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Executives

William Dries - Chief Financial Officer and Sr. VP

Stephen Macadam - Chief Operating Officer

Richard L. Magee - Sr. VP, Sec. and Gen. Counsel

Donald G. Pomeroy II - Principal Accounting Officer, VP and Controller

John R. Smith - Sr. VP of HR and Admin.

Analysts

Todd Vencil - Davenport and Co.

Randy Laufman - Imperial Capital

Joe Mandelo - Fidelity and Company

EnPro Industries Inc. (NPO) Q3 2008 Earnings Call October 30, 2008 9:00 AM ET

Operator

(Operator Instructions)

Welcome to EnPro third quarter earnings conference call. Today’s conference is being recorded. At this time the conference is being recorded. At this time I would like to turn the conference over to Mr. Don Washington.

Mr. Washington, please go ahead.

Don Washington

Thank you Leslie and good morning everyone. Again we welcome you to EnPro Industries Quarterly Earning Conference Call.

Stephen Macadam, our President and CEO, and Bill Dries, our Senior Vice President and CFO will review the events of the 3rd quarter on the call, our financial results and our outlook. In addition Rick Magee, our general counsel, is present and prepared to participate in the Q & A.

Before Steve and Bill make their prepared remarks and we open the lines for questions I’d like to remind you that you may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward looking and involve a number of risks and un uncertainties that may cause actual events and results to differ materially from such forward looking statements.

These risks and uncertainties are referenced in the safe harbor statement and are included in our press release and are described in more detail along with other risk and uncertainties in our filing with the FCC including the 4M10k December 31 2007 and the 4TQ for the 2nd quarter of 2008.

We do not undertake to update any forward looking statements made on this conference call to reflect any change in management expectations or any change in assumptions or circumstances on which such statements are made.

I’d like to remind you that the call is also being webcast on EnProIndustries.com and a replay will be available on the website shortly following the call.

If your questions aren’t answered or you have any follow up questions, please contact me after the call at 704 2731 1527 and with that I’ll turn the call over to Steve.

Thank you Don, and good morning everyone. Thanks for joining us today. As our earnings release reports our performance in the 3rd quarter reflects continued benefits from acquisitions and from organic growth in certain of our industrial markets.

However, as I’m sure you realize many of our in use and geographic markets are growing increasingly soft. We will provide the details of the 3rd quarter shortly. But here are a few highlights Sales were up about 10% compared to the 3rd quarter of last year, with more than half the increase from acquisitions and organic growth.

At the bottom line we reported improved earrings both on a GAAP and adjusted basis. Under GAAP we earned $0.62 a share in the 3rd quarter, an improvement of about 15% over last year.

Adjusting our earnings for asbestos related expenses, and other selective items, we produced income of $1.02 a share or about 19% better than last year.

Our cash flows have been extremely healthy this year giving us sufficient liquidity to spend about $62 million on share repurchases through the end of the 3rd quarter, plus another $74 million on capital projects and acquisitions.

I’ll have more to say about our outlook at the end of the call. But it’s clear that we have entered challenging times in many of out markets. We are fortunate to have sound operating practices, strong brands, a stable base of activity generated in the aftermarket, participation in a diverse set of markets, and a healthy balance sheet.

Each of these factors should continue to benefit us in current conditions. We will remain disciplined in the execution of our strategies and look for opportunities to grow and strengthen our company though acquisitions, new products, and market expansion.

Looking briefly and recent developments, we completed one deal since our last earnings call. We bought a small compressor service company for our CPI business in a transaction that closed after the end of the 3rd quarter. We are currently in discussions with several prospects which we believe will lead to completed transactions later this year and early next year.

Earlier this week we announced that Fairbanks Morris Engine has signed a letter of intent to supply emergency diesel generators for nuclear power plants that are designed for the US market by Arriba. Construction of these plants is still in the planning stages. But this is an important win for Fairbanks Morris. .

After they supplied diesel generator sets to nuclear power plants 40 years ago, and although as we all know, there’s been no new construction in this market for many years, with this letter of intent and a growing interest in the construction of nuclear power plants in North America [EFFINY] is well positioned to participate in a market that appears to be heading for growth.

Our largest capital project, the modernization of the Carlox Palmyra, New York facility continues to move along nicely.

We completed the relocation of the Guyline product line to a new building in the 3rd quarter, and the demolition of the buildings that previously house the product line is complete.

Finally, I’d like to update our share repurchase activity.

Since the end of the 3rd quarter, we have spent $7.1 million to repurchase just over 250,000 shares under our 10B5 plan. That brings the total number of shares repurchased this year to 1.95 million at a cost of about $69 million. The 10B5 plan allowed us to be in the market for our own shares given price, volume and other parameters.

At the time we put the plan in place, we clearly didn’t anticipate the dramatic changes in the credit markets and the increasing levels of world wide economic uncertainty that we’ve seen over the past several weeks.

Given those events, we’ve decided to end our share repurchases in favor of conserving our cash for investments in new opportunities that we believe will arise in this environment and will support the growth of our businesses.

With that I’ll turn the call over to bill.

William Dries

Thanks Steve.

To reiterate what Steve said, both sales and income improved over the 3rd quarter of 2007. Sales in the amount of $279 million and were up 10% from last year. Acquisitions and organic growth account for 7 points. April Foreign exchange contributed the other 3 points.

We recorded this double digit income in sales even though sales in our engine product and services segment were 27% below last year.

Sales in our other two segments were up 15 totals twelve points of that increase coming from acquisitions and organic growth. three points coming from foreign exchange.

Reporting in our release earnings before interest, taxes, appreciation hominization, asbestos related expense, other selected items, were $44.7 million, or 16% of sales.

That’s a modest increase over last year, but as a percent of sales are in decline from 16.7% as I talk about our operating performance.

Gross margins were 35.5% in the 3rd quarter, virtually identical to the 3rd quarter of 2007. However, they declined from the 1st and 2nd quarters of this year as we saw normal regional decreases in activity and changing conditions in some markets.

SG&A spending increased by $7.5 million to $65.3 million.

Most of the increase in spending associated with acquisition, the effect of a stronger Euro.

As a percent of sales, SG&A was up a half a percentage point to 23.4%

Asbestos related expenses were $13 million in the 3rd quarter, or about $1.5 million higher than last year. In part, the difference reflects the collection last year of a small amount of insurance from carriers that we classified as solid.

Operating income in the third quarter amounted $20 million, slightly higher than the $19.4 million we reported in 2007. This represented 7.2% of sales in 2008, down ½ a point from 7.7% reported in 2007.

Our effective tax rate in the 3rd quarter was 28% compared to 38.5% in the 3rd quarter of 2007. There are a couple of reasons behind the low rate. One was the benefit of reduction in foreign statutory income tax rates. The other was the reversal of reserves that when no longer required, following the settlement of tax laws.

As a result of the low tax rate in the 3rd quarter, and the return to a more normal tax rate in the 4th quarter, we now expect an annual effective tax rate in 2008 of about 34% compared to 35% in 2007.

That brings us to net income, which was $13.1 million in the 3rd quarter, and increase of 7% over 2007. This translates to $0.62 per share fully diluted, a 15% increase over the $0.54 we reported in 2007.

Before asbestos related expenses, and other selected items, net income was $1.02 a share. That was up 19% or $0.16 from the $0.86 we reported last year.

The improvement was the result of a couple of factors. The largest contribution came from the lower tax rate, which added about $0.09 to our 3rd quarter earnings. A smaller contribution came from lower share count. The accelerated share repurchase completed last march reduced the dilute share count by 1.7 million shares and added about 6/10 to our pre-asbestos earnings.

Looking briefly at the first nine months of the year, we generated sales of $879 million 16% higher

William Dries - Chief Financial Officer and Sr. VP

Acquisitions and organic growth contributed twelve of those sixteen points in equal proportion. The remaining four points came from foreign exchange rates. Both the Sealing Products and Engineered Products segments reported strong, double-digit percentage gains in sales over the first nine months, while the Engine Products and Service segment was essentially flat.

Net income of $47.4 million resulted in earnings of $2.22 a share which was 30% higher than our 2007 gap earnings. Before asbestos related expenses and other select items, we earned $3.47 per share or 23% more than in 2007.

Let’s look at our third quarter segment results beginning with the Sealing Products segment. Sales in that segment were up 13% and profits improved as well. The increase came primarily from organic improvements in our Sealing Products market and acquisitions. Profits in this segment were up compared to 2007, but margins declined primarily because of lower profits at Stimco’s Legacy business and at Plasmer Technologies.

Margins for the segment were 19.8% for the quarter or 180 base points below last year. Golack continued to benefit from several markets including nuclear power and land-based turbine power generation, aerospace, and oil and gas. On the other hand, some of the hydrocarbon processing markets were affected by the hurricanes on the US gulf coast.

Heavy-duty truck markets remain weak, but that business continues to benefit from the Kaiser acquisition. We acquired Kaiser in the first quarter of this year and it has made nice contributions to both sales and margins for the six months we’ve owned it.

Looking at the Engineered Products segment, sales were 17% higher than a year ago with most of the increase coming from acquisitions and organic growth. While our sales increased, segment EBITDA was about flat with last year and margins were down by 280 basis points to 17.6%.

TGB Bearing Technology continued to benefit from activity in automotive and power generation markets in Brazil, but US and European markets were soft in the quarter. Environmental initiatives, which resulted in changes in processes and suppliers at GGB’s European operation, also affected performance as did material costs which continued to increase more quickly than selling prices.

The Quincy compressor, energy and medical markets remain strong. The Quincy general industrial markets in the US are showing signs of softness. Market conditions led to a less profitable product mix at Quincy as sales of lower-margin products increased. Quincy also experienced cost increases and competitor pressure on margins.

CPI’s product and financial performed very well as they benefited from acquisitions and generally favorable market conditions. Activity increased in Canada and Europe, although CPI’s US markets experienced some disruption because of hurricanes on the gulf coast.

The Engine Products and Services segment dealt at 27% below last year. Due to changes to customers’ schedules, there were no engine shipments in this year’s third quarter and sales were down. However, EBITDA margins in this segment were 11% higher than a year ago, and EBITDA margins improved to 19%. The improvement in margins reflects a very strong parts business in the third quarter. As we’ve pointed out in the past, parts and service generally carry higher margins than engines.

The backlog at Fairbanks Morris remains very healthy. We expect that several engines will be shipped in the fourth quarter of this year, which should result in a substantial increase in sales from the third quarter.

Now let’s look at cash flows. Operating activity has generated cash flows of $69 million in the first nine months of 2008, down from $75 million in the first nine months of 2007. The difference was due to higher working capital requirements in 2008 and higher net outflows for asbestos. In the case of working capital, which experienced an increase of $25 million in the first nine months of 2008, all of which occurred in the first half of the year.

As we’ve noted in the past, our normal seasonal pattern sees a significant working capital build up in the first half of the year followed by a reverse during the second half. Following that seasonal pattern, working capital decreased by about $4 million in the third quarter. Working capital increased in the first nine months as tracked with the increase in revenues and, as a result, our balance sheet metrics including day’s working capital and day’s up sales outstanding were in line with a year ago. Looking at our asbestos related cash flows, the total paid for settlements and expenses declined to about $79 million dollars for the first nine months of 2008. It was just over $91 million in the first nine months of last year. Insurance collections were lower, however, and as a result net cash outflows were higher at $20 million compared to $14 million in 2007.

As we mentioned in the past, we expect total payments to come down this year. We will collect less insurance. As a result, cash outflows for the full year of 2008 should be in the range near the level of 2006.

We spent $60 million on investing activities in the first nine months of 2008, including $37.4 million on acquisitions. As Steve mentioned, we also spent about $62 million on accelerated share re-purchase. That includes the $50 million initial payment made last March plus the payment of $12 million in the third quarter in connection with the final settlement with the ASR.

After capital expenditures, acquisitions and the ASR our cash balance was $72 million at the end of September compared with $129 million at the beginning of the year.

In summary, our results improved nicely over the same period last year. It’s clear, however, that conditions in our markets began to change in the third quarter. Steve will have more to say about our outlook in a moment. First I’d like to address our liquidity in light of current events in the credit markets and weakening economic conditions.

As I mentioned a moment ago, we had $72 million cash on hand at the end of September. We also have a $75 million revolving credit agreement with three large national banks, which we believe will be readily accessible if and when we need to draw down on it. While we’ll continue to be prudent, we believe that with our available cash resources, unused credit line and the cash flows that our businesses will generate in the future we should have sufficient liquidity to pursue our strategic initiatives for growth.

In short, we’re confident that our operating strategy and our financial condition put us on solid ground. With that I’ll turn the call back to Steve.

Stephen Macadam - Chief Operating Officer

Thanks, Bill. Before we open the lines for your questions, I’ll wrap up with a few comments and our outlook.

EnPro has experienced six years of solid, stable growth as an independent company. Over that period a substantial amount of effort has gone into improving our operations, strengthening our product lines, building a strong team of employees, and capturing opportunities for growth. The benefits of those efforts are evident in the improvement in sales and profits that we reported in 2008. But as everyone knows the economic direction of many world-wide markets has changed, and we are entering a period that is likely to differ significantly from the recent past. Because of our successes over the past six years, however, we believe we are entering this period as a strong company. Our strategic direction is sound, and we’re committed to the pursuit of excellence in all facets of our business.

Our total customer valued lead manufacturing program continues to be effective in improving our operational efficiency, which will benefit us even more in weaker markets. To move the benefits of TCB beyond the manufacturing floor, we are expanding the program to include a commercial excellence initiative by employing the techniques of TCB and dedicating additional resources to commercial excellence. We expect to improve the way we source materials, the way we go to market, and the way we interface with our customers.

We are focused on growth. We have a healthy balance sheet and liquidity sufficient to pursue opportunities for acquisitions that support our corporate strategies for products and markets. We will also continue to support new product development and market expansion which offer us additional avenues for growth.

Finally, we will continue to prudently manage our cash flows, optimizing the deployment of cash in ways that will create lasting long-term improvements in value.

Looking at the remainder of 2008, sales in the Sealing Products and Engineered Products segments will continue to benefit from acquisitions made over the past 12 months. Both of those segments, however, are entering softer market conditions both in the US and in Europe. This is likely to limit opportunities for organic growth.

In the Engine Products and Services segment, a number of engines are scheduled for shipment before the end of the year, which should lead to strong sales in the fourth quarter for that segment. Based on our performance through the first nine months and our outlook for the fourth quarter, we expect our record of our consistent year over year improvement will continue for the full year of 2008.

Thanks for your attention these past few minutes. Let’s now open the lines for your questions.

Question-and-Answer Session

Operator

Thank you. For those of you with a touch tone phone, please press star one on your touch tone phone. If you are using a speakerphone you may need to pick up your hand set before pressing star one. If at any time your question has been answered, to remove yourself from the question line-up please press star two. Once again, for those of you who would like to ask a question, please press star one on your touch tone phone. Let’s allow one moment for our first question.

Our first question comes from Joel Mondelo of Fidelity and Company. Please proceed with your question.

Joel Mondelo - Fidelity & Company

Good morning. First you mentioned that you are expecting a solid fourth quarter for your engine products. I was wondering if you could give an outlook for 2009. How do you see those orders coming in and what are you expecting in 2009 in that segment?

Stephen Macadam - Chief Operating Officer

Joel, the backlogs are good for F&E and, as we’ve said in the past the engines have an extremely long lead time. We have many for the Navy, and the after-market parts and services business has been strong. We expect that to continue. We’re pretty bullish on how the engine F&E business will look next year as well.

Joel Mondelo - Fidelity & Company

Okay, great. Also, could you just give more color in terms of what you’re seeing in terms of after-market sales versus your own EM sales? What are you seeing now in the fourth quarter?

Stephen Macadam - Chief Operating Officer

Again, it really depends on the segment and the business you’re talking about. It also depends on geography. Many of our after-market segments are very solid -- nuclear energy, oil and gas, and the engine business that we described. There are many segments, quite frankly, that are not affected by the current economic environment and we believe that they’re not likely to be.

There is also a group of our businesses that have been in tough times for quite awhile. We’ve spoken in panic calls about the Stimco business selling in the commercial truck environment, which in the US has been in the bottom of the cycle now for 18 months. It’s not great, but it’s certainly not getting any worse.

Joel Mondelo - Fidelity & Company

Is it fair to say that the Sealing Segment could perform better in 2009 than the Engineered Products just because of the higher after-market sales exposure?

Stephen Macadam - Chief Operating Officer

Relative to the previous year I think that’s correct.

Joel Mondelo - Fidelity & Company

Okay. Then just to look at the share count outlook - it seems that you’re buying back stock, but it seems that the share count’s not increasing as much as I thought it would. Do you have an outlook for the year?

Stephen Macadam - Chief Operating Officer

Well, Joel, we retired 1.7 immediately and we bought over 200,000 in the month of October, so we’re down close to 2 million. Our share count is down to about 20 million, down a couple of million from where we’ve been.

Joel Mondelo - Fidelity & Company

Okay, finally before I jump back in the queue could you talk about currency? It seems like you benefited in the third quarter. What are you seeing now and what do we expect for the fourth quarter in terms of that?

Stephen Macadam - Chief Operating Officer

Well, I think you can probably run the math as easy as we can. Plug in the Euro to the dollar number - whatever you think. Obviously we’ve seen just a bit of a rebound in the dollar in the last couple of days. I’m really not going to predict whether we think the dollar’s going to strengthen or weaken in the fourth quarter. I really don’t know.

Joel Mondelo - Fidelity & Company

Okay, thanks.

Operator

Our next question comes from Todd Vencil of Davenport. Please proceed with your question.

Todd Vencil - Davenport and Co.

Good morning. Looking at the cost in Sealing and Engineered Products, you talked last quarter about the fact that costs were a little bit ahead of price, but you had price increases put in place to cover that. Could you give some color on if this is consistent with the way you would have thought? Did costs run up more than you would have expected? Can you let us know broadly what kind of price increases you did put in?

Stephen Macadam - Chief Operating Officer

It varied a lot across the segments, and what you see in the third quarter is that many of those increases were put in place during the third quarter, particularly in August. You’ve always got the difficulty of driving them through and coverage that you give. I think we said this in the call last time that in general we didn’t expect that the third quarter per se would reflect complete recovery of those material costs, but we felt that the price increases that were put in place once we got to a run rate following those that we would have recovered all those material cost increases. We still believe that. We phased many of them in the third quarter - many of them were in August - so we were already half-way into the quarter.

Todd Vencil - Davenport and Co.

When do you think you’ll hit that run rate?

Stephen Macadam - Chief Operating Officer

I think we’re there now.

Todd Vencil - Davenport and Co.

Okay. When you were talking about the lower volume, can you quantify what you’re seeing and what you’re expecting for the fourth quarter in terms of your various businesses?

Stephen Macadam - Chief Operating Officer

That’s really tough to do because of the diversity of end markets that we sell into, and even in the segments where we have significantly different businesses. But the best way I could describe it is to break the business up into the categories that I was describing to Joel, which are ones that we think are pretty solid end-use markets.

Our belief is that oil and gas exploration, in particular, will still be pretty strong as long as oil stays above $45 or $50 a barrel, which it obviously still is today. Nuclear energy, other power generation stuff, and the engine business because of the markets they serve all comprise a solid chunk of our business in the order of magnitude of 25% which we think is a pretty solid situation, both at the OEM and after-market lull.

On the other end of the scale are the businesses that have already been hit pretty hard. These are already reflected in our numbers. I’m talking about GGB’s automotive business, both in the US and in Europe and the commercial trucking business that we described. These businesses have been pretty dramatically affected, and that’s probably another fourth of our business, plus or minus, and then the other half is mixed. It’s in businesses in which we’ve seen some weakening, and it varies. I’d say it’s also split 50-50 between OEM and after-market, and we certainly are seeing more weakness on the OEM side.

The problem, as you know from listening to a lot of calls and following the news, is that there’s a cloud of uncertainty in the industrial world. Everybody’s taking a pause to see how the thing’s going to shake out. It’s a very difficult time to actually look forward about what’s going on. When you talk to customers in the channel, they don’t know either.

We feel pretty good about where we are simply because we do have the mix of after-market which, even in a declining environment, won’t go down that much in our view. We’re hoping that this will provide some nice opportunities for acquisitions as we go forward.

Todd Vencil - Davenport and Co.

Fair enough. As you think about these lower volumes, how can we be thinking about margins? In this historical period, as we look back to think about the impact - I know you have been consistently making improvements in efficiency. How should we think about the impact that’s going to have on profitability?

William Dries - Chief Financial Officer and Sr. VP

Well, obviously as the markets slow down and the unit volumes fall off in certain of our businesses, there are fixed cost dates at a number of those units so we’ll lose something on the absorption side. I think that by and large we’ve seen moderation in material price increases fairly recently. On the selling-price items, some of our businesses with declining markets, there will be some competitive pricing pressures We are poised, each of our units have worked and are ready to take actions if we see continued weakness in our outlook, in our markets, to maintain a whole margin as high as we can, but again it depends on the length of time market and the depth of the markets and how slow they get. It’s hard to predict.

Todd Vencil - Davenport and Co.

You pre-empted my next question which was going to be: Actions that are taken have you started implementing any of those efforts to offset weaker volume? Are you anticipating when we haven’t quite seen them as much yet? Where do you stand on the course of action?

William Dries - Chief Financial Officer and Sr. VP

We’ve definitely taking action, and again, it varies a lot across the businesses because they are seeing a lot of demand patterns but we’re very focused on trying to drive material costs down now, taking advantage of the turn in many of our commodity parts like steel and bronze and copper and whatnot. We are going after that very aggressively, and we’re also working really hard to manage our costs and flex labor and those kinds of things.

Todd Vencil - Davenport and Co.

Nothing on the fix costs side now?

William Dries - Chief Financial Officer and Sr. VP

No. We don’t. Our facilities are still pretty full. We don’t have the opportunity for any major facility rationalization so I don’t think you can expect any major adjustments in fixed costs.

Todd Vencil - Davenport and Co

Thanks a lot.

Operator

(Operator Instructions) Our next question comes from Todd Vencil of Davenport. Please proceed with your question.

Todd Vencil - Davenport and Co

I thought I’d give someone else a chance to ask a question but I guess I’m in at the moment anyway.

William Dries - Chief Financial Officer and Sr. VP

Welcome back. Thanks very much.

Todd Vencil - Davenport and Co.

A couple of housekeeping things and maybe a couple of global questions. You gave us a comment, Bill, on the tax rate for 2008. What are you thinking for 2009 would be the right level?

William Dries - Chief Financial Officer and Sr. VP

We will likely be down from what we’ve historically in the past we have consistently said we ought to be in the 37, 37.5% range. A number of foreign countries have recently enacted the changes and reduced the specifatory tax rates. Germany, the UK, Italy, have all implemented the tax rate reductions. Hopefully, whatever administration gets put in place in Washington is be cognizant of those things, but we’re also doing some things on the strategic side, some planning that should help us as well so I’m thinking that we ought to be coming in at 35.5% to 36% range next year.

Todd Vencil - Davenport and Co.

Thanks, and then you you mentioned in the backlogs that FME were good. How do they compare year after year?

William Dries - Chief Financial Officer and Sr. VP

They’re actually up pretty strongly. In fact, I was looking at that the other day, these are the highest backlogs at FME that I recall, saying since we started off. Our total backlog - we’re up to 300 million- at the end of September and FME accounts for well more than half of that. So their backlogs are in very good shape. They had a very good quarter and key three in terms of orders.

Todd Vencil - Davenport and Co.

Any order of magnitude increase Just round numbers? For FME?

William Dries - Chief Financial Officer and Sr. VP

No. A lot.

Todd Vencil - Davenport and Co.

Fair enough. And then a global question, wrapping up together. Use the cash flow and strategic initiatives and ideas. If I take two or three things that you said, and put them together, it feels as though your primary use of cash is going to be, if you can find the opportunity, is going to be acquisitions as opposed to share purchases. And this feels to me to be an uptick in the pace of activity. Are those two observations fair? What am I missing?

William Dries - Chief Financial Officer and Sr. VP

I think that’s very fair Todd. That is a priority for us at this point. We’re going to close several deals, small, but of similar size to what we’ve done in last couple of years, we’re going to close several of those before the end of the year and then we’ve got some that probably wont’ close until early next year. We feel very good about it, they are good strategic goals, regards to what we’re doing, exactly the type of acquisition that we really like to do, that add a lot to our existing business, that are creative, have really good strong fits and help us in the product line or market or geography, those kinds of things. We’re pretty excited about that.

Now as we look out to the future, on the horizon, and as you know most of the stuff that we look at is kind of non-public, smaller bolt-on kind of deal, with any pressure on the environment we’re hopeful that that’s going to present a broader set of opportunities for us and we’d like to be in a position to take advantage of that.

Todd Vencil - Davenport and Co.

Have you started to see that opportunity broaden out?

William Dries - Chief Financial Officer and Sr. VP

I would say, maybe a little. Yes. But we certainly haven’t seen nearly as much as we anticipate as the economies of the world slow down a bit over the next six months.

Todd Vencil - Davenport and Co.

In terms of thinking about your capacity, can I give you a little color on.. what do you think your capacity for dealers would be and what that’s going to imply about your comfortable with on the balance sheet?

William Dries - Chief Financial Officer and Sr. VP

We’d still like to be in a position where we don’t have to tap our revolver to do acquisitions. Our strategy is to use our own cash to do that. Now we will if we need to, on an interim basis, but we’d like to be able to generate enough cash to just do that on our own.

Todd Vencil - Davenport and Co.

What do you think that implies about your own capacity over the next twelve months? Hypothetically?

William Dries - Chief Financial Officer and Sr. VP

I’d rather not give you a number because I don’t want to get us committed, and quite frankly, part of that is whether the deals that we have keyed up in Q4 all stay in Q4 or whether one or two of them slide into Q1 of next year, there is a tiny issue there. I think that might be more appropriate for the next call or for perhaps the one after that, perhaps after we get some of these under our belt and we can publicly report what they mean.

Todd Vencil - Davenport and Co.

I’ll be sure to ask on the next call.

William Dries - Chief Financial Officer and Sr. VP

I’m sure you will.

Todd Vencil - Davenport and Co.

Two more things, then I’ll let you go. Housekeeping. Bill, the signet DNA levels that you have go in the press release, are those going to be stable for the purposes of modeling?

William Dries - Chief Financial Officer and Sr. VP

Yeah, I think so. They are in that ten, eleven, quarter-of-a-million dollar range, that’s kind of in the low mid-forties range, that should be where we are.

Todd Vencil - Davenport and Co.

And my final question to you. I’ll give you a chance to look in your crystal ball a little bit. You mentioned that you think you are going to have repeat your pattern of consistent year after year of improvement in EPX earning results, do you feel like making that projection for 2009?

William Dries - Chief Financial Officer and Sr. VP

Not really.

Todd Vencil - Davenport and Co.

Okay. Thanks a lot.

William Dries - Chief Financial Officer and Sr. VP

Yep.

Operator

Thank you. At this time, there are no further questions.

William Dries - Chief Financial Officer and Sr. VP

Well, thanks everyone for joining us. And listen, we will talk to you again next quarter. That completes our call. Thank you.

Operator

Thank you. This completes our call. Thank you all for participating. You may now disconnect.

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Source: EnPro Industries Inc. Q3 2008 Earnings Call Transcript
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