• 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 in the Sealing Products segment. Sinflex was Garlock's principal distributor in China for over a decade. The acquisition established an operational 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 expanded the products we offer to commercial vehicle customers. V.W. Kaiser Engineering is located in Michigan. It is managed as part of the Stemco division, 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 improved Quincy's access to customers and opportunities for growth in important regional markets. The business is managed as part of the Quincy Compressor division, 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 expanded CPI's product lines and provided access to new markets. The businesses are managed as part of the CPI division 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 increased 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 continued 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.
In August and September 2009, we purchased USA Parts & Service, LLC, a privately-owned parts supplier for natural gas compressors located in Gillette, Wyoming, and Player & Cornish P.E.T. Limited, a privately-owned manufacturer of aftermarket components for compressors based in the United Kingdom. These businesses are managed as part of the CPI division in the Engineered Products segment.
During the first quarter of 2009, 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 had experienced reduced volumes as a result of deterioration in the global economic environment. We performed a preliminary analysis and determined that it was necessary to conduct an impairment test.
During the second quarter of 2009, we conducted a thorough analysis to compare the fair value of GGB and Plastomer Technologies to the respective carrying values assigned to their net assets. The excess of the fair value of each reporting unit over the carrying value assigned to its assets and liabilities is the implied fair value of its goodwill. To estimate the fair value, we used 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; the market approach relies on market multiples of similar companies. The key assumptions used for the discounted cash flow approach include business projections, growth rates, and discount rates. The discount rate we used was based on EnPro's weighted average cost of capital. For the market approach, we chose a group of 26 companies that we believe are representative of our diversified industrial and automotive peers. Based on the results of the test, we determined that the fair values of GGB and Plastomer were less than the carrying values of their net assets, resulting in an implied fair value of goodwill of zero for both GGB and Plastomer. As a result, we recognized a non-cash impairment charge of $113.1 million, which represented all of the remaining goodwill in these reporting units, in the second quarter of 2009.
During the analysis, we also tested the fair value of all our other reporting units and determined that there was no goodwill impairment for any of the other reporting units. Based on the results of the tests, we determined that the fair value of each of those units exceeded their carrying values by at least 70%.
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 many of 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 continue to be volatile throughout 2009. For years beyond 2009, we anticipate that our effective tax rate should generally be lower than historical rates.
Due to declines in the equity and fixed income investment markets last year, we, like many companies, 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.
We intend to conduct an in-depth review of our asbestos liability in the fourth quarter. The review will address uncertainties about recent trends in the filings of serious disease claims against Garlock, recent settlement results and numbers of settled cases as they compare to our previous expectations, and data that suggest that recent incidence of serious asbestos-related disease, particularly mesothelioma claims, may be exceeding projections. Our review could result in a non-cash charge to earnings in the fourth quarter that might be larger than the non-cash charge that we typically record when we roll the liability forward from one quarter to the next, just as it did in the fourth quarter of 2007. Until our review is complete, however, we won't know if a more significant charge will be necessary or how much it might be.

Results of Operations

                                            Quarters Ended          Nine Months Ended
                                             September 30,            September 30,
                                           2009        2008          2009         2008
                                                          (in millions)
      Sales
      Sealing Products                    $  99.9     $ 127.1     $    295.1     $ 387.6
      Engineered Products                    88.1       131.0          264.4       408.9
      Engine Products and Services           32.0        21.1          113.1        83.4

                                            220.0       279.2          672.6       879.9
      Intersegment sales                     (0.3 )      (0.6 )         (1.2 )      (1.4 )

      Total sales                         $ 219.7     $ 278.6     $    671.4     $ 878.5


      Segment Profit
      Sealing Products                    $  15.1     $  20.2     $     42.1     $  71.2
      Engineered Products                    (0.3 )      16.3           (8.5 )      58.4
      Engine Products and Services            5.7         2.8           20.9        10.5

      Total segment profit                   20.5        39.3           54.5       140.1

      Corporate expenses                     (5.2 )      (5.6 )        (20.1 )     (23.8 )
      Asbestos-related expenses             (13.7 )     (13.0 )        (41.6 )     (37.3 )
      Goodwill impairment                       -           -         (113.1 )         -
      Interest expense, net                  (2.7 )      (2.8 )         (8.7 )      (7.2 )
      Other income (expense), net             0.1        (0.9 )         18.3        (3.9 )


      Income (loss) before income taxes   $  (1.0 )   $  17.0     $   (110.7 )   $  67.9

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.
Third Quarter of 2009 Compared to the Third Quarter of 2008 Sales of $219.7 million in the third quarter of 2009 decreased 21% from $278.6 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 Engine experienced higher sales of aftermarket parts and services in the third 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 two percentage points of the decline in sales.
Segment profit, management's primary measure of how our operations perform, decreased 48% from $39.3 million in the third quarter of 2008 to $20.5 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 14.1% in 2008 to 9.3% in 2009. The weaker results at most businesses, particularly GGB, were the primary cause for the decrease in segment margins, offsetting margin improvement at Fairbanks Morse Engine.
We recorded an income tax benefit of $2.8 million on a loss before income taxes of $(1.0) million in the third quarter of 2009. During the third quarter of 2008, we recorded income tax expense of $4.6 million on income before income taxes of $17.0 million. The income tax expense in the third quarter of 2009 was impacted by the jurisdictional mix of earnings and losses as well as adjustments of prior year accruals based on return-to-accrual adjustments.
Net income was $1.8 million, or $0.09 per share, in the third quarter of 2009 compared to net income of $12.4 million, or $0.59 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 $99.9 million in the third quarter of 2009 were 21% lower than the $127.1 million reported in the same quarter of 2008. Unit volume declines caused 19 percentage points of the reduction and the unfavorable impact of foreign currency exchange rates versus the U.S. dollar accounted for two percentage points of the reduction. Sales at Garlock Sealing Technologies decreased as a result of reduced demand in all geographic markets; weakness in the steel, oil and gas sectors; and weaker 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 sales for the U.S. heavy-duty truck market were significantly 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. Stemco's aftermarket sales were also lower compared to 2008 but to a much lesser extent than OEM sales. Garlock Rubber Technologies and Plastomer Technologies experienced sales decreases during the third quarter of 2009 compared to the same quarter last year due to reduced volumes across all product lines.

Segment profit of $15.1 million in the third quarter of 2009 decreased 25% compared to the $20.2 million reported in the third 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, other cost reductions and selected price increases. 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 a favorable mix of aftermarket versus OEM. Plastomer reported a higher segment loss compared to the third quarter of 2008 due to lower sales in most of its markets and higher material costs. Garlock Rubber Technologies reported a slight decline in segment profit. Operating margins for the segment decreased marginally to 15.1% in 2009 from 15.9% in 2008 as the impact of volume was largely negated by improved pricing on certain products and the benefits from our cost reduction initiatives.
Engineered Products. Sales of $88.1 million in the third quarter of 2009 were 33% lower than the $131.0 million reported in 2008. The year-over-year decrease in the value of foreign currencies produced three percentage points of the sales decrease. Sales for GGB in the third 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 third quarter of 2009 were lower due to lower volume in its natural gas and other markets.
The segment loss in the third quarter of 2009 was $0.3 million, compared to the $16.3 million segment profit reported in the third quarter of 2008. GGB's results reflected a loss in 2009 due to low volumes and the resulting impact of lower absorption of manufacturing costs due to reduced production levels. Quincy Compressor and Compressor Products International reported decreases in profits as a result of lower volume and lower absorption of manufacturing costs. The negative operating margins of 0.3% in the quarter for the segment compare to positive 12.4% margins in the third quarter of 2008.
Engine Products and Services. Sales increased 52% from $21.1 million in the third quarter of 2008 to $32.0 million in the third quarter of 2009. The increase was attributable to higher aftermarket parts and service sales.
The segment reported a profit of $5.7 million in the third quarter of 2009 compared to $2.8 million in the third quarter of 2008. The year-over-year improvement was driven by the increase in higher margin aftermarket sales and productivity improvements. Operating margins for the segment increased to 17.8% in 2009 from 13.3% in 2008.
Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
The nine month results for the period ended September 30, 2009 compared to the nine months ended September 30, 2008 were influenced by the same factors as previously described in the comparison of the third quarter of 2009 to 2008. Sales decreased 24% from $878.5 million in 2008 to $671.4 million in the first nine months of 2009.
Segment profit decreased 61% from $140.1 million in 2008 to $54.5 million, and segment margins in 2008 were 15.9% compared to 8.1% in the first nine months of 2009.
The decrease in corporate expenses from $23.8 million in the first nine months of 2008 to $20.1 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 as a result of more trial activity and a larger number of claims settlements, plus expenses associated with various improvement initiatives.
Net interest expense during the first nine months of 2009 was $8.7 million compared to $7.2 million in 2008. The increase in net interest expense was caused primarily by decreases in the yields on cash and cash equivalent investments.
We recorded goodwill impairment charges of $113.1 million in the first nine months of 2009. There were no goodwill impairment charges in the first nine months of 2008.
In the first nine months 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 our expected liability is significantly less than the amount previously accrued. As a result, we reduced the potential liability by $19.2 million.
Net loss was $100.7 million, or $5.05 per share, for the first nine months of 2009 compared to net income of $45.3 million, or $2.12 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 . . .