13.

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, which is ongoing. 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 that 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. 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. This investment is subject to periodic reviews for impairment. 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.

In November 2011, GST filed a proposed plan of reorganization with the Bankruptcy Court. The proposed plan calls for a trust to be formed, to which GST and affiliates would contribute $200 million and which would be the exclusive remedy for future asbestos personal injury claimants – those whose claims arise after confirmation of the plan. The proposed plan provides that each present asbestos personal injury claim i.e. any pending claim or one that arises between the Petition Date and plan confirmation, will be assumed by reorganized GST and resolved either by settlement (pursuant 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. Based on a preliminary estimate provided prior to the time that GST filed its proposed plan by Bates White, the estimation expert retained by counsel to GST, GST estimates that the indemnity costs to resolve all present claims pursuant to the settlement matrix in the plan would cost reorganized GST approximately $70 million. Under the proposed plan, all non-asbestos claimants would be paid the full value of their claims.

GST’s proposed plan is opposed by the Official Committee of Asbestos Personal Injury Claimants (the “Claimants’ Committee”) and Future Claimants’ Representative (the “FCR”) and is unlikely to be approved in its current form. The Claimants’ Committee and FCR have announced their intention to file a competing proposed plan of reorganization.

On April 13, 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 potential proposed plan of reorganization. The estimation trial is scheduled to occur in the second quarter of 2013.

From the Petition Date through June 30, 2012, GST has recorded reorganization costs, including fees and expenses, in the Chapter 11 case totaling $39.6 million. The total includes $19.2 million for fees and expenses of GST’s counsel and experts; $16.5 million for fees and expenses of counsel and experts for the asbestos claimants’ committee, and $3.9 million for the fees and expenses of the future claims representative and his counsel and experts. GST recorded $15.4 million of those case-related fees and expenses in the first half of 2012 and $8.1 million in the second quarter of 2012, compared to $7.6 million and $4.0 million, respectively, in the first half and second quarter of 2011.

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 Comprehensive Income (Unaudited)

(in millions)


	Quarters Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011

Net sales	$	62.0		$	61.2		$	124.4		$	118.9
Cost of sales		36.1			36.7			74.0			71.9


Gross profit		25.9			24.5			50.4			47.0


Operating expenses:
Selling, general and administrative expenses		11.8			11.0			23.9			22.8
Asbestos-related		0.7			0.7			(2.4	)		1.4
Other operating expense		0.7			—			1.3			—

		13.2			11.7			22.8			24.2


Operating income		12.7			12.8			27.6			22.8

Interest income, net		6.9			6.8			13.8			13.4


Income before reorganization expenses and income taxes		19.6			19.6			41.4			36.2
Reorganization expenses		(8.1	)		(4.0	)		(15.4	)		(7.6	)

Income before income taxes		11.5			15.6			26.0			28.6
Income tax expense		(3.7	)		(5.2	)		(9.2	)		(10.4	)


Net income	$	7.8		$	10.4		$	16.8		$	18.2


Comprehensive income	$	6.1		$	10.6		$	17.1		$	19.6

GST

(Debtor-in-Possession)

Condensed Combined Statements of Cash Flows (Unaudited)

Six Months Ended June 30, 2012 and 2011

(in millions)


	2012			2011

Net cash provided by operating activities	$	13.4		$	17.3


Investing activities:
Purchases of property, plant and equipment		(3.4	)		(1.6	)
Net receipts from loans to affiliates		0.3			12.1
Other		1.4			0.3

Net cash provided by (used in) investing activities		(1.7	)		10.8


Effect of exchange rate changes on cash and cash equivalents		(0.2	)		0.3

Net increase in cash and cash equivalents		11.5			28.4
Cash and cash equivalents at beginning of period		126.3			87.1

Cash and cash equivalents at end of period	$	137.8		$	115.5

GST

(Debtor-in-Possession)

Condensed Combined Balance Sheets (Unaudited)

(in millions)


	June 30, 2012		December 31, 2011
Assets:
Current assets	$	249.6	$	237.0
Asbestos insurance receivable		123.6		142.3
Deferred income taxes		127.1		131.0
Notes receivable from affiliate		237.4		227.2
Other assets		73.2		74.1

Total assets	$	810.9	$	811.6


Liabilities and Shareholder’s Equity:
Current liabilities	$	68.1	$	65.9
Other liabilities		7.9		27.6
Liabilities subject to compromise (A)		468.4		469.2

Total liabilities		544.4		562.7
Shareholder’s equity		266.5		248.9

Total liabilities and shareholder’s equity	$	810.9	$	811.6

(A)

Liabilities subject to compromise include pre-petition unsecured claims which may be resolved at amounts different from those recorded in the condensed combined balance sheets. Liabilities subject to compromise consist principally of asbestos-related claims. GST has undertaken to project the number and ultimate cost of all present and future bodily injury claims expected to be asserted, based on actuarial principles, and to measure probable and estimable liabilities under generally accepted accounting principles. GST has accrued $466.8 million as of June 30, 2012. The estimate indicated for those asbestos-related claims reflects the point in a wide range of possible outcomes determined based on historical facts and circumstances prior to the Petition Date as the Company’s estimate of the cost to resolve asbestos-related personal injury cases and claims against GST as they would have been resolved in the state courts or by settlements over a ten-year period from April 1, 2010 through March 31, 2020. GST adjusts this estimate to reflect payments of previously accrued but unpaid legal fees and to reflect the results of appeals. Otherwise, GST does not expect to adjust the estimate unless developments in the Chapter 11 proceeding provide a reasonable basis for a revised estimate. GST intends to use the claims resolution process in Chapter 11 to determine the validity and ultimate amount of its aggregate liability for asbestos-related claims. Due to the uncertainties of asbestos-related litigation and the Chapter 11 process, GST’s ultimate liability could differ materially from the recorded liability. See Note 14, “Commitments and Contingencies – Asbestos.”