 2019 to divest Fairbanks Morse, we classified the Power Systems segment as a discontinued operation for the fourth
quarter and full year 2019, and all prior quarterly and annual financial results of EnPro have been recast to reflect the Power
Systems segment as a discontinued operation. Unless otherwise indicated, amounts discussed in this Item 8 pertain to
continuing operations only (see Note 2 to our Consolidated Financial Statements in this Form 10-K for information on
discontinued operations and the disposition of Fairbanks Morse).
In September 2019, we sold certain assets and certain liabilities of our brake products business unit located in Rome,
Georgia, which was included in our Sealing Technologies segment. The aggregate sales price for the transaction was $6.8
million, of which we received $3.6 million in September 2019 at the closing of the sale of the business and $0.1 million in the
fourth quarter of 2019 that was applied to the sale of the building, which closed in February 2020. On the closing of the sale of
the building, we received $2.9 million and received the balance of $0.2 million in the fourth quarter of 2020.
After attempts to sell the ATDynamics business during the fourth quarter of 2019, in January 2020, we decided to shut
down the ATDynamics business (an asset group in the Stemco division of our Sealing Technologies segment). As a result of the
unsuccessful sales process, we reviewed the carrying amounts of long-lived assets at December 31, 2019 and determined the
carrying amounts were not recoverable. As a result of this assessment, we recorded a $2.6 million impairment loss in the fourth
quarter of 2019. In connection with the decision to shut down the business, we decided to not complete and sell the inventory
we had on hand and recognized a $1.5 million inventory impairment.
We review the carrying amounts of long-lived assets when certain events or changes in circumstances indicate that the
carrying amounts may not be recoverable. In 2020, sales declines by businesses utilizing two of the indefinite-lived trademarks
within our Sealing Technologies segment were determined to be triggering events for an impairment analysis. Based on the
results of this analysis, we recorded a $16.1 million impairment of indefinite-lived trademarks in the third quarter.
In the fourth quarter of 2019, in consideration of the financial performance of the Motorwheel business, an asset group in
the Stemco division of our Sealing Technologies segment, we determined that a test of Motorwheel's recoverability was
required. As a result of this test, all long-lived assets of Motorwheel were determined to be impaired, resulting in an
impairment loss of $21.0 million, which equaled the excess of these assets' net book value at December 31, 2019 over their fair
value.
COVID-19 Response.
As COVID-19 has spread, it has significantly impacted the health and economic environment around the world. Our
customers are principally global manufacturers and the impact of the COVID-19 pandemic on general economic conditions,
and more deleterious effects on certain markets, such as oil and gas and automotive, are having and will continue to have
negative implications on demand for their goods and consequently on their demand for our products and services. Because of
uncertainties with respect to the continuing severity and duration of the COVID-19 outbreak, the duration and terms of related
governmental orders restricting activities, and the timing and pace of any economic recovery as COVID-19 impacts ultimately
abate, we cannot predict with precision the extent and duration of any future decreased demand for our products and services
and the consequent impact on our business and financial results.
26
In March 2020, we established a COVID-19 Response and Support Team (the "Support Team"), which is made up of our
global executive leadership team with representatives from each functional area within the organization. The Support Team is
working diligently to manage our business continuity plans and coordinated response. We have planned for several contingency
scenarios and have taken decisive, informed action to limit the spread of COVID-19 while ensuring the continuity of our
businesses. We are leveraging direction from our internal safety protocols, international health organizations, such as the WHO
and the Centers for Disease Control, as well as local governments. We have local response teams at each of our facilities who
are available to respond to changes as they occur.
With respect to business operations and the protection of our employees, we have taken numerous actions including:
•
•
•
•
•
•
•
•
•
•
•
Suspension of all non-essential travel;
Implementation of mandatory work from home, where feasible;
Expansion of information technology infrastructure to enable working remotely and holding virtual meetings;
Implementation of employee testing and contact tracing;
Restrictions on visitors to EnPro facilities;
Training of employees in enhanced cleaning and disinfecting protocols and providing
supplemental personal protective equipment at each of our facilities;
Safe operating procedures such as temperature scanning and the use of masks;
Establishing social distancing protocols in our manufacturing sites;
Implementation of quarantining policies and practices with respect to any infected employee;
Creation of a dedicated communications platform and internal website to address questions from employees
and provide frequent updates; and,
Development of a virtual sales platform.
Although most of our businesses are granted "essential" business status under local government safety orders around the
world, we had to temporarily close several of our facilities during 2020. All of our primary manufacturing facilities are
currently open and have not experienced significant supply chain disruptions. Additionally, each of our businesses has
developed continuity and contingency plans, based on various scenarios in preparation for potential operational disruptions, to
permit us to adjust production levels to demand. We cannot predict if and when further closures or production changes may
arise as a result of implications related to the COVID-19 pandemic.
To help protect the strength of our financial position, we have implemented several measures including:
•
•
•
•
•
Aggressive cost management initiatives;
Discretionary spending reductions;
Capital expenditure prioritization;
Headcount optimization plans, as needed; and
Increased working capital monitoring to ensure timely accounts receivable collections and inventory level
optimization.
Refinancing
On October 17, 2018, we issued $350.0 million of aggregate principal amount of 5.75% Senior Notes due 2026 (the
"Senior Notes"). We applied the net proceeds of that offering, together with borrowings under our revolving credit facility, to
redeem the outstanding $450 million of aggregate principal amount of our 5.875% Senior Notes due 2022 (the "Old Notes").
The Old Notes were redeemed at a price equal to 102.938% of the aggregate principal amount thereof plus accrued and unpaid
interest to, but not including, the redemption date. We recorded a loss on the redemption of the Old Notes of approximately
$18.1 million in the fourth quarter of 2018.
Pension Settlement
On June 26, 2018, we entered into an agreement to purchase a group annuity contract to transfer approximately $68
million of our outstanding pension projected benefit obligations related to certain U.S. retirees or beneficiaries. The transaction
closed on July 3, 2018 and was funded with pension plan assets with a value of $70.9 million. As a result of this transaction a
pretax pension settlement charge of approximately $12.8 million was recognized in the third quarter of 2018.
27
Global Sales
Please refer to Item 1, "Business-Background" for information with respect to our sales by geographic region in 2020,
2019 and 2018.
Outlook
Financial highlights for the years ended December 31, 2020, 2019, and 2018 are as follows
Net sales
Income (loss) from continuing operations attributable to EnPro Industries, Inc.
Net income attributable to EnPro Industries, Inc.
Diluted earnings (loss) per share from continuing operations attributable to EnPro
Industries, Inc.
Adjusted income from continuing operations attributable to EnPro Industries,
Inc.1
Adjusted diluted earnings per share attributable to EnPro Industries, Inc.
continuing operations 1
Adjusted Segment EBITDA
Adjusted EBITDA 1
$
$
$
$
$
$
$
$
2020
2019
2018
(in millions, except per share data)
1,074.0 $
1,205.7 $
1,274.1
(23.7) $
184.4 $
7.8 $
38.3 $
(4.7)
19.6
(1.15) $
0.38 $
(0.22)
83.9 $
81.1 $
79.7
4.07 $
3.90 $
210.6 $
168.3 $
208.6 $
169.4 $
3.78
215.4
178.1
1
Reconciliation of these non-GAAP measures to their respective GAAP measure are located in the "— Reconciliation of Non-GAAP Financial
Measure to the Comparable GAAP Measure" at the end of this section.
During the year ended December 31, 2020, our end markets saw varied demand changes as a result of the economic
impacts of the COVID-19 pandemic. Despite the impact of COVID-19 on the broader global economy, we had a strong
financial performance in the fourth quarter and were able to achieve a number of important milestones as we continued to
transform our business, including completion of the Alluxa acquisition and the sale of STEMCO’s Air Springs and GGB’s
bushing block businesses. Full-year sales growth in semiconductor, food and pharmaceuticals, and power generation markets,
including the contributions from the acquisitions of LeanTeq, the Aseptic Group, and Alluxa, was more than offset by sales
weakness within the general industrial, oil and gas, heavy-duty truck, aerospace, and automotive markets resulting from the
impact of the global COVID-19 pandemic. The decline in sales was also driven by the divestitures of businesses in connection
with our portfolio reshaping strategy.
Our year-to-date adjusted segment EBITDA was slightly up compared to the prior year, mainly due to contributions by
our acquisitions of Alluxa, LeanTeq, and Aseptic. Excluding the impact of acquisitions and divestitures and the impact foreign
exchange had on our results, we saw approximately a 14.1% decrease in adjusted segment EBITDA from the prior year. This
was mainly attributable to decreased sales due to the challenging conditions of COVID-19. While these challenging conditions
have continued to date and some of our businesses continue to experience reduced order levels compared to prior-year levels,
we will stay focused on cost management and the achieving the benefits of our portfolio reshaping to help us obtain anticipated
increased adjusted segment EBITDA in 2021.
In connection with changes to our segmentation in the fourth quarter of 2020, we aligned the businesses in our Sealing
Technologies segment under common leadership and are implementing a shared-services structure. The new structure will
allow us to reduce complexity, while increasing efficiency and providing cost savings to the Sealing Technologies segment. We
expect to incur restructuring charges in 2021 as we continue to refine the structure of the organization.
The net proceeds from the divestiture of Fairbanks Morse on January 21, 2020 have allowed us to deleverage our balance
sheet. We believe our cash balance of approximately $230 million at December 31, 2020 and the availability of $389 million
for future borrowings on our revolving credit facility will provide us with ample liquidity to continue the reshaping of the
EnPro portfolio. We remain committed to maintaining a strong balance sheet, focusing on aftermarket exposure and recurring
revenue opportunities, and leveraging the EnPro Capability Center for continuous improvement and increased value. The EnPro
Capability Center is our enterprise-wide program to deploy capabilities across the company to improve productivity, efficiency,
and innovation. It is based on lean manufacturing concepts to create value by maintaining world class standards, increasing cash
28
flow and margins, empowering employees with a learning and ownership-based mentality and instilling a desire to learn from
others, contribute to others, and ensure company-wide commitment and accountability.
While the merger and acquisition environment has been impacted by the COVID-19 pandemic, in connection with our
growth strategy, we will continue to evaluate making additional acquisitions to take advantage of opportunities that arise. We
may consider making additional divestitures over time and under the right circumstances, to further our long-term strategic
goals of refocusing our portfolio on businesses with compelling margins, leading technology, high cash flow return on
investment, and favorable secular tailwinds.
We remain committed to our strategy to create shareholder value through earnings growth and balanced capital allocation.
We remain focused on disciplined investments for organic growth and innovation, strategic acquisitions, and returning capital
to shareholders through dividends and share repurchases. In October 2018, our board of directors authorized a two-year
program for expenditures of up to $50.0 million of our outstanding common shares. Prior to the expiration of this authorization
in October 2020, we repurchased a total of 0.3 million shares for $20.3 million, of which we repurchased 0.1 million shares for
$5.3 million in 2020 and we repurchased 0.2 million shares for $15.0 million in 2019. In October of 2020, our board of
directors authorized a new two-year program of up to $50.0 million for the repurchase of our common shares through October
2022. We have yet to make any repurchases under the new authorization. In February 2021, our board of directors approved an
increase in the quarterly dividend from $0.26 per share to $0.27 per share.
In connection with our growth strategy, we will continue to evaluate acquisitions; however, the effect of such acquisitions
cannot be predicted and therefore is not reflected in this outlook.
29
Results of Operations
Sales
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Intersegment sales
Total sales
Adjusted Segment EBITDA
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Total Adjusted Segment EBITDA
Reconciliations of Adjusted Segment EBITDA to income (loss)
from continuing operations before income taxes
Adjusted Segment EBITDA
Acquisition and divestiture expenses
Non-controlling interest compensation allocation
Amortization of the fair value adjustment to acquisition date
inventory
Restructuring and impairment costs
Depreciation and amortization expense
Total Segment Profit
Corporate expenses
Interest expense, net
Other expense, net
Income (loss) from continuing operations before income taxes
Years Ended December 31,
2020
2019
(in millions)
2018
$
$
$
$
$
$
636.7 $
171.2
275.0
1,082.9
(8.9)
1,074.0 $
131.0 $
47.1
32.5
210.6 $
210.6 $
(9.6)
(2.9)
(3.0)
(30.6)
(70.7)
93.8
(37.9)
(14.9)
(67.8)
(26.8) $
762.4 $
120.2
331.3
1,213.9
(8.2)
1,205.7 $
131.4 $
23.5
53.7
208.6 $
208.6 $
(8.4)
(0.5)
—
(8.7)
(67.9)
123.1
(36.4)
(18.2)
(64.2)
4.3 $
813.1
114.0
355.0
1,282.1
(8.0)
1,274.1
137.4
17.6
60.4
215.4
215.4
(1.9)
—
—
(22.1)
(66.1)
125.3
(34.9)
(27.3)
(48.0)
15.1
We measure operating performance based on segment earnings before interest, income taxes, depreciation, amortization,
and other selected items ("Adjusted Segment EBITDA" or "Segment AEBITDA"), which is segment profit excluding
acquisition and divestiture expenses, restructuring costs, impairment charges, non-controlling interest compensation, and
depreciation and amortization. Adjusted Segment EBITDA is not defined under GAAP and may not be comparable to
similarly-titled measures used by other companies.
Segment profit is total segment revenue reduced by operating, restructuring and other expenses identifiable with the
segment. Corporate expenses include general corporate administrative costs. Expenses not directly attributable to the segments,
including corporate expenses, net interest expense, asbestos-related expenses, asset impairments, gains/losses related to the sale
of assets, and income taxes are not included in the computation of segment profit. The accounting policies of the reportable
segments are the same as those for EnPro.
Non-controlling interest compensation allocation represents compensation expense associated with a portion of the
rollover equity from the acquisitions of LeanTeq and Alluxa being subject to reduction for certain types of employment
terminations of the sellers. This expense is recorded in selling, general, and administrative expenses on our Consolidated
Statements of Operations and is directly related to the terms of the acquisitions. This expense will continue to be recognized as
compensation expense over the term of the put and call options associated with each of these acquisitions unless certain
employment terminations have occurred.
30
Corporate expenses for 2018 reflect the reclassification of allocated personnel costs from the discontinued Power Systems
segment to corporate expenses. The allocated personnel costs relate to services provided to the Power Systems segment by
corporate personnel which cannot be reflected in results of discontinued operations pursuant to applicable accounting guidance.
The amounts reclassified from Power Systems to corporate expenses were $2.2 million for the year ended December 31, 2018.
Other expense, net in the table above contains all items included in other (operating) expense and other expense, net on
our Consolidated Statements of Operations for the years ending December 31, 2020, 2019, and 2018 with the exception of
$26.2 million, $6.3 million, and $19.1 million, respectively, of segment restructuring costs and $0.7 million of corporate
restructuring costs in 2019. As noted previously, restructuring costs are considered to be a part of segment profit. Additionally,
other expense, net in the table above for the years ending December 31, 2020, 2019, and 2018 also includes $6.1 million, $4.1
million, and $2.6 million, respectively, of miscellaneous expenses that are either not associated with a particular segment or not
considered part of administering the corporate headquarters. These expenses are included in selling, general and administrative
expense on our Consolidated Statements of Operations.
2020 Compared to 2019
Sales of $1,074.0 million in 2020 decreased 10.9% from $1,205.7 million in 2019. The following table summarizes the
impact of acquisitions, divestitures, and foreign currency on sales by segment:
Sales
Percent Change 2020 vs. 2019
increase/(decrease)
EnPro Industries, Inc.
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Acquisitions and
divestitures
Foreign
Currency
Organic
Total
0.4 %
(4.1) %
30.9 %
— %
0.2 %
— %
0.6 %
0.2 %
(11.5) %
(12.4) %
10.9 %
(17.2) %
(10.9) %
(16.5) %
42.4 %
(17.0) %
Following are the key effects of acquisitions and divestitures on sales for 2020 compared to 2019:
•
•
•
•
•
•
Acquisition of The Aseptic Group in the third quarter of 2019 in the Sealing Technologies segment;
Acquisition of LeanTeq in the third quarter of 2019 in the Advanced Surface Technologies segment;
Acquisition of Alluxa in the fourth quarter of 2020 in the Advanced Surface Technologies segments;
Exit of the brake products business unit located in Rome, Georgia in the third quarter of 2019 in the Sealing
Technologies segment;
Divestiture of Motorwheel in the third quarter of 2020 in the Sealing Technologies segment; and
Divestiture of AirSprings in the fourth quarter of 2020 in the Sealing Technologies segment.
Following is a discussion of operating results for each segment during 2020 compared to 2019:
Sealing Technologies. Sales of $636.7 million in 2020 reflect a 16.5% decrease compared to $762.4 million in 2019.
Excluding the impact of acquisition sales ($5.8 million) and divestitures sales ($43.6 million), sales were down 12.4 % or $88.9
million. This decline was due primarily to decreased demand in the heavy-duty truck, general industrial, and aerospace markets,
despite growth in the food and pharmaceutical market.
Segment AEBITDA of $131.0 million in 2020 decreased 0.3% from $131.4 million in 2019. Segment AEBITDA margin
increased from 17.2% in 2019 to 20.6% in 2020. Excluding the impact of Segment AEBITDA from acquisitions ($1.9 million),
losses from divestitures ($5.0 million), the unfavorable impact of foreign exchange translation ($0.6 million), Segment
AEBITDA was down 6.0% or $8.2 million. The Segment AEBITDA impact from our reduced sales ($44.1 million) was offset
by reduced marketing and selling expenses ($8.0 million), lower travel-related expenses related to the COVID-19 pandemic
($6.3 million), decreased material costs ($5.7 million), reduced warranty charges ($5.1 million), improved product mix ($4.2
million), decreased research and development spend ($3.2 million), increased pricing ($2.9 million), and manufacturing
efficiencies ($2.3 million).
Advanced Surface Technologies. Sales of $171.2 million in 2020 reflect a 42.4% increase compared to $120.2 million in
2019. Excluding the impact of sales attributable to acquisitions ($37.0 million) and the impact of favorable foreign exchange
31
translation ($0.8 million), sales were up 10.9 % or $13.1 million. This increase was driven by continued strength within the
semiconductor market.
Segment AEBITDA of $47.1 million in 2020 increased 100.4% from $23.5 million in 2019. Segment AEBITDA margin
increased from 19.6% in 2019 to 27.5% in 2020. Excluding the impact of Segment AEBITDA from acquisitions ($23.5 million)
and the favorable impact of foreign exchange translation ($0.5 million), Segment AEBITDA was down 1.7% or $0.4 million.
The Segment AEBITDA impact from our increased sales volume ($7.1 million) was offset by an unfavorable product mix and
increased production costs ($7.1 million).
Engineered Materials. Sales in 2020 decreased 17.0% to $275.0 million from $331.3 million in 2019. Excluding the
impact of favorable foreign exchange translation ($0.8 million), sales were down $57.1 million, or 17.2%, primarily due to
weakness in automotive, oil and gas, and general industrial market despite growth in the power generation market.
Segment AEBITDA of $32.5 million in 2020 decreased from $53.7 million in 2019, a decrease of $21.2 million, or
39.5%. Segment AEBITDA margin was 11.8%, down from the 16.2% in 2019. Excluding the impact of favorable foreign
exchange translation ($0.4 million), Segment AEBITDA decreased $21.7 million, or 40.4%, driven mainly by decreased sales
volume ($35.3 million) and an unfavorable product mix ($4.1 million), partially offset by manufacturing savings driven by
restructuring efforts ($7.2 million), reduced marketing and selling costs ($5.7 million), lower travel-related expenses ($2.8
million), and reduced incentive compensation expenses ($2.1 million).
Corporate expenses for 2020 increased $1.5 million as compared to 2019. The increase was driven primarily by higher
professional fees and consulting costs ($3.3 million). These costs were partially offset by reduced travel, and meetings expenses
due to the COVID-19 pandemic ($1.2 million) and less restructuring costs ($0.7 million).
Interest expense, net in 2020 decreased by $3.3 million as compared to 2019, primarily due to lower average outstanding
debt.
Other expense, net in 2020 increased by $3.6 million as compared to 2019, due mainly to a $23.5 million increase in
environmental charges, a $7.5 million legal settlement of a products liability claim for goods last supplied in 2008, and $2.0
million of increased miscellaneous expenses that are either not associated with a particular segment or not considered part of
administering the corporate headquarters, including COVID-19 related expenses such as facility cleaning fees and personal
protective equipment. The increase in environmental costs was principally due to the resolution of environmental litigation
brought by the State of Mississippi to recover remediation costs it had incurred with respect to the Water Valley site ($14.0
million) and the establishment of baseline reserves in the fourth quarter for two environmental matters for which we previously
did not have sufficient information to estimate a range of reasonable likely remediation costs ($25.4 million, offset by a
probable recovery of $3.8 million from the U.S. government). These increases were partially offset by a $13.7 million decrease
in losses on sales of businesses, $9.6 million in lower impairment charges, and a $6.3 million reduction in pension (non-service)
expense.
Income tax benefit was $3.5 million in both 2020 and 2019. The effective tax rates for 2020 and 2019 were 13.2% and
(79.3%) respectively. The effective tax rate for 2020 was primarily driven by the foreign rate differential associated with
certain foreign divestitures and earnings that were subject to higher tax rates, the effect of these items resulted in a net $5.2
million increase in tax expense. Our effective tax rate was also impacted by global intangible low-taxed income (“GILTI”) high
tax exception election and non-deductible expenses which resulted in a net $2.7 million decrease in tax expense.
Loss from continuing operations was $23.3 million, or $1.15 per share, in 2020 compared to income from continuing
operations of $7.8 million, or $0.38 per share, in 2019.
2019 Compared to 2018
Sales of $1,205.7 million in 2019 decreased 5.4% from $1,274.1 million in 2018. The following table summarizes the
impact of acquisitions and foreign currency by segment:
32
Sales
increase/(decrease)
EnPro Industries, Inc.
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Percent Change 2019 vs. 2018
Acquisitions/
Divestiture
Foreign
Currency
Organic
Total
(0.4) %
(1.7) %
7.8 %
— %
(1.5) %
(1.0) %
0.1 %
(3.1) %
(3.5) %
(3.5) %
(2.5) %
(3.6) %
(5.4) %
(6.2) %
5.4 %
(6.7) %
Following are the key effects of acquisitions on sales for 2019 compared to 2018:
•
•
•
•
Exit of the industrial gas turbine business in the second quarter of 2018 in the Sealing Technologies segment;
Acquisition of The Aseptic Group in the third quarter of 2019 in the Sealing Technologies segment;
Acquisition of LeanTeq in the third quarter of 2019 in the Advanced Surface Technologies segment; and
Exit of the brake products business unit located in Rome, Georgia in the third quarter of 2019 in the Sealing
Technologies segment.
Following is a discussion of operating results for each segment during 2019 compared to 2018:
Sealing Technologies. Sales of $762.4 million in 2019 reflect an 6.2% decrease compared to $813.1 million in 2018.
Excluding the benefit of acquisitions ($2.5 million), sales from divestitures ($7.3 million), and favorable foreign exchange
translation ($1.0 million), sales were down 3.5% or $27.6 million. This decline was due primarily to softness in heavy-duty
trucking and power generation markets, partially offset by strengthening in aerospace, food and pharmaceutical, and oil and gas
markets.
Segment AEBITDA of $131.4 million in 2019 decreased 4.4% from $137.4 million in 2018. Segment AEBITDA margin
increased from 16.9% in 2018 to 17.2% in 2019. Excluding the impact of Segment AEBITDA from acquisitions ($1.9 million),
losses from divestitures ($5.7 million) and the unfavorable impact of foreign exchange translation ($1.6 million), Segment
AEBITDA was down 8.3% or $11.9 million. The decrease in Segment AEBITDA was primarily attributable to the reduced
sales volume ($16.2 million) and an unfavorable product mix ($5.4 million), partially offset by increased pricing ($9.0 million),
and reduced warranty charges ($3.4 million).
Advanced Surface Technologies. Sales of $120.2 million in 2019 reflect a 5.4% increase compared to $114.0 million in
2018. Excluding the impact of acquisition sales ($9.0 million) sales were down 2.5 % or $2.8 million. This decrease was driven
by a semiconductor market slowdown in 2019, partially offset by gains in aerospace and oil and gas markets.
Adjusted Segment EBITDA of $23.5 million in 2019 increased 33.5% from $17.6 million in 2018. Adjusted EBITDA
margins for the segment increased from 15.4% in 2018 to 19.6% in 2019. Excluding the impact from acquisitions ($4.9
million), Segment Adjusted EBITDA was up 5.7% or $1.0 million. The increase in Adjusted Segment EBITDA was driven by a
favorable product mix ($1.2 million) and manufacturing efficiencies ($2.3 million), partially offset by the aforementioned
decrease in sales volume ($1.5 million) and a decrease in prices ($1.3 million).
Engineered Materials. Sales in 2019 decreased 6.7% to $331.3 million from $355.0 million in 2018. Excluding the impact
of unfavorable foreign exchange translation ($11.0 million), sales were down 3.6% or $12.7 million primarily due to weakness
in automotive and general industrial markets, partially offset by growth in oil and gas markets.
Segment AEBITDA of $53.7 million in 2019 decreased from $60.4 million in 2018, a decrease of $6.7 million, or 11.1%.
Segment AEBITDA margin for the segment was 16.2%, down from the 17.0% in 2018. Excluding the impact of unfavorable
foreign exchange translation ($2.3 million), Segment AEBITDA decreased $4.4 million, or 7.3%, driven mainly by decreased
sales volume ($7.9 million) and impacts of tariffs ($1.0 million), partially offset by reduced incentive compensation expense
($3.3 million) and a more favorable product mix ($1.5 million).
Corporate expenses for 2019 increased $1.5 million as compared to 2018. The increase was driven primarily by higher
restructuring costs ($1.0 million), increased professional services costs ($1.0 million), the favorable impact in 2018 from
recognizing share based awards at fair value due to the decline in our share price during the period ($1.3 million), and increased
costs related to the sale of Fairbanks Morse ($0.8 million), partially offset by decreased research and development costs ($1.0
million) due to the discontinuance of corporate-funded research and development beginning in 2019 and reduced medical costs
($1.9 million).
33
Interest expense, net in 2019 decreased by $9.1 million as compared to 2018, primarily due to lower average outstanding
debt and a $3.2 million increase in interest credits in 2019 associated with our cross-currency swap agreements.
Other expense, net in 2019 increased by $16.2 million as compared to 2018, due mainly to $25.7 million of impairment
charges in 2019, a $16.3 million loss on sale of our brake products business in 2019, $1.1 million increase in environmental
reserves and costs from previously disposed of businesses, partially offset by a $8.6 million less pension (non-service) costs in
2019 and a $18.1 million expense in 2018 for extinguishment of debt upon the redemption of the Old Notes.
Income tax benefit was $3.5 million in 2019 and income tax expense was $19.8 million in 2018. The effective tax rates
for 2019 and 2018 were (79.3%) and 131.4%, respectively. The effective tax rate for 2019 was lower than the U.S. federal
statutory income tax rate of 21.0% primarily due to the release of foreign valuation allowances, offset by tax on the global
intangible low-taxed income (“GILTI”). The effect of these items resulted in a net $12.9 million decrease in tax expense. Our
effective tax rate was also increased by certain of our earnings that were subject to higher tax rates in foreign jurisdictions.
Income from continuing operations was $7.8 million, or $0.38 per share, in 2019 compared to loss from continuing
operations of $4.7 million, or $0.22 per share, in 2018.
Restructuring and Other Costs
We incurred $46.7 million, $35.1 million and $22.2 million of restructuring and impairment costs during the years ended
December 31, 2020, 2019 and 2018, respectively.
In 2020 our Stemco business in our Sealing Technologies segment underwent significant restructuring and portfolio
reshaping activities, including the exit of our Motorwheel® and Crewson® brake adjuster brands and our Lunar® air disc brake
business. In our Engineered Materials segment, we were able to successfully restructure and divest our bushing block business
operated in Dieuze, France. We also took significant restructuring activities in our CPI German workforce.
Additionally, sales declines by business utilizing two indefinite lived trademarks within our Sealing Technologies
segment were determined to be triggering events for impairment analysis and an impairment charge was taken. Substantially all
costs associated with these initiatives, as well as other smaller restructuring and impairment charges, were incurred or accrued
for as of December 31, 2020. Workforce reductions in 2020 associated with our restructuring activities totaled 289
administrative and manufacturing positions. Of the $46.7 million of restructuring and impairment charges taken in 2020, $17.4
million was related to severance and other cash restructuring charges while $29.3 million was related to impairments and write-
downs of assets, including long-lived and indefinite-lived intangible assets, property, plant, and equipment, and inventory.
During 2019, we conducted several restructuring activities in our Stemco division in the Sealing Technologies segment,
mostly consisting of the exit of our automatic tire inflation systems and RF-based tire pressure monitoring and inflation system
product lines and impairments related to intangible assets and property, plant and equipment of our Motorwheel product line.
We also recorded restructuring and impairment costs related the shut down of our ATDynamics business completed in January
2020. Substantially all costs associated with these initiatives, as well as other smaller restructuring and impairment charges,
were incurred or accrued for as of December 31, 2019. Workforce reductions in 2019 associated with our restructuring
activities totaled 121 administrative and manufacturing positions. Of the $35.1 million of restructuring and impairment charges
taken in 2019, $6.3 million was related to severance and other cash restructuring charges while $28.8 million was related to
impairments and write-downs of assets, including long-lived and indefinite-lived intangible assets, property, plant, and
equipment, and inventory.
In 2018, we commenced and completed the exit from our industrial gas turbine business in the Sealing Technologies
segment located in Oxford, Massachusetts and we implemented a restructuring plan under which our Stemco heavy-duty truck
business in the Sealing Technologies segment discontinued the manufacturing of brake drum friction. Substantially all costs
associated with these initiatives were incurred in 2018, with the exception of severance costs related to our exit of the
manufacturing of brake drum friction occurring in January 2019. Workforce reductions in 2018 associated with our exit from
the industrial gas turbine business and other smaller targeted restructuring activities totaled 98 administrative and
manufacturing positions. Of the $22.2 million of restructuring and impairment charges taken in 2019, $8.0 million was related
to severance and other cash restructuring charges while $14.2 million was related to impairments and write-downs of assets,
including long-lived intangible assets, property, plant, and equipment, and inventory.
Please see the "Overview and Outlook" section of Management's Discussion and Analysis and Note 4 to our consolidated
financial statements for further information.
34
Liquidity and Capital Resources
Cash requirements for, but not limited to, working capital, capital expenditures, acquisitions, and debt repayments have
been funded from cash balances on hand, revolver borrowings and cash generated from operations. We are proactively pursuing
acquisition opportunities. Should we need additional capital, we have resources available, which are discussed in this section
under the heading “Capital Resources.”
As of December 31, 2020, we held $83.4 million of cash and cash equivalents in the United States and $146.1 million of
cash outside of the United States. If the funds held outside the United States were needed for our operations in the U.S., we
have several methods to repatriate without significant tax effects, including repayment of intercompany loans, distributions
subject to a 100 percent dividends-received deduction for income tax purposes, or distributions of previously-taxed earnings.
Because of the transition tax, GILTI, and Subpart F provisions, undistributed earnings of our foreign subsidiaries totaling
$196 million at year-end have been subjected to U.S. income tax or are eligible for the 100 percent dividends-received
deduction under Section 245A of the Internal Revenue Code ("IRC") provided in the Tax Cuts and Jobs Act. Whether through
the application of the 100 percent dividends received deduction, or distribution of these previously-taxed earnings, we do not
intend to distribute foreign earnings that will be subject to any significant incremental U.S. or foreign tax. During 2020, we
repatriated $81.4 million of earnings from our foreign subsidiaries, resulting in no incremental U.S. tax and only $2.0 million of
foreign withholding taxes. As a result, we have not recognized a deferred tax liability on our investment in foreign subsidiaries.
The net operating loss (“NOL”) resulting from a 2017 deduction in connection with the funding of our asbestos
settlement trust was carried back to offset federal taxable income reported in the preceding ten years. We filed an initial
carryback claim in May 2018 and received federal refunds totaling $96.9 million in 2018 ($95.8 million in June 2018 and $1.1
million in July 2018) and an additional $17.5 million in February 2019. In addition, amended income tax returns for the
preceding ten years were filed in December 2018 to capture foreign tax credits freed up during the carryback period, and we
expect federal refunds in 2021 from those returns totaling $21.8 million. The carryback claim and the amended returns have
also freed up an additional $14.9 million in foreign tax credits, of which approximately $1.6 million were utilized to offset our
2019 federal tax liability with the remaining balance utilized to reduce taxes in 2020 and 2021.
Proceeds from Disposition
On December 13, 2019, we announced the signing of a definitive agreement to sell Fairbanks Morse, which transaction
closed on January 21, 2020. Net proceeds received were approximately $444.3 million, of which $143.9 million was utilized to
pay off all of the then outstanding borrowings under the Revolving Credit Facility (defined below in "—Capital Resources").
Taxes on the gain of approximately $40 million were paid in 2020.
Cash Flows
Operating activities of continuing operations provided cash in the amount of $57.6 million, $130.8 million and $212.8
million in 2020, 2019 and 2018, respectively. The decrease in operating cash flows in 2020 versus 2019 was primarily
attributable to increased tax payments ($58.4 million) and increased payments related to environmental remediation ($26.5
million), partially offset by improved working capital. The decrease in operating cash flow in 2019 versus 2018 was primarily
attributable to higher income tax refunds in 2018 driven by the asbestos settlement trust funding payments ($86.7 million),
higher insurance receipts in 2018 ($24.1), partially offset by higher income from continuing operations and lower net working
capital.
Investing activities of continuing operations provided $216.1 million in 2020, used $331.1 million in 2019, and provided
$1.1 million of cash in 2018. The increase in cash provided by investing activities in 2020 was primarily driven by cash
received from divestitures, including the sales of Fairbanks Morse, our Air Springs business and other businesses during the
year ($475.1), partially offset by cash used in the acquisition of Alluxa ($238.3 million) as compared to cash used in 2019,
primarily attributable to acquisitions of LeanTeq and Aseptic ($310.5 million). The increased cash usage in 2019 as compared
to 2018 was driven by $310.5 million used for acquiring businesses, $26.3 million more cash provided by investing activities in
2018 for the sale of fixed assets and businesses, primarily from the sale of land and building at Oxford, Massachusetts as we
exited our industrial gas turbine business of our Technetics division in the Sealing Technologies segment, and $9.3 million
provided by settling derivative contracts in 2018, partially offset by lower capital expenditures in 2019 ($14.5 million).
Financing activities of continuing operations used $167.3 million in cash in 2020, primarily attributable to net payments
on our Revolving Credit Facility and Term Loan Facility (as defined below) of $138.3 million and $21.7 million in payments of
dividends. Financing activities of continuing operations provided $123.8 million in 2019 primarily from $17.1 million net draw
on the Revolving Credit Facility, and $149.1 million net proceeds from a new term loan facility, partially offset by $20.9
million in dividends paid and $15.0 million in cash used to repurchase stock. Financing activities used $252.4 million in 2018,
35
primarily from $118.4 million in redemption of the Old Notes, net of the net proceeds from the issuance of the Senior Notes
(which terms are defined below), $56.8 million in net repayments on our revolving credit facility, $50.0 million in cash used to
repurchase stock, and $20.3 million in dividends paid. Funding for this activity was mainly derived from the previously
discussed tax refunds and repatriation of previously taxed earnings from our foreign subsidiaries.
Capital Resources
Senior Secured Revolving Credit Facility. On September 25, 2019, we entered into a First Amendment (the "First
Amendment") to our Second Amended and Restated Credit Agreement (the "Credit Agreement”) among EnPro Industries, Inc.
and EnPro Holdings, Inc. as borrowers, the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and Letter of Credit Issuer. The Credit Agreement provides for a five-year, senior
secured revolving credit facility of $400.0 million (the “Revolving Credit Facility”) and a five-year, senior secured term loan
facility of $150.0 million (the "Term Loan Facility" and, together with the Revolving Credit Facility, the "Facilities"). The
Amended Credit Agreement also provides that the borrowers may seek incremental term loans and/or additional revolving
credit commitments in an amount equal to the greater of $225.0 million and 100% of consolidated EBITDA (as defined) for the
most recently ended four-quarter period for which we have reported financial results, plus additional amounts based on a
consolidated senior secured leverage ratio.
Initially, borrowings under the Facilities bore interest at an annual rate of LIBOR plus 1.50% or base rate plus 0.50%,
with the interest rates under the Facilities being subject to incremental increases based on a consolidated total net leverage
ratio. In addition, a commitment fee accrues with respect to the unused amount of the Revolving Credit Facility at an annual
rate of 0.175%, which rate is also subject to incremental increase or decrease based on a consolidated total net leverage ratio.
The Term Loan Facility amortizes on a quarterly basis in an annual amount equal to 2.50% of the original principal
amount of the Term Loan Facility in each of years one through three, 5.00% of such original principal amount in year four,
and 1.25% of such original principal amount in each of the first three quarters of year five, with the remaining outstanding
principal amount payable at maturity.
The Facilities are subject to prepayment with the net cash proceeds of certain asset sales not reinvested in acquisitions
within a specified period, casualty or condemnation events, and non-permitted debt issuances. There is no prepayment penalty
for a full or partial repayment of the Facilities at any time.
The Company and EnPro Holdings are the permitted borrowers under the Revolving Credit Facility. We have the ability
to add foreign subsidiaries as borrowers under the Revolving Credit Facility for up to $100.0 million (or its foreign currency
equivalent) in aggregate borrowings, subject to certain conditions. Each of our domestic, consolidated subsidiaries (other than
any subsidiaries that may be designated as "unrestricted" by the Company from time to time) is required to guarantee the
obligations of the borrowers under the Revolving Credit Facility, and each of our existing domestic, consolidated subsidiaries
has entered into the Credit Agreement to provide such a guarantee.
Borrowings under the Facilities are secured by a first-priority pledge of the following assets:
•
•
•
100% of the capital stock of each domestic, consolidated subsidiary of the Company (other than unrestricted
subsidiaries);
65% of the capital stock of any first tier foreign subsidiary of the Company and its domestic, consolidated
subsidiaries (other than unrestricted subsidiaries); and
substantially all of the assets (including, without limitation, machinery and equipment, inventory and other goods,
accounts receivable, certain owned real estate and related fixtures, bank accounts, general intangibles, financial
assets, investment property, license rights, patents, trademarks, trade names, copyrights, chattel paper, insurance
proceeds, contract rights, hedge agreements, documents, instruments, indemnification rights, tax refunds and cash)
of the Company and its domestic, consolidated subsidiaries (other than unrestricted subsidiaries)
The Credit Agreement contains certain financial covenants and required financial ratios, including:
•
a maximum consolidated total net leverage ratio of not more than 4.25 to 1.0 (with total debt, for the purposes of
such ratio, to be net of up to $125 million of unrestricted cash of EnPro Industries, Inc. and its domestic,
consolidated subsidiaries), which ratio will decrease to 4.0 to 1.0 for each fiscal quarter beginning with the fiscal
quarter ending December 31, 2020 and, once so decreased, may be increased (up to three times) at the borrowers'
option to not more than 4.5 to 1.0 for the for-quarter period following a significant acquisition; and
•
a minimum consolidated interest coverage ratio of at least 2.5 to 1.0.
36
The Credit Agreement contains affirmative and negative covenants (subject, in each case, to customary exceptions and
qualifications), including covenants that limit our ability to, among other things:
grant liens on our assets;
incur additional indebtedness (including guarantees and other contingent obligations);
•
•
• make certain investments (including loans and advances);
• merge or make other fundamental changes;
•
•
• make changes in the nature of our business;
enter into transactions with our affiliates;
•
•
enter into burdensome contracts; and
• modify or terminate documents related to certain indebtedness.
sell or otherwise dispose of property or assets;
pay dividends and other distributions and prepay certain indebtedness;
We were in compliance with all covenants of the Credit Agreement as of December 31, 2020. On January 19, 2021, we
entered into an amendment to the credit facility that waived the requirement to prepay the Term Loan Facility with remaining
excess net cash proceeds related to the sale of Fairbanks Morse that had not been reinvested in operating assets within 365 days
from the date of the sale.
The borrowing availability under our Revolving Credit Facility at December 31, 2020 was $388.6 million after giving
consideration to $11.4 million of outstanding letters of credit.
Senior Notes. On October 17, 2018, we completed the offering of $350 million aggregate principal amount of our 5.75%
senior notes due 2026 (the "Senior Notes") and applied the net proceeds of that offering, together with borrowings under the
Revolving Credit Facility, to redeem on October 31, 2018 the full $450 million aggregate principal amount of our outstanding
5.875% senior notes due 2022 (the "Old Notes"), of which $300 million aggregate principal amount were issued in 2014 and
$150 million aggregate principal amount were issued in a follow-on offering in 2017. The Old Notes were redeemed at a price
equal to 102.938% of the aggregate principal amount thereof plus accrued and unpaid interest to, but not including, the
redemption date. We recorded a loss on the redemption of the Old Notes of approximately $18.1 million in the fourth quarter
of 2018.
The Senior Notes were issued to investors at 100% of the principal amount thereof. The Senior Notes are unsecured,
unsubordinated obligations of EnPro and mature on October 15, 2026. Interest on the Senior Notes accrues at a rate of 5.75%
per annum and is payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing April 15,
2019. The Senior Notes are required to be guaranteed on a senior unsecured basis by each of EnPro’s existing and future direct
and indirect domestic subsidiaries that is a borrower under, or guarantees, our indebtedness under the Revolving Credit Facility
or guarantees any other Capital Markets Indebtedness (as defined in the indenture governing the Senior Notes) of EnPro or any
of the guarantors.
On or after October 15, 2021, we may, on any one or more occasions, redeem all or a part of the Senior Notes at specified
redemption prices plus accrued and unpaid interest. In addition, we may redeem a portion of the aggregate principal amount of
the Senior Notes before October 15, 2021 with the net cash proceeds from certain equity offerings at a specified redemption
price plus accrued and unpaid interest, if any, to, but not including, the redemption date. We may also redeem some or all of the
Senior Notes before October 15, 2021 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest,
if any, to, but not including, the redemption date, plus a “make whole” premium.
Each holder of the Senior Notes may require us to repurchase some or all of the Senior Notes held by such holder for cash
upon the occurrence of a defined “change of control” event. Our ability to redeem the Senior Notes prior to maturity is subject
to certain conditions, including in certain cases the payment of make-whole amounts.
The indenture governing the Senior Notes requires us to apply the net cash proceeds of certain asset sales not reinvested
in acquisitions, capital expenditures, or used to repay or otherwise reduce specified indebtedness within a specified period, to
the extent the remaining net proceeds exceed a specified amount, to offer to repurchase the Senior Notes at a price equal to
100% of the principal amount thereof plus accrued and unpaid interest. At December 31, 2020, approximately $10 million of
the excess net cash proceeds related to the sale of Fairbanks Morse had not yet been reinvested. We expect these remaining
excess proceeds to be reinvested prior to April 25, 2021, the date at which these excess proceeds must be reinvested, or applied
to reduce indebtedness, to avoid the requirement to make a Senior Notes repurchase offer with respect to the proceeds from the
sale of Fairbanks Morse.
37
Share Repurchase Program
In October 2017, our board of directors authorized a new program for the repurchase of up to $50.0 million of our
outstanding common shares. During 2018, we repurchased 0.7 million shares for $50.0 million under this program.
In October 2018, our board of directors authorized a two-year program for expenditures of up to $50.0 million of our
outstanding common shares. Prior to the expiration of this authorization in October 2020, we repurchased a total of 0.3 million
shares for $20.3 million, of which we repurchased 0.1 million shares for $5.3 million in 2020 and we repurchased 0.2 million
shares for $15.0 million in 2019.
In October of 2020, our board of directors authorized a new two-year program of up to $50.0 million for the repurchased
of our outstanding common shares through October 2022. We have not made any repurchases under the new authorization.
Dividends
On January 13, 2015, our board of directors adopted a policy under which it intends to declare regular quarterly cash
dividends on EnPro’s common stock, with the determination of whether to declare a dividend and the amount being considered
each quarter, after taking into account our cash flow, earnings, cash position, financial position and other relevant matters. In
2020, our board declared a dividend of $0.26 per share in each quarter, and on February 17, 2021 we announced that our board
of directors had increased the quarterly dividend to $0.27 per share, commencing with the dividend to be paid on March 17,
2021 to all shareholders of record as of March 3, 2021. Each of the Credit Agreement and the indenture governing the Senior
Notes includes covenants restricting the payment of dividends, but includes a basket permitting the payment of cash dividends
of up to $50.0 million per year under the Credit Agreement and $60.0 million per year under the indenture governing the Senior
Notes. Other baskets may be available under that the agreement governing the Revolving Credit Facility and the indenture
governing the Senior Notes to permit the payment of dividends in excess of the respective basket amount.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements, in accordance with accounting principles generally accepted in
the United States, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures pertaining to contingent assets and liabilities. Note 1, “Overview, Basis of Presentation,
Significant Accounting Policies and Recently Issued Accounting Guidance,” to the Consolidated Financial Statements describes
the significant accounting policies used to prepare the Consolidated Financial Statements and recently issued accounting
guidance. On an ongoing basis we evaluate our estimates, including, but not limited to, those related to bad debts, inventories,
intangible assets, income taxes, warranty obligations, restructuring, pensions and other postretirement benefits, and
contingencies and litigation. We base our estimates on historical experience and on various other assumptions we believe to be
reasonable under the circumstances. Actual results may differ from our estimates.
We believe the following accounting policies and estimates are the most critical. Some of them involve significant
judgments and uncertainties and could potentially result in materially different results under different assumptions and
conditions.
Revenue Recognition
Our largest stream of revenue is product revenue for shipments of the various products discussed further in Note 19,
"Business Segment Information", to our consolidated financial statements, along with a smaller amount of revenue from
services that take place over a short period of time. We recognize revenue at a point in time following the transfer of control,
which typically occurs when a product is shipped or delivered, depending on the terms of the sale agreement, or when services
are rendered. Shipping costs billed to customers are recognized as revenue and expensed in cost of goods sold as a fulfillment
cost when control of the product transfers to the customer. Payment from customers is typically due within 30 days of the sale
for sales in the U.S. For sales outside of the U.S., payment terms may be longer based upon local business customs, but are
typically due no later than 90 days after the sale.
Pensions and Postretirement Benefits
We and certain of our subsidiaries sponsor domestic and foreign defined benefit pension and other postretirement plans.
Major assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on plan
assets, rate of increase in employee compensation levels and assumed health care cost trend rates. Assumptions are determined
based on data available to us and appropriate market indicators, and are evaluated each year as of the plans’ measurement date.
A change in any of these assumptions could have a material effect on net periodic pension and postretirement benefit costs
38
reported in the Consolidated Statements of Operations, as well as amounts recognized in the Consolidated Balance Sheets. See
Note 15, "Pensions and Postretirement Benefits," to the consolidated financial statements for a discussion of pension and
postretirement benefits.
Income Taxes
We use the asset and liability method of accounting for income taxes. Temporary differences arising between the tax
basis of an asset or liability and its carrying amount on the Consolidated Balance Sheet are used to calculate future income tax
assets or liabilities. This method also requires the recognition of deferred tax benefits, such as net operating loss carryforwards.
Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income (losses) in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment of the change. A tax
benefit from an uncertain tax position is recognized only if we believe it is more likely than not that the position will be
sustained on its technical merits. If the recognition threshold for the tax position is met, only the portion of the tax benefit that
we believe is greater than 50 percent likely to be realized is recorded.
Goodwill and Other Intangible Assets
We do not amortize goodwill, but instead it is subject to annual impairment testing. The goodwill asset impairment test
involves comparing the fair value of a reporting unit to its carrying amount. If the carrying amount of a reporting unit exceeds
its fair value, a second step of comparing the implied fair value of the reporting unit’s goodwill to the carrying amount of that
goodwill is required to measure the potential goodwill impairment loss.
To estimate the fair value of our reporting units, we use both discounted cash flow and market valuation approaches. The
discounted cash flow approach uses cash flow projections to calculate the fair value of each reporting unit while the market
approach relies on market multiples of similar companies. There are inherent assumptions and estimates used in developing
future cash flows which require management to apply judgment to the analysis of goodwill impairment, including projected
revenues and profit margins, projected capital expenditures, changes in working capital, discount rates and tax rates. For the
market approach, we chose a group of peer companies we believe are representative of each respective reporting unit. We used
a 75% weighting for the discounted cash flow valuation approach and a 25% weighting for the market valuation approach,
reflecting our belief that the discounted cash flow valuation approach provides a better indicator of value since it reflects the
specific cash flows anticipated to be generated in the future by the business.
As a result of the formation of our Advanced Surface Technologies segment and the transition of a portion of our
Technetics reporting unit from the Sealing Technologies segment to the Advanced Surface Technologies segment, our
Technetics reporting unit was tested for impairment both before and after the allocation of goodwill and the newly formed
Semiconductor reporting unit (our LeanTeq and Technetics semiconductor business) was tested after the allocation. We
determined that the Technetics reporting unit was not impaired prior to the transfer of goodwill. After the transfer, the
Technetics reporting unit was allocated $67.7 million of goodwill and, as of our allocation date of December 1, 2020, we
determined it was not impaired as its fair value exceeded its carrying value by 26%. We also determined that our
Semiconductor reporting unit, allocated $180.1 million of goodwill as of our allocation date of December 1, 2020, was not
impaired and its fair value exceeded its carrying value by 2%. Any change in assumptions, including forecasted performance or
external market information used in our fair value calculation, including the determination of our discount rate, could result in a
future impairment of our Semiconductor reporting unit.
We will continue to monitor the Semiconductor reporting unit's performance as well as other market factors and test for
impairment if we determine a triggering event has occurred. All other reporting units were tested at our annual test date of
October 1, 2020 and their fair value exceeded their carrying value by at least 20%. We will test all reporting units again at our
next test date of October 1, 2021, or earlier as circumstances may require.
The fair value of intangible assets associated with acquisitions is determined using an income valuation approach.
Projecting discounted future cash flows requires us to make significant estimates regarding projected revenues and profit
margins, projected capital expenditures, changes in working capital, discount rates, attrition rates, royalty rates, obsolescence
rates and tax rates.
Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that
assumptions and estimates will change in future periods. These changes could result in future impairments. For additional
information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview and
Outlook” as well as Notes 1 and 9 to the Consolidated Financial Statements.
39
Impact of Pending Accounting Pronouncements
See Note 1, "Overview, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting
Guidance," to our consolidated financial statements for a discussion of recently issued accounting guidance that we have not yet
adopted.
Contingencies
General
A description of certain environmental and other legal matters relating to certain of our subsidiaries is included in this
section. In addition to the matters noted herein, we are from time to time subject to, and are presently involved in, other
litigation and legal proceedings arising in the ordinary course of business. We believe the outcome of such other litigation and
legal proceedings will not have a material adverse effect on our financial condition, results of operations and cash flows.
Expenses for administrative and legal proceedings are recorded when incurred.
Environmental
Our facilities and operations are subject to federal, state and local environmental and occupational health and safety laws
and regulations of the U.S. and foreign countries. We take a proactive approach in our efforts to comply with these laws and
regulations as they relate to our manufacturing operations and in proposing and implementing any remedial plans that may be
necessary. We also regularly conduct comprehensive environmental, health and safety audits at our facilities to maintain
compliance and improve operational efficiency.
Although we believe past operations were in substantial compliance with the then applicable regulations, we or one or
more of our subsidiaries are involved with various remediation activities or an investigation to determine responsibility for
environmental conditions at 20 sites. At 14 of these 20 sites, the future cost per site for us or our subsidiary is expected to
exceed $100,000. Of these 20 sites, 18 are sites where we or one or more of our subsidiaries formerly conducted business
operations but no longer do, and 2 are sites where we conduct manufacturing operations. Investigations have been completed
for 16 of the 20 sites and are in progress at 3 sites. An investigation to determine responsibility for environmental conditions is
ongoing at one site.
Our policy is to accrue environmental investigation and remediation costs when it is probable that a liability has been
incurred and the amount can be reasonably estimated. For sites with multiple future projected cost scenarios for identified
feasible investigation and remediation options where no one estimate is more likely than all the others, our policy is to accrue
the lowest estimate among the range of estimates. The measurement of the liability is based on an evaluation of currently
available facts with respect to each individual situation and takes into consideration factors such as existing technology,
presently enacted laws and regulations and prior experience in the remediation of similar contaminated sites. Liabilities are
established for all sites based on these factors. As assessments and remediation progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical data and legal information. As of December 31, 2020 and
2019, we had accrued liabilities aggregating $42.2 million and $36.0 million, respectively, for estimated future expenditures
relating to environmental contingencies. These amounts have been recorded on an undiscounted basis in the Consolidated
Balance Sheets. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other
parties potentially being fully or partially liable, technology and information related to individual sites, we do not believe it is
possible to develop an estimate of the range of reasonably possible environmental loss in excess of our recorded liabilities.
During the fourth quarter of 2020, new information became available that enabled us to develop and refine estimated costs
of future remediation at the following sites:
• Water Valley. EnPro Holdings has been managing trichloroethylene soil and groundwater contamination at the site in
Water Valley, Mississippi in connection with the former operation in the 1970s and 1980s by a corporate predecessor
of a plant located at the site, which plant was divested to BorgWarner, Inc. ("BorgWarner") in 1996. The Mississippi
Department of Environmental Quality (MDEQ) issued orders against EnPro Holdings requiring evaluation of potential
vapor intrusion into residential properties and commercial facilities located over the groundwater plume as well as
requiring additional groundwater investigation and remediation. All of the work to be performed at the residential area,
the plant and off-site is set forth in an agreed Order that we and MDEQ entered into on September 11, 2017 and we
established reserves with respect to the liability associated with the anticipated remediation. Based upon then limited
information regarding any incremental remediation or other actions that may be required at the site, we were unable to
estimate any further loss or a reasonably possible range of loss related to this matter. During the quarter ended
40
December 31, 2020, we received the results from groundwater and vapor sampling under the plant building, which
results provided a basis to estimate the costs to remediate the contamination under the building, and we received
approval of the design for the remediation system to be operated in the area of contamination behind the building,
which approval allowed for updating of previously estimated construction and operating and maintenance costs. Based
on this information, we increased the reserve for Water Valley by $12.5 million, to $15.6 million at December 31,
2020, to reflect the minimum of a range of reasonably likely scenarios to effect the remediation of the contamination
under the building and the other areas where contamination is located. The total expense related to third-party claim
settlements and remediation of the Water Valley site in calendar 2020, including reserve adjustments related to
remediation, was $26.5 million. Total cash payments related to third-party claim settlements and remediation at Water
Valley was $20.1 million in 2020. The final selection of the remediation option and design of the remedial system to
address contamination under the building is subject to MDEQ approval. We are not able at this time to estimate the
upper end of a range of liability with respect to the reasonably likely scenarios to effect remediation at this site.
• Arizona Uranium Mines. EnPro Holdings has received notices from the EPA asserting that it is a potentially
responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
as the successor to a former operator of eight uranium mines in Arizona. The former operator conducted operations at
the mines from 1954 to 1957. In the 1990s, remediation work performed by others at these sites consisted of capping
the exposed areas of the mines. We have previously reserved amounts of probable loss associated with these mines,
principally including the cost of the investigative work to be conducted at such mines. We entered into an
Administrative Settlement Agreement and Order on Consent for Interim Removal Action with the EPA effective
November 7, 2017 for the performance of this work. The balance in these reserves as of September 30, 2020 was $1.0
million. During the quarter ended December 31, 2020, the EPA initiated group discussions with EnPro Holdings and
other potentially responsible parties to resolve various technical issues, including the development of cleanup
standards. Based on these discussions and subsequent discussions with other responsible parties with similar sites, we
have concluded that further remedial work beyond maintenance of and minor repairs to the existing caps is probable,
and we have evaluated the feasibility of various remediation scenarios. As a result, we increased the reserve for these
sites by $12.9 million to $13.9 million at December 31, 2020, to reflect the low end of the range of our reasonably
likely liability with respect to these sites. The expected contribution of $3.8 million from the U.S. government towards
remediation of the site is considered probable and is included in other assets in the accompanying consolidated balance
sheet at December 31, 2020. We are not able at this time to estimate the upper end of a range of liability with respect
to these sites.
• Pine Bluff. For several years, we have been operating a groundwater remediation system at the site of an electrical
transformer facility in Pine Bluff, Arkansas, which facility was sold by a corporate predecessor of EnPro Holdings in
1994. Pursuant to the terms of the sale agreement, EnPro Holdings, as the corporate successor has responsibility for
pre-closing environmental conditions at the site and the existing remediation system at the site had been approved by
the Arkansas Division of Environmental Quality (the “ADEQ”). During the quarter ended December 31, 2020, at the
initiation of the ADEQ, we conducted further sampling and technical reviews to determine whether part of the
contamination was migrating off-site that was not being captured by the existing remediation system. Based on all the
sampling results received and reviewed, we concluded that modifications to the remediation program will be required.
Based on this information, we increased the reserve for the Pine Bluff site by $2.8 million, to $2.8 million at December
31, 2020, to reflect the low end of the range of our reasonably likely liability with respect to this site. Total cash
payments in calendar year 2020 were $0.9 million. We are not able at this time to estimate the upper end of a range of
liability with respect to this site.
We believe that our accruals for specific environmental liabilities are adequate for those liabilities based on currently
available information. Based upon limited information regarding any incremental remediation or other actions that may be
required at these sites, we cannot estimate any further loss or a reasonably possible range of loss related to these matters. Actual
costs to be incurred in future periods may vary from estimates because of the inherent uncertainties in evaluating environmental
exposures due to unknown and changing conditions, changing government regulations and legal standards regarding liability.
Based on our prior ownership of Crucible Steel Corporation a/k/a Crucible, Inc. (“Crucible”), we may have additional
contingent liabilities in one or more significant environmental matters. One such matter, which is included in the 20 sites
referred to above, is the Lower Passaic River Study Area of the Diamond Alkali Superfund Site in New Jersey. Crucible
operated a steel mill abutting the Passaic River in Harrison, New Jersey from the 1930s until 1974, which was one of many
industrial operations on the river dating back to the 1800s. Certain contingent environmental liabilities related to this site were
retained by a predecessor of our EnPro Holdings Inc. subsidiary (which, including its corporate predecessors is referred to as
"EnPro Holdings") when it sold a majority interest in Crucible Materials Corporation (the successor of Crucible) in 1985. The
United States Environmental Protection Agency (the “EPA”) notified our subsidiary in September 2003 that it is a potentially
41
responsible party (“PRP”) for Superfund response actions in the lower 17-mile stretch of the Passaic River known as the Lower
Passaic River Study Area.
EnPro Holdings and approximately 70 of the numerous other PRPs, known as the Cooperating Parties Group, are parties
to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study (“RI/FS”)
of the contaminants in the Lower Passaic River Study Area. In September 2018, EnPro Holdings withdrew from the
Cooperating Parties Group but remains a party to the May 2007 Administrative Order on Consent. The RI/FS was completed
and submitted to the EPA at the end of April 2015. The RI/FS recommends a targeted dredge and cap remedy with monitored
natural recovery and adaptive management for the Lower Passaic River Study Area. The cost of such remedy is estimated to be
$726 million. Previously, on April 11, 2014, the EPA released its Focused Feasibility Study (the “FFS”) with its proposed plan
for remediating the lower eight miles of the Lower Passaic River Study Area. The FFS calls for bank-to-bank dredging and
capping of the riverbed of that portion of the river and estimates a range of the present value of aggregate remediation costs of
approximately $953 million to approximately $1.73 billion, although estimates of the costs and the timing of costs are
inherently imprecise. On March 3, 2016, the EPA issued the final Record of Decision (ROD) as to the remedy for the lower
eight miles of the Lower Passaic River Study Area, with the maximum estimated cost being reduced by the EPA from $1.73
billion to $1.38 billion, primarily due to a reduction in the amount of cubic yards of material that will be dredged. In October
2016, Occidental Chemical Corporation, the successor to the entity that operated the Diamond Alkali chemical manufacturing
facility, reached an agreement with the EPA to develop the design for this proposed remedy at an estimated cost of $165
million. The EPA has estimated that it will take approximately four years to develop this design. On June 30, 2018, Occidental
Chemical Corporation sued over 120 parties, including the Company, in the United States District Court for New Jersey seeking
recovery of response costs under the Federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA
No final allocations of responsibility have been made among the numerous PRPs that have received notices from the EPA,
there are numerous identified PRPs that have not yet received PRP notices from the EPA, and there are likely many PRPs that
have not yet been identified. In September 2017, EPA hired a third-party allocator to develop an allocation of costs among a
large number of the parties identified by EPA as having potential responsibility, including the Company. In the fourth quarter of
2020, the third-party allocator issued his report, which determined the range for EnPro's liability to be between $35,000 and
$950,000.
Based on our evaluation of the site, during 2014 we accrued a liability of $3.5 million related to environmental
remediation costs associated with the lower eight miles of the Lower Passaic River Study Area, which was our estimate of the
low end of a range of reasonably possible costs, with no estimate within the range being a better estimate than the minimum.
Since 2015, we incurred $0.9 million in remediation costs. Based on the third party allocator's report, on December 31, 2020 we
reduced the reserve to $1.6 million. Our future remediation costs could be significantly greater than the $1.0 million accrual at
December 31, 2020. With respect to the upper nine miles of the Lower Passaic River Study Area, we are unable to estimate a
range of reasonably possible costs.
Except with respect to the lower eight miles of the Lower Passaic River Study Area, we are unable to estimate a
reasonably possible range of loss related to any other contingent environmental liability based on our prior ownership of
Crucible.
See Note 20 to the Consolidated Financial Statements for additional information regarding our environmental
contingencies and see the following section titled “Crucible Steel Corporation a/k/a Crucible, Inc.”
Crucible Steel Corporation a/k/a Crucible, Inc.
Crucible, which was engaged primarily in the manufacture and distribution of high technology specialty metal products,
was a wholly owned subsidiary of EnPro Holdings until 1983 when its assets and liabilities were distributed to a new
subsidiary, Crucible Materials Corporation. EnPro Holdings sold a majority of the outstanding shares of Crucible Materials
Corporation in 1985 and divested its remaining minority interest in 2004. Crucible Materials Corporation filed for Chapter 11
bankruptcy protection in May 2009 and is no longer conducting operations.
We have certain ongoing obligations, which are included in other liabilities in our Consolidated Balance Sheets,
including workers’ compensation, retiree medical and other retiree benefit matters, in addition to those mentioned previously
related to EnPro Holdings' period of ownership of Crucible. Based on EnPro Holdings' prior ownership of Crucible, we may
have certain additional contingent liabilities, including liabilities in one or more significant environmental matters included in
the matters discussed in “Environmental” above. We are investigating these matters. Except with respect to those matters for
which we have an accrued liability as discussed in “Environmental” above, we are unable to estimate a reasonably possible
range of loss related to these contingent liabilities. See Note 20 to the Consolidated Financial Statements for information about
certain liabilities relating to EnPro Holdings' ownership of Crucible.
42
Warranties
We provide warranties on many of our products. The specific terms and conditions of these warranties vary depending on
the product and the market in which the product is sold. We record a liability based upon estimates of the costs we may incur
under our warranties based upon a review of historical warranty experience and information regarding the number, nature, and
dollar valuation of specific warranty claims being made by customers. Adjustments are made to the liability as claims data and
historical experience necessitate.
Changes in the carrying amount of the product warranty liability for the years ended December 31, 2020, 2019 and 2018
are as follows:
Balance at beginning of year
Charges to expense
Settlements made
Balance at end of year
Asbestos Insurance Receivables
2020
2019
2018
(in millions)
$
$
10.1 $
1.4
(4.8)
6.7 $
9.4 $
5.8
(5.1)
10.1 $
2.7
10.1
(3.4)
9.4
The historical business operations of certain of our subsidiaries resulted in a substantial volume of asbestos litigation in
which plaintiffs alleged personal injury or death as a result of exposure to asbestos fibers. In 2010, certain of these subsidiaries,
including Garlock Sealing Technologies, LLC ("GST"), filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of North Carolina (the "Bankruptcy
Court"). An additional subsidiary filed a Chapter 11 bankruptcy petition with the Bankruptcy Court in 2017. The filings were
part of a claims resolution process for an efficient and permanent resolution of all pending and future asbestos claims through
court approval of a plan of reorganization to establish a facility to resolve and pay these asbestos claims.
These claims against GST and other subsidiaries were resolved pursuant to a joint plan of reorganization (the "Joint
Plan") filed with the Bankruptcy Court which was consummated on July 29, 2017. Under the Joint Plan, GST and EnPro
Holdings retained their rights to seek reimbursement under insurance policies for any amounts they have paid in the past to
resolve asbestos claims, including contributions made to the asbestos claims resolution trust established under the Joint Plan
(the "Trust"). These policies include a number of primary and excess general liability insurance policies that were purchased by
EnPro Holdings and were in effect prior to January 1, 1976 (the “Pre-GST Coverage Block”). The policies provide coverage for
“occurrences” happening during the policy periods and cover losses associated with product liability claims against EnPro
Holdings and certain of its subsidiaries. Asbestos claims against GST are not covered under these policies because GST was not
a subsidiary of EnPro Holdings prior to 1976. The Joint Plan provides that EnPro Holdings may retain the first $25 million of
any settlements and judgments collected for non-GST asbestos claims related to insurance policies in the Pre-GST Coverage
Block and EnPro Holdings and the Trust will share equally in any settlements and judgments EnPro Holdings may collect in
excess of $25 million. To date, EnPro Holdings has collected almost $22 million in settlements for non-GST asbestos claims
related to the Pre-GST Coverage Block and anticipates further collections once the Trust begins making claims payments on
non-GST Claims.
As of December 31, 2020, approximately $4.2 million of available products hazard limits or insurance receivables existed
under primary and excess general liability insurance policies other than the Pre-GST Coverage Block (the "GST Coverage
Block") from solvent carriers, which we believe is available to cover contributions made to the Trust under the Joint Plan as the
Trust uses those contributions to pay GST asbestos claims covered by policies in the GST Coverage Block. There are specific
agreements in place with carriers regarding the remaining available coverage. We believe that all of the $4.2 million of
insurance proceeds will ultimately be collected, although there can be no assurance that the insurance companies will make the
payments as and when due. In the fourth quarter of 2020, we billed an insurer in the GST Coverage Block $0.8 million for GST
Claims paid by the Trust to date.
We also believe that EnPro Holdings will bill, and could collect over time, as much as $10 million of insurance coverage
for non-GST asbestos claims to reimburse it for Trust payments to non-GST Trust claimants. After EnPro Holdings collects the
first approximately $3 million of that coverage, remaining collections for non-GST asbestos claims from the Pre-Garlock
Coverage Block will be shared equally with the Trust.
GST has received $8.8 million of insurance recoveries from insolvent carriers since 2007 and may receive additional
payments from insolvent carriers in the future. No anticipated insolvent carrier collections are included in the $4.2 million of
43
anticipated collections. The insurance available to cover current and future asbestos claims is from comprehensive general
liability and excess liability policies that cover EnPro Holdings and certain of its other subsidiaries in addition to GST for
periods prior to 1985 and therefore could be subject to potential competing claims of other covered subsidiaries and their
assignees.
Contractual Obligations
A summary of our contractual obligations and commitments at December 31, 2020, is as follows:
Long-term debt
Interest on long-term debt
Operating leases
Environmental liabilities
Other liabilities
Total
Payments Due by Period (in millions)
Total
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years
$
495.4 $
3.8 $
12.2 $
129.4 $
350.0
129.1
50.2
42.2
3.2
22.5
11.4
12.6
0.5
44.7
17.2
7.1
1.0
41.8
11.2
5.7
1.0
20.1
10.4
16.8
0.7
$
720.1 $
50.8 $
82.2 $
189.1 $
398.0
The payments for long-term debt shown in the table above reflect the contractual principal amount for the Senior Notes.
In our Consolidated Balance Sheet, this amount is shown net of a debt discount of $4.1 million. Additional discussion regarding
the Senior Notes is included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations in
“Liquidity and Capital Resources – Capital Resources,” and in Note 12, "Long-Term Debt," to the consolidated financial
statements. The interest on long-term debt represents the contractual interest coupon. It does not include the debt discount
accretion, which also is a component of interest expense.
The payments for long-term debt do not include approximately $10 million of excess net cash proceeds from the sale of
Fairbanks Morse that had not been reinvested in acquisitions, applied in making capital expenditures, or used to repay or
otherwise reduce specified indebtedness, including the borrowings under the Term Loan Facility, at December 31, 2020, which
amount, if not so reinvested, applied or used by the April 25, 2021 measurement date would require us to repurchase at par
value Senior Notes of an equal aggregate principal amount pursuant to a tender offer that would be required to be made by us
under the indenture governing the Senior Notes, but only to the extent that holders of the Senior Notes agreed to sell their
Senior Notes in such a tender offer. We expect investments to be made in 2021 prior to April 25, 2021, primarily through
capital expenditures, to exceed $10 million, which would avoid the requirement to conduct such a tender offer. In the event that
our 2021 investments prior to that date are less than $10 million, we have the ability to, at our option, prepay the Term Loan
Facility by any remaining excess cash proceeds to avoid the requirement to make such a tender offer. We do not anticipate the
need to prepay the borrowings under the Term Loan Facility.
Payments for other liabilities are estimates for other retained liabilities of previously owned businesses included in the
Consolidated Balance Sheets at December 31, 2020. These estimated payments, along with our estimated payments of
environmental liabilities, are based on information currently known to us. However, it is possible that these estimates will vary
from actual results and it is possible that these estimates may be updated if new information becomes available in the future or
if there are changes in the facts and circumstances related to these liabilities. Additional discussion regarding these liabilities is
included earlier in this Management’s Discussion and Analysis of Financial Condition and Results of Operations in
“Contingencies – Environmental" and "Contingencies – Crucible Steel Corporation a/k/a Crucible, Inc.,” and in Note 20,
"Commitments and Contingencies," to the consolidated financial statements.
The table does not include obligations under our pension and postretirement benefit plans, which are included in Note 15,
"Pension and Postretirement Benefits," to the consolidated financial statements.
Supplemental Guarantor Financial Information
On October 17, 2018, we completed the offering of the Senior Notes and applied the net proceeds of that offering,
together with borrowings under the Revolving Credit Facility, to redeem all of the Old Notes on October 31, 2018. The Senior
Notes are fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by our existing and
future wholly owned direct and indirect domestic subsidiaries, that are each guarantors of our Revolving Credit Facility,
including subsidiaries that were wholly owned at the time they provided the guarantee but thereafter became majority owned
subsidiaries (collectively, the “Guarantor Subsidiaries”). The Guarantor Subsidiaries at December 31, 2020 comprise all of our
44
consolidated domestic subsidiaries at that date. Our subsidiaries organized outside of the United States, (collectively, the “Non-
Guarantor Subsidiaries”) did not guarantee the Old Notes and do not guarantee the Senior Notes.
The Guarantor Subsidiaries jointly and severally guarantee on an unsecured, unsubordinated basis the performance and
punctual payment when due, whether at stated maturity of the Senior Notes, by acceleration or otherwise, all of our obligations
under the Senior Notes and the indenture governing the Senior Notes (the “Indenture”), whether for payment of principal of,
premium, if any, or interest on the Senior Notes, expenses, indemnification or otherwise (all such obligations guaranteed by the
Guarantor Subsidiaries are referred to as the “Guaranteed Obligations”). The Guarantor Subsidiaries have jointly and severally
agreed to pay, in addition to the obligations stated above, any and all expenses (including reasonable counsel fees and expenses)
incurred by the trustee (the “Trustee”) under the Indenture in enforcing any rights under their guarantees of the Guaranteed
Obligations.
Each guarantee of a Guarantor Subsidiary is limited to an amount not to exceed the maximum amount that can be
guaranteed by it without rendering the guarantee, as it relates to such Guarantor Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each
guarantee of a Guarantor Subsidiary is a continuing guarantee and shall inure to the benefit of and be enforceable by the
Trustee, the holders of the Senior Notes and their successors, transferees and assigns and, subject to the provisions described in
the following sentence, remains in full force and effect until payment in full of all of the Guaranteed Obligations of such
Guarantor Subsidiary and is binding upon such Guarantor Subsidiary and its successors. A guarantee of the Senior Notes by a
Guarantor Subsidiary is subject to release in the following circumstances: (i) the sale, disposition, exchange or other transfer
(including through merger, consolidation, amalgamation or otherwise) of the capital stock of the subsidiary made in a manner
not in violation of the Indenture; (ii) the designation of the subsidiary as an “Unrestricted Subsidiary” under the Indenture; (iii)
the legal defeasance or covenant defeasance of the Senior Notes in accordance with the terms of the Indenture; or (iv) the
subsidiary ceasing to be our subsidiary as a result of any foreclosure of any pledge or security interest securing our Revolving
Credit Facility or other exercise of remedies in respect thereof.
The following tables present summarized financial information for EnPro Industries, Inc. (the "Parent") and the
Guarantor Subsidiaries on a combined basis after intercompany eliminations.
The summarized results of operations information for the year ended December 31, 2020 was as follows:
Net sales
Gross profit
Income (loss) from continuing operations, attributable to EnPro Industries, Inc.
Income (loss) from discontinued operations, net of taxes
Net income attributable to EnPro Industries, Inc.
Comprehensive income attributable to EnPro Industries, Inc.
The summarized balance sheet information at December 31, 2020 was as follows:
ASSETS
Current Assets
Non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Non-current liabilities
Total liabilities
Redeemable non-controlling interest
Shareholders’ equity
Total liabilities and equity
45
Parent and Guarantor
Subsidiaries
$
$
$
632.9
172.4
(67.1)
208.9
141.8
133.5
Parent and Guarantor
Subsidiaries
$
$
$
300.4
904.4
1,204.8
122.8
653.9
776.7
48.4
379.7
$
1,204.8
The table above reflects $11.8 million of current intercompany receivables due to the Guarantor Subsidiaries from the
Non-Guarantor Subsidiaries and $4.4 million of current intercompany payables due to the Non-Guarantor Subsidiaries from the
Guarantor Subsidiaries within current assets and liabilities held and used.
The Senior Notes are structurally subordinated to the indebtedness and other liabilities of the Non-Guarantor Subsidiaries.
The Non-Guarantor Subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Senior Notes or the Indenture, or to make any funds available therefor, whether by dividends,
loans, distributions or other payments. Any right that the Company or the Guarantor Subsidiaries have to receive any assets of
any of the Non-Guarantor Subsidiaries upon the liquidation or reorganization of any Non-Guarantor Subsidiary, and the
consequent rights of holders of Senior Notes to realize proceeds from the sale of any of a Non-Guarantor Subsidiary’s assets,
would be effectively subordinated to the claims of such Non-Guarantor Subsidiary’s creditors, including trade creditors and
holders of preferred equity interests, if any, of such Non-Guarantor Subsidiary. Accordingly, in the event of a bankruptcy,
liquidation or reorganization of any of the Non-Guarantor Subsidiaries, the Non-Guarantor Subsidiaries will pay the holders of
their debts, holders of preferred equity interests, if any, and their trade creditors before they will be able to distribute any of
their assets to the Company or any Guarantor Subsidiaries.
If a Guarantor Subsidiary were to become a debtor in a case under the U.S. Bankruptcy Code or encounter other financial
difficulty, under federal or state fraudulent transfer or conveyance law, a court may avoid, subordinate or otherwise decline to
enforce its guarantee of the Senior Notes. A court might do so if it is found that when such Guarantor Subsidiary entered into its
guarantee of the Senior Notes, or in some states when payments became due under the Senior Notes, such Guarantor Subsidiary
received less than reasonably equivalent value or fair consideration and either:
•
•
•
was insolvent or rendered insolvent by reason of such incurrence;
was left with unreasonably small or otherwise inadequate capital to conduct our business; or
believed or reasonably should have believed that it would incur debts beyond its ability to pay.
The court might also avoid the guarantee of the Senior Notes without regard to the above factors, if the court found that
the Guarantor Subsidiary entered into its guarantee with actual intent to hinder, delay or defraud our creditors.
A court would likely find that a Guarantor Subsidiary did not receive reasonably equivalent value or fair consideration for
its guarantee of the Senior Notes, if such Guarantor Subsidiary did not substantially benefit directly or indirectly from the
funding made available by the issuance of the Senior Notes. If a court were to avoid a guarantee of the Senior Notes provided
by a Guarantor Subsidiary, holders of the Senior Notes would no longer have any claim against such Guarantor Subsidiary. The
measures of insolvency for purposes of these fraudulent transfer or conveyance laws will vary depending upon the law applied
in any proceeding to determine whether a fraudulent transfer or conveyance has occurred, such that we cannot predict what
standards a court would use to determine whether or not a Guarantor Subsidiary was solvent at the relevant time or, regardless
of the standard that a court uses, that the guarantee of a Guarantor Subsidiary would not be subordinated to such Guarantor
Subsidiary’s other debt. As noted above, each guarantee provided by a Guarantor Subsidiary includes a provision intended to
limit the Guarantor Subsidiary’s liability to the maximum amount that it could incur without causing the incurrence of
obligations under its guarantee to be a fraudulent transfer or conveyance. This provision may not be effective to protect those
guarantees from being avoided under fraudulent transfer or conveyance law, or it may reduce that Guarantor Subsidiary’s
obligation to an amount that effectively makes its guarantee worthless, and we cannot predict whether a court will ultimately
find it to be effective.
On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantor
Subsidiaries, after giving effect to the issuance of its guarantee of the Senior Notes when such guarantee was issued, was not
insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts
beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in
making these determinations or that a court would agree with our conclusions in this regard.
Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Measures
Reconciliation of Adjusted Income from Continuing Operations Attributable to EnPro Industries, Inc.
We believe that it would be helpful to the readers of the financial statements to understand the impact of certain selected
items on our reported income from continuing operations attributable to EnPro Industries, Inc. and diluted earnings per share
attributable to EnPro Industries, Inc. continuing operations, including items that may recur from time to time. The items
46
adjusted for in this schedule are those that are excluded by management in budgeting or projecting for performance in future
periods, as they typically relate to events specific to the period in which they occur. This presentation is intended to permit
readers to better compare the Company to other diversified industrial manufacturing companies that do not incur the sporadic
impact of restructuring activities, costs associated with previously disposed of businesses, or other selected items. We
acknowledge that there are many items that impact a company's reported results and this list is not intended to present all items
that may have impacted these results.
A reconciliation of (i) income (loss) from continuing operations before income taxes to adjusted income from continuing
operations attributable to EnPro Industries, Inc., and (ii) net income (loss) from continuing operations attributable to EnPro
Industries, Inc. to adjusted EBITDA for the years ended December 31, 2020, 2019 and 2018 are as follows:
Income (loss) from continuing operations before
income taxes
$
$ (26.8)
Adjustments from selling, general, and administrative:
Acquisition and divestiture expenses
Non-controlling interest compensation allocation1
11.2
2.9
Adjustments from other operating expense and cost of
sales:
Restructuring and impairment costs
Impairment of indefinite-lived trademarks
Legal settlement - legacy matter
Amortization of the fair value adjustment to
acquisition inventory
Adjustments from other non-operating expense
Environmental reserve adjustments
Costs associated with previously disposed
businesses
Net loss on sale of businesses
Pensions expense (income) (non-service cost)
Other adjustments 4
Amortization of acquisition-related intangible
assets
Other
Adjusted income from continuing operations before
income taxes
Adjusted tax expense
Income from redeemable non-controlling interest,
net of taxes
Adjusted income from continuing operations
attributable to EnPro Industries, Inc.
30.6
16.1
7.5
3.0
36.2
2.0
2.6
(3.0)
37.8
0.3
120.4
(36.1)
(0.4)
Years Ended December 31,
2020
Average
common shares
outstanding,
diluted
(millions)
Per
Share
$
2019
Average
common shares
outstanding,
diluted
(millions)
Per
Share
$ 4.3
8.9
0.5
27.2
7.9
—
—
12.7
1.8
16.3
3.3
32.7
0.3
115.9
(34.8)
—
83.9
20.6 2
$4.07 3
81.1
20.8
$3.90 3
47
Year Ended December 31,
Income from continuing operations before income taxes
Adjustments from selling, general, and administrative:
Acquisition and divestiture expenses
Adjustments from other operating expense and cost of sales:
Restructuring and impairment costs
Adjustments from other non-operating expense
Environmental reserve adjustments
Costs associated with previously disposed businesses
Loss on extinguishment of debt
Pensions expense (income) (non-service cost)
Other adjustments 4
Amortization of acquisition-related intangible assets
Other
Adjusted income from continuing operations before income taxes
Adjusted tax expense
Adjusted income from continuing operations attributable to EnPro Industries, Inc.
$
$ 15.1
2.0
22.1
11.0
2.4
18.1
11.9
29.1
2.1
113.8
(34.1)
$ 79.7
2018
Average
common shares
outstanding,
diluted
(millions)
Per
Share
21.1 2
$3.78 3
1 Non-controlling interest compensation allocation represents compensation expense associated with a portion of the
rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment
terminations of the LeanTeq and Alluxa sellers and is directly related to the terms of the respective acquisition. This expense
will continue to be recognized as compensation expense over the term of the put and call options associated with the acquisition
unless certain employment terminations have occurred.
2 There were 0.1 million and 0.2 million potentially dilutive shares in the year ended December 31, 2020 and 2018,
respectively, that were excluded from the calculation of consolidated earnings per share in the respective period since they were
antidilutive. These shares were added back for the purpose of calculating adjusted income from continuing operations
attributable to EnPro Industries, Inc. per share.
3Adjusted diluted earnings per share
4 Other adjustments are included in selling, general, and administrative, cost of sales, and other operating expenses on the
consolidated statement of operations.
The adjusted income tax expense presented above is calculated using a normalized company-wide effective tax rate
excluding discrete items of 30.0% for continuing operations. Per share amounts were calculated by dividing by the weighted-
average shares of diluted common stock outstanding during the periods.
48
Reconciliation of Segment Profit to Adjusted Segment EBITDA
Segment Profit
$
77.5
$
14.3
$
2.0
$
93.8
Sealing
Technologies
Year Ended December 31, 2020
Engineered
Materials
Advanced Surface
Technologies
Total Segments
Acquisition and divestiture expenses
Non-controlling interest compensation
allocation 1
Amortization of the fair value adjustment
to acquisition date inventory
Restructuring and impairment costs
Depreciation and amortization expense
Earnings before interest, income taxes,
depreciation, amortization, and other
selected items ("Adjusted Segment
EBITDA")
2.8
—
—
14.2
36.5
6.8
2.9
3.0
0.1
20.0
—
—
—
16.3
14.2
9.6
2.9
3.0
30.6
70.7
Adjusted Segment EBITDA Margin
20.6 %
$
131.0
$
47.1
$
27.5 %
32.5
$
11.8 %
210.6
19.6 %
Segment Profit
$
79.2
$
9.5
$
34.4
$
123.1
Sealing
Technologies
Year Ended December 31, 2019
Engineered
Materials
Advanced Surface
Technologies
Total Segments
Acquisition and divestiture expenses
Non-controlling interest compensation
allocation 1
Restructuring and impairment costs
Depreciation and amortization expense
Adjusted Segment EBITDA
Adjusted Segment EBITDA Margin
$
1.1
—
6.1
45.0
131.4
17.2 %
$
6.5
0.5
—
7.0
23.5
19.6 %
$
0.8
—
2.6
15.9
53.7
16.2 %
$
8.4
0.5
8.7
67.9
208.6
17.3 %
Segment Profit
Sealing
Technologies
69.6
$
Year Ended December 31, 2018
Engineered
Materials
Advanced Surface
Technologies
12.7
$
$
Acquisition and divestiture expenses
Non-controlling interest compensation
allocation 1
Restructuring and impairment costs
Depreciation and amortization expense
0.1
—
21.3
46.4
1.7
—
0.1
3.1
Adjusted Segment EBITDA
$
137.4
$
Adjusted Segment EBITDA Margin
16.7 %
17.6
$
19.6 %
Total Segments
125.3
$
1.9
—
22.1
66.1
$
215.4
16.9 %
43.0
0.1
—
0.7
16.6
60.4
17.4 %
1 Non-controlling interest compensation allocation represents compensation expense associated with a portion of the
rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment
terminations of the LeanTeq and Alluxa sellers and is directly related to the terms of the respective acquisition. This expense
49
will continue to be recognized as compensation expense over the term of the put and call options associated with the acquisition
unless certain employment terminations have occurred.
For a reconciliation of Adjusted Segment EBITDA to income from continuing operations, please refer to "— Results of
Operations".
Reconciliation of Net Income Attributable to EnPro Industries, Inc. to Adjusted EBITDA
Net income attributable to EnPro Industries, Inc.
$
184.4 $
38.3 $
19.6
Adjustments to arrive at earnings before interest, income taxes, depreciation and
amortization ("EBITDA"):
Income from discontinued operations, net of taxes
(208.1)
(30.5)
(24.3)
Years Ended December 31,
2020
2019
2018
Income attributable to redeemable non-controlling interest, net of taxes
Interest expense, net
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments to arrive at earnings before interest, income taxes, depreciation,
amortization, and other selected items (" Adjusted EBITDA"):
Restructuring and impairment expense
Environmental reserve adjustments
Costs associated with previously disposed businesses
Net loss on sale of business
Loss on the extinguishment of debt
Acquisition and divestiture expense
Pension expense (income) (non-service cost)
Non-controlling interest compensation allocations 1
Impairment of indefinite-lived trademarks
Legal settlement - legacy matter
Amortization of the fair value adjustment to acquisition date inventory
Other
Adjusted EBITDA
0.4
14.9
(3.5)
70.8
58.9
30.6
36.2
2.0
2.6
—
11.2
(3.0)
2.9
16.1
7.5
3.0
0.3
—
18.2
(3.5)
67.9
90.5
27.2
12.7
1.8
16.3
—
8.9
3.3
0.5
7.9
—
—
0.3
—
27.3
19.8
66.1
108.5
22.1
11.0
2.4
—
18.1
2.0
11.9
—
—
—
—
2.1
168.3
169.4
178.1
1 Non-controlling interest compensation allocation represents compensation expense associated with a portion of the
rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment
terminations of the LeanTeq Executive Officers and the Alluxa Executive Officers sellers and is directly related to the terms of
the respective acquisition. This expense will continue to be recognized as compensation expense over the term of the put and
call options associated with the acquisition unless certain employment terminations have occurred.
Adjusted EBITDA as presented in the table above also represents the amount defined as "EBITDA" under the indenture
governing the Senior Notes.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in
foreign currency exchange rates and interest rates that could affect our financial condition, results of operations and cash flows.
We manage our exposure to these and other market risks through normal operating and financing activities and through the use
50
of derivative financial instruments. We intend to use derivative financial instruments as risk management tools and not for
speculative investment purposes.
Interest Rate Risk
We are exposed to interest rate risk as a result of our outstanding debt obligations. The table below provides information
about our fixed rate debt obligations as of December 31, 2020. The table represents principal cash flows (in millions) and
related weighted average interest rates by expected (contractual) maturity dates.
2021
2022
2023
2024
2025
Thereafter
Total
Fair
Value
Fixed rate debt
$ —
$ —
$ —
$ —
$ —
$ 350.0
$ 350.0
$ 375.4
Average interest rate
— %
— %
— %
— %
— %
5.8 %
5.8 %
Additionally, we had $145.4 million of outstanding borrowings on our term loan as of December 31, 2020, which has
variable interest rates. A change in interest rates on variable-rate debt affects the interest incurred and cash flows, but does not
affect the net financial instrument position. The outstanding borrowings under the revolving credit facility were repaid on
January 22, 2020 with a portion of the gross proceeds from the sale of Fairbanks Morse.
Foreign Currency Risk
We are exposed to foreign currency risks arising from normal business operations. These risks include the translation of
local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated
in foreign currencies. Our objective is to control our exposure to these risks and limit the volatility in our reported earnings due
to foreign currency fluctuations through our normal operating activities and, where appropriate, through foreign currency
forward contracts and option contracts. The notional amount of foreign exchange contracts hedging foreign currency
transactions was $3.3 million and $5.2 million as of December 31, 2020 and 2019, respectively.
Commodity Risk
We source a wide variety of materials and components from a network of global suppliers. While such materials are
typically available from numerous suppliers, commodity raw materials such as steel, engineered plastics, copper and polymers,
are subject to price fluctuations, which could have a negative impact on our results. We strive to pass along such commodity
price increases to customers to avoid profit margin erosion and utilize lean initiatives to further mitigate the impact of
commodity raw material price fluctuations as we achieve improved efficiencies. We do not hedge commodity risk with any
market risk sensitive instruments.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ENPRO INDUSTRIES, INC.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and
2018
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Page
60
64
65
66
68
69
70
112
51
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the “Exchange Act”)). The purpose of our disclosure controls and procedures is to provide reasonable assurance
that information required to be disclosed in our reports filed under the Exchange Act, including this report, is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Management does not expect our disclosure controls and procedures or internal controls to prevent all errors and all
fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within
the company have been detected. These inherent limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system
of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance any
design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with polices or procedures. Because of
the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Based on the controls evaluation, our chief executive officer and chief financial officer have concluded that our disclosure
controls and procedures were effective as of December 31, 2020 to provide reasonable assurance that information required to be
disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified, and that such information is accumulated and communicated to management, including its chief executive officer and
chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies and procedures may deteriorate.
We carried out an evaluation, under the supervision and with the participation of our chief executive officer and our chief
financial officer, of the effectiveness of our internal control over financial reporting as of the end of the period covered by this
report. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in the Internal Control-Integrated Framework (2013). Based on our assessment, we have concluded, as
of December 31, 2020, our internal control over financial reporting was effective based on those criteria.
This assessment did not include the acquisition of Alluxa because it was acquired in a purchase business combination in
2020. Alluxa's assets (excluding goodwill and intangible assets, which were subject to our assessment) and total revenues of
Alluxa, a majority-owned subsidiary, represented approximately 2% and 1% of our total assets and revenue, respectively, of the
consolidated financial statement amounts as of and for the year ended December 31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in this
Annual Report on Form 10-K.
52
Remediation of Previously Disclosed Material Weakness
During 2019, management concluded there was a material weakness in our internal control over financial reporting with
respect to the design and maintenance of controls over the accounting for income taxes.
Specifically, we did not design and maintain effective controls to (1) sufficiently review and validate information received
from foreign subsidiaries in their year-end tax packages, including adjustments made to the packages in consolidation, which
are used in the determination of the completeness and accuracy of our consolidated provision for income taxes and (2)
sufficiently review the completeness and accuracy of input data used in calculation of an annual federal tax which became
effective in 2018 under the Tax Cuts and Jobs Act enacted in December 2017, (the "Tax Act") and certain recurring tax credits.
Management completed the following to address the material weakness:
– Implemented a new comprehensive income tax provision model for foreign jurisdictions.
– Designed and implemented new key controls, and enhanced the design of existing controls, for the interim and year-
end provision processes.
– Designed and implemented new controls around the foreign tax provision model review process and required levels of
review.
– Designed and implemented new controls around data validation for special taxes, credits, overall provision data used
and related review and sign-off of the foreign tax provision model by foreign jurisdictions and the corporate tax
function.
– Implemented the use of detailed process narratives and checklists for use in the preparation and review of the tax
provision calculations.
– Implemented standardized documentation requirements for review and approval of tax provision calculations.
– Enhanced controls and required analytics related to effective tax rate reconciliations by entity, country and in
consolidation.
As a result of these remediation efforts and based on testing of the newly designed and enhanced controls for operating
effectiveness, management concluded that the material weakness related to accounting for income taxes has been remediated as
of December 31, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) that occurred during the quarter ended December 31, 2020 that materially affected, or that are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
Not applicable.
53
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors and officers appearing under the captions “Election of directors,” “Corporate
governance policies and practices,” and information under the caption “Beneficial ownership of our common stock; –
Section 16(a) reports” in our definitive proxy statement for the 2021 annual meeting of shareholders is incorporated herein by
reference.
We have adopted a written code of business conduct that applies to all of our directors, officers and employees, including
our principal executive officer, principal financial officer and principal accounting officer. The Code is available on our Internet
site at www.enproindustries.com. We intend to disclose on our Internet site any substantive changes to the Code and any
waivers granted under the Code to the specified officers.
ITEM 11.
EXECUTIVE COMPENSATION
The information set forth under the captions "Compensation and Human Resources Committee report on executive
compensation," "Compensation discussion and analysis" and “Executive compensation” in our definitive proxy statement for
the 2021 annual meeting of shareholders is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security ownership data appearing under the caption “Beneficial ownership of our common stock” in our definitive proxy
statement for the 2021 annual meeting of shareholders is incorporated herein by reference.
The table below contains information as of December 31, 2020, with respect to our compensation plans and arrangements
(other than our tax-qualified plans) under which we have options, warrants or rights to receive equity securities authorized for
issuance.
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options, Warrants
and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(a)
(b)
(c)
592,623(1)
—
592,623(1)
$55.67(2)
—
$55.67(2)
991,252
—
991,252
(1)
(2)
Includes shares issuable under restricted share unit awards and under performance shares awarded under our
shareholder-approved equity compensation plans at the maximum levels paid for the 2018 - 2020 performance cycle
and the 2019 - 2021 performance cycle.
The weighted average exercise price does not take into account awards of performance shares, phantom shares or
restricted share units. Information with respect to these awards is incorporated by reference to the information
appearing under the captions “Corporate governance policies and practices — Director compensation,” "Compensation
discussion and analysis — 2020 executive compensation decisions in detail —Long-term compensation — Awards
made for 2018 - 2020 cycle" and “Executive compensation — Grants of plan based awards — Restricted stock unit
awards” in our definitive proxy statement for the 2021 annual meeting of shareholders.
54
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information concerning the independence of our directors is set forth under the caption, “Corporate governance policies
and practices – Director independence” in our definitive proxy statement for the 2021 annual meeting of shareholders and is
incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing under the caption “Independent registered public accounting firm” in our definitive proxy
statement for the 2021 annual meeting of shareholders is incorporated herein by reference.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
1.
Financial Statements
The financial statements filed as part of this report are listed in Part II, Item 8 of this report on the Index to Consolidated
Financial Statements.
2.
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018 appears on
page 112.
Other schedules are omitted because of the absence of conditions under which they are required or because the required
information is provided in the Consolidated Financial Statements or notes thereto.
3.
Exhibits
The exhibits to this report on Form 10-K are listed in the Exhibit Index appearing on pages 56 to 58.
ITEM 16.
FORM 10-K SUMMARY
None
55
2.1
2.2
2.3
2.4
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3*
10.4
10.5+
10.6+
10.7+
EXHIBIT INDEX
Modified Joint Plan of Reorganization of Garlock Sealing Technologies LLC, et al. and OldCo, LLC,
Successor by Merger to Coltec Industries Inc dated May 20, 2016, as modified on June 21, 2016, July 29,
2016, December 2, 2016, April 3, 2017, May 14, 2017, May 19, 2017, June 8, 2017, and June 9, 2017, filed in
the United States Bankruptcy Court for the Western District of North Carolina (Charlotte Division)
(incorporated by reference to Exhibit 2.1 to the Form 8-K filed on July 31, 2017 by EnPro Industries, Inc. (File
No. 001-31225))
Securities Purchase Agreement dated as of July 19, 2019 between EnPro Industries, Inc., the Sellers listed
therein, Shareholder Representative Services LLC, and the Optionholder listed therein relating to the purchase
and sale of 100% of the interests of LeanTeq Co., LTD and LeanTeq LLC (incorporated by reference to
Exhibit 2.1 to the Form 8-K filed on July 22, 2019 by EnPro Industries, Inc. (File No. 001-31225)
Membership Interest Purchase Agreement dated as of December 12, 2019 among EnPro Holdings, Inc.,
Fairbanks Morse, LLC and Arcline FM Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Form 8-
K filed on December 13, 2019 by EnPro Industries, Inc. (File No. 001-31225)
Merger Agreement dated as of September 25, 2020 among EnPro Industries, Inc., Vision Investment, LLC,
Vision Investment Merger Sub, Inc., Alluxa, Inc., Michael Scobey, as representative of the equityholders of
Alluxa, Inc. and certain specified shareholders of Alluxa, Inc. (incorporated by reference to Exhibit 2.1 to the
Form 8-K filed on September 28, 2020 by EnPro Industries, Inc. (File No. 001-31225))
Restated Articles of Incorporation of EnPro Industries, Inc., as amended (incorporated by reference to Exhibit
3.1 to the Form 10-Q for the period ended June 30, 2008 filed by EnPro Industries, Inc. (File No. 001-31225))
Amended and Restated Bylaws of EnPro Industries, Inc. (incorporated by reference to Exhibit 3.2 to the Form
8-K filed on October 31, 2019 by EnPro Industries, Inc. (File No. 001-31225))
Form of certificate representing shares of common stock, par value $0.01 per share, of EnPro Industries, Inc.
(incorporated by reference to Amendment No. 4 of the Registration Statement on Form 10 of EnPro Industries,
Inc. (File No. 001-31225))
Indenture dated as of October 17, 2018 among EnPro Industries, Inc., the Guarantors party thereto and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on
October 17, 2018 by EnPro Industries, Inc. (File No. 001-31225))
Description of Capital Stock (incorporated by reference to Exhibit 4.3 to the Form 10-K for the year ended
December 31, 2019 filed by EnPro Industries, Inc. (File No. 001-31225))
Second Amended and Restated Credit Agreement dated as of June 28, 2018 among EnPro Industries, Inc.,
EnPro Holdings, Inc., the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed on July 2, 2018 by EnPro Industries, Inc. (File No. 001-31225))
First Amendment to Second Amended and Restated Credit Agreement dated as of September 25, 2019 among
EnPro Industries, Inc., EnPro Holdings, Inc., the Guarantors party hereto, Lunar Investment, LLC, LeanTeq
LLC, the Lenders party hereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and
L/C Issuer (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated September 25,
2019 filed by EnPro Industries, Inc. (File No. 001-31225))
Second Amendment to Second Amended and Restated Credit Agreement dated as of March 27, 2020 among
EnPro Industries, Inc., EnPro Holdings, Inc., the Guarantors party hereto, the Lenders party hereto and Bank of
America, N.A., as Administrative Agent
Form of Indemnification Agreement for directors and officers (incorporated by reference to Exhibit 10.5 to
Amendment No. 3 of the Registration Statement on Form 10 of EnPro Industries, Inc. (File No. 001-31225))
EnPro Industries, Inc. 2020 Equity Compensation Plan (incorporated by reference to Appendix A to the Proxy
Statement on Schedule 14A filed by EnPro Industries, Inc. on March 26, 2020 (File No. 001-31225))
EnPro Industries, Inc. Amended and Restated 2002 Equity Compensation Plan (2016 Amendment and
Restatement) (incorporated by reference to Annex A to the Proxy Statement on Schedule 14A filed by EnPro
Industries, Inc. on March 31, 2016 (File No. 001-31225))
EnPro Industries, Inc. Senior Executive Annual Performance Plan (2012 Amendment and Restatement)
(incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A dated March 23, 2017 filed
by EnPro Industries, Inc. (File No. 001-31225))
56
10.8+
10.9+
EnPro Industries, Inc. Long-Term Incentive Plan (2016 Amendment and Restatement) (incorporated by
reference to Appendix B to the Proxy Statement on Schedule 14A dated March 23, 2017 filed by EnPro
Industries, Inc. (File No. 001-31225))
EnPro Industries, Inc. Management Stock Purchase Deferral Plan (2019 Amendment and Restatement)
incorporated by reference to Exhibit 10.2 to the Form 10-Q for the period ended March 31, 2019 filed by
EnPro Industries, Inc. (File No. 001-31225)
10.10+*
Form of EnPro Industries, Inc. Phantom Shares Award Grant for Outside Directors (2020 Equity Compensation
Plan)
10.11+*
Form of EnPro Industries, Inc. Restricted Share Units Award Agreement (2020 Equity Compensation Plan)
10.12+*
10.13+*
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
Form of EnPro Industries, Inc. Long-Term Incentive Plan Award Agreement (Performance Share Award)
(2020 Equity Compensation Plan)
Form of EnPro Industries, Inc. Notice of Grant of Stock Options and Stock Option Agreement (2020 Equity
Compensation Plan)
Form of EnPro Industries, Inc. Phantom Shares Award Grant for Outside Directors (2002 Equity Compensation
Plan) (incorporated by reference to Exhibit 10.7 to the Form 10-K for the year ended December 31, 2012 filed
by EnPro Industries, Inc. (File No. 001-31225))
Form of EnPro Industries, Inc. Restricted Share Award Agreement (2002 Equity Compensation Plan)
(incorporated by reference to Exhibit 10.1 to the Form 8-K dated February 14, 2008 filed with EnPro
Industries, Inc. (File No. 001-31225))
Form of EnPro Industries, Inc. Restricted Share Units Award Agreement (2002 Equity Compensation Plan)
(incorporated by reference to Exhibit No. 10.10 to the Form 10-K for the year ended December 31, 2015 filed
by EnPro Industries, Inc. (File No. 001-31225))
Form of EnPro Industries, Inc. Long-Term Incentive Plan Award Agreement (Performance Shares) (2002
Equity Compensation Plan) (incorporated by reference to Exhibit 10.12 to the Form 10-K for the year ended
December 31, 2015 filed by EnPro Industries, Inc. (File No. 001-31225))
Form of EnPro Industries, Inc. Long-Term Incentive Plan Award Agreement (Cash) (2002 Equity
Compensation Plan) (incorporated by reference to Exhibit 10.13 to the Form 10-K for the year ended
December 31, 2015 filed by EnPro Industries, Inc. (File No. 001-31225))
EnPro Industries, Inc. Defined Benefit Restoration Plan (amended and restated effective as of January 1, 2007)
(incorporated by reference to Exhibit 10.25 to the Form 10-K for the year ended December 31, 2006 filed by
EnPro Industries, Inc. (File No. 001-31225))
EnPro Industries, Inc. Deferred Compensation Plan (as amended and restated effective January 1, 2010)
(incorporated by reference to Exhibit 10.16 to the Form 10-K for the year ended December 31, 2013 filed by
EnPro Industries, Inc. (File No. 001-31225))
Amendment dated December 12, 2014 to EnPro Industries, Inc. Deferred Compensation Plan (as amended and
restated effective January 1, 2010) (incorporated by reference to Exhibit 10.17 to the Form 10-K for the year
ended December 31, 2014 filed by EnPro Industries, Inc. (File No. 001-31225))
EnPro Industries, Inc. Deferred Compensation Plan for Non-Employee Directors (as amended and restated
effective January 1, 2016) (incorporated by reference to Exhibit 10.19 to the Form 10-K for the year ended
December 31, 2015 filed by EnPro Industries, Inc. (File No. 001-31225))
EnPro Industries, Inc. Outside Directors’ Phantom Share Plan (incorporated by reference to Exhibit 10.14 to
the Form 10-K for the year ended December 31, 2002 filed by EnPro Industries, Inc. (File No. 001-31225))
Management Continuity Agreement dated as of December 15, 2011 between EnPro Industries, Inc. and Marvin
A. Riley (incorporated by reference to Exhibit 10.28 to the Form 10-K for the year ended December 31, 2011
filed by EnPro Industries, Inc. (File No. 001-31225))
Management Continuity Agreement dated as of January 30, 2006 between EnPro Industries, Inc. and J. Milton
Childress II (incorporated by reference to Exhibit 10.28 to the Form 10-K for the year ended December 31,
2005 filed by EnPro Industries, Inc. (File No. 001-31225))
Management Continuity Agreement dated as of May 5, 2010 between EnPro Industries, Inc. and Robert S.
McLean (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the period ended June 30, 2010 filed
by EnPro Industries, Inc. (File No. 001-31225))
57
10.27+
10.28+
10.29+
10.30+
Management Continuity Agreement dated as of March 31, 2015 between EnPro Industries, Inc. and Steven R.
Bower (incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended March 31, 2015 filed
by EnPro Industries, Inc. (File No. 001-31225) (this exhibit is substantially identical to the Management
Continuity Agreement between EnPro Industries, Inc. and Susan E. Sweeney dated as of February 10, 2014 and
the Management Continuity Agreement between EnPro Industries, Inc. and Jerry L. Johnson entered into on
October 13, 2020)
EnPro Industries, Inc. Senior Officer Severance Plan (effective as of June 5, 2017) incorporated by reference
to Exhibit 10.31 to the Form 10-K for the year ended December 31, 2017 filed by EnPro Industries, Inc. (File
No. 001-31225))
Notice of Grant of Incentive Stock Options and Stock Option Agreement dated as of July 25, 2019 between
EnPro Industries, Inc. and Marvin A. Riley (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on
July 30, 2019 by EnPro Industries, Inc. (File No. 001-31225)
Notice of Grant of Nonqualified Stock Options and Stock Option Agreement dated as of July 25, 2019 between
EnPro Industries, Inc. and Marvin A. Riley (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on
July 30, 2019 by EnPro Industries, Inc. (File No. 001-31225)
10.31+*
Summary of Executive and Director Compensation Arrangements
21*
22.1*
23.1*
24.1*
24.2*
24.3*
24.4*
24.5*
24.6*
24.7*
24.8*
31.1*
31.2*
32*
List of Subsidiaries
List of Guarantor Subsidiaries
Consent of PricewaterhouseCoopers LLP
Power of Attorney from Thomas M. Botts
Power of Attorney from Felix M. Brueck
Power of Attorney from B. Bernard Burns, Jr.
Power of Attorney from Diane C. Creel
Power of Attorney from Adele M. Gulfo
Power of Attorney for Kees van der Graaf
Power of Attorney from David L. Hauser
Power of Attorney from John Humphrey
Certification of Chief Executive Officer pursuant to Rule 13a – 14(a)/15d – 14(a)
Certification of Chief Financial Officer pursuant to Rule 13a – 14(a)/15d – 14(a)
Certification pursuant to Section 1350
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definitions Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files
submitted as Exhibits 101.*)
*
+
Items marked with an asterisk are filed herewith.
Management contract or compensatory plan required to be filed under Item 15(c) of this report and Item 601 of
Regulation S-K of the Securities and Exchange Commission.
58
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charlotte, North Carolina on this 1st day of
March, 2021.
SIGNATURES
ENPRO INDUSTRIES, INC.
By:
By:
/s/ Robert S. McLean
Robert S. McLean
Executive Vice President, General Counsel and Secretary
/s/ Steven R. Bower
Steven R. Bower
Senior Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons, or in their behalf by their duly appointed attorney-in-fact, on behalf of the registrant in the capacities and on the date
indicated.
Signatures
/s/ Marvin A. Riley
Marvin A. Riley
/s/ J. Milton Childress II
J. Milton Childress II
/s/ David L. Hauser
David L. Hauser*
/s/ Thomas M. Botts
Thomas M. Botts*
/s/ Felix M. Brueck
Felix M. Brueck*
/s/ B. Bernard Burns, Jr.
B. Bernard Burns, Jr.*
/s/ Diane C. Creel
Diane C. Creel*
/s/ Adele M. Gulfo
Adele M. Gulfo*
/s/ Kees van der Graaf
Kees van der Graaf*
/s/ John Humphrey
John Humphrey*
* By:
/s/ Robert S. McLean
Robert S. McLean, Attorney-in-Fact
Title
President and
Chief Executive Officer
(Principal Executive Officer) and Director
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date
March 1, 2021
March 1, 2021
Chairman of the Board and Director
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
Director
Director
Director
Director
Director
Director
Director
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of EnPro Industries, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of EnPro Industries, Inc. and its subsidiaries (the “Company”)
as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of changes
in shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2020, including the
related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Alluxa, Inc.
from its assessment of internal control over financial reporting as of December 31, 2020 because it was acquired by the
Company in a purchase business combination during 2020. We have also excluded Alluxa, Inc. from our audit of internal
control over financial reporting. Alluxa, Inc’s. total assets and total revenues excluded from management’s assessment and our
audit of internal control over financial reporting represent approximately 2% and less than 1%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2020.
60
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Interim Indefinite-Lived Impairment Assessment - Garlock Trademark
As described in Notes 1 and 9 to the consolidated financial statements, the Company’s consolidated indefinite-lived trademarks
balance was $53.4 million as of December 31, 2020, of which a portion relates to the Garlock trademark. Intangible assets with
indefinite lives are subject to at least annual impairment testing, conducted each year as of October 1, which compares the fair
value of the intangible asset with its carrying amount using the relief from royalty method. Interim tests may be required if an
event occurs or circumstances change that would more likely than not reduce the fair value below the carrying value or change
the useful life of the asset. In the third quarter of 2020, a triggering event was identified for the indefinite-lived trademarks
within the Sealing Technologies segment, which includes the Garlock trademark. Based on the results of the interim impairment
analysis, the Company recorded a $16.1 million impairment of indefinite-lived trademarks in the third quarter of 2020.
Projecting discounted future cash flows requires management to make significant estimates regarding projected revenues and
profit margins, discount rates, royalty rates, and tax rates.
The principal considerations for our determination that performing procedures relating to the interim impairment assessment of
the Garlock trademark is a critical audit matter are (i) the significant judgment by management when determining the fair value
estimate of the Garlock trademark; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures
and evaluating management’s significant assumptions related to projected revenues and the discount rate; and (iii) the audit
effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s indefinite-lived trademarks impairment assessment, including controls over the valuation of the Garlock
trademark. These procedures also included, among others, (i) testing management’s process for determining the fair value
estimate; (ii) evaluating the appropriateness of the relief from royalty method; (iii) testing the completeness and accuracy of the
underlying data used in the fair value estimate; and (iv) evaluating the reasonableness of the significant assumptions used by
management related to projected revenues and discount rate. Evaluating management’s assumption related to projected
revenues involved evaluating whether the assumption was reasonable considering (i) current and past performance; (ii) the
consistency with external market and industry data; and (iii) whether this assumption was consistent with evidence obtained in
other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the
appropriateness of the relief from royalty method and (ii) the reasonableness of the significant assumption related to the
discount rate.
61
Provision for Income Taxes - Completeness and Accuracy of Data
As described in Note 5 to the consolidated financial statements, the Company recorded a consolidated provision for income
taxes from continuing operations of $3.5 million for the year ended December 31, 2020. As disclosed by management, the
completeness and accuracy of the consolidated provision for income taxes is dependent on the completeness and accuracy of
input data used in the calculation, including information received from foreign subsidiaries, including adjustments to the foreign
subsidiaries’ year-end tax packages made as part of consolidation.
The principal considerations for our determination that performing procedures relating to the completeness and accuracy of data
used in the provision for income taxes is a critical audit matter are (i) the high degree of auditor subjectivity and effort in
performing procedures and evaluating the audit evidence related to accounting for the provision for income taxes; and (ii) the
audit effort involved the use of professionals with specialized skill and knowledge. As disclosed by management, a material
weakness existed during the year related to this matter.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s provision for income taxes, including controls over the completeness and accuracy of data used in the provision
for income taxes. These procedures also included, among others, (i) testing the provision for income taxes, including the rate
reconciliation and certain return to provision adjustments; (ii) evaluating the completeness and accuracy of the underlying input
data used in the calculation of the income tax provision, including certain information received from foreign subsidiaries; and
(iii) evaluating permanent and temporary differences. Professionals with specialized skill and knowledge were used to assist in
evaluating the Company’s foreign provision for income taxes.
Acquisition of Alluxa, Inc. - Valuation of Definite-lived Intangible Assets
As described in Notes 1 and 3 to the consolidated financial statements, in 2020, the Company completed the acquisition of
Alluxa, Inc. for $238.4 million, net of cash acquired, plus rollover equity. Identifiable intangible assets acquired as part of the
acquisition were $132.3 million, consisting of definite-lived intangible assets, including customer relationships, proprietary
technology, trade names, and non-competition agreements. The fair value of intangible assets associated with acquisitions is
determined using an income valuation approach. Projecting discounted future cash flows requires management to make
significant estimates regarding projected revenues and profit margins, projected capital expenditures, changes in working
capital, discount rates, attrition rates, royalty rates, obsolescence rates, and tax rates.
The principal considerations for our determination that performing procedures relating to the valuation of definite-lived
intangible assets from the Alluxa, Inc. acquisition is a critical audit matter are (i) the significant judgment by management when
determining the fair value estimates of the acquired definite-lived intangible assets; (ii) the high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected
revenues and profit margins, discount rate, attrition rate, royalty rate, and obsolescence rate; and (iii) the audit effort involved
the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
business combinations, including controls over management’s valuation of definite-lived intangible assets. These procedures
also included, among others, (i) reading the purchase agreement; (ii) testing management’s process for determining the fair
values of the definite-lived intangible assets; (iii) evaluating the reasonableness of the income valuation approach; (iv) testing
the completeness and accuracy of the underlying data used in the fair value estimates; and (iv) evaluating the reasonableness of
the significant assumptions used by management related to projected revenues and profit margins, discount rate, attrition rate,
royalty rate, and obsolescence rate. Evaluating management’s assumptions related to projected revenues and profit margins
involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of Alluxa, Inc.;
(ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence
obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the
appropriateness of the income valuation approach and (ii) the reasonableness of the significant assumptions related to the
discount rate, attrition rate, royalty rate, and obsolescence rate.
Goodwill Impairment Assessments - Technetics Reporting Unit
As described in Notes 1 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was
$621.8 million as of December 31, 2020. Goodwill is subject to annual impairment testing conducted each year as of October
1. Interim tests may be required if an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. The goodwill asset impairment test involves comparing the fair value of a
62
reporting unit to its carrying amount. Management would recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value. As a result of the business segment realignments, management tested the
Technetics reporting unit for impairment before the allocation of goodwill, as well as on the annual date. After the transfer, the
Technetics reporting unit was allocated $67.7 million of goodwill and the newly formed Semiconductor reporting unit was
allocated $180.1 million of goodwill. To estimate the fair value of the reporting units, management uses both a discounted cash
flow and market valuation approach. The key assumptions used for the discounted cash flow and market valuation approaches
include projected revenues and profit margins, projected capital expenditures, changes in working capital, discount rates, tax
rates, and market multiples.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments
of the Technetics reporting unit is a critical audit matter are (i) the significant judgment by management when determining the
fair value estimates of the reporting unit; (ii) the high degree of auditor judgment, subjectivity, and effort in performing
procedures and evaluating management’s significant assumptions related to projected revenues and profit margins, discount
rate, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s goodwill impairment assessments, including controls over the valuation of the Technetics reporting unit. These
procedures also included, among others, (i) testing management’s process for determining the fair value estimates; (ii)
evaluating the appropriateness of the discounted cash flow and market valuation approaches; (iii) testing the completeness and
accuracy of the underlying data used in the fair value estimates; and (iv) evaluating the reasonableness of the significant
assumptions used by management related to projected revenues and profit margins, discount rate, and market multiples.
Evaluating management’s assumptions related to projected revenues and profit margins involved evaluating whether the
assumptions were reasonable considering (i) current and past performance; (ii) the consistency with external market and
industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted
cash flow and market valuation approaches and (ii) the reasonableness of the significant assumptions related to the discount rate
and market multiples.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 1, 2021
We have served as the Company’s auditor since 2004.
63
FINANCIAL INFORMATION
ENPRO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2020, 2019 and 2018
(in millions, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Other
Total operating expenses
Operating income
Interest expense
Interest income
Other expense
Income (loss) from continuing operations before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations
Less: net income attributable to redeemable non-controlling interest, net of tax
Income (loss) from continuing operations attributable to EnPro Industries, Inc.
Income from discontinued operations, including gain on sale, net of taxes
Net income attributable to EnPro Industries, Inc
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Net income per share
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Net income per share
2020
2019
2018
$
1,074.0 $
1,205.7 $
1,274.1
698.2
375.8
299.8
50.1
349.9
25.9
(16.5)
1.6
(37.8)
(26.8)
3.5
(23.3)
0.4
(23.7)
208.1
184.4 $
801.9
403.8
314.9
32.3
347.2
56.6
(19.6)
1.4
(34.1)
4.3
3.5
7.8
—
7.8
30.5
38.3 $
(1.15) $
10.13
8.98 $
0.38 $
1.48
1.86 $
855.6
418.5
311.6
21.1
332.7
85.8
(28.5)
1.2
(43.4)
15.1
(19.8)
(4.7)
—
(4.7)
24.3
19.6
(0.22)
1.16
0.94
(1.15) $
0.38 $
(0.22)
10.13
1.47
8.98 $
1.85 $
1.16
0.94
$
$
$
$
$
See notes to Consolidated Financial Statements.
64
ENPRO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2020, 2019 and 2018
(in millions)
Net income attributable to EnPro Industries, Inc.
Other comprehensive income:
Foreign currency translation adjustments
Pension and postretirement benefits adjustment (excluding amortization)
Pension settlements and curtailments
Amortization of pension and postretirement benefits included in net income
Other comprehensive income, before tax
Income tax expense related to items of other comprehensive income
Other comprehensive income, net of tax
Less: other comprehensive income attributable to non-controlling interests
Other comprehensive income, net of tax attributable to EnPro Industries, Inc
2020
2019
2018
$
184.4 $
38.3 $
19.6
24.9
7.8
(0.8)
5.5
37.4
(2.9)
34.5
3.0
31.5
21.9
(6.2)
—
7.0
22.7
(2.1)
20.6
—
20.6
58.9 $
(0.3)
(12.7)
12.7
5.5
5.2
(2.3)
2.9
—
2.9
22.5
Comprehensive income attributable to EnPro Industries, Inc.
$
215.9 $
See notes to Consolidated Financial Statements.
65
ENPRO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2020, 2019 and 2018
(in millions)
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net income attributable to EnPro Industries, Inc.
Adjustments to reconcile net income attributable to EnPro Industries, Inc. to
net cash provided by operating activities of continuing operations:
2020
2019
2018
$
184.4 $
38.3 $
19.6
Income from discontinued operations, net of taxes
Taxes related to sale of discontinued operations
Depreciation
Amortization
Loss on sale of businesses
Loss on extinguishment of debt
Asset impairments
Deferred income taxes
Stock-based compensation
Other non-cash adjustments
Change in assets and liabilities, net of effects of acquisitions and divestitures
of businesses:
Asbestos insurance receivables
Accounts receivable, net
Inventories
Accounts payable
Income taxes, net
Other current assets and liabilities
Other non-current assets and liabilities
Net cash provided by operating activities of continuing operations
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Purchases of property, plant and equipment
Proceeds from sale of businesses
Payments for acquisitions, net of cash acquired
Receipts from settlements of derivative contracts
Proceeds from sale of property, plant and equipment
Other
Net cash provided by (used in) investing activities of continuing
operations
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from debt
Repayments of debt, including premiums to par value
Repurchase of common stock
Dividends paid
Other
Net cash provided by (used in) financing activities of continuing
operations
CASH FLOWS OF DISCONTINUED OPERATIONS
Operating cash flows
Investing cash flows
Net cash provided by (used in) discontinued operations
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest
Income taxes, net of refunds received
66
(208.1)
(38.7)
30.2
40.6
2.6
—
29.3
(14.6)
5.4
3.2
2.5
18.7
19.5
0.3
(17.8)
(13.1)
13.2
57.6
(18.3)
475.1
(238.3)
—
0.8
(3.2)
(30.5)
—
30.4
37.5
11.3
—
29.4
(28.3)
6.8
2.5
5.8
9.9
7.0
(15.9)
22.0
4.4
0.2
130.8
(21.6)
3.6
(310.5)
—
0.8
(3.4)
(24.3)
—
31.6
34.5
—
18.1
14.1
1.6
6.5
2.0
29.9
(1.1)
(23.0)
(4.9)
95.3
5.8
7.1
212.8
(36.1)
—
—
9.3
30.7
(2.8)
216.1
(331.1)
1.1
29.9
(168.2)
(5.3)
(21.7)
(2.0)
652.7
(487.9)
(15.0)
(20.9)
(5.1)
1,014.7
(1,184.9)
(50.0)
(20.3)
(11.9)
(167.3)
123.8
(252.4)
(6.2)
—
(6.2)
8.1
108.3
121.2
229.5 $
76.8
(11.8)
65.0
3.1
(8.4)
129.6
121.2 $
13.6
(27.1)
(13.5)
(7.7)
(59.7)
189.3
129.6
16.1 $
67.2 $
19.2 $
8.8 $
33.3
(77.9)
$
$
$
Non-cash investing and financing activities
Non-cash acquisitions of property, plant and equipment
$
1.9 $
2.5 $
2.3
2020
2019
2018
See notes to Consolidated Financial Statements.
67
ENPRO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2020 and 2019
(in millions, except share amounts)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
of $4.1 in 2020 and of $3.7 in 2019
Inventories
Income taxes receivable
Prepaid expenses and other current assets
Current assets held for sale
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt
Accounts payable
Accrued expenses
Current liabilities held for sale
Total current liabilities
Long-term debt
Deferred taxes and non-current income taxes payable
Other liabilities
Total liabilities
Commitments and contingent liabilities
Redeemable non-controlling interest
Shareholders’ equity
Common stock – $.01 par value; 100,000,000 shares authorized; issued 20,718,675
shares at December 31, 2020 and 20,785,346 shares at December 31, 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Common stock held in treasury, at cost – 182,511 shares at December 31, 2020 and
186,516 shares at December 31, 2019
Total shareholders’ equity
2020
2019
$
229.5 $
121.2
$
$
143.2
139.1
49.6
17.6
—
579.0
195.0
621.8
553.6
160.8
157.1
28.7
27.6
254.1
749.5
218.8
485.3
466.9
134.2
2,083.6 $
114.6
2,035.1
3.8 $
69.8
128.4
—
202.0
487.5
130.5
136.7
956.7
4.1
82.7
137.3
89.5
313.6
625.2
74.6
106.8
1,120.2
48.4
28.0
0.2
289.6
794.8
(4.9)
(1.2)
1,078.5
0.2
292.1
632.2
(36.4)
(1.2)
886.9
Total liabilities and equity
$
2,083.6 $
2,035.1
See notes to Consolidated Financial Statements.
68
ENPRO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2020, 2019 and 2018
(dollars and shares in millions, except per share data)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Permanent
Shareholders’
Equity
Redeemable
non-
controlling
interest
Treasury
Stock
Balance, December 31, 2017
Adoption of new accounting
standards
Net income
Other comprehensive income
Dividends ($0.96 per share)
Share repurchases
Incentive plan activity
Balance, December 31, 2018
Adoption of new accounting
standard
LeanTeq acquisition
Net income
Other comprehensive income
Dividends ($1.00 per share)
Share repurchases
Incentive plan activity
Balance, December 31, 2019
Adoption of new accounting
standard
Alluxa acquisition
Net income
Other comprehensive income
Dividends ($1.04 per share)
Share repurchases
Incentive plan activity
Other
21.3 $ 0.2 $ 347.9 $ 604.4 $
(48.4) $ (1.3) $
902.8 $
—
—
—
—
—
—
—
—
—
—
—
—
(0.3)
19.6
—
(20.4)
(0.7) —
(50.0) —
0.1
—
3.1
—
—
—
—
—
2.9
—
—
—
—
—
—
—
(0.3)
19.6
2.9
(20.4)
(50.0)
3.1
20.7
0.2
301.0
603.3
(45.5)
(1.3)
857.7
—
—
—
—
—
—
—
—
—
—
(0.2) —
—
0.1
—
—
—
—
—
11.5
—
38.3
—
(20.9)
(15.0) —
—
6.1
(11.5) —
—
—
20.6
—
—
—
—
—
—
—
—
0.1
—
—
38.3
20.6
(20.9)
(15.0)
6.2
20.6
0.2
292.1
632.2
(36.4)
(1.2)
886.9
—
—
—
—
—
—
—
—
—
—
(0.1) —
—
—
—
—
—
—
—
—
—
(0.1)
—
184.4
—
(21.7)
(5.3) —
4.8
—
(2.0) —
—
—
—
31.5
—
—
—
—
—
—
—
—
—
—
—
—
(0.1)
—
184.4
31.5
(21.7)
(5.3)
4.8
(2.0)
—
—
—
—
—
—
—
—
—
28.0
—
—
—
—
—
28.0
—
16.9
0.4
3.0
—
—
—
0.1
Balance, December 31, 2020
20.5 $ 0.2 $ 289.6 $ 794.8 $
(4.9) $ (1.2) $ 1,078.5 $
48.4
See notes to Consolidated Financial Statements.
69
ENPRO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Overview, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Guidance
Overview
EnPro Industries, Inc. (“we,” “us,” “our,” “EnPro” or the “Company”) is a leader in designing, developing,
manufacturing, servicing, and marketing proprietary engineered industrial products and serve a wide variety of customers in
varied industries around the world. Over the past year and a half, we have executed several strategic initiatives to change the
portfolio of businesses that we operate to focus on materials science-based businesses with leading technologies, compelling
margins, strong cash flow, and high levels of recurring revenue that serve markets with favorable secular tailwinds
Basis of Presentation
The Consolidated Financial Statements reflect the accounts of the Company and our majority-owned and controlled
subsidiaries. All intercompany accounts and transactions between our consolidated operations have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America ("GAAP") requires management to make estimates and assumptions that affect the amounts of assets and liabilities
and the disclosures regarding contingent assets and liabilities at period end and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
In the fourth quarter of 2020, we evaluated our internal reporting and determined to have a new segment as the result of
internal reorganizations and the acquisition of Alluxa, Inc. ("Alluxa"). For more information on the acquisition of Alluxa, see
Note 3, "Acquisitions and Dispositions". Our new segment, Advanced Surface Technologies, is comprised of Alluxa and our
semiconductor businesses, comprised of LeanTeq and the Technetics semiconductor business, previously reported in our
Sealing Technologies segment within our Technetics reporting unit. This change is reflected in all periods presented in Note 19,
"Business Segment Information". The change also involved the transfer of $180.1 million of goodwill from the Sealing
Technologies segment to our Advanced Surface Technologies segment. This change is reflected in all periods presented in Note
9, "Goodwill and Other Intangible Assets".
In the second quarter of 2020 we moved the oil and gas component of our Garlock Pipeline Technologies ("GPT")
business from the Sealing Technologies segment to the Engineered Materials segment. This move allowed us to group our two
oil and gas businesses, GPT and Compressor Products International, together to be managed as one business unit. This change
is reflected in all periods presented in Note 19, "Business Segment Information". The change also involved the transfer of
$5.8 million of goodwill from the Sealing Technologies segment to the Engineered Materials segment which is reflected in all
periods presented in Note 9, "Goodwill and Other Intangible Assets".
In January 2020, we adopted a new accounting standard that changes how we measure credit losses for most financial
assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The
standard requires us to estimate our lifetime “expected credit loss” for such assets at inception, and record an allowance that,
when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the
financial asset.
We applied a current expected credit loss model ("CECL") to our trade receivables. Given the nature of our trade
receivables, a complex system to develop forward-looking models was not deemed necessary. Since our receivables are short-
term, reasonable and supportable forecasted information was not readily available and our application of CECL relied on
historical information and existing economic conditions. We will continue to monitor the collectability of our receivables as
well as apply any supportable forecast information as it becomes available to make adjustments to our estimated reserve.
We applied our CECL model to our trade receivables at January 1, 2020 using a modified retrospective transition
approach. Upon adoption, we recorded a $0.1 million increase to our allowance for credit losses with a corresponding decrease
to retained earnings.
Additionally, in January 2020, we adopted a standard to simplify annual and interim goodwill impairment testing. Under
the standard, we will perform our annual or interim goodwill impairment tests by comparing the fair value of a reporting unit
with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit. We still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative
70
impairment test is necessary. Upon adoption, there was no impairment of goodwill recorded and this standard is applied
following adoption on a prospective basis for all annual and interim goodwill impairment assessments.
In the first quarter of 2019, we adopted a standard that establishes principles to report transparent and economically
neutral information about the assets and liabilities that arise from leases. The standard requires lessees to recognize the lease
assets and lease liabilities that arise from all leases in the statement of financial position and to disclose qualitative and
quantitative information about lease transactions, such as information about variable lease payments and options to renew and
terminate leases. The standard retains a distinction between finance leases and operating leases. As a result, the effect of leases
in the Consolidated Statements of Operations and the Consolidated Statement of Cash Flows is largely unchanged.
Additionally, the guidance provides clarification on the definition of a lease, including alignment of the concept of control
of an asset with principles in other authoritative guidance around revenue recognition and consolidation. We adopted the new
standard using the allowable option to apply the transition provisions of the new guidance at its adoption date without adjusting
the comparative periods presented.
We evaluated the impact of applying practical expedients, and upon adoption we elected the package of practical
expedients which permits us to not reassess prior conclusions related to contracts containing leases, lease classification, and
initial direct costs. Additionally, we elected to not separate lease and non-lease components, we will not recognize an asset for
leases with a term of twelve months or less, and we will apply a portfolio approach in determining discount rates.
Upon adoption of this standard, we recognized a right-of-use asset and a corresponding lease liability of approximately
$27 million for our operating leases from continuing operations. The adoption of the standard did not have a material impact to
our Consolidated Statements of Operations or Consolidated Statements of Cash Flows.
Summary of Significant Accounting Policies
Revenue Recognition – The largest stream of revenue is product revenue for shipments of the various products discussed
further in Note 19, "Business Segment Information," along with a smaller amount of revenue from services that typically take
place over a short period of time. We recognize revenue at a point in time following the transfer of control, which typically
occurs when a product is shipped or delivered, depending on the terms of the sale agreement, or when services are rendered.
Shipping costs billed to customers are recognized as revenue and expensed in cost of goods sold as a fulfillment cost when
control of the product transfers to the customer. Payment from customers is typically due within 30 days of the sale for sales in
the U.S. For sales outside of the U.S., payment terms may be longer based upon local business customs, but are typically due
no later than 90 days after the sale.
At December 31, 2020, we had a backlog of orders of continuing operations valued at $212.5 million compared with
$190.7 million at December 31, 2019. Approximately 6.1% of the backlog is expected to be filled beyond 2021. Backlog
represents orders on hand we believe to be firm. However, there is no certainty the backlog orders will result in actual sales at
the times or in the amounts ordered. In addition, for most of our business, backlog is not particularly predictive of future
performance because of our short lead times and some seasonality.
Redeemable Non-Controlling Interests – Non-controlling interests in subsidiaries that are redeemable for cash or other
assets outside of the our control are classified as mezzanine equity, outside of equity and liabilities, at the greater of the carrying
value or the redemption value. The increases or decreases in the estimated redemption amount are recorded with corresponding
adjustments against equity and are reflected in the computation of earnings per share.
Foreign Currency Translation – The financial statements of those operations whose functional currency is a foreign
currency are translated into U.S. dollars using the current rate method. Under this method, all assets and liabilities are translated
into U.S. dollars using current exchange rates, and income statement activities are translated using average exchange rates. The
foreign currency translation adjustment is included in accumulated other comprehensive loss in the Consolidated Balance
Sheets. Gains and losses on foreign currency transactions are included in operating income. Foreign currency transaction losses
totaled $2.9 million, $3.0 million, and $0.6 million respectively, in 2020 and 2019, and 2018.
Research and Development Expense – Costs related to research and development activities are expensed as incurred. We
perform research and development primarily under Company-funded programs for commercial products. Research and
development expenditures in 2020, 2019, and 2018 were $15.2 million, $20.6 million, and $22.9 million, respectively, and are
included in selling, general and administrative expenses in the Consolidated Statements of Operations.
Income Taxes – We use the asset and liability method of accounting for income taxes. Temporary differences arising
between the tax basis of an asset or liability and its carrying amount on the Consolidated Balance Sheet are used to calculate
future income tax assets or liabilities. This method also requires the recognition of deferred tax benefits, such as net operating
71
loss carryforwards. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered
likely to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable
income (losses) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment of the
change. A tax benefit from an uncertain tax position is recognized only if we believe it is more likely than not that the position
will be sustained on its technical merits. If the recognition threshold for the tax position is met, only the portion of the tax
benefit that we believe is greater than 50 percent likely to be realized is recorded.
The Tax Act provides for a territorial tax system, that includes the global intangible low-taxed income (“GILTI”)
provision beginning in 2018. The GILTI provisions require us to include in our U.S. income tax return certain current year
foreign subsidiary earnings net of foreign tax credits, subject to limitation. We elected to account for the GILTI tax in the period
in which it is incurred.
In December 2017, U.S. Securities and Exchange Commission ("SEC") issued guidance to address the application of
authoritative tax accounting guidance in situations where companies do not have the necessary information available, prepared,
or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act for the reporting period
in which it was enacted. In these instances, the SEC's guidance allowed the recording of provisional amounts during a
measurement period not to extend beyond one year of the enactment date. As the Tax Act was enacted at the end of 2017, and
ongoing guidance and interpretation has been issued over the ensuing twelve months, we considered the impact of the transition
tax, remeasurement of deferred tax assets and liabilities, and other items recorded in our year-end income tax provision for the
fourth quarter 2017 to be a provisional estimate and have further analyzed the year-end data and refined our calculations. The
refinements to our provisional estimate were made in the third and fourth quarters of 2018 and we completed our accounting for
the impact in the fourth quarter of 2018. Please see Note 5, "Income Taxes," for further information.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, demand deposits and highly liquid
investments with a maturity of three months or less at the time of purchase.
Receivables – Accounts receivable are stated at the historical carrying amount net of write-offs and allowance for
doubtful accounts. We establish an allowance for doubtful accounts receivable based on historical experience and any specific
customer collection issues we have identified. Doubtful accounts receivable are written off when a settlement is reached for an
amount less than the outstanding historical balance or when we have determined the balance will not be collected.
Inventories – Certain domestic inventories are valued by the last-in, first-out (“LIFO”) cost method. Inventories not
valued by the LIFO method are valued using the first-in, first-out (“FIFO”) cost method, and are recorded at the lower of cost or
net realizable value. Approximately 19% and 19% of inventories were valued by the LIFO method in 2020 and 2019,
respectively.
Property, Plant and Equipment – Property, plant and equipment are recorded at cost. Depreciation of plant and
equipment is determined on the straight-line method over the following estimated useful lives of the assets: buildings and
improvements, 5 to 25 years; machinery and equipment, 3 to 10 years.
Goodwill and Other Intangible Assets – Goodwill represents the excess of the purchase price over the estimated fair value
of the net assets of acquired businesses. Goodwill is not amortized, but instead is subject to annual impairment testing
conducted each year as of October 1. The goodwill asset impairment test involves comparing the fair value of a reporting unit to
its carrying amount. We would recognize an impairment charge for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that
reporting unit. Interim tests may be required if an event occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount.
To estimate the fair value of our reporting units, we use both a discounted cash flow and market valuation approach. The
discounted cash flow approach uses cash flow projections to calculate the fair value of each reporting unit while the market
approach relies on market multiples of similar companies. The key assumptions used for the discounted cash flow approach
include projected revenues and profit margins, projected capital expenditures, changes in working capital, discount rates and tax
rates. For the market approach, we choose a group of peer companies we believe is best representative of each reporting unit.
We used a 75% weighting for the discounted cash flow valuation approach and a 25% weighting for the market valuation
approach, reflecting our belief that the discounted cash flow valuation approach provides a better indicator of a reporting unit's
value since it reflects the specific cash flows anticipated to be generated in the future by the business.
As a result of the business segment realignment discussed in this footnote under "Basis of Presentation", our Technetics
reporting unit was tested for impairment both before and after the allocation of goodwill and the newly formed Semiconductor
reporting unit (the LeanTeq and Technetics semiconductor business) was tested after the allocation. We determined that the
72
Technetics reporting unit was not impaired prior to the transfer of goodwill. After the transfer, the Technetics reporting unit was
allocated $67.7 million of goodwill and, as of our allocation date of December 1, 2020, we determined it was not impaired as its
fair value exceeded its carrying value by 26%. We also determined that our Semiconductor reporting unit, allocated
$180.1 million of goodwill as of our allocation date of December 1, 2020, was not impaired and its fair value exceeded its
carrying value by 2%. Any change in assumptions, including forecasted performance or external market information used in our
fair value calculation, including the determination of our discount rate, could result in a future impairment of our
Semiconductor reporting unit. We will continue to monitor its performance as well as other market factors and test for
impairment if we determine a triggering event has occurred. Also as a result of the transition of the oil and gas component of
the GPT business, an interim goodwill impairment test was performed in the second quarter of 2020 for all reporting units and
we determined that the carrying amount of our goodwill was not impaired either before or after the move.
We completed our required annual impairment tests of goodwill as of October 1, 2020, 2019 and 2018. These
assessments did not indicate any impairment of the goodwill, and the fair values of each of our reporting units exceeded their
carrying values by at least 20%, with the exception of our Semiconductor reporting unit discussed above. The most recent
annual assessment as well as the interim goodwill impairment assessments discussed above were conducted in the context of
information that was reasonably available to us, as well as our consideration of the future potential impacts of COVID-19 on
our business. However, because of uncertainties at this time with respect to the severity and duration of the COVID-19
outbreak, the duration and terms of related governmental orders restricting activities, and the timing and pace of any economic
recovery as COVID-19 impacts ultimately abate, we cannot predict with specificity the extent and duration of any future impact
on our business and financial results from COVID-19. In addition, although most of our operations have been treated as
“essential” operations under applicable government orders restricting business activities that have been issued to date, and
accordingly have been permitted to continue to operate, it is possible that they may not continue to be so treated under future
government orders, or, even if so treated, site-specific health and safety concerns might otherwise require certain of our
operations to be halted for some period of time. Accordingly, if the impact is more severe or longer in duration than we have
projected, such impact could potentially result in impairments of assets in future periods. We will test all reporting units again
at our next test date of October 1, 2021, or earlier as circumstances may require.
Other intangible assets are recorded at cost or, when acquired as a part of a business combination, at estimated fair value.
These assets include customer relationships, patents and other technology-related assets, trademarks, licenses and non-compete
agreements. Intangible assets that have definite lives are amortized using a method that reflects the pattern in which the
economic benefits of the assets are consumed or the straight-line method over estimated useful lives of 2 to 21 years. Intangible
assets with indefinite lives are subject to at least annual impairment testing, conducted each year as of October 1, which
compares the fair value of the intangible asset with its carrying amount using the relief from royalty method. Interim tests may
be required if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying
value or change the useful life of the asset.
In the third quarter of 2020, sales declines by businesses utilizing two of the indefinite-lived trademarks within our
Sealing Technologies segment, primarily related to the Garlock trademark, were determined to be triggering events for an
interim impairment analysis. Based on the results of this analysis, we recorded a $16.1 million impairment of indefinite-lived
trademarks in the third quarter. In the fourth quarter of 2019 we determined our indefinite-lived Motorwheel trade name was
impaired at December 31, 2019. We recorded a $7.9 million impairment charge and recorded the trade name at $2.1 million on
our Consolidated Balance Sheet at December 31, 2019, which represented the fair-value of the asset. All assets of our
Motorwheel business were subsequently divested in 2020.
Debt – Debt issuance costs associated with our senior secured revolving credit facility are presented as an asset and
subsequently amortized into interest expense ratably over the term of the revolving debt arrangement. Debt issuance costs
associated with any of our other debt instruments that are incremental third-party costs of issuing the debt are recognized as a
reduction in the carrying value of the debt and amortized into interest expense over the time period to maturity using the interest
method.
Derivative Instruments – We use derivative financial instruments to manage our exposure to various risks. The use of
these financial instruments modifies the exposure with the intent of reducing our risk. We do not use financial instruments for
trading purposes, nor do we use leveraged financial instruments. The counterparties to these contractual arrangements are major
financial institutions. We use multiple financial institutions for derivative contracts to minimize the concentration of credit risk.
The current accounting rules require derivative instruments, excluding certain contracts that are issued and held by a reporting
entity that are both indexed to its own stock and classified in shareholders’ equity, be reported in the Consolidated Balance
Sheets at fair value and that changes in a derivative’s fair value be recognized currently in earnings unless specific hedge
accounting criteria are met.
73
Fair Value Measurements – Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date.
We utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three
broad levels. The following is a brief description of those three levels:
•
•
•
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect our own assumptions.
The fair value of intangible assets associated with acquisitions is determined using an income valuation approach.
Projecting discounted future cash flows requires us to make significant estimates regarding projected revenues and profit
margins, projected capital expenditures, changes in working capital, discount rates, attrition rates, royalty rates, obsolescence
rates and tax rates. This non-recurring fair value measurement would be classified as Level 3 due to the absence of quoted
market prices or observable inputs for assets of a similar nature.
We review the carrying amounts of long-lived assets when certain events or changes in circumstances indicate that the
carrying amounts may not be recoverable. An impairment loss is recognized when the carrying amount of the asset group is not
recoverable and exceeds its fair value. We estimate the fair values of assets subject to long-lived asset impairment based on our
own judgments about the assumptions that market participants would use in pricing the assets. In doing so, we use a market
approach when available or an income approach based upon discounted cash flows. The key assumptions used for the
discounted cash flow approach include expected cash flows based on internal business plans, projected growth rates, discount
rates, and royalty rates for certain intangible assets. We classify these fair value measurements as Level 3.
Similarly, the fair value computations for the recurring impairment analyses of goodwill and indefinite-lived intangible
assets would be classified as Level 3 due to the absence of quoted market prices or observable inputs. The key assumptions
used for the discounted cash flow approach include projected revenues and profit margins, projected capital expenditures,
changes in working capital, discount rates, tax rates and royalty rates for certain indefinite-lived intangible assets. Significant
changes in any of those inputs could result in a significantly different fair value measurement.
Pensions and Postretirement Benefits - Amortization of the net gain or loss resulting from experience different from that
assumed and from changes in assumptions is included as a component of benefit cost. If, as of the beginning of the year, that
net gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets, the
amortization is that excess divided by the average remaining service period of participating employees expected to receive
benefits under the plan. We amortize prior service cost using the straight-line basis over the average future service life of active
participants.
For segment reporting purposes, we allocate service cost to each location generating those costs. All other components of
net periodic pension cost are reported in other (non-operating) expense.
Recently Issued Accounting Guidance
In December 2019, a standard was issued that will simplify the accounting for income taxes in nine unrelated areas. The
standard is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We are currently
evaluating the new guidance to determine the impact it will have on our consolidated financial statements.
2. Discontinued Operations
During the fourth quarter of 2019, we entered into an agreement to sell the Fairbanks Morse division, which comprised
our entire Power Systems segment. The sale of Fairbanks Morse to an affiliate of funds managed by private equity firm Arcline
Investment Management closed on January 21, 2020 for a sales price of $450.0 million. The pre-tax gain on the disposition of
Fairbanks Morse was $274.3 million. We have reported, for all periods presented, the financial condition, results of operations,
and cash flows of Fairbanks Morse as discontinued operations in the accompanying financial statements.
For 2020, 2019, and 2018, results of operations from Fairbanks Morse were as follows:
74
2020
Years Ended December 31,
2019
(in millions)
2018
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general, and administrative expenses
Other
Total operating expenses
Income (Loss) from discontinued operations before income
taxes
Income tax benefit (expense)
Income (loss) from discontinued operations, net of taxes before
gain from sale of discontinued operations
Gain from sale of discontinued operations, net of taxes
$
7.6 $
284.2
$
7.6
—
1.5
(0.1)
1.4
(1.4)
0.3
(1.1)
209.2
216.9
67.3
28.2
0.8
29.0
38.3
(7.8)
30.5
—
Income from discontinued operations, net of taxes
$
208.1 $
30.5
$
The major classes of assets and liabilities for Fairbanks Morse are shown below:
257.9
197.4
60.5
28.8
0.2
29
31.5
(7.2)
24.3
—
24.3
Assets:
Accounts receivable
Inventories
Property, plant, and equipment
Goodwill
Other assets
Total assets of discontinued operations
Liabilities:
Accounts payable
Accrued expenses
Other liabilities
Total liabilities of discontinued operations
As of December 31,
2019
(in millions)
$
$
$
$
107.8
60.2
63.0
11.8
11.3
254.1
36.9
48.2
4.4
89.5
Pursuant to applicable accounting guidance for the reporting of discontinued operations, allocations to Fairbanks Morse
for corporate services have not been reflected in the above financial statements of discontinued operations and were included as
part of our income from continuing operations in the accompanying consolidated financial statements of the company for all
periods as they are expected to be in the future. As a result, income before income taxes of Fairbanks Morse has been increased
by $2.4 million and $2.2 million, in 2019 and 2018, respectively, with offsetting increase in corporate expenses.
3. Acquisitions and Dispositions
Acquisitions
On October 26, 2020, a subsidiary of EnPro formed for this purpose (the "Alluxa Acquisition Subsidiary") acquired all of
the equity securities of Alluxa, Inc. ("Alluxa"), a privately held, California-based company. Alluxa is an industrial technology
company that provides specialized optical filters and thin-film coatings for the most challenging applications in the industrial
technology, life sciences, and semiconductor markets. Alluxa's products are developed through a proprietary coating process
using state-of-the-art advanced equipment. Alluxa is included with the Advanced Surface Technologies segment.
75
Alluxa works in collaboration with customers across major end markets to provide customized, complex precision coating
solutions through its specialized technology platform and proprietary processes. Alluxa has cultivated long-standing customer
relationships across its diversified customer base. Alluxa’s global distribution capabilities support the company’s international
reach, serving customers across the Americas, Europe, and Asia. Founded in 2007, Alluxa has two locations in California and is
headquartered in Santa Rosa, California.
The acquisition was paid for with $238.4 million, net of cash acquired, plus rollover equity from three Alluxa executives
(the “Alluxa Executives”). Additionally, there were $5.0 million of acquisition-related costs recorded during the year ended
December 31, 2020 related to this transaction which were expensed during the period and included in selling, general and
administrative expense in the accompanying Consolidated Statement of Operations.
The purchase price of Alluxa was allocated to the assets acquired and liabilities assumed based on their estimated fair
values. The excess of the purchase price over the identifiable assets acquired less the liabilities assumed was reflected as
goodwill which is attributable primarily to the value of the workforce and revenue related to sales of future technology and
future customers. Goodwill recorded as part of the purchase price allocation was $126.0 million, of which $0.1 million is
expected to be tax deductible over a period of 7 years. Identifiable intangible assets acquired as part of the acquisition were
$132.3 million, consisting of definite-lived intangible assets, including customer relationships, proprietary technology, trade
names and non-competition agreements, with a weighted average amortization period of approximately 13 years. Inventory
acquired includes an adjustment to fair value of $13.9 million.
In connection with the completion of the transaction, we entered into a limited liability operating agreement (the “Alluxa
LLC Agreement”) with respect to the “Alluxa Acquisition Subsidiary” in connection with the rollover transaction with the
Alluxa Executives receiving approximately 7% of the equity interests of the Alluxa Acquisition Subsidiary in return for their
contribution of the rollover shares of Alluxa. Pursuant to the Alluxa LLC Agreement, each Alluxa Executive has the right to
sell to us, and we have the right to purchase from each Alluxa Executive (collectively, the “Put and Call Rights”), one-third of
the Alluxa Executive equity interests in the Alluxa Acquisition Subsidiary during each of three exercise periods in 2024, 2025
and 2026, with any amount not sold or purchased in a prior exercise period being carried forward to the subsequent exercise
periods. The Alluxa LLC Agreement also provides for the purchase by us of all of an Alluxa Executive's equity interests in the
Alluxa Acquisition Subsidiary in connection with the termination of employment of the Alluxa Executive under specified
circumstances, with payments in certain circumstances to be made in annual installments. In certain cases involving the
termination of an Alluxa Executive's employment, the consideration payable to an Alluxa Executive for the purchase of his
equity interests is equal to the fixed value set forth in the Alluxa LLC Agreement (an aggregate of $17.85 million for all of the
Alluxa Executives). In all other cases, including upon any exercise of the Alluxa Put and Call Rights, the consideration payable
under the Alluxa LLC Agreement in connection with any such purchase by us of an Alluxa Executive's equity interests in the
Alluxa Acquisition Subsidiary is equal to the greater of the fixed value of the equity interests as set forth in the Alluxa LLC
Agreement or a price based upon a multiple of twelve-month adjusted EBITDA based upon certain financial metrics of the
Alluxa Acquisition Subsidiary, plus cash and less indebtedness of the Alluxa Acquisition Subsidiary prior to the relevant
payment, and subject to certain adjustments dependent upon the circumstances of the purchase and sale.
The fair value of the Alluxa Executives' equity interests was estimated as of closing to be $16.9 million. To estimate the
fair value of the Alluxa Put and Call Rights, we used a Monte Carlo simulation in an option pricing framework (a special case
of the Income Approach). In particular, we simulated the future equity value and EBITDA of Alluxa assuming a correlated
Geometric Brownian Motion. For each simulation path, the Alluxa Put and Call Rights' payoffs are calculated based on the
contractual terms, and then discounted at the term-matched risk-free rate plus, in the case of the put option, allowance for
counterparty credit risk. Finally, the value of the Alluxa Put and Call Rights is calculated as the average present value over all
simulated paths. The model uses our EBITDA forecasts adjusted for risk to simulate future EBITDA in a risk-neutral
framework. Due to the presence of the put arrangement, the Alluxa Executives' equity interest is presented as redeemable non-
controlling interest since redemption is not solely within our control. We initially recognized the amount at fair value, inclusive
of the put-call provisions. We will adjust the redeemable non-controlling interest when the redemption value exceeds the
carrying value with changes recognized as an adjustment to equity.
As noted earlier, the put option or call option may be exercised in the event of certain employment terminations or other
events. The put/call price will be reduced as described above for certain types of employment terminations. As a result of this
option related to employment termination, a portion of the non-controlling interest will be classified as compensation expense
for financial reporting purposes. We calculated the value of this compensation (the “Compensation Amount”) using a with-
and-without method. In particular, we calculated the value of the Compensation Amount as the difference between the value of
the net put and call options with and without the reduced strike prices. Based on this approach we calculated the Compensation
Amount to be $9.8 million, as of the valuation date. This amount will be recognized as compensation expense over the term of
the options and is subject to change based on the ultimate redemption value of the Alluxa Executives' equity interests.
76
We continue to evaluate the purchase price allocation of this acquisition, primarily the value of certain intangible assets
and income tax assets and liabilities, and it may be revised in future periods as these estimates are finalized. The following table
represents the preliminary purchase price allocation:
Accounts receivable
Inventories
Property, plant and equipment
Goodwill
Other intangible assets
Other assets
Deferred income taxes
Liabilities assumed
Redeemable non-controlling interest
(in millions)
6.1
18.9
11.0
126.0
132.3
9.1
(38.1)
(10.0)
(16.9)
238.4
$
$
On September 25, 2019, we acquired all of the equity securities of LeanTeq Co., Ltd. and its affiliate LeanTeq LLC
(collectively referred to as “LeanTeq”). LeanTeq primarily provides refurbishment services for critical components and
assemblies used in state-of-the-art semiconductor equipment. This equipment is used to produce the latest and most
technologically advanced microchips for smartphones, autonomous vehicles, high-speed wireless connectivity, artificial
intelligence, and other leading-edge applications. Founded in 2011 and headquartered in Taoyuan City, Taiwan, LeanTeq has
two locations in Taiwan and one in the United States (Silicon Valley). LeanTeq is included within the Advanced Surface
Technologies segment.
The acquisition was paid for with $271.2 million, net of cash acquired, plus rollover equity from two of LeanTeq sellers
(the “LeanTeq Executives”) who were executives of the acquired entity. This rollover equity gives the LeanTeq Executives
approximately a 10% ownership share (the "Rollover Equity") of Lunar Investment LLC (“Lunar”), EnPro’s subsidiary that
purchased LeanTeq. Additionally, there were $6.4 million of acquisition-related costs recorded during the year ended
December 31, 2019, which were expensed during the period and included in selling, general and administrative expense in the
accompanying Consolidated Statements of Operations.
Pursuant to a limited liability company agreement (the "LeanTeq LLC Agreement") entered into with respect to Lunar as
part of the LeanTeq acquisition, EnPro has the right to buy from each LeanTeq Executive, (each a LeanTeq "Call Option”), and
the right to sell (the "Put Option") such LeanTeq Executive's Rollover Equity as follows:
EnPro has the right to buy, and the LeanTeq Executive has the right to sell, such Rollover Equity within 90 days
following the third anniversary of the closing and payable in two installments as follows (the "Put/Call Price"):
• Half of the price payable for the Rollover Equity is to be equal to a pro rata portion of a multiple of EBITDA (as
defined) of Lunar (on a consolidated basis) during the last 12 months (“LTM”) ending on the closest month end prior
to the last month end before the purchase or sale (the "First Measurement Date") less Lunar's consolidated net debt in
excess of cash as of the First Measurement Date (the "First Exercise Price"). The applicable multiple depends on the
future LTM EBITDA margin and revenue growth;
• The remaining half of the price payable for the Rollover Equity will be equal to an amount that is the higher of the
First Exercise Price and a pro rata portion of a multiple of EBITDA of Lunar (on a consolidated basis) during the last
12 months (“LTM”) prior to the first anniversary of the First Measurement Date (the "Second Measurement Date")
less Lunar's consolidated net debt in excess of cash as of the Second Measurement Date. The applicable multiple
depends on the future LTM EBITDA margin and revenue growth.
We received $0.1 million in the first quarter of 2020 as a result of the final working capital adjustment that related to our
LeanTeq acquisition.
Since the completion of the acquisition of Taiwan-based LeanTeq in September 2019, we commenced an analysis
regarding whether we would permanently retain LeanTeq’s earnings in Taiwan or repatriate them to the United States. During
the second quarter of 2020 we finalized our analysis and determined that, given the significance of the incremental tax cash cost
77
to EnPro of repatriating LeanTeq earnings to the United States, we will retain any earnings generated by LeanTeq in Taiwan as
long as there was a significant incremental tax cash cost of repatriating amounts to the United States.
As a result of the decision to retain earnings in Taiwan, the income tax rate utilized in establishing deferred tax liabilities
in the acquisition date balance sheet of LeanTeq was increased from 20% to 23.6%, reflecting a local tax of approximately
3.6% on undistributed earnings. The increase in the income tax rate results in an increase in goodwill and deferred tax
liabilities in the acquisition date balance sheet of $7.1 million, which was initially reflected in the consolidated balance sheet as
of June 30, 2020. The decision on our retention of LeanTeq’s earnings in Taiwan was our final required purchase accounting
determination. Management concluded that the purchase accounting for the LeanTeq acquisition was finalized at June 30, 2020.
On July 2, 2019, we acquired 100% of the stock of The Aseptic Group (comprising Aseptic Process Equipment SAS and
Aseptic Services SARL, collectively referred to as “Aseptic”), a privately-held company which distributes, designs and
manufactures aseptic fluid transfer products for the pharmaceutical and biopharmaceutical industries. Aseptic, headquartered in
Limonest, France, is included as part of our Garlock group of companies within the Sealing Technologies segment. The
business was acquired for $39.3 million, net of cash acquired.
Sales of $5.7 million and a pre-tax loss of $6.1 million for Alluxa are included in our Consolidated Statements of
Operations for the year ended December 31, 2020. Sales of $14.4 million and pre-tax income of $1.5 million for LeanTeq and
Aseptic are included in our Consolidated Statements of Operations for the year December 31, 2019. The following unaudited
pro forma condensed consolidated financial results of operations for the years ended December 31, 2020, 2019, and 2018 are
presented as if these acquisitions had been completed on January 1, 2018:
Pro forma net sales
Pro forma net income (loss) from continuing operations
Years Ended December 31,
2019
2018
2020
(in millions)
$
1,098.7 $
(22.9)
1,261.2 $
5.0
1,335.2
(27.5)
These amounts have been calculated after applying our accounting policies and adjusting the results of Alluxa, LeanTeq
and Aseptic to reflect the additional depreciation and amortization that would have been charged assuming the fair value
adjustments to property, plant and equipment and intangible assets had been applied as of January 1, 2018 as well as additional
interest expense to reflect financing required, together with the consequential tax effects. The supplemental pro forma net
income for the year ended December 31, 2020 was adjusted to exclude $5.0 million of pre-tax acquisition-related costs. The
supplemental pro forma net income for the year ended December 31, 2019 was adjusted to exclude $7.0 million of pre-tax
acquisition-related costs. The supplemental pro forma net income for the year ended December 31, 2018 was adjusted to
include $12.0 million of these charges. These pro forma financial results have been prepared for comparative purposes only and
do not reflect the effect of synergies that would have been expected to result from the integration of these acquisitions. The pro
forma information does not purport to be indicative of the results of operations that actually would have resulted had the
acquisitions occurred on January 1, 2018, or of future results of the consolidated entities.
Dispositions
On December 31, 2020, we sold the shares of Technetics Group UK Limited ("Technetics Group UK") for a nominal cash
purchase price. As part of the agreement with the buyer, we delivered to the buyer £148,000 of cash to fund value added tax
("VAT") payments due for VAT liabilities already incurred and £50,000 for working capital. We incurred a loss upon the sale
of approximately £976,000 ($1.3 million).
On November 30, 2020, we closed on the sale of our bushing block business in our Engineered Materials segment
principally located in Dieuze, France. Prior to finalizing the sale of the business, we determined it to be impaired and recorded a
$6.2 million impairment charge that consisted of $1.8 million of non-cash impairments of long-lived assets and $4.4 million of
cash payments due to the buyer at closing. The impairment charge was recorded in other operating expenses on our
consolidated statement of operations. Upon closing of the business, we recorded a $0.1 million gain on the sale of business in
other non-operating expense on our consolidated statement of operations. Total charges related to the exit of our bushing block
business were $6.1 million.
On November 20, 2020, we completed the sale of the Air Springs portion of our heavy-duty trucking business for $23.1
million in cash, net of an estimated working capital adjustment and fees, and a long-term promissory note with a fair-value of
$6.4 million (face value of $7.5 million). As part of the agreement with the buyer, we retained the U.S. accounts receivable for
the business, which created a large working capital adjustment at closing. The amount of retained accounts receivable in the
78
U.S. was approximately $8.6 million. The purchase price is subject to final working capital adjustments. In the fourth quarter of
2020, we recorded a $0.1 million non-cash loss on sale of business.
In August of 2020, subsequent to announcing the exit of our Motor Wheel® brake drum and Crewson® brake adjuster
brands in the second quarter of 2020, we identified a buyer and entered into a definitive agreement to sell the assets related to
the businesses. On September 2, 2020, we completed the sale for $8.9 million, net of transaction fees. This transaction resulted
in a $3.1 million loss on sale of the business in other non-operating expense on our consolidated statements of operations,
comprised of a $3.0 million non-cash loss on the sales of assets and a $0.1 million loss on other expenses. Prior to finding a
buyer of the brands, we determined the assets were impaired and recorded restructuring and impairment charges of $7.4 million
in other operating expenses on our consolidated statements of operations. Total losses on the exit of our Motor Wheel® brake
drum and Crewson® brake adjuster brands recorded in 2020 were $10.5 million.
In the second quarter of 2020 we entered into an agreement to sell the Lunar® air disc brake business located in both the
U.S. and in Shanghai, China. The sale of the U.S. assets of the business closed in the third quarter of 2020 for $0.3 million,
resulting in a gain of $0.2 million recorded in non-operating income on our consolidated statement of operations. The sale of
the Lunar® manufacturing facility located in Shanghai, China closed in the fourth quarter of 2020 for $0.9 million, resulting in
a loss of $0.1 million. Prior to closing on the sale of the business, we determined the assets to be impaired and recorded a $2.1
million impairment charge, of which $1.6 million was related to impairment of long-lived assets and $0.5 million related to the
impairment of inventory. The impairment of long-lived assets was recorded in other operating expense and the impairment of
inventory was recorded in cost of sales on our consolidated statement of operations. Total net loss related to the exit of the
Lunar® air disc brake business was $1.9 million.
For a further discussion of the impairment charges recorded in connection with the sale of the facility in Dieuze, Motor
Wheel® brake drum and Crewson® brake adjuster brands, and the Lunar® air disc brake business, see Note 4, "Other
Expense".
In 2019 we recorded a $16.3 million pre-tax loss related to the sale of certain assets and certain liabilities of our brake
products business unit located in Rome, Georgia, which was included in our Sealing Technologies segment. The loss is
composed of the loss on the sale of the business, which closed on September 25, 2019, and the loss on the sale of the facility
which closed in the first quarter of 2020. As a result of the agreement to sell the related building, we recorded a $0.6 million
loss in other expense on our Consolidated Statement of Operations for the year ended December 31, 2019. Upon entering the
agreement, we ceased depreciation and adjusted the net book value of the building to the contracted sales price and reclassified
to other current assets on our Consolidated Balance Sheet as of December 31, 2019.
The sale of the business resulted in a $15.7 million loss that is included in other expense on our Consolidated Statements
of Operations for the year ended December 31, 2019. The loss is composed of an $11.3 million non-cash loss on the sale of the
business and a $4.4 million loss related to contract cancellation costs, severance, and other expenses.
The aggregate sales price for the brake products business totaled $6.8 million, of which we received $3.6 million in
September 2019 at the closing of the sale of the business and received $0.1 million in the fourth quarter of 2019 that was
applied to the sale of the building, which closed in February 2020. On the closing of the sale of the building, we received $2.9
million. We received the balance of $0.2 million later in 2020 which was net of an adjustment based on final inventory
balances.
The assets, liabilities, and results of operations for the brake products business unit are not significant to our consolidated
financial position or result of operations.
See Note 2, "Discontinued Operations," for information related to the disposition of the Fairbanks Morse division, which
comprised the entire Power Systems segment.
4. Other Expense
Operating
We incurred $46.7 million, $35.1 million and $22.2 million of restructuring and impairment costs during the years ended
December 31, 2020, 2019 and 2018, respectively.
In the fourth quarter of 2020, we decided to exit the manufacturing of metallic gaskets. As a result of this decision, we
evaluated the product line and determined the assets were impaired. We recorded a $1.5 million impairment, of which
$1.4 million was related to the impairment of long-lived assets and $0.1 million was related to inventory.
79
In the fourth quarter of 2020, we announced a restructuring and reduction in our CPI German workforce. As a result, we
recorded $3.4 million in restructuring charges related to severance.
In the third quarter of 2020, sales declines by businesses utilizing two of the indefinite-lived trademarks within our
Sealing Technologies segment were determined to be triggering events for an interim impairment analysis. Based on the results
of this analysis, we recorded a $16.1 million impairment of indefinite-lived trademarks in the third quarter.
Prior to selling our bushing block business operated at the Dieuze facility, we evaluated the business and determined it
was impaired and incurred restructuring charges. We recorded $8.6 million in restructuring and impairment charges, that
consisted of $3.0 million of non-cash impairments of long-lived assets, $4.4 million (3.7 million EUR) of cash payments paid to
the buyer at closing, and $1.2 million in severance, legal and other costs.
The exit from our Motor Wheel® brake drum and Crewson® brake adjuster brands resulted in restructuring and
impairment charges of $7.4 million in 2020, of which $3.6 million was related to inventory impairment charges, $3.5 million
was impairment of intangible assets, and $0.3 million related to severance, contract cancellation costs, and other expenses.
million.
In the second quarter of 2020, we entered into an agreement to sell the Lunar® air disc brake business. As a result of this
agreement, we incurred $1.9 million in impairment charges, of which $1.4 million related to impairment of long-lived assets
and $0.5 million related to impairment of inventory.
In addition to the above mentioned restructuring and impairment charges, we undertook various other smaller
restructuring and impairment action in 2020 that resulted in recording $7.6 million of restructuring related to severance and
other exit costs and $0.2 million of impairment related to inventory of discontinued product lines.
Workforce reductions in 2020 associated with the aforementioned restructuring actions totaled 289 administrative and
manufacturing positions.
Based upon an analysis of the Motorwheel product line in the Stemco division of our Sealing Technologies segment, we
determined that the long-lived assets of the Motorwheel product line were not recoverable as of December 31, 2019. As a
result, we recorded an impairment of $21.0 million, of which $9.2 million related to the impairment of certain finite-lived
intangible assets, $7.9 million related to the indefinite lived Motorwheel trademark, and $3.9 million related to the impairment
of property, plant, and equipment.
Additionally, in the fourth quarter of 2019, we recorded restructuring charges related to our decision to shut down and
exit production of our ATDynamics, Aeris and BatRF product lines in the Stemco division of our Sealing Technologies
segment. As a result, we recorded a $3.1 million inventory impairment, $3.1 million impairment of property, plant, and
equipment and intangible assets related to these products, and $1.0 million in severance and other costs. Additionally, in the
fourth quarter of 2019, we evaluated certain long-lived assets in our Commercial Vehicle Components businesses in the Stemco
division of our Sealing Technologies segment and determined these assets were not recoverable. As a result, we recorded a $1.6
million impairment loss related to intangible assets associated with the business. Restructuring actions in 2019 are reflected in
other (operating) expense in our Consolidated Statement of Operations other than the inventory related charges of $3.1 million,
which are reflected in cost of sales. Including smaller targeted restructuring actions, total restructuring costs and impairment
charges for our Stemco division were $30.8 million for the year ended December 31, 2019.
Workforce reductions in 2019 associated with our exit from the ATDynamics, Aeris, and BatRF product lines as well as
other smaller targeted restructuring actions totaled 121 administrative and manufacturing positions.
In the fourth quarter of 2018, we implemented a restructuring plan under which our Stemco heavy-duty truck business in
the Sealing Technologies segment discontinued the manufacturing of brake drum friction. The restructuring plan involved the
shut down of production lines that occupied a portion of Stemco’s owned manufacturing facility in Rome, Georgia.
We recorded total restructuring expenses related to the exit of approximately $15.4 million in the fourth quarter of 2018,
composed primarily of non-cash charges due to the impairment of inventory, equipment and other tangible assets. The net
restructuring costs recorded in 2018 are reflected in our other (operating) expense in our Consolidated Statement of Operations
other than inventory related charges of $1.1 million, which are reflected in costs of sales.
In the second quarter of 2018, we commenced the exit from our industrial gas turbine business in the Sealing
Technologies segment located in Oxford, Massachusetts. We sold the land and building at this location in June 2018, resulting
in a realized gain of $21.7 million. We incurred severance expenses of $3.8 million, net tangible asset write downs of $1.8
million, the write-off of customer relationship intangible assets associated with the business of $19.1 million, and other costs
80
related to the restructuring of $0.5 million. These transactions resulted in total net restructuring costs related to the exit of $3.5
million. These net costs are reflected within other (operating) expense in our Consolidated Statement of Operations other than
inventory-related costs of $2.0 million, which were reflected in costs of sales.
Workforce reductions in 2018 associated with our exit from the industrial gas turbine business and other smaller targeted
restructuring actions totaled 98 administrative and manufacturing positions.
Restructuring reserves at December 31, 2020, as well as activity during the year, consisted of:
Personnel-related costs
Facility relocation and closure costs
Balance
December 31,
2019
$
$
1.4 $
—
1.4 $
Provision
Payments
Balance
December 31,
2020
(in millions)
12.0 $
5.4
17.4 $
(8.9) $
(5.2)
(14.1) $
4.5
0.2
4.7
Also included in restructuring costs for 2020 were asset write-downs, net of gains, of approximately $29.3 million that
did not affect the restructuring reserve liability.
Restructuring reserves at December 31, 2019, as well as activity during the year, consisted of:
Personnel-related costs
Facility relocation and closure costs
Balance
December 31,
2018
$
$
— $
1.0
1.0 $
Provision
Payments
Balance
December 31,
2019
(in millions)
5.1 $
1.2
6.3 $
(3.7) $
(2.2)
(5.9) $
1.4
—
1.4
Also included in restructuring costs for 2019 were asset write-downs of approximately $28.8 million that did not affect
the restructuring reserve liability.
Restructuring reserves at December 31, 2018, as well as activity during the year, consisted of:
Personnel-related costs
Facility relocation and closure costs
Balance,
December 31,
2017
$
$
0.7 $
1.2
1.9 $
Provision
Payments
Balance
December 31,
2018
(in millions)
6.7 $
1.3
8.0 $
(7.4) $
(1.5)
(8.9) $
—
1.0
1.0
Also included in restructuring costs for 2018 were asset write-downs of approximately $14.2 million that did not affect
the restructuring reserve liability.
Restructuring costs by reportable segment are as follows:
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Corporate
Years Ended December 31,
2020
2019
(in millions)
2018
$
30.3 $
32.2 $
0.1
16.3
—
46.7 $
0.1
2.1
0.7
35.1 $
$
21.3
0.1
0.7
0.1
22.2
81
Also included in other operating expense for the years ended December 31, 2020, 2019 and 2018 was $7.8 million, $0.2
million and $2.0 million, respectively, primarily consisting of legal fees and the settlement in 2020 of a legal claim with respect
to products last supplied in 2008.
Non-Operating
During 2020, 2019 and 2018, we recorded expense of $38.2 million, $14.5 million and $13.4 million, respectively, due to
environmental reserve increases based on additional information at several specific sites and other ongoing obligations of
previously owned businesses. Refer to Note 20, "Commitments and Contingencies - Environmental," for additional information
about our environmental liabilities.
We report the service cost component of pension and other postretirement benefits expense in operating income in the
same line item or items as other compensation costs arising from services rendered by the pertinent employees during the
period. The other components of net benefit cost are presented in other (non-operating) expense. For the years ended
December 31, 2020, 2019 and 2018, we reported approximately $(3.0) million, $3.3 million and $12.0 million, respectively, of
expense (income) on the Consolidated Statements of Operations related to the components of net benefit cost other than service
cost. Refer to Note 15, "Pensions and Postretirement Benefits," for additional information regarding net benefit costs.
In 2020, we recorded a pretax loss of $2.6 million related to the sale of several businesses, including the Technetics Group
UK Limited business, the Air Springs portion of our heavy-duty trucking business, our Motor Wheel® brake drum and
Crewson® brake adjuster brands, and our Lunar ® air disc brake business located in our Sealing Technologies segment as well
as our bushing block business principally located in Dieuze, France from our Engineered Materials segment. Sales reported for
the divested businesses included in our net sales for the years ended December 31, 2020, 2019, and 2018 were $110.1 million,
$161.2 million, and $173.5 million, respectively. For a further discussion on businesses disposed of, see Note 3, "Acquisitions
and Dispositions."
In 2019, we recorded a pre-tax loss of $16.3 million related to the sale of certain assets and certain liabilities of our brake
products business unit located in Rome, Georgia, which was included in our Sealing Technologies segment. The loss is
composed of the loss on the sale of the business, which closed in the third quarter of 2019, and the loss on the sale of the
facility, which closed in the first quarter of 2020. The sales reported by the business and included in our net sales for the years
ended December 31 2019, and 2018 were $37.5 million, and $37.1 million, respectively. Additional disclosures are not
presented since the assets, liabilities and results of operations are not significant to our consolidated financial position or results
of operations.
We recorded a loss of approximately $18.1 million on the redemption of certain of our debt instruments in the fourth
quarter of 2018. Refer to Note 12, "Long-term Debt - Senior Notes," for additional information regarding this transaction.
5.
Income Taxes
Income (loss) from continuing operations before income taxes as shown in the Consolidated Statements of Operations
consists of the following:
Domestic
Foreign
Total
Years Ended December 31,
2019
2018
2020
(in millions)
$
$
(88.3) $
61.5
(26.8) $
(67.3) $
71.6
4.3 $
(75.3)
90.4
15.1
A summary of income tax expense (benefit) from continuing operations in the Consolidated Statements of Operations is
as follows:
82
Current:
Federal
Foreign
State
Deferred:
Federal
Foreign
State
Years Ended December 31,
2020
2019
(in millions)
2018
$
(15.1) $
(1.4) $
26.3
(0.1)
11.1
(5.5)
(8.1)
(1.0)
(14.6)
(3.5) $
24.9
1.3
24.8
(6.4)
(19.5)
(2.4)
(28.3)
(3.5) $
(4.3)
22.8
(0.3)
18.2
(5.2)
1.4
5.4
1.6
19.8
Total
$
The GILTI provisions require us to include in our U.S. income tax return certain current foreign subsidiary earnings net of
foreign tax credits, subject to limitation. We elected to account for the GILTI tax in the period in which it is incurred. As a
result of these provisions, our effective tax rate was increased by 54.8% in 2019. However, due to the GILTI high tax exception
election enacted during 2020, we recorded a GILTI benefit that reduced the effective tax rate by 17.6% in 2020, after applying
the retroactive benefit to prior years.
In December 2017, the SEC issued guidance to address the application of authoritative tax accounting guidance in
situations where companies do not have the necessary information available, prepared, or analyzed in reasonable detail to
complete the accounting for certain income tax effects of the Tax Act for the reporting period in which it was enacted. In these
instances, the SEC's guidance allowed the recording of provisional amounts during a measurement period not to extend beyond
one year of the enactment date. As the Tax Act was enacted at the end of 2017, and ongoing guidance and interpretation has
been issued over the ensuing twelve months, we considered the impact of the transition tax, remeasurement of deferred tax
assets and liabilities, and other items recorded in our year-end income tax provision for the fourth quarter 2017 to be a
provisional estimate, and further analyzed the year-end data and refined our calculations. These refinements were made in the
third and fourth quarters of 2018, and we completed our accounting for the net impact in the fourth quarter of 2018.
In the third and fourth quarters of 2018, refinements were made to our provisional amounts to incorporate the impact of
additional IRS guidance regarding modifications to the transition tax and further analysis of our year-end data. These
refinements resulted in a $2.3 million net tax charge comprised of a $7.3 million tax charge associated with the remeasurement
of deferred tax assets and liabilities, and a $5.0 million tax benefit related to the reduction of the transition tax, net of foreign
tax credits. In addition, GILTI and other provisions of the Tax Act, beginning in 2018, resulted in an additional tax charge of
$5.6 million.
Significant components of deferred income tax assets and liabilities at December 31, 2020 and 2019 are as follows:
83
Deferred income tax assets:
Net operating losses and tax credits
Postretirement benefits other than pensions
Environmental reserves
Retained liabilities of previously owned businesses
Accruals and reserves
Operating leases
Pension obligations
Inventories
Cross currency swap
Interest
Compensation and benefits
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Depreciation and amortization
Operating leases
Cross currency swap
Joint ventures
Inventories
Pension obligations
Total deferred income tax liabilities
Net deferred income tax liabilities
2020
2019
(in millions)
$
20.5 $
0.5
9.5
0.8
5.2
11.1
—
—
2.2
11.0
7.1
0.8
68.7
(6.6)
62.1
(151.6)
(11.1)
—
—
(0.4)
(2.9)
(166.0)
$
(103.9) $
34.8
2.1
8.6
1.0
6.5
10.9
1.9
6.2
—
17.8
7.3
—
97.1
(7.9)
89.2
(120.8)
(10.9)
(2.9)
(0.3)
—
—
(134.9)
(45.7)
The net deferred tax assets (liabilities) are reflected on a jurisdictional basis as a component of the December 31, 2020 and
2019 Consolidated Balance Sheet line items noted below:
Other assets (non-current)
Deferred taxes and non-current income taxes payable
Net deferred income tax liabilities
2020
2019
(in millions)
23.9 $
(127.8)
(103.9) $
$
$
25.5
(71.2)
(45.7)
At December 31, 2020, we had $58.8 million of foreign net operating loss carryforwards, of which $27.3 million expire
at various dates from 2021 through 2040, and $31.5 million have an indefinite carryforward period. We also had state net
operating loss carryforwards with a tax effect of $5.1 million which expire at various dates from 2022 through 2040. These net
operating loss carryforwards may be used to offset a portion of future taxable income and, thereby, reduce or eliminate our state
or foreign income taxes otherwise payable.
We determined, based on the available evidence, that it is uncertain whether certain foreign subsidiaries will generate
sufficient future taxable income to recognize certain of these deferred tax assets. As a result, valuation allowances of $6.6
million and $7.9 million have been recorded as of December 31, 2020 and 2019, respectively. Valuation allowances recorded
relate to certain state and foreign net operating losses and other net deferred tax assets in jurisdictions where future taxable
income is uncertain. Valuation allowances may arise associated with deferred tax assets recorded in purchase accounting. In
accordance with applicable accounting guidelines, any reversal of a valuation allowance that was recorded in purchase
accounting reduces income tax expense.
The effective income tax rate from operations varied from the statutory federal income tax rate as follows:
84
Statutory federal income tax rate
U.S. taxation of foreign profits, net of foreign tax credits
Research and employment tax credits
State and local taxes
Foreign tax rate differences
Statutory changes in tax rates
Valuation allowance
Changes in uncertain tax positions
Nondeductible expenses
GILTI and FDII
Other Tax Act items
Other items, net
Effective income tax rate
Percent of Pretax Income
Years Ended December 31,
2020
2019
2018
21.0 %
(0.6)
3.0
3.2
(19.4)
(1.2)
(2.5)
(2.0)
(7.7)
17.6
—
1.8
13.2 %
21.0 %
3.3
(17.2)
(22.4)
152.3
17.8
(349.2)
(9.0)
57.3
54.8
—
12.0
(79.3) %
21.0 %
1.1
(7.7)
25.5
27.8
(1.1)
(6.3)
9.9
5.7
10.4
48.2
(3.1)
131.4 %
Due to a net pretax loss for the current year-end, the 2020 effective rate items listed above with negative signs represent
increases to income tax expense and positive amounts represent decreases to income tax expense. The effective tax rate for
2020 was primarily driven by the foreign rate differential related to certain foreign divestitures and earnings that were subject to
higher tax rates, the effect of these items resulted in a net $5.2 million increase in income tax expense. During 2020, we
identified errors related to our accounting for income taxes that primarily relate to the 2017 through 2019 annual periods. Such
errors resulted in an overstatement of tax expense by approximately $4.9 million in our previously issued financial statements.
We concluded the errors were not material to our previously issued financial statements and corrected the cumulative
$4.9 million prior-period errors as an out-of-period adjustment to income tax expense during the fourth quarter of 2020.
Additionally, the effective tax rate was also reduced by the GILTI high-tax exception election and increased for non-deductible
expenses which resulted in a net $2.7 million decrease in income tax expense.
As of December 31, 2020 and 2019, we had $12.2 million and $10.1 million, respectively, of gross unrecognized tax
benefits. Of the gross unrecognized tax benefit balances as of December 31, 2020 and 2019, $8.3 million and $8.5 million,
respectively, would have an impact on our effective tax rate if ultimately recognized.
We record interest and penalties related to unrecognized tax benefits in income tax expense. In addition to the gross
unrecognized tax benefits above, we had $3.3 million and $2.7 million accrued for interest and penalties at December 31, 2020
and 2019, respectively. Income tax expense for the year ended December 31, 2020 includes $0.4 million for interest and
penalties related to unrecognized tax benefits. Income tax expense for the years ended December 31, 2019 and 2018, in total
included $0.5 million for interest and penalties related to unrecognized tax benefits.
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits (excluding interest) is as
follows:
(in millions)
Balance at beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions as a result of a lapse in the statute of limitations
Reductions as a result of audit settlements
Balance at end of year
2020
2019
2018
$
$
10.1 $
1.9
0.2
—
—
12.2 $
2.9 $
1.2
7.2
(1.2)
—
10.1 $
3.8
0.2
—
(0.1)
(1.0)
2.9
U.S. federal income tax returns for tax years 2014 and forward remain open to examination. In June 2017, the U.S.
Internal Revenue Service (“IRS”) began an examination of our 2014 through 2017 U.S. federal income tax returns. Although
this examination is part of a routine and recurring cycle, we cannot predict the final outcome or expected conclusion date of the
audit. We and our subsidiaries are also subject to income tax in multiple state and foreign jurisdictions. Two foreign and
various state tax returns are also currently under examination. The most significant of these include France and Taiwan.
Substantially all significant state, local and foreign income tax returns for the years 2015 and forward are open to examination.
85
We expect that some of these examinations may conclude within the next twelve months, however, the final outcomes are not
yet determinable. If these examinations are concluded or effectively settled within the next twelve months, it could reduce the
associated gross unrecognized tax benefits by approximately $4.6 million. In addition, another $2.5 million in gross
unrecognized tax benefits may be recognized within the next twelve months as the applicable statute of limitations expires.
6. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the income (loss) by the applicable weighted-average number of
common shares outstanding for the period. Diluted earnings (loss) per share is calculated using the weighted-average number of
shares of common stock as adjusted for any potentially dilutive shares as of the balance sheet date. The computation of basic
and diluted earnings per share for calendar years 2020, 2019, and 2018 is as follows (in millions, except per share data):
2020
2019
2018
Numerator (basic and diluted):
Income (loss) from continuing operations attributable to EnPro Industries, Inc. $
(23.7) $
7.8 $
Income from discontinued operations
Net income
Denominator:
Weighted-average shares – basic
Share-based awards
Weighted-average shares – diluted
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Net income per share
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Net income per share
208.1
30.5
$
184.4 $
38.3 $
20.5
—
20.5
(1.15) $
10.13
8.98 $
(1.15) $
10.13
8.98 $
$
$
$
$
20.7
0.1
20.8
0.38 $
1.48
1.86 $
0.38 $
1.47
1.85 $
(4.7)
24.3
19.6
20.9
—
20.9
(0.22)
1.16
0.94
(0.22)
1.16
0.94
In the years ended December 31, 2020 and 2018 there were losses attributable to continuing operations. There were 0.1
million and 0.2 million, respectively, of potentially dilutive shares excluded from the calculation of diluted earnings per share
during those years since they were antidilutive.
7.
Inventories
Finished products
Work in process
Raw materials and supplies
Reserve to reduce certain inventories to LIFO basis
Total inventories
As of December 31,
2020
2019
(in millions)
$
$
69.4 $
24.8
48.7
142.9
(3.8)
139.1 $
80.6
23.7
56.1
160.4
(3.3)
157.1
86
8.
Property, Plant and Equipment
Land
Buildings and improvements
Machinery and equipment
Construction in progress
Less accumulated depreciation
Total
As of December 31,
2020
2019
$
(in millions)
11.0 $
108.9
329.4
11.5
460.8
(265.8)
$
195.0 $
13.6
123.6
341.8
17.7
496.7
(277.9)
218.8
9. Goodwill and Other Intangible Assets
The changes in the net carrying value of goodwill by reportable segment for the years ended December 31, 2020 and
2019 are as follows:
Goodwill as of December 31, 2018
Foreign currency translation
Acquisitions
Dispositions
Goodwill as of December 31, 2019
Foreign currency translation
Acquisitions
Dispositions
Goodwill as of December 31, 2020
Sealing
Technologies
Advanced
Surface
Technologies
Engineered
Materials
Total
$
$
269.9 $
1.4
30.9
(1.3)
300.9
3.4
—
(6.9)
297.4 $
(in millions)
35.6 $
4.0
128.1
—
167.7
6.9
133.1
—
307.7 $
16.6 $
0.1
—
—
16.7
—
—
—
16.7 $
322.1
5.5
159.0
(1.3)
485.3
10.3
133.1
(6.9)
621.8
The goodwill balances reflected above are net of accumulated impairment losses of $27.8 million for the Sealing
Technologies segment as of December 31, 2020, 2019 and 2018 and $154.8 million for the Engineered Materials segment as of
December 31, 2020 and 2019, and 2018.
Identifiable intangible assets are as follows:
Amortized:
Customer relationships
Existing technology
Trademarks
Other
Indefinite-Lived:
Trademarks
Total
As of December 31, 2020
As of December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(in millions)
$
$
505.5 $
179.6
177.8 $
41.3
470.1 $
117.5
44.6
37.6
767.3
25.7
22.3
267.1
39.4
33.6
660.6
53.4
820.7 $
—
267.1 $
71.4
732.0 $
166.2
50.8
24.1
24.0
265.1
—
265.1
87
Amortization expense for the years ended December 31, 2020, 2019 and 2018 was $37.7 million, $32.5 million and $28.9
million, respectively.
The estimated amortization expense for definite-lived (amortized) intangible assets for the next five years is as follows (in
millions):
2021
2022
2023
2024
2025
10. Leases
$
$
$
$
$
44.8
42.6
41.0
40.2
39.3
We regularly enter into operating leases primarily for real estate, equipment, and vehicles. Operating lease arrangements
are generally utilized to secure the use of assets if the terms and conditions of the lease or the nature of the asset makes the lease
arrangement more favorable than a purchase. Leases with an initial term of 12 months or less are not recorded on the balance
sheet. We have elected an accounting policy to combine lease and non-lease components.
Our building leases have remaining terms up to eleven years, some of which contain options to renew up to five years,
and some of which contain options to terminate. Some leases contain non-lease components, which may include items such as
building common area maintenance, building parking, or general service and maintenance provided for leased assets by the
lessor. Our vehicle, equipment, and other leases have remaining lease terms up to six years, some of which contain options to
renew or become evergreen leases, with automatic renewing one-month terms, and some of which have options to terminate.
Our right of use assets and liabilities related to operating leases as of December 31, 2020 and December 31, 2019 are as
follows:
Balance Sheet Classification
December 31,
2020
December 31,
2019
Right-of-use assets
Other assets
Current liability
Long-term liability
Total liability
Accrued expenses
Other liabilities
$
$
$
(in millions)
44.1 $
10.1 $
35.3
45.4 $
37.5
9.3
28.4
37.7
Approximately 90% of the dollar value of our operating lease assets and liabilities arise from real estate leases and
approximately 10% arise from equipment and vehicle leases as of December 31, 2020. As of December 31, 2019,
approximately 86% of the dollar value of our operating lease assets and liabilities arise from real estate leases and
approximately 14% arise from equipment and vehicle leases.
We entered into additional operating leases, including leases acquired through business acquisitions, and renewed
existing leases that resulted in new right-of-use assets totaling $16.6 million and $20.8 million for the years ended December
31, 2020 and December 31, 2019, respectively.
Most of our leases do not provide an implicit rate for calculating the right of use assets and corresponding lease
liabilities. Accordingly, we determine the interest rate that we would have to pay to borrow on a collateralized basis over a
similar term and amount equal to the lease payments in similar economic environments. We used the incremental borrowing
rate at January 1, 2019 for all leases that commenced prior to that date.
Our lease costs and cash flows for the years ended December 31, 2020 and December 31, 2019 were as follows:
88
Lease costs:
Operating lease costs
Short-term and variable lease costs
Cash flows:
Operating cash flows from operating leases
December 31,
2020
December 31,
2019
(in millions)
11.5
0.7
$
$
10.9
0.9
11.5
$
11.1
$
$
$
Our weighted average remaining lease term and discount rates at December 31, 2020 and December 31, 2019 were as
follows:
Weighted average remaining lease term (in years)
Weighted average discount rate
December 31,
2020
December 31,
2019
5.9
3.4 %
5.9
3.9 %
A maturity analysis of undiscounted operating lease liabilities is shown in the table below:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
Operating Lease
Payments
(in millions)
$
$
11.4
9.0
8.2
6.3
4.9
10.4
50.2
(4.8)
45.4
The operating lease payments listed in the table above include all current leases. The payments also include all renewal
periods that we are reasonably certain to exercise.
We rarely enter into finance leases or act as a lessor. Since finance lease amounts, lessor details, and finance lease related
costs are not significant to our consolidated financial position or results of operations, additional disclosures regarding finance
leases are not presented.
Net rent expense was $13.5 million for the year ended December 31, 2018.
89
11. Accrued Expenses
Salaries, wages and employee benefits
Interest
Environmental
Income taxes
Taxes other than income
Operating lease liability
Other
12. Long-term Debt
Senior notes
Revolving debt
Term loan facility
Other notes payable
Less current maturities of long-term debt
Revolving Credit Facility
As of December 31,
2020
2019
$
(in millions)
46.3 $
4.4
12.6
9.9
9.4
10.1
35.7
43.7
5.1
25.2
9.1
13.5
9.3
31.4
$
128.4 $
137.3
As of December 31,
2020
2019
(in millions)
345.9 $
—
145.4
—
491.3
3.8
487.5 $
345.3
133.9
149.1
1.0
629.3
4.1
625.2
$
$
On September 25, 2019, we entered into a First Amendment (the "First Amendment") to our Second Amended and
Restated Credit Agreement (the "Credit Agreement”) among EnPro Industries, Inc. and EnPro Holdings, Inc., a wholly owned
subsidiary of the Company (“EnPro Holdings”), as borrowers, the guarantors party thereto, the lenders party thereto and Bank
of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer. The Credit Agreement provides for
a five-year, senior secured revolving credit facility of $400.0 million (the “Revolving Credit Facility”) and a five-year, senior
secured term loan facility of $150.0 million (the "Term Loan Facility" and, together with the Revolving Credit Facility, the
"Facilities"). The Amended Credit Agreement also provides that the borrowers may seek incremental term loans and/or
additional revolving credit commitments in an amount equal to the greater of $225.0 million or 100% of consolidated EBITDA
(as defined) for the most recently ended four-quarter period for which we have reported financial results, plus additional
amounts based on a consolidated senior secured leverage ratio.
Initially, borrowings under the Facilities bore interest at an annual rate of LIBOR plus 1.50% or base rate plus 0.50%,
with the interest rates under the Facilities being subject to incremental increases based on a consolidated total net leverage
ratio. In addition, a commitment fee accrues with respect to the unused amount of the Revolving Credit Facility at an annual
rate of 0.175%, which rate is also subject to incremental increase or decrease based on a consolidated total net leverage ratio.
The Term Loan Facility amortizes on a quarterly basis in an annual amount equal to 2.50% of the original principal
amount of the Term Loan Facility in each of years one through three, 5.00% of such original principal amount in year four, and
1.25% of such original principal amount in each of the first three quarters of year five, with the remaining outstanding principal
amount payable at maturity.
The Facilities are subject to prepayment with the net cash proceeds of certain asset sales not reinvested in acquisitions
within a specified period, casualty or condemnation events, and non-permitted debt issuances.
EnPro and EnPro Holdings are the permitted borrowers under the Revolving Credit Facility. We have the ability to add
foreign subsidiaries as borrowers under the Revolving Credit Facility for up to $100.0 million (or its foreign currency
equivalent) in aggregate borrowings, subject to certain conditions. Each of our domestic, consolidated subsidiaries (other than
any subsidiaries that may be designated as "unrestricted" by the Company from time to time) is required to guarantee the
90
obligations of the borrowers under the Revolving Credit Facility, and each of our existing domestic, consolidated subsidiaries
has entered into the Credit Agreement to provide such a guarantee.
Borrowings under the Revolving Credit Facility are secured by a first-priority pledge of certain assets. The Credit
Agreement contains certain financial covenants and required financial ratios including a maximum consolidated total net
leverage and a minimum consolidated interest coverage as defined in the Credit Agreement. We were in compliance with all
covenants of the Credit Agreement as of December 31, 2020.
On January 19, 2021, we entered into an amendment to the credit facility that waived the requirement to prepay the Term
Loan Facility with remaining excess net cash proceeds related to the sale of Fairbanks Morse that had not been reinvested in
operating assets within 365 days from the date of the sale.
The borrowing availability under our Revolving Credit Facility at December 31, 2020 was $388.6 million after giving
consideration to $11.4 million of outstanding letters of credit. The balance of our outstanding Term Loan Facility was $145.4
million.
Senior Notes
On October 17, 2018, we completed the offering of $350.0 million aggregate principal amount of 5.75% Senior Notes due
2026 (the "Senior Notes") and applied the net proceeds of that offering, together with borrowings under the Revolving Credit
Facility, to redeem on October 31, 2018 the full $450.0 million aggregate principal amount of the outstanding 5.875% Senior
Notes due 2022 (the "Old Notes"). The Old Notes were redeemed at a price equal to 102.938% of the aggregate principal
amount thereof plus accrued and unpaid interest to, but not including, the redemption date. We recorded a loss on the
redemption of the Old Notes of approximately $18.1 million in the fourth quarter of 2018 which is included in other (non-
operating) expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2018.
The Senior Notes were issued to investors at 100% of the principal amount thereof. The Senior Notes are unsecured,
unsubordinated obligations of EnPro and mature on October 15, 2026. Interest on the Senior Notes accrues at a rate of 5.75%
per annum and is payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing April 15,
2019. The Senior Notes are required to be guaranteed on a senior unsecured basis by each of EnPro’s existing and future direct
and indirect domestic subsidiaries that is a borrower under, or guarantees, our indebtedness under the Revolving Credit Facility
or guarantees any other Capital Markets Indebtedness (as defined in the indenture governing the Senior Notes) of EnPro or any
of the guarantors.
On or after October 15, 2021, we may, on any one or more occasions, redeem all or a part of the Senior Notes at specified
redemption prices plus accrued and unpaid interest. In addition, we may redeem a portion of the aggregate principal amount of
the Senior Notes before October 15, 2021 with the net cash proceeds from certain equity offerings at a specified redemption
price plus accrued and unpaid interest, if any, to, but not including, the redemption date. We may also redeem some or all of the
Senior Notes before October 15, 2021 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest,
if any, to, but not including, the redemption date, plus a “make whole” premium.
Each holder of the Senior Notes may require us to repurchase some or all of the Senior Notes held by such holder for cash
upon the occurrence of a defined “change of control” event. Our ability to redeem the Senior Notes prior to maturity is subject
to certain conditions, including in certain cases the payment of make-whole amounts.
The indenture governing the Senior Notes includes covenants that restrict our ability to engage in certain activities,
including incurring additional indebtedness, paying dividends and repurchasing shares of our common stock, subject in each
case to specified exceptions and qualifications set forth in the indenture. The indenture further requires us to apply the net cash
proceeds of certain asset sales not reinvested in acquisitions, or used to repay or otherwise reduce specified indebtedness within
a specified period, in the event of the net proceeds exceeding a specified amount, to offer to repurchase the Senior Notes at a
price equal to 100% of the principal amount thereof plus accrued and unpaid interest.
Scheduled Principal Payments
Future principal payments on long-term debt are as follows:
91
2021
2022
2023
2024
2025
Thereafter
(in millions)
3.8
4.7
7.5
129.4
—
350.0
495.4
$
$
The payments for long-term debt shown in the table above reflect the contractual principal amount for the Senior Notes.
In the Consolidated Balance Sheet as of December 31, 2020, these amounts are shown net of unamortized debt discounts
aggregating $4.1 million pursuant to applicable accounting rules.
Debt Issuance Costs
During 2019, we capitalized $1.6 million of debt issuance costs primarily attributable to the First Amendment of the
Credit Agreement as well costs associated with the issuance of our Senior Notes. During 2018, we capitalized $6.6 million of
debt issuance costs in connection with the issuance of the Senior Notes and the amendment of the Revolving Credit Facility.
13. Derivatives and Hedging
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation
of local currency balances on our foreign subsidiaries’ balance sheets, intercompany loans with foreign subsidiaries and
transactions denominated in foreign currencies. We strive to control our exposure to these risks through our normal operating
activities and, where appropriate, through derivative instruments. We periodically enter into contracts to hedge forecasted
transactions that are denominated in foreign currencies. The notional amount of foreign exchange contracts was $3.3 million
and $5.2 million at December 31, 2020 and 2019, respectively. All foreign exchange contracts outstanding at December 31,
2020 expired in January of 2021.
The notional amounts of all of our foreign exchange contracts were recorded at their fair market value as of December 31,
2020 with changes in market value recorded in income. The earnings impact of any foreign exchange contract that is
specifically related to the purchase of inventory is recorded in cost of sales and the changes in market value of all other
contracts are recorded in selling, general and administrative expense in the Consolidated Statements of Operations. The
balances of foreign exchange derivative assets are recorded in other current assets and the balances of foreign exchange
derivative liabilities are recorded in accrued expenses in the Consolidated Balance Sheets.
In March 2018, we entered into cross currency swap agreements (the "Initial Swap") with a notional amount of $200.0
million to manage foreign currency risk by effectively converting a portion of the interest payments related to our fixed-
rate U.S. Dollar (“USD”)-denominated Old Notes, including the semi-annual interest payments thereunder, to interest payments
on fixed-rate Euro-denominated debt of 161.8 million EUR with a weighted average interest rate of 3.29% with the same
interest payment dates and maturity date as the Old Notes maturing in 2022. We terminated and settled these agreements on
September 7, 2018. As a result of this termination, we received $11.9 million, of which $9.3 million represented the fair value
of the contracts as of the settlement date and $2.6 million represented interest receivable. Unrealized gains totaling $7.0 million,
net of tax, as of the termination date will remain in accumulated other comprehensive loss until the complete or substantially
complete liquidation of our investment in the underlying foreign operations.
In September 2018, we entered into new cross currency swap agreements (the "New Swap") with a notional amount of
$200.0 million to manage foreign currency risk by effectively converting a portion of the interest payments related to our fixed-
rate USD-denominated Old Notes, including the semi-annual interest payments thereunder, to interest payments on fixed-
rate Euro-denominated debt of 172.8 million EUR with a weighted average interest rate of 2.8%, with interest payment dates of
March 15 and September 15 of each year. The New Swap agreement matures on September 15, 2022.
In May 2019, we entered into additional cross currency swap agreements (the "Additional Swap") with a notional amount
of $100.0 million to manage an increased portion of our foreign currency risk by effectively converting a portion of the interest
payments related to our fixed-rate USD-denominated Senior Notes, including the semi-annual interest payments thereunder, to
interest payments on the fixed-rate Euro-denominated debt of 89.6 million EUR with a weighted average interest rate of 3.5%,
with interest payment dates of April 15 and October 15 of each year. The Additional Swap agreement matures on October 15,
2026.
92
During the term of the swap agreements, we will receive semi-annual payments from the counterparties due to the
difference between the interest rate on the Senior Notes and the interest rate on the Euro debt underlying each of the swaps.
There was no principal exchange at the inception of the arrangements, and there will be no exchange at maturity. At maturity
(or earlier at our option), we and the counterparties will settle the swap agreements at their fair value in cash based on the
aggregate notional amount and the then-applicable currency exchange rate compared to the exchange rate at the time the swap
agreements were entered into.
We have designated the cross currency swaps as qualifying hedging instruments and are accounting for them as a net
investment hedge. At December 31, 2020, the fair values of the New Swap and the Additional Swap totaled a $9.5 million
liability and were recorded within other liabilities on the Consolidated Balance Sheet. The gains and losses resulting from fair
value adjustments to the cross currency swap agreements, excluding interest accruals related to the above receipts, are recorded
in accumulated other comprehensive loss within our cumulative foreign currency translation adjustment, as the swap is effective
in hedging the designated risk. Cash flows related to the cross currency swaps will be included in operating activities in the
Consolidated Statements of Cash Flows, aside from the ultimate settlement at maturity with the counterparties, which will be
included in investing activities.
14. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
Assets
Time deposits
Foreign currency derivatives
Deferred compensation assets
Liabilities
Deferred compensation liabilities
Foreign currency derivatives
Fair Value Measurements as of
December 31, 2020
December 31, 2019
(in millions)
4.2
—
8.6
12.8
8.9
9.5
18.4
$
$
$
$
22.9
12.3
10.9
46.1
11.3
0.6
11.9
$
$
$
$
Our time deposits and deferred compensation assets and liabilities are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices. Our foreign currency derivatives are classified as Level 2 as
their value is calculated based upon observable inputs including market USD/Euro exchange rates and market interest rates.
The carrying values of our significant financial instruments reflected in the Consolidated Balance Sheets approximate
their respective fair values, except for the following:
December 31, 2020
December 31, 2019
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(in millions)
Long-term debt
$
491.3 $
520.8 $
629.3 $
658.0
The fair values for long-term debt are based on quoted market prices for identical liabilities, but this would be considered
a Level 2 computation because the market is not active.
15. Pensions and Postretirement Benefits
We have non-contributory defined benefit pension plans covering eligible employees in the United States, Mexico and
several European countries. Salaried employees’ benefit payments are generally determined using a formula that is based on an
employee’s compensation and length of service. We closed our defined benefit pension plan for new salaried employees in the
United States who joined the Company after January 1, 2006, and, effective January 1, 2007, benefits were frozen for all
salaried employees who were not age 40 or older as of December 31, 2006 and benefits for all remaining eligible salaried
93
employees were frozen as of January 1, 2021. Hourly employees’ benefit payments are generally determined using stated
amounts for each year of service.
Our employees also participate in voluntary contributory retirement savings plans for salaried and hourly employees
maintained by us. Under these plans, eligible employees can receive matching contributions up to the first 6% of their eligible
earnings. Effective January 1, 2007, those employees whose defined benefit pension plan benefits were frozen receive an
additional 2% company contribution each year. Beginning on August 1, 2016, this additional contribution ceased being
provided to future hires at the company, but was retained for those employees already receiving it. We recorded $9.3 million,
$11.7 million and $10.7 million in expenses in 2020, 2019 and 2018, respectively, for matching contributions under these plans.
Our general funding policy for qualified defined benefit pension plans historically has been to contribute amounts that are
at least sufficient to satisfy regulatory funding standards. In 2020 we contributed $4.0 million in cash to our U.S. pension plans,
No contributions were made in 2019, and in 2018, we contributed $20.0 million, in cash to our U.S. pension plans. The
contributions were made in these years in order to meet a funding level sufficient to avoid variable fees from the PBGC on the
underfunded portion of our pension liability. We do not anticipate making contributions in 2021 to our U.S. defined benefit
pension plans and we expect to make total contributions of approximately $0.5 million in 2021 to the foreign pension plans.
On June 26, 2018, we entered into an agreement to purchase a group annuity contract to transfer approximately $68
million of our outstanding pension projected benefit obligations related to certain U.S. retirees or beneficiaries. The transaction
closed on July 3, 2018 and was funded with pension plan assets with a value of $70.9 million. As a result of this transaction a
pre-tax pension settlement charge of $12.8 million was recognized in the third quarter of 2018. This charge was recorded in
other (non-operating) expense on the Consolidated Statement of Operations for the year ended December 31, 2018.
The projected benefit obligation and fair value of plan assets for the defined benefit pension plans with projected benefit
obligations in excess of plan assets were $15.3 million and $1.2 million at December 31, 2020, and $66.0 million and $48.3
million at December 31, 2019, respectively. The accumulated benefit obligation and fair value of plan assets for the defined
benefit pension plans with accumulated benefit obligations in excess of plan assets were $11.1 million and $1.2 million at
December 31, 2020, and $57.2 million and $44.8 million at December 31, 2019, respectively.
We provide, through non-qualified plans, supplemental pension benefits to a limited number of employees. Certain of our
subsidiaries also sponsor unfunded postretirement plans that provide certain health-care and life insurance benefits to eligible
employees. The health-care plans are contributory, with retiree contributions adjusted periodically, and contain other cost-
sharing features, such as deductibles and coinsurance. The life insurance plans are generally noncontributory. The amounts
included in “Other Benefits” in the following tables include the non-qualified plans and the other postretirement plans discussed
above.
The following table sets forth the changes in projected benefit obligations and plan assets of our defined benefit pension
and other non-qualified and postretirement plans as of and for the years ended December 31, 2020 and 2019.
Change in Projected Benefit Obligations
Projected benefit obligations at beginning of
year
Service cost
Interest cost
$
Actuarial loss (gain)
Settlements
Benefits paid
Curtailments
Plan combination (acquisitions/divestitures)
Other
Projected benefit obligations at end of year
Pension Benefits
Other Benefits
2020
2019
2020
2019
(in millions)
329.5 $
4.5
10.4
30.5
—
(13.0)
(5.1)
(6.8)
0.7
350.7
276.8 $
4.4
12.2
46.6
(0.3)
(10.8)
—
0.9
(0.3)
329.5
4.0 $
—
0.1
0.4
(0.6)
(0.5)
—
—
0.4
3.8
4.1
0.1
0.1
(0.2)
—
(0.5)
—
—
0.4
4.0
94
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Administrative expenses
Benefits paid
Settlements
Company contributions
Plan combination (acquisitions/divestitures)
Other
Fair value of plan assets at end of year
313.5
53.5
(0.7)
(13.0)
—
4.4
(4.1)
(0.2)
353.4
267.6
56.5
(0.8)
(10.8)
(0.3)
1.3
—
—
313.5
Funded Status at End of Year
$
2.7 $
(16.0) $
(3.8) $
(4.0)
Pension Benefits
Other Benefits
2020
2019
2020
2019
Amounts Recognized in the Consolidated Balance
Sheets
Long-term assets
Current liabilities
Current liabilities held for sale
Long-term liabilities
$
$
16.8 $
(0.5)
—
(13.6)
2.7 $
(in millions)
1.7 $
(0.6)
—
(17.1)
(16.0) $
— $
(0.3)
—
(3.5)
(3.8) $
Pre-tax charges recognized in accumulated other comprehensive loss as of December 31, 2020 and 2019 consist of:
Net actuarial (gain) loss
Prior service cost
Pension Benefits
Other Benefits
2020
2019
2020
2019
$
$
47.1 $
0.6
(in millions)
60.0 $
1.4
47.7 $
61.4 $
0.2 $
—
0.2 $
—
(0.2)
(0.7)
(3.1)
(4.0)
(1.0)
—
(1.0)
The accumulated benefit obligation for all defined benefit pension plans was $346.5 million and $317.8 million at
December 31, 2020 and 2019, respectively. The accumulated postretirement benefit obligation for all other postretirement
benefit plans was $3.8 million and $3.9 million at December 31, 2020 and 2019, respectively.
The following table sets forth the components of net periodic benefit cost and other changes in plan assets and benefit
obligations recognized in other comprehensive income for our defined benefit pension and other non-qualified and
postretirement plans for the years ended December 31, 2020, 2019 and 2018.
95
Net Periodic Benefit Cost
Service cost
Interest cost
Pension Benefits
Other Benefits
2020
2019
2018
2020
2019
2018
(in millions)
$
4.5 $
4.4 $
4.8 $
— $
0.1 $
10.4
12.2
12.8
Expected return on plan assets
(18.9)
(15.7)
(19.0)
Amortization of prior service cost
Amortization of net loss
Settlements
Curtailments
Net periodic benefit cost
0.1
5.2
—
0.3
1.6
0.2
6.6
—
—
7.7
0.3
5.1
12.7
—
16.7
0.1
—
—
0.2
(1.1)
—
(0.8)
0.1
—
0.2
—
—
—
0.4
0.1
0.1
—
0.1
—
—
—
0.3
2020
Pension Benefits
2019
2018
2020
(in millions)
Other Benefits
2019
2018
Other Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net loss (gain)
Prior service cost
Amortization of net loss
Amortization of prior service cost
Settlements
Curtailments
Total recognized in other comprehensive
income
Total Recognized in Net Periodic Benefit
Cost and Other Comprehensive Income
(7.8)
(0.3)
(5.2)
(0.1)
—
(0.3)
5.8
0.5
(6.6)
(0.2)
—
—
13.3
—
(5.1)
(0.3)
(12.7)
—
0.3
—
(0.2)
—
1.1
—
(0.1)
—
—
(0.2)
—
—
(0.6)
—
—
(0.1)
—
—
(13.7)
(0.5)
(4.8)
1.2
(0.3)
(0.7)
$
(12.1) $
7.2 $
11.9 $
0.4 $
0.1 $
(0.4)
Included in the net periodic benefit cost table above are $0.8 million and $0.9 million for the years ended December 31,
2019 and 2018 respectively, representing pension and other postretirement plan service cost related to the Power Systems
segment that is reported in income from discontinued operations in the accompanying Consolidated Statements of Operations.
Pension Benefits
Other Benefits
2020
2019
2018
2020
2019
2018
Weighted-Average Assumptions Used to
Determine Benefit Obligations at
December 31
Discount rate
2.625 %
3.375 %
4.375 %
2.625 %
3.375 %
4.375 %
Rate of compensation increase
3.0 %
3.0 %
3.0 %
4.0 %
4.0 %
4.0 %
Weighted-Average Assumptions Used to
Determine Net Periodic Benefit Cost for
Years Ended December 31
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
3.375 %
6.0 %
3.0 %
4.375 %
6.0 %
3.0 %
4.00 %
6.0 %
3.0 %
3.375 %
—
4.0 %
4.375 %
—
4.0 %
3.75 %
—
4.0 %
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year.
The discount rate was determined with a model which uses a theoretical portfolio of high quality corporate bonds specifically
selected to produce cash flows closely related to how we would settle our retirement obligations. This produced a discount rate
of 2.625% at December 31, 2020. As of the date of these financial statements, there are no known or anticipated changes in our
96
discount rate assumption that will impact our pension expense in 2021. A 25 basis point decrease (increase) in our discount
rate, holding constant our expected long-term return on plan assets and other assumptions, would increase (decrease) pension
expense by approximately $0.8 million per year.
The overall expected long-term rate of return on assets was determined based upon weighted-average historical returns
over an extended period of time for the asset classes in which the plans invest according to our current investment policy.
We use the Pri-2012 base mortality table with the MP-2020 projection scale to value our domestic pension liabilities.
Assumed Health Care Cost Trend Rates at December 31
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate rate)
Year that the rate reaches the ultimate trend rate
Plan Assets
2020
2019
7.5 %
4.5 %
2027
8.0 %
4.5 %
2027
The asset allocation for pension plans at the end of 2020 and 2019, and the target allocation for 2021, by asset category
are as follows:
Asset Category
Equity securities
Fixed income
Target
Allocation
2021
Plan Assets at December 31,
2020
2019
30 %
70 %
100 %
33 %
67 %
100 %
29 %
71 %
100 %
Our investment goal is to maximize the return on assets, over the long term, by investing in equities and fixed income
investments while diversifying investments within each asset class to reduce the impact of losses in individual securities. Equity
investments include a mix of U.S. large capitalization equities, U.S. small capitalization equities and non-U.S. equities. Fixed
income investments include a mix of treasury obligations and high-quality money market instruments. The asset allocation
policy is reviewed and any significant variation from the target asset allocation mix is rebalanced periodically. The plans have
no direct investments in EnPro common stock.
The plans invest exclusively in mutual funds whose holdings are marketable securities traded on recognized markets and,
as a result, would be considered Level 1 assets. The investment portfolios of the various funds at December 31, 2020 and 2019
are summarized as follows:
Mutual funds – U.S. equity
Mutual funds – international equity
Mutual funds - fixed income treasury and money market
Cash equivalents
2020
2019
(in millions)
68.3 $
46.9
237.0
1.2
353.4 $
55.7
35.9
221.1
0.8
313.5
$
$
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the
following calendar years:
97
2021
2022
2023
2024
2025
Years 2025 – 2029
16. Shareholders' Equity
$
Pension
Benefits
Other
Benefits
(in millions)
13.6 $
14.4
15.6
17.0
18.3
96.4
0.3
1.9
0.2
0.2
0.2
0.7
We have a policy under which we intend to declare regular quarterly cash dividends on our common stock, as
determined by our board of directors, after taking into account our cash flows, earnings, financial position and other relevant
matters. In accordance with this policy, total dividend payments of $21.7 million, $20.9 million, and $20.3 million were made
during the years ended December 31, 2020, 2019, and 2018, respectively.
In February 2021, our board of directors declared a cash dividend of $0.27 per share payable on March 17, 2021 to
shareholders of record at the close of business on March 3, 2021.
In October 2018, our board of directors authorized a two-year program for expenditures of up to $50.0 million of our
outstanding common shares. Prior to the expiration of this authorization in October 2020, we repurchased a total of 0.3 million
shares for $20.3 million, of which we repurchased 0.1 million shares for $5.3 million during 2020 and we repurchased 0.2
million shares for $15.0 million in 2019.
In October of 2020, our board of directors authorized a new two-year program of up to $50.0 million for the repurchased
of our outstanding common shares through October 2022. We have not made any repurchases under the new authorization.
In October 2017, our board of directors authorized a program for the repurchase of up to $50.0 million of our outstanding
common shares. During 2018, we repurchased 0.7 million shares for $50.0 million under this program.
The shares for all repurchase plans are retired upon purchase.
17. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component (after tax) are as follows:
98
Unrealized
Translation
Adjustments
Pension and
Other
Postretirement
Plans
Total
(in millions)
Balance at December 31, 2017
$
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive income (loss) attributable
to EnPro Industries, Inc.
Balance at December 31, 2018
Adoption of new accounting standard
Adjusted balance at December 31, 2018
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive income attributable to
EnPro Industries, Inc.
Balance at December 31, 2019
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive income
Less: other comprehensive income attributable to redeemable non-
controlling interests
Net current-period other comprehensive income attributable to
EnPro Industries, Inc.
(6.8) $
(3.8)
—
(3.8)
(10.6)
—
(10.6)
20.4
—
20.4
9.8
21.5
3.4
24.9
3.0
21.9
(41.6) $
(7.1)
13.8
6.7
(34.9)
(11.5)
(46.4)
(5.1)
5.3
0.2
(46.2)
6.0
3.6
9.6
—
9.6
(48.4)
(10.9)
13.8
2.9
(45.5)
(11.5)
(57.0)
15.3
5.3
20.6
(36.4)
27.5
7.0
34.5
3.0
31.5
(4.9)
Balance at December 31, 2020
$
31.7 $
(36.6) $
Reclassifications out of accumulated other comprehensive loss are as follows:
Details about Accumulated Other
Comprehensive Loss Components
Amount Reclassified from
Accumulated Other Comprehensive
Loss
Affected Statement of Operations Caption
Pension and other postretirement
plans adjustments:
Amortization of actuarial losses
Amortization of prior service costs
$
Curtailments
Settlements
Total before tax
Tax benefit
Net of tax
Release of unrealized currency
translation adjustment upon sale of
investment in foreign entity, net of tax
Years Ended December 31,
2019
2018
2020
(in millions)
5.4 $
0.1
0.3
(1.1)
4.7
6.6 $
0.4
—
—
7.0
5.1 (1)
0.4 (1)
— (1)
12.7 (1)
Income from continuing operations
before income taxes
18.2
(1.1)
(1.7)
(4.4) Income tax expense
3.6 $
5.3 $
13.8
Income (loss) from continuing
operations
3.4 $
— $
— Other (non-operating) expense
$
$
99
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension
cost. Since these are components of net periodic pension cost other than service cost, the affected Consolidated
Statement of Operations caption is other (non-operating) expense. (See Note 15, "Pensions and Postretirement
Benefits" for additional details).
18. Equity Compensation Plan
We have equity compensation plans (the “Plans”) that provide for the delivery of shares pursuant to various market and
performance-based incentive awards. As of December 31, 2020, there are 1.0 million shares available for future awards. Our
policy is to issue new shares to satisfy share delivery obligations for awards made under the Plans.
The Plans permit awards of restricted share units to be granted to executives and other key employees. Generally, all
share units awarded prior to February 2020 vest in three years, while those awarded thereafter vest in equal annual increments
over three years. Compensation expense related to the restricted share units is based upon the market price of the underlying
common stock as of the date of the grant and is amortized over the applicable vesting period using the straight-line method. As
of December 31, 2020, there was $6.2 million of unrecognized compensation cost related to restricted share units expected to be
recognized over a weighted-average remaining amortization period of 1.7 years.
Under the terms of the Plans, performance share awards were granted to executives and other key employees during
2020, 2019 and 2018. Each grant will vest if EnPro achieves specific financial objectives at the end of each three-year
performance period. Additional shares may be awarded if objectives are exceeded, but some or all shares may be forfeited if
objectives are not met.
Performance shares earned at the end of a performance period, if any, for shares issued in 2018 and 2019 will be paid in
actual shares of our common stock, less the number of shares equal in value to applicable withholding taxes if the employee
chooses. Performance shares earned at the end of a performance period for shares issued in 2020 will be paid in cash, less
applicable withholding taxes if the employee chooses. During the performance period, a grantee receives dividend equivalents
accrued in cash, and shares are forfeited if a grantee terminates employment.
Compensation expense related to the performance shares payable in stock granted in 2019 and 2018 is computed using
the fair value of the awards at the date of grant. Potential shares to be issued for performance share awards granted in 2019 and
2018 are subject to a market condition based on the performance of our stock, measured based upon a calculation of total
shareholder return, compared to a group of peer companies. The fair value of these awards was determined using a Monte
Carlo simulation methodology. Compensation expense for these awards is computed based upon this grant date fair value using
the straight-line method over the applicable performance period.
Compensation expense related to the performance shares payable in cash granted in 2020 is computed using the fair value
of the awards as of December 31, 2020. The fair value of these awards was determined using a Monte Carlo simulation
methodology. Compensation issued for performance share awards granted in 2020 is subject to a market conditions based on
the performance of our stock, measured based upon a calculation of total shareholder return, compared to a group of peer
companies. Compensation expense for these awards is computed based upon the calculated fair value at the end of the period
using the straight-line method over the applicable performance period. The shares will be remeasured and compensation
expense will be adjusted based on the current market-based estimate.
The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market
condition stipulated in the award and calculates the fair value of each award. We issued performance share awards to eligible
participants on February 18, 2020, February 11, 2019, and February 12, 2018. We used the following assumptions in
determining the fair value of these awards:
100
Shares granted February 18, 2020
EnPro Industries, Inc.
S&P 600 Capital Goods Index
Shares granted February 11, 2019
EnPro Industries, Inc.
S&P 600 Capital Goods Index
Shares granted February 12, 2018
EnPro Industries, Inc.
S&P 600 Capital Goods Index
Expected stock price
volatility
Annual expected
dividend yield
Risk free interest
rate
31.62 %
34.90 %
30.72 %
34.36 %
32.41 %
34.90 %
1.69 %
n/a
1.40 %
n/a
1.15 %
n/a
1.37 %
1.37 %
2.53 %
2.53 %
1.92 %
1.92 %
The expected volatility assumption for us and each member of the peer group is based on each entity’s historical stock
price volatility over a period equal to the length from the valuation date to the end of the performance cycle. The annual
expected dividend yield is based on annual expected dividend payments and the stock price on the date of grant. The risk free
rate equals the yield, as of the valuation date, on zero-coupon U.S. Treasury STRIPS that have a remaining term equal to the
length of the remaining performance cycle.
As of December 31, 2020, there was $1.2 million of unrecognized compensation cost related to nonvested performance
share awards to be paid in stock and is expected to be recognized over a weighted-average vesting period of 1.0 year. As of
December 31, 2020 there was $3.3 million of unrecognized compensation cost related to nonvested performance share awards
to be paid in cash and is expected to be recognized over a weighted-average vesting period of 2.0 years.
A summary of award activity under these plans is as follows:
101
Restricted Share Units
Performance Shares -
Equity
Performance Shares -
Liability
Weighted-
Average
Grant Date
Fair Value
Weighted-
Average
Grant Date
Fair Value
Shares
Shares
Fair Value at
December 31,
2020
Shares
Nonvested at December 31, 2017
235,557 $
57.87
270,599 $
Granted
Vested
Forfeited
Achievement level adjustment
Shares settled for cash
73,817
(58,188)
(19,853)
—
(12,403)
82.03
63.64
65.17
—
64.19
77,076
(51,207)
(25,142)
(71,671)
—
Nonvested at December 31, 2018
218,930
57.87
199,655
Granted
Vested
Forfeited
Achievement level adjustment
Shares settled for cash
78,576
68.48
116,342
(78,958)
(6,830)
44.44
72.99
(75,312)
(12,130)
—
—
24,105
(12,294)
43.85
—
Nonvested at December 31, 2019
199,424
72.72
252,660
Granted
Vested
Forfeited
Achievement level adjustment
Shares settled for cash
Nonvested at December 31, 2020
97,144
(53,163)
(34,890)
—
(8,136)
200,379 $
59.27
68.42
71.14
—
68.35
67.83
—
—
(33,218)
(132,846)
—
86,596 $
61.92
93.61
63.81
65.14
63.81
—
75.87
77.15
49.68
82.26
49.68
—
81.46
—
—
81.91
93.61
—
77.15
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
95,924
—
(2,336)
—
—
105.91
—
105.91
—
—
93,588 $ 105.91
The maximum potential number of shares to be issued at December 31, 2020 is represented by the restricted share units
and equity based performance shares at nonvested balance at December 31, 2020. We account for forfeitures when they occur
as opposed to estimating the number of awards that are expected to vest as of the grant date.
Non-qualified and incentive stock options were granted in 2011 and in 2019, and 2020. No stock option has a term
exceeding 10 years from the date of grant. All stock options were granted at not less than 100% of fair market value (as
defined) on the date of grant. As of December 31, 2020, there was $2.1 million of unrecognized compensation cost related to
stock options.
The following table provides certain information with respect to stock options as of December 31, 2020:
Range of Exercise Price
Under $50.00
Over $50.00 and under $60.00
Over $60.00
Total
Share
Options
Outstanding
Stock
Options
Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
18,187
18,187 $
143,680
40,937
202,804
—
—
18,187 $
42.24
54.34
66.31
55.67
0.11
9.21
8.57
8.27
We determine the fair value of stock options using the Black-Scholes option pricing formula. Key inputs into this formula
include expected term, expected volatility, expected dividend yield, and the risk-free interest rate. This fair value is amortized
on a straight line basis over the vesting period. The options issued in 2019 vest pro-rata over year three, four, and five from the
grant date. The options issued in 2020 vest in equal annual increments over three years.
The expected term represents the period that our stock options are expected to be outstanding, and is determined based on
historical experience of similar awards, given the contractual terms of the awards, vesting schedules, and expectations of future
employee behavior. The fair value of stock options reflects a volatility factor calculated using historical market data for EnPro's
102
common stock. The time frame used was approximated as a six year period from the grant date for the awards issued in 2020
and a seven year period from the grant date for the awards in 2019. The dividend assumption is based on our current
expectations for our dividend policy. We base the risk-free interest rate on the yield to maturity at the time of the stock option
grant on zero-coupon U.S. government bonds having a remaining life equal to the option's expected life. When estimating
forfeitures, we consider voluntary termination behaviors as well as analysis of actual option forfeitures.
The option awards issued in 2020 had a fair value of $13.64 per share and $18.67 per share at the grant dates of February
27, 2020 and August 27, 2020, respectively. The following assumptions were used to estimate the fair value of the 2020 option
awards:
Average expected term
Expected volatility
Risk-free interest rate
Expected dividend yield
Grant Date
February 27, 2020
August 27, 2020
6 years
31.53 %
1.17 %
1.93 %
6 years
39.51 %
0.42 %
1.74 %
The option awards issued in 2019 had a fair value of $18.87 per share at their grant date. The following assumptions were
used to estimate the fair value of the 2019 option awards:
Average expected term
Expected volatility
Risk-free interest rate
Expected dividend yield
7 years
29.68 %
1.95 %
1.51 %
A summary of option activity under the Plans as of December 31, 2020, and changes during the year then ended, is
presented below:
Balance at December 31, 2019
Granted
Balances at December 31, 2020
The year-end intrinsic value related to stock options is presented below:
Share Options
Outstanding
Weighted Average
Exercise Price
59,124
143,680
202,804
$
$
58.91
54.34
55.67
(in millions)
Options outstanding
Options exercisable
As of and for the Years Ended December 31,
2020
2019
2018
$
$
4.0 $
0.6 $
0.5 $
0.4 $
We recognized the following equity-based employee compensation expenses and benefits related to our Plan activity:
(in millions)
Compensation expense
Related income tax benefit
Years Ended December 31,
2020
2019
2018
$
$
5.4 $
1.4 $
6.8 $
2.2 $
0.3
0.3
6.5
1.9
Each non-employee director received an annual grant of phantom shares equal in value to $110,000 in the years ended
December 31, 2020 and 2019 and $95,000 in the year ended December 31, 2018. With respect to certain phantom shares
awarded in prior years, we will pay each non-employee director in cash the fair market value of the director's phantom shares
upon termination of service as a member of the board of directors. The remaining phantom shares granted will be paid out in
the form of one share of our common stock for each phantom share, with the value of any fractional phantom shares paid in
cash. Expense recognized in the years ended December 31, 2020, 2019 and 2018 related to these phantom share grants was
$0.9 million, $0.9 million and $0.7 million, respectively. No cash payments were used to settle phantom shares in 2020 or
2019. Cash payments of $0.7 million were used to settle phantom shares in 2018.
103
19. Business Segment Information
We aggregate our operating businesses into three reportable segments. The factors considered in determining our
reportable segments are the economic similarity of the businesses, the nature of products sold or services provided, the
production processes and the types of customers and distribution methods. Our reportable segments are managed separately
based on these differences.
Our Sealing Technologies segment designs, manufactures and sells sealing products, including: metallic, non-metallic and
composite material gaskets, dynamic seals, compression packing, resilient metal seals, elastomeric seals, custom-engineered
mechanical seals for applications in the aerospace industry and other markets, hydraulic components, expansion joints, sanitary
gaskets, hoses and fittings for the hygienic process industries, fluid transfer products for the pharmaceutical and
biopharmaceutical industries, hole forming products, bellows and bellows assemblies, PTFE products, and heavy-duty
commercial vehicle parts used in wheel-end and suspension components. These products are used in a variety of industries,
including chemical and petrochemical processing, pulp and paper processing, power generation, food and pharmaceutical
processing, primary metal manufacturing, mining, water and waste treatment, heavy-duty trucking, aerospace, medical,
filtration and semiconductor fabrication. In many of these industries, performance and durability are vital for safety and
environmental protection. Many of our products are used in highly demanding applications, e.g., where extreme temperatures,
extreme pressures, corrosive environments, strict tolerances, and/or worn equipment make product performance difficult.
Our Advanced Surface Technologies segment applies proprietary technologies, processes, and capabilities to deliver
highly differentiated suites of products and services for the most challenging applications in high growth markets. The
segment’s products and services are used in highly demanding environments requiring performance, precision and repeatability,
with a low tolerance for failure. The segment’s services include cleaning, coating, testing, refurbishment and verification
services for critical components and assemblies used in state-of-the-art advanced node semiconductor manufacturing
equipment. Its designs, manufactures and sells specialized optical filters and thin-film coatings for the most challenging
applications in the industrial technology, life sciences, and semiconductor markets and complex front-end wafer processing
sub-systems, new and refurbished electrostatic chuck pedestals, thin film coatings, and edge-welded metal bellows for the
semiconductor equipment industry and for critical applications in the space, aerospace and defense markets.
Our Engineered Materials segment includes operations that design, manufacture and sell self-lubricating, non-rolling
metal-polymer, engineered plastics, and fiber reinforced composite bearing products, precision engineered components and
lubrication systems for reciprocating compressors and engines, critical service flange gaskets, seals and electrical flange
isolation kits used in high-pressure wellhead equipment, flow lines, water injection lines, sour hydrocarbon process
applications, and crude oil and natural gas pipeline/transmission line applications. These products are used in a wide range of
applications, including the automotive, aerospace, pharmaceutical, pulp and paper, natural gas, health, power generation,
machine tools, air treatment, refining, petrochemical and general industrial markets.
We measure operating performance based on segment earnings before interest, income taxes, depreciation, amortization,
and other selected items ("Adjusted Segment EBITDA"), which is segment profit excluding acquisition and divestiture
expenses, restructuring costs, impairment charges, non-controlling interest compensation, and depreciation and amortization.
Adjusted Segment EBITDA is not defined under GAAP and may not be comparable to similarly-titled measures used by other
companies. Segment profit is total segment revenue reduced by operating expenses, restructuring and other costs identifiable
with the segment. Corporate expenses include general corporate administrative costs. Expenses not directly attributable to the
segments, corporate expenses, net interest expense, asset impairments, gains and losses related to the sale of assets, and income
taxes are not included in the computation of segment profit. The accounting policies of the reportable segments are the same as
those for EnPro.
Non-controlling interest compensation allocation represents compensation expense associated with a portion of the
rollover equity from the acquisitions of LeanTeq and Alluxa being subject to reduction for certain types of employment
terminations of the sellers. This expense is recorded in selling, general, and administrative expenses on our Consolidated
Statements of Operations and is directly related to the terms of the acquisitions. This expense will continue to be recognized as
compensation expense over the term of the put and call options associated with the acquisitions unless certain employment
terminations have occurred.
Segment operating results and other financial data for the years ended December 31, 2020, 2019, and 2018 were as
follows:
104
Sales
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Intersegment sales
Total sales
Adjusted Segment EBITDA
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Total Adjusted Segment EBITDA
Reconciliation of Adjusted Segment EBITDA to income (loss) from
continuing operations before income taxes
Adjusted Segment EBITDA
$
$
$
$
Acquisition and divestiture expenses
Non-controlling interest compensation allocation
Amortization of fair value adjustment to acquisition date inventory
Restructuring and impairment expense
Depreciation and amortization expense
Segment profit
Corporate expenses
Interest expense, net
Other expense, net
Income (loss) from continuing operations before income taxes
$
Years Ended December 31,
2020
2019
(in millions)
2018
$
636.7 $
762.4 $
171.2
275.0
1,082.9
120.2
331.3
1,213.9
(8.9)
1,074.0 $
(8.2)
1,205.7 $
131.0 $
131.4 $
47.1
32.5
23.5
53.7
210.6 $
208.6 $
210.6 $
(9.6)
(2.9)
(3.0)
(30.6)
(70.7)
93.8
(37.9)
(14.9)
(67.8)
(26.8) $
208.6 $
(8.4)
(0.5)
—
(8.7)
(67.9)
123.1
(36.4)
(18.2)
(64.2)
4.3 $
813.1
114.0
355.0
1,282.1
(8.0)
1,274.1
137.4
17.6
60.4
215.4
215.4
(1.9)
—
—
(22.1)
(66.1)
125.3
(34.9)
(27.3)
(48.0)
15.1
Net Sales by Geographic Area
United States
Europe
Other foreign
Total
Years Ended December 31,
2020
2019
(in millions)
2018
$
555.7 $
630.2 $
244.2
274.1
301.2
274.3
736.2
278.6
259.3
$
1,074.0 $
1,205.7 $
1,274.1
Net sales are attributed to countries based on location of the customer.
Due to the diversified nature of our business and the wide array of products that we offer, we sell into a number of end
markets. Underlying economic conditions within these markets are a major driver of our segments' sales performance. Below is
a summary of our third-party sales by major end market with which we did business for the years ended December 31, 2020,
2019 and 2018:
105
Aerospace
Automotive
Chemical and material processing
Food and pharmaceutical
General industrial
Medium-duty/heavy-duty truck
Oil and gas
Power generation
Semiconductors
Other
Year Ended December 31, 2020
(in millions)
Sealing
Technologies
Advanced Surface
Technologies
Engineered
Materials
Total
$
35.5 $
8.0 $
5.4 $
2.1
53.0
52.3
160.7
241.7
20.5
43.6
14.6
4.9
0.1
—
—
2.9
—
2.1
—
157.1
0.9
66.3
43.9
1.6
72.3
0.1
64.1
20.1
—
0.2
48.9
68.5
96.9
53.9
235.9
241.8
86.7
63.7
171.7
6.0
Total third-party sales
$
628.9 $
171.1 $
274.0 $
1,074.0
Aerospace
Automotive
Chemical and material processing
Food and pharmaceutical
General industrial
Medium-duty/heavy-duty truck
Oil and gas
Power generation
Semiconductors
Other
Total third-party sales
Aerospace
Automotive
Chemical and material processing
Food and pharmaceutical
General industrial
Medium-duty/heavy-duty truck
Oil and gas
Power generation
Semiconductors
Other
Year Ended December 31, 2019
(in millions)
Sealing
Technologies
Advanced Surface
Technologies
Engineered
Materials
Total
$
$
46.9 $
7.0
48.0
38.8
174.9
340.9
25.2
47.7
12.2
13.8
755.4 $
10.5 $
—
—
—
1.3
—
4.8
—
103.5
0.1
120.2 $
12.0 $
81.5
48.3
0.9
88.6
1.2
83.1
9.5
—
5.0
330.1 $
69.4
88.5
96.3
39.7
264.8
342.1
113.1
57.2
115.7
18.9
1,205.7
Year Ended December 31, 2018
(in millions)
Sealing
Technologies
Advanced Surface
Technologies
Engineered
Materials
Total
$
45.4 $
8.7 $
8.4 $
5.3
54.5
37.1
173.4
387.3
19.7
57.8
12.8
13.0
—
—
—
0.8
—
3.6
—
100.9
—
97.3
49.5
1.0
99.3
1.1
77.4
11.2
—
8.6
62.5
102.6
104.0
38.1
273.5
388.4
100.7
69.0
113.7
21.6
Total third-party sales
$
806.3 $
114.0 $
353.8 $
1,274.1
106
Sales to one customer of our Sealing Technologies and Advanced Surface Technologies segments represented
approximately $132.2 million of our consolidated sales for the year ended December 31, 2020. No customer accounted for 10%
or more of net sales in 2019 or 2018.
Capital Expenditures
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Corporate
Total capital expenditures
Depreciation and Amortization Expense
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Corporate
Total depreciation and amortization
Assets
Sealing Technologies
Advanced Surface Technologies
Engineered Materials
Corporate
Discontinued operations
Long-Lived Assets
United States
France
Other Europe
Other foreign
Total
Years Ended December 31,
2020
2019
(in millions)
2018
$
$
$
$
8.0 $
12.7 $
5.3
4.9
0.1
1.5
7.4
—
18.3 $
21.6 $
36.5 $
45.0 $
20.0
14.2
0.1
7.0
15.9
—
70.8 $
67.9 $
22.6
2.6
10.9
—
36.1
46.4
3.1
16.6
—
66.1
As of December 31,
2020
2019
(in millions)
$
$
$
$
741.9 $
768.2
245.8
327.7
—
2,083.6 $
115.9 $
21.0
20.3
37.8
195.0 $
882.2
434.3
259.4
205.1
254.1
2,035.1
130.1
24.2
20.7
43.8
218.8
Corporate assets include all of our cash and cash equivalents and long-term deferred income taxes. Long-lived assets
consist of property, plant and equipment.
20. Commitments and Contingencies
General
A description of certain environmental and other legal matters relating to certain of our subsidiaries is included in this
section. In addition to the matters noted herein, we are from time to time subject to, and are presently involved in, other
litigation and legal proceedings arising in the ordinary course of business. We believe the outcome of such other litigation and
legal proceedings will not have a material adverse effect on our financial condition, results of operations and cash flows.
Expenses for administrative and legal proceedings are recorded when incurred.
107
Environmental
Our facilities and operations are subject to federal, state and local environmental and occupational health and safety laws
and regulations of the U.S. and foreign countries. We take a proactive approach in our efforts to comply with these laws and
regulations as they relate to our manufacturing operations and in proposing and implementing any remedial plans that may be
necessary. We also regularly conduct comprehensive environmental, health and safety audits at our facilities to maintain
compliance and improve operational efficiency.
Although we believe past operations were in substantial compliance with the then applicable regulations, we or one or
more of our subsidiaries are involved with various remediation activities or an investigation to determine responsibility for
environmental conditions at 20 sites. At 14 of these 20 sites, the future cost per site for us or our subsidiary is expected to
exceed $100,000. Of these 20 sites, 18 are sites where we or one or more of our subsidiaries formerly conducted business
operations but no longer do, and 2 are sites where we conduct manufacturing operations. Investigations have been completed
for 16 of the 20 sites and are in progress at 3 sites. An investigation to determine responsibility for environmental conditions is
ongoing at one site.
Our policy is to accrue environmental investigation and remediation costs when it is probable that a liability has been
incurred and the amount can be reasonably estimated. For sites with multiple future projected cost scenarios for identified
feasible investigation and remediation options where no one estimate is more likely than all the others, our policy is to accrue
the lowest estimate among the range of estimates. The measurement of the liability is based on an evaluation of currently
available facts with respect to each individual situation and takes into consideration factors such as existing technology,
presently enacted laws and regulations and prior experience in the remediation of similar contaminated sites. Liabilities are
established for all sites based on these factors. As assessments and remediation progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical data and legal information. As of December 31, 2020 and
2019, we had accrued liabilities aggregating $42.2 million and $36.0 million, respectively, for estimated future expenditures
relating to environmental contingencies. These amounts have been recorded on an undiscounted basis in the Consolidated
Balance Sheets. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other
parties potentially being fully or partially liable, technology and information related to individual sites, we do not believe it is
possible to develop an estimate of the range of reasonably possible environmental loss in excess of our recorded liabilities.
During the fourth quarter of 2020, new information became available that enabled us to develop and refine estimated costs
of future remediation at the following sites:
• Water Valley. EnPro Holdings has been managing trichloroethylene soil and groundwater contamination at the site in
Water Valley, Mississippi in connection with the former operation in the 1970s and 1980s by a corporate predecessor
of a plant located at the site, which plant was divested to BorgWarner, Inc. ("BorgWarner") in 1996. The Mississippi
Department of Environmental Quality ("MDEQ") issued orders against EnPro Holdings requiring evaluation of
potential vapor intrusion into residential properties and commercial facilities located over the groundwater plume as
well as requiring additional groundwater investigation and remediation. All of the work to be performed at the
residential area, the plant and off-site is set forth in an agreed Order that we and MDEQ entered into on September 11,
2017 and we established reserves with respect to the liability associated with the anticipated remediation. Based upon
then limited information regarding any incremental remediation or other actions that may be required at the site, we
were unable to estimate any further loss or a reasonably possible range of loss related to this matter. During the quarter
ended December 31, 2020, we received the results from groundwater and vapor sampling under the plant building,
which results provided a basis to estimate the costs to remediate the contamination under the building, and we received
approval of the design for the remediation system to be operated in the area of contamination behind the building,
which approval allowed for updating of previously estimated construction and operating and maintenance costs. Based
on this information, we increased the reserve for Water Valley by $12.5 million, to $15.6 million at December 31,
2020, to reflect the minimum of the range of reasonably likely scenarios to effect the remediation of the contamination
under the building and the other areas where contamination is located. The total expense related to third-party claim
settlements and remediation of the Water Valley site in calendar 2020, including reserve adjustments related to
remediation, was $26.5 million. Total cash payments related to third-party claim settlements and remediation at Water
Valley was $20.1 million in 2020. The final selection of the remediation option and design of the remedial system to
address contamination under the building is subject to MDEQ approval, and we are not able at this time to estimate the
upper end of a range of liability with respect to the reasonably likely scenarios to effect remediation at this site.
• Arizona Uranium Mines. EnPro Holdings has received notices from the EPA asserting that it is a potentially
responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
108
as the successor to a former operator of eight uranium mines in Arizona. The former operator conducted operations at
the mines from 1954 to 1957. In the 1990s, remediation work performed by others at these sites consisted of capping
the exposed areas of the mines. We have previously reserved amounts of probable loss associated with these mines,
principally including the cost of the investigative work to be conducted at such mines. We entered into an
Administrative Settlement Agreement and Order on Consent for Interim Removal Action with the EPA effective
November 7, 2017 for the performance of this work. The balance in these reserves as of September 30, 2020 was $1.0
million. During the quarter ended December 31, 2020, the EPA initiated group discussions with EnPro Holdings and
other potentially responsible parties to resolve various technical issues, including the development of cleanup
standards. Based on these discussions and subsequent discussions with other responsible parties with similar sites, we
have concluded that further remedial work beyond maintenance of and minor repairs to the existing caps is probable,
and we have evaluated the feasibility of various remediation scenarios. As a result, we increased the reserve for these
sites by $12.9 million to $13.9 million at December 31, 2020, to reflect the low end of the range of our reasonably
likely liability with respect to these sites. The expected contribution of $3.8 million from the U.S. government towards
remediation of the site is considered probable and is included in other assets in the accompanying consolidated balance
sheet at December 31, 2020. We are not able at this time to estimate the upper end of a range of liability with respect
to these sites.
• Pine Bluff. For several years, we have been operating a groundwater remediation system at the site of an electrical
transformer facility in Pine Bluff, Arkansas, which facility was sold by a corporate predecessor of EnPro Holdings in
1994. Pursuant to the terms of the sale agreement, EnPro Holdings, as the corporate successor has responsibility for
pre-closing environmental conditions at the site and the existing remediation system at the site had been approved by
the Arkansas Division of Environmental Quality (the “ADEQ”). During the quarter ended December 31, 2020, at the
initiation of the ADEQ, we conducted further sampling and technical reviews to determine whether part of the
contamination was migrating off-site that was not being captured by the existing remediation system. Based on all the
sampling results received and reviewed, we concluded that modifications to the remediation program will be required.
Based on this information, we increased the reserve for the Pine Bluff site by $2.8 million, to $2.8 million at December
31, 2020, to reflect the low end of the range of our reasonably likely liability with respect to this site. Total cash
payments made in calendar year 2020 were $0.9 million. We are not able at this time to estimate the upper end of a
range of liability with respect to this site.
We believe that our accruals for specific environmental liabilities are adequate for those liabilities based on currently
available information. Based upon limited information regarding any incremental remediation or other actions that may be
required at these sites, we cannot estimate any further loss or a reasonably possible range of loss related to these matters. Actual
costs to be incurred in future periods may vary from estimates because of the inherent uncertainties in evaluating environmental
exposures due to unknown and changing conditions, changing government regulations and legal standards regarding liability.
Based on our prior ownership of Crucible Steel Corporation a/k/a Crucible, Inc. (“Crucible”), we may have additional
contingent liabilities in one or more significant environmental matters. One such matter, which is included in the 20 sites
referred to above, is the Lower Passaic River Study Area of the Diamond Alkali Superfund Site in New Jersey. Crucible
operated a steel mill abutting the Passaic River in Harrison, New Jersey from the 1930s until 1974, which was one of many
industrial operations on the river dating back to the 1800s. Certain contingent environmental liabilities related to this site were
retained by a predecessor of our EnPro Holdings, Inc. subsidiary (which, including its corporate predecessors is referred to in
this Note 20 as "EnPro Holdings") when it sold a majority interest in Crucible Materials Corporation (the successor of Crucible)
in 1985. The United States Environmental Protection Agency (the “EPA”) notified our subsidiary in September 2003 that it is a
potentially responsible party (“PRP”) for Superfund response actions in the lower 17-mile stretch of the Passaic River known as
the Lower Passaic River Study Area.
EnPro Holdings and approximately 70 of the numerous other PRPs, known as the Cooperating Parties Group, are parties
to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study (“RI/FS”)
of the contaminants in the Lower Passaic River Study Area. In September 2018, EnPro Holdings withdrew from the
Cooperating Parties Group but remains a party to the May 2007 Administrative Order on Consent. The RI/FS was completed
and submitted to the EPA at the end of April 2015. The RI/FS recommends a targeted dredge and cap remedy with monitored
natural recovery and adaptive management for the Lower Passaic River Study Area. The cost of such remedy is estimated to be
$726 million. Previously, on April 11, 2014, the EPA released its Focused Feasibility Study (the “FFS”) with its proposed plan
for remediating the lower eight miles of the Lower Passaic River Study Area. The FFS calls for bank-to-bank dredging and
capping of the riverbed of that portion of the river and estimates a range of the present value of aggregate remediation costs of
approximately $953 million to approximately $1.73 billion, although estimates of the costs and the timing of costs are
inherently imprecise. On March 3, 2016, the EPA issued the final Record of Decision (ROD) as to the remedy for the lower
eight miles of the Lower Passaic River Study Area, with the maximum estimated cost being reduced by the EPA from $1.73
billion to $1.38 billion, primarily due to a reduction in the amount of cubic yards of material that will be dredged. In October
109
2016, Occidental Chemical Corporation, the successor to the entity that operated the Diamond Alkali chemical manufacturing
facility, reached an agreement with the EPA to develop the design for this proposed remedy at an estimated cost of $165
million. The EPA has estimated that it will take approximately four years to develop this design. On June 30, 2018, Occidental
Chemical Corporation sued over 120 parties, including the Company, in the United States District Court for New Jersey seeking
recovery of response costs under the Federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA").
No final allocations of responsibility have been made among the numerous PRPs that have received notices from the EPA,
there are numerous identified PRPs that have not yet received PRP notices from the EPA, and there are likely many PRPs that
have not yet been identified. In September 2017, EPA hired a third-party allocator to develop an allocation of costs among a
large number of the parties identified by EPA as having potential responsibility, including the Company. In the fourth quarter of
2020, the third-party allocator issued his report, which determined the range for EnPro's liability to be between $35,000 and
$950,000.
Based on our evaluation of the site, during 2014 we accrued a liability of $3.5 million related to environmental
remediation costs associated with the lower eight miles of the Lower Passaic River Study Area, which was our estimate of the
low end of a range of reasonably possible costs, with no estimate within the range being a better estimate than the minimum.
Since 2016, we incurred $0.9 million in remediation costs. Based on the third party allocator's report, on December 31, 2020,
we reduced the reserve to $1.6 million. Our future remediation costs could be significantly greater than the $1.0 million accrual
at December 31, 2020. With respect to the upper nine miles of the Lower Passaic River Study Area, we are unable to estimate a
range of reasonably possible costs.
Except with respect to the lower eight miles of the Lower Passaic River Study Area, we are unable to estimate a
reasonably possible range of loss related to any other contingent environmental liability based on our prior ownership of
Crucible. See the section entitled “Crucible Steel Corporation a/k/a Crucible, Inc.” in this footnote for additional information.
Crucible Steel Corporation a/k/a Crucible, Inc.
Crucible, which was engaged primarily in the manufacture and distribution of high technology specialty metal products,
was a wholly owned subsidiary of Coltec until 1983 when its assets and liabilities were distributed to a new Coltec subsidiary,
Crucible Materials Corporation. Coltec sold a majority of the outstanding shares of Crucible Materials Corporation in 1985 and
divested its remaining minority interest in 2004. Crucible Materials Corporation filed for Chapter 11 bankruptcy protection in
May 2009 and is no longer conducting operations.
We have certain ongoing obligations, which are included in other liabilities in our Consolidated Balance Sheets,
including workers’ compensation, retiree medical and other retiree benefit matters, in addition to those mentioned previously
related to Coltec’s period of ownership of Crucible. Based on Coltec’s prior ownership of Crucible, we may have certain
additional contingent liabilities, including liabilities in one or more significant environmental matters included in the matters
discussed in “Environmental” above. We are investigating these matters. Except with respect to those matters for which we
have an accrued liability as discussed in "Environmental" above, we are unable to estimate a reasonably possible range of loss
related to these contingent liabilities.
Warranties
We provide warranties on many of our products. The specific terms and conditions of these warranties vary depending on
the product and the market in which the product is sold. We record a liability based upon estimates of the costs we may incur
under our warranties based upon a review of historical warranty experience and information regarding the number, nature, and
dollar valuation of specific warranty claims being made by customers. Adjustments are made to the liability as claims data and
historical experience necessitate.
Changes in the carrying amount of the product warranty liability for the years ended December 31, 2020, 2019 and 2018
are as follows:
Balance at beginning of year
Charges to expense
Settlements made
Balance at end of year
2020
2019
2018
(in millions)
$
10.1 $
1.4
(4.8)
6.7 $
$
9.4 $
5.8
(5.1)
10.1 $
2.7
10.1
(3.4)
9.4
110
Asbestos Insurance Receivables
The historical business operations of certain of our subsidiaries resulted in a substantial volume of asbestos litigation in
which plaintiffs alleged personal injury or death as a result of exposure to asbestos fibers. In 2010, certain of these subsidiaries,
including Garlock Sealing Technologies, LLC ("GST"), filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of North Carolina (the "Bankruptcy
Court"). An additional subsidiary filed a Chapter 11 bankruptcy petition with the Bankruptcy Court in 2017. The filings were
part of a claims resolution process for an efficient and permanent resolution of all pending and future asbestos claims through
court approval of a plan of reorganization to establish a facility to resolve and pay these asbestos claims.
These claims against GST and other subsidiaries were resolved pursuant to a joint plan of reorganization (the "Joint
Plan") filed with the Bankruptcy Court which was consummated on July 29, 2017. Under the Joint Plan, GST and EnPro
Holdings retained their rights to seek reimbursement under insurance policies for any amounts they have paid in the past to
resolve asbestos claims, including contributions made to the asbestos claims resolution trust established pursuant to the Joint
Plan (the "Trust"). These policies include a number of primary and excess general liability insurance policies that were
purchased by EnPro Holdings and were in effect prior to January 1, 1976 (the “Pre-GST Coverage Block”). The policies
provide coverage for “occurrences” happening during the policy periods and cover losses associated with product liability
claims against EnPro Holdings and certain of its subsidiaries. Asbestos claims against GST are not covered under these policies
because GST was not a subsidiary of EnPro Holdings prior to 1976. The Joint Plan provides that EnPro Holdings may retain the
first $25 million of any settlements and judgments collected for non-GST asbestos claims related to insurance policies in the
Pre-GST Coverage Block and EnPro Holdings and the Trust will share equally in any settlements and judgments EnPro
Holdings may collect in excess of $25 million. To date, EnPro Holdings has collected almost $22 million in settlements for
non-GST asbestos claims related to the Pre-GST Coverage Block and anticipates further collections once the Trust begins
making claims payments on non-GST Claims.
At December 31, 2020, approximately $4.2 million of available products hazard limits or insurance receivables existed
under primary and excess general liability insurance policies other than the Pre-GST Coverage Block (the "GST Coverage
Block") from solvent carriers, which we believe is available to cover contributions made to the Trust under the Joint Plan as the
Trust uses those contributions to pay GST asbestos claims covered by policies in the GST Coverage Block. There are specific
agreements in place with carriers regarding the remaining available coverage. We believe that all of the $4.2 million of
insurance proceeds will ultimately be collected, although there can be no assurance that the insurance companies will make the
payments as and when due. In the fourth quarter of 2020, we billed an insurer in the GST Coverage Block $0.8 million for GST
Claims paid by the Trust to date.
We also believe that EnPro Holdings will bill, and could collect over time, as much as $10 million of insurance coverage
for non-GST asbestos claims to reimburse it for Trust payments to non-GST Trust claimants. After EnPro Holdings collects the
first approximately $3 million of that coverage, remaining collections for non-GST asbestos claims from the Pre-Garlock
Coverage Block will be shared equally with the Trust.
GST has received $8.8 million of insurance recoveries from insolvent carriers since 2007 and may receive additional
payments from insolvent carriers in the future. No anticipated insolvent carrier collections are included in the $4.2 million of
anticipated collections. The insurance available to cover current and future asbestos claims is from comprehensive general
liability and excess liability policies that cover EnPro Holdings and certain of its other subsidiaries in addition to GST for
periods prior to 1985 and therefore could be subject to potential competing claims of other covered subsidiaries and their
assignees.
111
SCHEDULE II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2020, 2019 and 2018
(in millions)
Allowance for Doubtful Accounts
2020
2019
2018
Balance,
Beginning
of Year
Charge (credit)
to Expense
Write-off of
Receivables
Other (1)
Balance,
End of Year
$
$
$
3.7 $
3.3 $
4.2 $
1.7 $
0.8 $
(0.6) $
(1.4) $
(0.1) $
(0.4) $
0.1 $
(0.3) $
0.1 $
4.1
3.7
3.3
(1)
Consists primarily of the effect of changes in currency rates.
Deferred Income Tax Valuation Allowance
2020
2019
2018
Balance,
Beginning
of Year
Charge (credit)
to Expense
$
$
$
7.9 $
23.9 $
25.7 $
0.8 $
(15.3) $
(1.4) $
Divestitures
Other (2)
Balance,
End of Year
(2.3) $
— $
— $
0.2 $
(0.7) $
(0.4) $
6.6
7.9
23.9
(2)
Consists primarily of the effects of changes in currency rates and statutory changes in tax rates.
112
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INTENTIONALLY LEFT BLANK
Board of Directors
David L. Hauser
Diane C. Creel
Non-Executive Chairman of the Board,
Former Chairman and Chief Executive Officer,
FairPoint Communications, Inc.
Retired Chairman,
Chief Executive Officer and President,
Ecovation, Inc.
Marvin A. Riley
Adele M. Gulfo
President and Chief Executive Officer
EnPro Industries, Inc.
Chief Business and
Commercial Development Officer
Sumitovant Biopharma
Thomas M. Botts
Retired Executive Vice President,
Global Manufacturing,
Shell Downstream Inc.
Felix M. Brueck
Director Emeritus,
McKinsey & Company, Inc.
B. Bernard Burns, Jr.
Former Managing Director,
McGuireWoods Capital Group
John Humphrey
Former Executive Vice President and
Chief Financial Officer,
Roper Technologies, Inc.
Kees van der Graaf
Former Member of the Board and
Executive Committee,
Unilever NV and Unilever PLC
FORWARD LOOKING STATEMENTS
This report contains certain statements that are “forward-looking statements” as that term is defined under the Private
Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the Securities and Exchange Commission
(the “SEC”). The words “may,” “hope,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,”
“predict,” “potential,” “continue,” and other expressions which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking statements. We believe that it is important to
communicate our future expectations to our shareholders, and we therefore make forward-looking statements in reliance
upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately
predict or control, and our actual results may differ materially from the expectations we describe in our forward-looking
statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may
cause our actual results, performance or achievements to differ materially from anticipated future results, performance
or achievements expressed or implied by such forward-looking statements. We advise you to read further about certain of
these and other risk factors set forth in Item 1A of the included Annual Report on Form 10-K. We undertake no obligation to
publicly update or revise any forward-looking statement, either as a result of new information, future events or otherwise.
Whenever you read or hear any subsequent written or oral forward-looking statements attributed to us or any person
acting on our behalf, you should keep in mind the cautionary statements contained or referred to in this section.
Annual Report to Shareholders