ENPRO INDUSTRIES, INC. (NYSE:NPO) Files An 8-K Financial Statements and ExhibitsItem 9.01
As of June30, 2017 and December31, 2016, GSTs subsidiaries in Mexico, Canada and Australia had aggregate short term lending totaling $33.2million and $26.2million, respectively, to Coltec Finance Company Ltd., a wholly-owned subsidiary of EnPro Holdings. The unsecured loans are denominated in the currency of the lending party, and bear interest based on the applicable one-month interbank offered rate for each foreign currency involved.
Effective as of January1, 2010, GST entered into a $73.4million Amended and Restated Promissory Note (the Coltec Note due January1, 2017 with Coltec Industries, Inc. (Coltec) in favor of GST. Also on January1, 2010 GST entered into a $153.8million Amended and Restated Promissory Note with EnPros subsidiary Stemco LP due January1, 2018 in favor of GST (the Stemco Note, and together with the Coltec Note, the Intercompany Notes). The Intercompany Notes amended and replaced promissory notes in the same principal amounts that were initially issued in March 2005 and expired on January1, 2010.
In connection with the Coltec Restructuring (described in Note 13, Commitments and Contingencies Asbestos) the obligations of OldCo, LLC (OldCo) as the successor in merger to Coltec, under these notes were assumed by EnPro Holdings, Inc. (EnPro Holdings) and OldCo was released from those obligations. In addition, the Coltec Note and the Stemco Note were amended to extend their maturity date to January1, 2018.
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The Intercompany Notes bear interest at 11% per annum, of which 6.5% is receivable in cash and 4.5% is added to the principal amount of the Intercompany Notes as payment-in-kind (PIK) interest, with interest due on January31 of each year. In conjunction with the interest payments in 2017 and 2016, $19.3million and $18.4million, respectively, was received in cash and PIK interest of $13.4million and $12.7million, respectively, was added to the principal balance of the Intercompany Notes. If GST is unable to pay ordinary course operating expenses, under certain conditions, GST can require EnPro Holdings and Stemco to pay in cash the accrued PIK interest necessary to meet such ordinary course operating expenses, subject to certain caps. The interest due under the Intercompany Notes may be satisfied through offsets of amounts due under intercompany services agreements to which EnPro provides certain corporate services and insurance coverages to GST, makes advances to third party providers related to payroll and certain benefit plans sponsored by GST, and permits employees of GST to participate in certain of EnPros benefit plans.
The Coltec Note is secured by EnPro Holdings pledge of certain of its equity ownership in specified U.S. subsidiaries. The Stemco Note is guaranteed by EnPro Holdings and secured by EnPro Holdings pledge of its interest in Stemco.
Other Related Party Transactions
The Company regularly transacts business with EnPro subsidiaries. EnPro provides services for GST including information technology, supply chain, treasury, accounting and tax administration, legal and human resources under a support services agreement. GST LLC and Garrison are included in the consolidated U.S. federal income tax return and certain state combined income tax returns of EnPro. As the parent of these consolidated tax groups, EnPro is liable for, and pays, income taxes owed by the entire group. EnPro has agreed with the Company to allocate taxes to GST based on the U.S. consolidated tax return regulations and current income tax accounting guidance. This method generally allocates taxes to the Company as if it were a separate taxpayer.
As discussed further in Note 12, Commitments and Contingencies Asbestos Plans of Reorganization, on January30, 2017, OldCo filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. EnPro provides similar services to OldCo to those mentioned above for GST but on a much less extensive basis due to OldCos limited operations.
Amounts included in the combined financial statements arising from transactions with EnPro include the following:
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8. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
The carrying values of the Companys significant financial instruments reflected in the Combined Balance Sheets approximate their respective fair values at June30, 2017 and December31, 2016 due to the relatively short maturity of the instruments or the short time period that has elapsed from the purchase date. These assets are classified as Level1 of the fair value hierarchy because they are valued using quoted market prices.
The carrying value and fair value of the notes receivable are as follows:
The notes receivable -related party computation would be considered Level2 since it based on rates available to the Company for debt with similar terms and maturities.
9. Pensions and Postretirement Benefits
The components of net periodic benefit cost for the Companys U.S. and foreign defined benefit pension and other postretirement plans for the six months ended June30, 2017 and 2016 are as follows:
For the six months ended June30, 2017, the Company contributed $0.6million to its U.S. defined benefit pension plan. Based upon available information, the Company expects to contribute an additional $0.7million to its defined benefit pension plan in the remainder of 2017.
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10. Shareholders Equity
GST stock consists at June30, 2017 and December31, 2016 of the following:
Coltec owns all of Garrisons common stock and preferred stock. Common stock and ClassA preferred stock are identical in nature and rights except that, in the event of liquidation, each share of ClassA preferred stock receives the first $10 per share in liquidation proceeds, each share of common stock receives the next $10 per share in liquidation proceeds and any remaining proceeds will be distributed equally per share. As a limited liability company, GST LLC has issued 100 Interest Units, all of which are owned by Coltec.
11. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following:
The pension and other postretirement plans are net of deferred taxes of $7.1million and $7.5million as of June30, 2017 and December31, 2016, respectively.
12. Commitments and Contingencies
General
Various claims, lawsuits and administrative proceedings, all arising in the ordinary course of business with respect to commercial, product liability, asbestos and environmental matters, are pending or threatened against the Company or its subsidiaries and seek monetary damages and/or other remedies. The Company believes that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on the Companys consolidated financial condition, results of operations or cash flows. From time to time, the Company and its subsidiaries are also involved as plaintiffs in legal proceedings involving contract, patent protection, environmental, insurance and other matters.
Environmental
The Companys facilities and operations are subject to federal, state and local environmental and occupational health and safety requirements of the U.S. and foreign countries. The Companys 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. 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 remediation of contaminated sites.As assessments and remediation progress at individual
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sites, these liabilities are reviewed periodically and adjusted to reflect additional technical data and legal information. As of June30, 2017 and December31, 2016, GST had accrued liabilities of $0.1million and $0.1million, respectively, for estimated future expenditures relating to environmental contingencies. The amounts recorded in the combined financial statements have been recorded on an undiscounted basis.
Other Contingent Liability Matters
The Company provides warranties on many of its products. The specific terms and conditions of these warranties vary depending on the product and the market in which the product is sold. The Company records a liability based upon estimates of the costs that may be incurred under its warranties after a review of historical warranty experience and information about specific warranty claims. Adjustments are made to the liability as claims data and historical experience warrant.
Changes in the carrying amount of the product warranty liability for the six months ended June30, 2017 and 2016 are as follows:
Asbestos
Background on Asbestos-Related Litigation and Recent Developments. The historical business operations of GST LLC and Anchor 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 products produced or sold by GST LLC or Anchor, together with products produced and sold by numerous other companies. GST LLC and Anchor manufactured and/or sold industrial sealing products that contained encapsulated asbestos fibers.
Since the first asbestos-related lawsuits were filed against GST LLC in 1975, GST LLC and Anchor have processed more than 900,000 asbestos claims to conclusion, and, together with their insurers, have paid over $1.4billion in settlements and judgments and over $400million in fees and expenses. GST LLC and Anchors exposure to asbestos litigation and their relationships with insurance carriers are managed through Garrison.
On the Petition Date, GST LLC, Garrison and Anchor filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court. The filings were the initial step in a claims resolution process, which is ongoing. See Plans of Reorganization, below, for a description of the comprehensive consensual settlement announced on March17, 2016 to resolve current and future asbestos claims and the joint plan of reorganization filed in the Chapter 11 Case to implement such settlement, which joint plan of reorganization supersedes all other plans of reorganization previously filed in the Chapter 11 Case and was confirmed by the United States District Court for the Western District of North Carolina (the District Court) on June12, 2017 and consummated on July31, 2017. As contemplated by the Joint Plan, on the OldCo Petition Date, OldCo, as the successor by merger to Coltec, filed a Chapter 11 bankruptcy petition with the Bankruptcy Court.
As a result of the initiation of the GST Chapter 11 proceedings and the OldCo Chapter 11 Case, the resolution of asbestos claims is subject to the jurisdiction of the Bankruptcy Court. The filing of the GST Chapter 11 Case automatically stayed the prosecution of pending asbestos bodily injury and wrongful death lawsuits, and initiation of new such lawsuits, against GST and Anchor. As a result,
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except as a result of the resolution of appeals from verdicts rendered prior to the Petition Date and the elimination of claims as a result of information obtained in the Chapter 11 proceedings, the numbers of asbestos claims pending against them have not changed since the Petition Date. Under the Joint Plan, the responsibility for all present and future asbestos claims arising from the operations or products of GST LLC, Garrison or Coltec/OldCo has been assumed by a trust established to the Joint Plan and the court order confirming the Joint Plan enjoins, under Section524(g) of the U.S. Bankruptcy Code, any future action against GST LLC or OldCo with respect to such claims.
Plans of Reorganization. In November 2011, GST filed an initial proposed plan of reorganization with the Bankruptcy Court. GSTs initial plan called for a trust to be formed, to which GST would contribute $200million and which would be the exclusive remedy for future asbestos personal injury claimantsthose whose claims arise after confirmation of the plan. The initial proposed plan provided that each present asbestos personal injury claim (any pending claim or one that arises between the GST Petition Date and plan confirmation) would be assumed by reorganized GST and resolved either by settlement, to a matrix contained in the proposed plan or as otherwise agreed, or by payment in full of any final judgment entered after trial in federal court.
On April13, 2012, the Bankruptcy Court granted a motion by GST for the Bankruptcy Court to estimate the allowed amount of present and future asbestos claims against GST for mesothelioma, a rare cancer attributed to asbestos exposure, for purposes of determining the feasibility of a proposed plan of reorganization. The estimation trial began on July22, 2013 and concluded on August22, 2013.
On January10, 2014, Bankruptcy Judge George Hodges announced his estimation decision in a 65-page order. Citing with approval the methodology put forth by GST at trial, the judge determined that $125million is the amount sufficient to satisfy GSTs liability for present and future mesothelioma claims. Judge Hodges adopted GSTs legal liability approach to estimation, focused on the merits of claims, and rejected asbestos claimant representatives approach, which focused solely on GSTs historical settlement history. The judges liability determination is for mesothelioma claims only. The court did not determine amounts for GSTs liability for other asbestos claims and for administrative costs that would be required to review and process claims and payments.
In his opinion, Judge Hodges wrote, The best evidence of Garlocks aggregate responsibility is the projection of its legal liability that takes into consideration causation, limited exposure and the contribution of exposures to other products.
The decision validated the positions that GST asserted in the Chapter 11 Case. Following are several important findings in the opinion:
| Consent of Grant Thornton LLP |
| * | Does not include the schedules and certain exhibit documents identified and referenced therein. The Company agrees to furnish supplementally a copy of any such omitted schedule or exhibit to the Securities and Exchange Commission upon request. |
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ENPRO INDUSTRIES, INC ExhibitEX-23.1 2 d461052dex231.htm EX-23.1 EX-23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in Registration Statements on Form S – 8 (Nos. 333-89576,…To view the full exhibit click here
About ENPRO INDUSTRIES, INC. (NYSE:NPO)
EnPro Industries, Inc. (EnPro) is engaged in the designing, developing, manufacturing, and marketing engineered industrial products. The Company operates through three segments: Sealing Products, Engineered Products and Power Systems. Its Sealing Products segment designs, manufactures and sells sealing products, including metallic, non-metallic and composite material gaskets, resilient metal seals, elastomeric seals, hydraulic components, expansion joints and casing end seals. Its Engineered Products segment includes its bearings, aluminum blocks for hydraulic applications and reciprocating compressor components. Its Engineered Products segment includes operations that design, manufacture and sell self-lubricating, non-rolling, metal-polymer, and solid polymer and filament wound bearing products. Its Power Systems segment designs, manufactures, sells and services heavy-duty, medium-speed diesel, natural gas and dual fuel reciprocating engines.
