Garlock Sealing Technologies LLC And Garrison Litigation Management Group, Ltd.

9 Months Ended

Sep. 30, 2011

Garlock Sealing Technologies LLC and Garrison Litigation Management Group, Ltd. [Abstract]

Garlock Sealing Technologies LLC And Garrison Litigation Management Group, Ltd.

14. Garlock Sealing Technologies LLC and Garrison Litigation Management Group, Ltd.

On June 5, 2010 (the "Petition Date"), GST LLC, Anchor and Garrison 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 in Charlotte (the "Bankruptcy Court"). The filings were the initial step in a claims resolution process. The goal of the process is an efficient and permanent resolution of all current and future asbestos claims through court approval of a plan of reorganization, which is expected to establish a trust to which all asbestos claims will be channeled for resolution. GST intends to seek an agreement with asbestos claimants and other creditors on the terms of a plan for the establishment of such a trust and repayment of other creditors in full, or in the absence of such an agreement an order of the Bankruptcy Court confirming such a plan.

GST's financial results were included in the Company's consolidated results through June 4, 2010, the day prior to the Petition Date. However, GAAP requires an entity that files for protection under the U.S. Bankruptcy Code, whether solvent or insolvent, whose financial statements were previously consolidated with those of its parent, as GST and its subsidiaries were with EnPro, generally must be prospectively deconsolidated from the parent and the investment accounted for using the cost method. At deconsolidation, the Company's investment was recorded at its estimated fair value on June 4, 2010, resulting in a gain for reporting purposes. The cost method requires the Company to present its ownership interests in the net assets of GST at the Petition Date as an investment and to not recognize any income or loss from GST and subsidiaries in the Company's results of operations during the reorganization period. When GST emerges from the jurisdiction of the Bankruptcy Court, the subsequent accounting will be determined based upon the applicable facts and circumstances at such time, including the terms of any plan of reorganization.

Financial Results

Condensed combined financial information for GST is set forth below, presented on a historical cost basis.

GST

(Debtor-in-Possession)

Condensed Combined Statements of Operations (Unaudited)

(in millions, at historical cost)

	Quarters Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
Net sales	$	57.0	$	49.9		$	175.9	$	149.2
Cost of sales		35.4		29.8			107.3		91.6
Gross profit		21.6		20.1			68.6		57.6
Operating expenses:
Selling, general and administrative expenses		11.3		11.4			34.1		32.7
Asbestos-related expenses		0.6		(0.3	)		2.0		21.2
Other operating expense		1.0		—			1.0		0.1
		12.9		11.1			37.1		54.0

	Quarters Ended September  30,						Nine Months  Ended September 30,
	2011			2010			2011			2010
Operating income		8.7			9.0			31.5			3.6
Interest income, net		6.7			6.4			20.1			19.0
Income before reorganization expenses and income taxes		15.4			15.4			51.6			22.6
Reorganization expenses		(3.3	)		(1.4	)		(10.9	)		(3.5	)
Income before income taxes		12.1			14.0			40.7			19.1
Income tax expense		(5.3	)		(4.7	)		(15.7	)		(6.5	)
Net income	$	6.8		$	9.3		$	25.0		$	12.6

GST

(Debtor-in-Possession)

Condensed Combined Statements of Cash Flows (Unaudited)

Nine Months Ended September 30

(in millions, at historical cost)

	Nine Months  Ended September 30,
	2011			2010
Net cash flows from operating activities	$	31.3		$	44.7
Investing activities
Purchases of property, plant and equipment		(2.4	)		(2.1	)
Net receipts from loans to affiliates		12.5			22.9
Acquisitions, net of cash acquired		(7.5	)		—
Net cash provided by investing activities		2.6			20.8
Effect of exchange rate changes on cash and cash equivalents		(0.9	)		0.2
Net increase in cash and cash equivalents		33.0			65.7
Cash and cash equivalents at beginning of period		87.1			1.5
Cash and cash equivalents at end of period	$	120.1		$	67.2

GST

(Debtor-in-Possession)

Condensed Combined Balance Sheets (Unaudited)

(in millions, at historical cost)

	September 30, 2011		December 31, 2010
Assets:
Current assets	$	222.8	$	182.5
Property, plant and equipment		39.4		41.2
Asbestos insurance receivable		144.3		158.0
Deferred income taxes		125.2		126.7
Notes receivable from affiliate		227.2		227.2
Other assets		29.6		24.4
Total assets	$	788.5	$	760.0
Liabilities and Shareholder's Equity:
Current liabilities	$	59.2	$	48.4
Other liabilities		18.6		26.7
Liabilities subject to compromise (A)		469.1		469.2
Total liabilities		546.9		544.3
Shareholder's equity		241.6		215.7
Total liabilities and shareholder's equity	$	788.5	$	760.0

(A) Liabilities subject to compromise include pre-petition unsecured claims which may be settled at amounts which differ from those recorded in the condensed combined balance sheets. Liabilities subject to compromise consist principally of asbestos-related claims.

Debtor-in-Possession Financing

On June 8, 2010, GST LLC and Garrison entered into a Post-Petition Loan and Security Agreement (the "DIP Loan Agreement") with a bank to establish a secured revolving credit facility pursuant to which GST could from time to time obtain loans, letters of credit and bank products in an aggregate amount up to $10 million outstanding at any time with a sublimit of $8 million for letters of credit. No borrowings were made against this credit facility. The DIP Loan Agreement was terminated by GST LLC and Garrison in October 2011.