We cannot guarantee that actual results or events will not differ materially from those projected, estimated, assigned or anticipated in any of the forward-looking statements contained in this report. In addition to those factors specifically noted in the forward-looking statements and those identified in the Company's annual report on Form 10-K for the year ended December 31, 2008, other important factors that could result in those differences include:
• the resolution of current and potential future asbestos claims against certain of our subsidiaries, which depends on such factors as the financial viability of insurance carriers, the amount and timing of payments of claims and related expenses, the amount and timing of insurance collections, limitations on the amount that may be recovered from insurance carriers, the bankruptcies of other defendants and the results of litigation;

• the estimated liability for current and potential future asbestos claims that may be received, which is highly uncertain, is based on subjective assumptions and is a point within a range of estimated values;

• general economic conditions in the markets served by our businesses, some of which are cyclical and experience periodic downturns;

• prices and availability of raw materials; and

• the amount of any payments required to satisfy contingent liabilities related to discontinued operations of our predecessors, including liabilities for certain products, environmental matters, guaranteed debt payments, employee benefit obligations and other matters.

We caution our shareholders not to place undue reliance on these statements, which speak only as of the date on which such statements were made.
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. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Overview and Outlook
Overview. EnPro was incorporated under the laws of the State of North Carolina on January 11, 2002. We design, develop, manufacture and market proprietary engineered industrial products. We have 43 primary manufacturing facilities located in the United States and 10 countries outside the United States.
We manage our business as three segments: a Sealing Products segment, an Engineered Products segment, and an Engine Products and Services segment.
Our Sealing Products segment designs, manufactures and sells sealing products, including metallic, non-metallic and composite material gaskets, rotary seals, compression packing, resilient metal seals, elastomeric seals, hydraulic components and expansion joints, as well as wheel-end component systems, PTFE products, conveyor belting and sheeted rubber products. These products are used in a variety of industries, including chemical and petrochemical processing, petroleum extraction and refining, pulp and paper processing, heavy-duty trucking, power generation, food and pharmaceutical processing, primary metal manufacturing, mining, water and waste treatment, aerospace, medical, filtration and semiconductor fabrication.

Our Engineered Products segment includes operations that design, manufacture and sell self-lubricating, non-rolling, metal-polymer, solid polymer and filament wound bearing products, aluminum blocks for hydraulic applications, rotary and reciprocating air compressors, vacuum pumps, air systems and compressor components. These products are used in a wide range of applications, including the automotive, pharmaceutical, pulp and paper, natural gas, health, pump and compressor construction, power generation, machine tools, air treatment, refining, petrochemical and general industrial markets.
Our Engine Products and Services segment designs, manufactures, sells and services heavy-duty, medium-speed diesel, natural gas and dual fuel reciprocating engines. The United States government and the general markets for marine propulsion, power generation, and pump and compressor applications use these products and services.
In January 2008, we acquired certain assets and assumed certain liabilities of Sinflex Sealing Technologies, a distributor and manufacturer of industrial sealing products, located in Shanghai, China. The operation conducts business as Garlock Sealing Technologies (Shanghai) Co. Ltd. and is operated and managed as part of the global Garlock Sealing Technologies business unit in the Sealing Products segment. Sinflex was Garlock's principal distributor in China for over a decade. The acquisition establishes an operation presence for Garlock in China and is key to our ability to address China's fast-growing sealing products market.
In February 2008, we acquired the stock of V.W. Kaiser Engineering, a manufacturer of pins, bushings and suspension kits primarily for the heavy-duty truck and bus aftermarket. The acquisition expands the products we offer to commercial vehicle customers. V.W. Kaiser Engineering is located in Michigan. It is operated and managed as part of the Stemco business unit, also in the Sealing Products segment.
In May 2008, we acquired certain assets and assumed certain liabilities of Air Perfection in California. Air Perfection is engaged in the audit, sale, distribution, rental and service of compressed air systems and the various components that comprise such systems. The acquisition improves Quincy's access to customers and opportunities for growth in important regional markets. The business is operated and managed as part of the Quincy Compressor business unit, which is in the Engineered Products segment.
In June 2008, we purchased the 20% ownership of the minority shareholder of Garlock Pty Limited in Australia. Subsequent to the share purchase, we own 100% of Garlock Pty Limited, which is in the Sealing Products segment.
In October and November 2008, we acquired certain assets of and assumed certain liabilities of three businesses which provide components and aftermarket services for reciprocating compressors to customers in the petroleum, natural gas, PET bottle molding and chemical processing industries. The acquired businesses are Horizon Compressor Services, Inc., located in Houston, Texas; RAM Air, Inc., located in New Smyrna Beach, Florida; and C&P Services (Northern) Limited, located in Warrington, UK. These acquisitions expand CPI's product lines and provide access to new markets. The businesses are operated and managed as part of the CPI business unit in the Engineered Products segment.
In December 2008, we acquired certain assets and assumed certain liabilities of Northern Gaskets and Mouldings Limited (NGM), a distributor of sealing products and a manufacturer of gaskets, located in Batley, UK. NGM operates as part of Garlock (Great Britain) Limited in the Sealing Products segment. NGM increases Garlock's presence in the petrochemical, pharmaceutical and oil and gas industries in the UK.

In February 2009, we purchased PTM (UK) Limited, a privately-owned manufacturer and distributor of sealing products with two locations in the United Kingdom. The acquisition of PTM continues the expansion of Garlock's presence in the U.K., increasing the scale of the U.K. sealing products business and the ability to address new market segments. PTM is included in our Sealing Products segment.
On March 3, 2008, pursuant to a $100 million share repurchase authorization approved by our board of directors, we entered into an accelerated share repurchase ("ASR") agreement with a financial institution to provide for the immediate retirement of $50 million of our common stock. Under the ASR agreement, we purchased approximately 1.7 million shares of our common stock from a financial institution at an initial price of $29.53 per share. Total consideration paid at initial settlement to repurchase these shares, including commissions and other fees, was approximately $50.2 million and was recorded in shareholders' equity as a reduction of common stock and additional paid-in capital. The price adjustment period under the ASR terminated on August 29, 2008. In connection with the finalization of the ASR, we remitted in cash a final settlement adjustment of $11.9 million to the financial institution that executed the ASR. The final settlement adjustment, recorded as a reduction of additional paid-in capital, was based on the average of the reported daily volume-weighted average price of our common stock during the term of the ASR. It resulted in a remittance to the financial institution because the volume-weighted average price of our common stock during the term of the ASR exceeded the initial price of $29.53 per share. After the final settlement adjustment, we had completed about $62 million of the share repurchase authorization.
Pursuant to the share repurchase authorization and in accordance with the terms of a plan to repurchase shares announced on September 8, 2008, we acquired 252,400 shares of our common stock in open-market transactions at an average price of about $28.00 per share, resulting in total repurchases of approximately $7.1 million, including commissions and fees, from October 1, 2008 to October 29, 2008. On October 29, 2008, in light of the volatility in the financial and credit markets, the board of directors terminated the share repurchase plan.
Outlook. We believe we are making progress in connection with our business priorities to pursue operational, commercial, pricing and sourcing excellence; to grow through new products, new markets and acquisitions; and to effectively manage cash. We believe the acquisitions we have completed contribute to the geographic expansion of our key businesses and that they improve our product offerings. However, the weaknesses in our markets that we began to encounter in 2008 have continued into 2009, although conditions in these markets appear to be stabilizing. Sharp declines in volume in most of our industrial markets have significantly reduced our profitability compared to 2008. As our markets have deteriorated, we have acted quickly to reduce employment levels, freeze salaries and shorten work weeks, and we have taken other significant steps to lower production costs and reduce spending. While we expect to benefit from these actions, we continue to expect lower sales and operating income in 2009 compared to 2008 as we expect the weaknesses in our markets to continue throughout the year.
As a result of recent structural and organizational changes we have made in our European operations, our mix of domestic and foreign earnings, the impairment of goodwill, and the application of the required interim period accounting rules, we expect that our effective tax rate may be volatile throughout 2009. For years beyond 2009, we anticipate that our effective tax rate should generally be lower than historical rates.
Due to recent declines in the equity and fixed income investment markets, we, like many companies, have experienced a significant decrease in the value of the assets that fund our U.S. defined benefit pension plans. The Company will not be required to make any cash contributions to its U.S. defined benefit plans in 2009 as a result of credit balances available from previous discretionary

contributions. We estimate that the annual U.S. pension expense will increase to approximately $15.2 million in 2009 compared to $4.8 million in 2008.
In connection with our business strategy, we will continue to evaluate acquisitions and divestitures in 2009; however, the impact of such acquisitions and divestitures cannot be predicted and therefore is not reflected in this outlook.
During the first quarter of 2009 in accordance with SFAS No. 142, we concluded that events had occurred and circumstances had changed which required us to perform an interim period goodwill impairment test at GGB in the Engineered Products segment and at Plastomer Technologies in the Sealing Products segment. GGB and Plastomer experienced reduced volumes as a result of deterioration in the global economic environment. We performed an impairment test and compared the fair value of the reporting unit to its carrying value. It was determined that the fair values of GGB and Plastomer were less than the carrying values of the net assets; however, the exact amount of any potential impairment charge was not known at that time. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Our analysis, completed for the second quarter of 2009, resulted in an implied fair value of goodwill of zero, and as a result, we recognized a non-cash impairment charge of $113.1 million, all of the remaining goodwill in these reporting units, in the second quarter of 2009.

Results of Operations

                                             Quarters Ended          Six Months Ended
                                                June 30,                 June 30,
                                            2009        2008         2009         2008
                                                           (in millions)
      Sales
      Sealing Products                    $   98.1     $ 136.9     $   195.2     $ 260.5
      Engineered Products                     88.3       144.8         176.3       277.9
      Engine Products and Services            49.4        35.8          81.1        62.3

                                             235.8       317.5         452.6       600.7
      Intersegment sales                      (0.5 )      (0.7 )        (0.9 )      (0.8 )

      Total sales                         $  235.3     $ 316.8     $   451.7     $ 599.9


      Segment Profit
      Sealing Products                    $   14.3     $  30.4     $    27.0     $  51.0
      Engineered Products                     (6.3 )      21.0          (8.2 )      42.1
      Engine Products and Services             9.7         4.3          15.2         7.7

      Total segment profit                    17.7        55.7          34.0       100.8

      Corporate expenses                      (7.6 )     (10.5 )       (14.9 )     (18.2 )
      Asbestos-related expenses              (14.3 )     (12.2 )       (27.9 )     (24.3 )
      Goodwill impairment                   (113.1 )         -        (113.1 )         -
      Interest expense, net                   (3.0 )      (2.4 )        (6.0 )      (4.4 )
      Other income (expense), net             19.1         0.4          18.2        (3.0 )


      Income (loss) before income taxes   $ (101.2 )   $  31.0     $  (109.7 )   $  50.9

Segment profit is total segment revenue reduced by operating expenses and 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, asbestos-related expenses, gains/losses related to the sale of assets, impairments, 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.

Second Quarter of 2009 Compared to the Second Quarter of 2008 Sales of $235.3 million in the second quarter of 2009 decreased 26% from $316.8 million in the comparable quarter of 2008. The decline in sales was the result of weak volumes in every segment except Engine Products and Services. The drop in volumes resulted from slow industrial markets for Garlock Sealing Technologies, Garlock Rubber Technologies, Quincy, CPI, GGB and Plastomer, reduced OEM truck and trailer volumes at Stemco, and lower automotive volumes at GGB. Fairbanks Morse Engines experienced higher engine volumes in the second quarter of 2009 compared to the comparable quarter of 2008. The decrease in the values of foreign currencies relative to the U.S. dollar accounted for five percentage points of the decline in sales.
Segment profit, management's primary measure of how our operations perform, decreased 68% from $55.7 million in the second quarter of 2008 to $17.7 million in 2009. Segment profit decreased primarily due to lower volumes and lower absorption of manufacturing costs due to reduced production levels. These decreases were partially offset by cost improvements resulting from actions taken in response to market weakness and selected price increases. Segment margins, defined as segment profit divided by sales, declined from 17.6% in 2008 to 7.5% in 2009. The weaker results at most businesses were the primary cause for the decrease in segment margins, offsetting margin improvements at Fairbanks Morse Engines.
We recorded goodwill impairment charges of $113.1 million in the second quarter of 2009. These charges were not reflected in segment results. There were no goodwill impairment charges in the second quarter of 2008. Corporate expenses were lower as a result of significantly lower accruals for management incentive programs due to lower than expected payments for the full year. Asbestos-related expenses increased due to higher defense costs in the second quarter of 2009 compared to the same period in 2008.
In the second quarter of 2009, we recorded income in connection with a reassessment of a liability related to retiree medical benefits for former employees of a previously owned business. A recent actuarial analysis determined that the potential liability of the Company's Coltec subsidiary is significantly less than the amounts previously accrued and held in a back-up trust as security. As a result, we reduced the liability accrual by $19.2 million which was recorded in other income (expense), net. See Note 15 to the Consolidated Financial Statements for further information about these retiree medical benefits.
We recorded income tax expense of $4.5 million on a loss before income taxes of $101.2 million in the second quarter of 2009. During the second quarter of 2008, we recorded income tax expense of $10.6 million on income before income taxes of $31.0 million. The income tax expense in the second quarter of 2009 was impacted by the jurisdictional mix of earnings and losses in addition to a goodwill impairment charge which includes amounts not deductible for tax purposes.
Net loss was $105.7 million, or $5.30 per share, in the second quarter of 2009 compared to net income of $20.4 million, or $0.96 per share, in the same quarter of 2008. Earnings (loss) per share are expressed on a diluted basis.
Following is a discussion of operating results for each segment during the quarter:
Sealing Products. Sales of $98.1 million in the second quarter of 2009 were 28% lower than the $136.9 million reported in the same quarter of 2008. Organic decreases caused 24 percentage points of the reduction and the unfavorable impact of foreign currency exchange rates versus the U.S. dollar accounted for four percentage points of the reduction. Sales at Garlock Sealing Technologies decreased as a result of significantly reduced demand in all geographic markets except Europe, where volume impact was less severe; weakness in the steel, oil and gas sectors; and decreases in the value of foreign

currencies. Stemco's sales during the quarter decreased primarily as a result of the lower volumes, partially offset by selected price increases and a favorable mix of aftermarket versus OEM volumes. Its OEM and aftermarket sales for the U.S. heavy-duty truck market were lower compared to 2008 as the number of new trailers built and usage of existing trucks decreased as a result of the U.S. economic slowdown. Garlock Rubber Technologies and Plastomer Technologies experienced sales decreases during the second quarter of 2009 compared to the same quarter last year due to reduced volumes in their key markets.
Segment profit of $14.3 million in the second quarter of 2009 decreased 53% compared to the $30.4 million reported in the second quarter of 2008. A decrease in profit at Garlock Sealing Technologies reflected the impact of lower sales and lower absorption of manufacturing costs due to reduced production levels, partially offset by lower selling, general and administrative expenses. Stemco reported a decline in profit primarily due to the slowdown in the heavy-duty vehicle markets and the resulting lower volume and absorption of manufacturing costs, partially offset by selected price increases. Plastomer reported a slightly higher segment loss. Volume declines negatively impacted Garlock Rubber Technologies' results as they also reported a decline in earnings compared to the comparable quarter of last year. Operating margins for the segment decreased to 14.6% in 2009 from 22.2% in 2008 as a result of the earnings declines at these operations.
Engineered Products. Sales of $88.3 million in the second quarter of 2009 were 39% lower than the $144.8 million reported in 2008. The year-over-year decrease in the value of foreign currencies produced five percentage points of the sales decrease. Sales for GGB in the second quarter of 2009 were significantly lower than the amount reported in the comparable quarter of 2008 primarily due to reduced volume in automotive and industrial markets. Quincy Compressor's sales decreased as a result of reduced volumes in its key markets. Sales for Compressor Products International in the second quarter of 2009 were lower due to lower volume in its natural gas and other markets.
The segment loss in the second quarter of 2009 was $6.3 million, compared to the $21.0 million segment profit reported in the second quarter of 2008. GGB's results reflected a loss in 2009 due to low volumes in its automotive and industrial markets and the resulting impact of lower absorption of manufacturing costs due to reduced production levels, and restructuring costs. Quincy Compressor reported a decrease in its profit as a result of lower volume, lower absorption of manufacturing costs, and an unfavorable mix of aftermarket versus compressor units. Profits at Compressor Products International decreased as a result of lower volume and lower absorption of manufacturing costs. The negative operating margins of 7.1% in the quarter for the segment compare to positive 14.5% margins in the second quarter of 2008.
Engine Products and Services. Sales increased 38% from $35.8 million in the second quarter of 2008 to $49.4 million in the second quarter of 2009. The increase was attributable to higher service and engine sales.
The segment reported a profit of $9.7 million in the second quarter of 2009 compared to $4.3 million in the second quarter of 2008. The year-over-year improvement was driven by higher aftermarket sales, increased profitability on engines shipped during the period, and reduced costs. Operating margins for the segment increased to 19.6% in 2009 from 12.0% in 2008.
Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008 The six month results for the period ended June 30, 2009 compared to the six months ended June 30, 2008 were influenced by the same factors as previously described in the comparison of the second quarter of 2009 to 2008. Sales decreased 25% from $599.9 million in 2008 to $451.7 million in the first six months of 2009.

Segment profit decreased 66% from $100.8 million in 2008 to $34.0 million, and segment margins in 2008 were 16.8% compared to 7.5% in the first half of 2009.
The decrease in corporate expenses from $18.2 million in the first half of 2008 to $14.9 million in the same period of 2009 was primarily the result of significantly lower accruals for management incentive programs due to lower than expected payments for the full year.
Asbestos-related expenses increased due to higher defense costs and an increase in the asbestos liability to maintain a ten-year estimate of the liability in the first six months of 2009.
Net interest expense during the first six months of 2009 was $6.0 million compared to $4.4 million in 2008. The increase in net interest expense was caused primarily by decreases in our cash balance and the yields on cash and cash equivalent investments.
Net loss was $102.5 million, or $5.15 per share, for the first six months of 2009 compared to net income of $32.9 million, or $1.54 per share, in the same period last year. Earnings (loss) per share are expressed on a diluted basis. Liquidity and Capital Resources
Cash requirements for working capital, capital expenditures, acquisitions and debt repayments have been and continue to be funded from cash balances on hand and cash generated from operations. The Company intends to continue to consider acquisition opportunities, some of which may be of a size that would exceed available cash balances. Should we need additional capital in the future, we have other resources available, which are discussed under the heading of "Capital Resources."
Cash Flows
Operating activities generated cash in the amount of $4.3 million in the first half of 2009 compared to $55.2 million in the same period last year. The decrease in operating cash flows was primarily attributable to lower earnings resulting from lower volumes in the first half of 2009 compared to 2008. The decrease in earnings was partially offset by a lower increase in working capital which was largely negated by higher asbestos payments.
Investing activities used $15.1 million and $54.2 million of cash during the first half of 2009 and 2008, respectively. We made net payments for acquisitions of $5.2 million in 2009 compared to $36.9 million in 2008. In addition, capital expenditures in 2009 were $12.4 million less than in 2008 due to lower expenditures at most businesses due to the Company's actions to reduce spending in response to the current economic environment.
In the first half of 2009, we repaid $9.6 million in industrial revenue bonds. This transaction was included in financing activities in the Consolidated Statements of Cash Flows.
Capital Resources
Our primary U.S. operating subsidiaries have a senior secured revolving credit facility with a group of banks, which matures on April 21, 2011. We have not borrowed against this facility. The facility is collateralized by our receivables, inventories, intellectual property, insurance receivables and all other personal property assets (other than fixed assets), and by pledges of 65% . . .