SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Commission File Number 001-31225

____________________________

ENPRO INDUSTRIES, INC.

(704) 731-1500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x            No o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934).

Yes x            No o

As of August 1, 2004, there were 20,750,538 shares of common stock of the registrant outstanding. There is only one class of common stock.

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

ENPRO INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarters and Six Months Ended June 30, 2004 and 2003
(In millions, except per share amounts)

See notes to condensed consolidated financial statements (unaudited).

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ENPRO INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2004 and 2003
(In millions)

See notes to condensed consolidated financial statements (unaudited).

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ENPRO INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except share amounts)

See notes to condensed consolidated financial statements (unaudited).

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ENPRO INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.

Overview, Basis of Presentation, Significant Accounting Policies and New Accounting Pronouncement

     Overview

     EnPro Industries, Inc. (“EnPro” or the “Company”) is a leader in the design, development, manufacturing and marketing of well recognized, proprietary engineered industrial products that include sealing products, metal polymer bearings, air compressors, reciprocating compressor components and heavy-duty diesel and natural gas engines.

     Basis of Presentation

     The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Management believes that the assumptions underlying the condensed consolidated financial statements are reasonable.

     All significant transactions between the Company’s operations have been eliminated.

     Certain prior year amounts have been reclassified to conform to the current year presentation.

     Significant Accounting Policies

     Refer to Note 1, “Overview, Basis of Presentation and Significant Accounting Policies,” to the Consolidated Financial Statements in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2003, for a complete list of the significant accounting policies and estimates. Our significant accounting policies and estimates have been updated during the quarter-end June 30, 2004, as follows:

     Asbestos. Historically, the Company recorded an accrual for asbestos-related claims for actions in advanced stages of processing and settled claims only. No accrual was recorded for claims in early procedural stages or for unasserted claims. Based on recent developments, the Company has reconsidered this position and has established an accrual for both asserted claims and unasserted claims estimated for a future period over which management believes the liability can reasonably be estimated. Due to the uncertain nature of the estimated liability for early-stage and future claims, management’s estimate covers a broad range, and the Company believes no single amount in the range is a better estimate than any other amount in the range. In accordance with the applicable accounting rules, the Company records a liability for these claims and a corresponding receivable from its insurance carriers, at the lower end of the range of estimated potential liability.

     The significant assumptions underlying the material components of the estimated range of liability include: the number and trend of claims to be asserted; the mix of alleged diseases or impairment; the trend in the number of claims for non-malignant cases; the probability that some existing and potential future claims will eventually be dismissed without payment; and the estimated amount to be paid per claim. The number of future actions filed per year and the payments made to resolve those claims could exceed those reflected in the Company’s past experience and those reflected in its estimate.

     The Company will periodically review the period over which it can make a reasonable estimate, the assumptions underlying its estimate, and the range of reasonably possible potential liabilities, and adjust the liability if necessary. Changing circumstances that could arise in the future and new data that may become available could cause an increase in the obligation in the future by an amount that cannot currently be reasonably estimated, and that increase could be significant and material. If the amount of the estimated liability ever exceeds the amount of insurance available for asbestos claims, the excess would be charged to earnings. The charge would be non-cash and would not impact the Company’s liquidity.

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     New Accounting Pronouncement

     In January 2003, FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” was issued. The interpretation provides guidance on consolidating variable interest entities and requires the consolidation of any variable interest entity (“VIE”) in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (“Revised Interpretations”). In accordance with the Revised Interpretations, the Company completed its review of this new pronouncement in the first quarter of 2004. The adoption of this pronouncement did not have any effect on the Company’s financial statements.

2.

Restructuring and New Facilities Costs

     As of June 30, 2004, and December 31, 2003, the Company accrued $0.7 million and $0.2 million, respectively, related to restructuring and new facilities costs. During the six months ended June 30, 2004, the Company incurred $3.1 million of restructuring and new facilities costs. These primarily related to the previously announced relocation and consolidation of facilities for an operation in the Engineered Products segment. Personnel-related costs amounted to $1.7 million and related primarily to severance, pension curtailments and relocation costs. Facility consolidation and new facilities costs amounted to $1.4 million. Cash payments made during the period were $2.0 million.

3.

Loss on Sale of Assets, Net

     The Company recorded a pre-tax loss of $3.3 million during the quarter ended June 30, 2004, in connection with the sale of substantially all of the assets and transfer of certain liabilities of the Sterling Die operation and a goodwill impairment charge and expenses related to the anticipated sale of the Haber Tool operation. The sale of the Haber Tool operation ultimately was consummated in July 2004. These operations were included in the Engineered Products segment.

     During the quarter ended March 31, 2004, the Company sold a building for $3.0 million, resulting in a pre-tax gain of $1.5 million. This related to the previously announced relocation and consolidation of facilities for an operation in the Engineered Products segment.

4.

Mark-to-Market Adjustment for Call Options

     The Company owns call options on Goodrich Corporation common stock to provide protection against the risk that the cash required to finance conversion of the 5-1/4% Convertible Preferred Securities – Term Income Deferred Equity Securities (“TIDES”) into Goodrich common stock could exceed the liquidation value of the TIDES. The call options are derivative instruments and are carried at fair value in the Company’s condensed consolidated balance sheets. Changes in fair value are reflected in income. During the quarter and six months ended June 30, 2004, the Company recorded a $1.0 million decline in the fair value of these call options. The fair value of the call options increased $1.0 million and decreased $0.2 million during the quarter and six months ended June 30, 2003, respectively.

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5.

Comprehensive Income

     Total comprehensive income consisted of the following:

6.

Earnings Per Share

     The computation of basic and diluted earnings per share is as follows:

7.

Stock-Based Compensation

     The Company accounts for stock-based compensation plans using the intrinsic value method. Required pro forma information regarding net income and earnings per share has been determined as if the Company had accounted for its employee stock-based compensation plans under the fair value method.

     For purposes of the required pro forma disclosures, the estimated fair value of the stock options is amortized to expense over the vesting period of the options. The Company’s pro forma information is as follows:

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8.

Inventories

     Inventories consisted of the following:

9.

Goodwill and Identifiable Intangible Assets

     The changes in the net carrying value of goodwill by reportable segment during the six months ended June 30, 2004, are as follows:

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     The gross carrying amount and accumulated amortization of identifiable intangible assets is as follows:

     The Company has approximately $16 million of trademarks with indefinite lives, and thus were not amortized, as of June 30, 2004 and December 31, 2003, included in the table above.

     Amortization expense for the six months ended June 30, 2004, was $2.8 million. Amortization expense for these intangible assets for 2004 through 2008 is estimated to be approximately $5 million per year.

10.

Long-Term Debt

     In June 2004, the Company received the cash surrender value of a life insurance policy on a former executive officer. The proceeds were used to retire a promissory note that was collateralized by the policy, reducing debt by $2.5 million.

11.

Business Segment Information

     The Company has two reportable segments. The Sealing Products segment manufactures sealing and polytetrafluoroethylene (“PTFE”) products. The Engineered Products segment manufactures metal polymer bearings, air compressors, reciprocating compressor components and heavy-duty diesel and natural gas engines. The Company’s reportable segments are managed separately based on differences in their products and services. Segment profit is total segment revenue reduced by operating expenses and restructuring and new facilities costs identifiable with the segment. Corporate expenses, net interest expense, asbestos-related expenses, gains/losses or impairments related to the sale of assets, income taxes and other expenses not directly attributable to the segments are not included in the computation of segment profit. The accounting policies of the reportable segments are the same as those for the Company.

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12.

Pensions and Post-Retirement Benefits

     The components of net periodic benefit cost for the Company’s U.S. defined benefit pension and other post-retirement plans for the quarter and six months ended June 30, 2004 and 2003, are as follows:

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     The Company anticipates that there will be no required funding in 2004 of its U.S. defined benefit pension plans, and has not determined whether it will make a discretionary contribution in 2004. During the six months ended June 30, 2004, no contributions were made.

13.

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, which seek remedies or damages, are pending or threatened against the Company or its subsidiaries. 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 Company’s consolidated financial condition or results of operations. From time to time, the Company and its subsidiaries are also involved as plaintiffs in legal proceedings involving contract, patent protection, environmental and other matters.

     Environmental

     The Company’s 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 Company takes a proactive approach in addressing the applicability of all environmental, health and safety laws as they relate to its manufacturing operations and in proposing and implementing any remedial plans that may be necessary. The Company also conducts comprehensive compliance and management system audits at its facilities to maintain compliance and improve operational efficiency.

     Although the Company believes past operations were in substantial compliance with the then applicable regulations, the Company or one of its subsidiaries has been notified that it is among the potentially responsible parties under environmental laws for the cost of investigating and, in some cases, remediating contamination by hazardous materials at 18 sites at which the costs are expected to exceed $100 thousand at each site. The majority of these sites relate to remediation projects at former operating facilities that were sold or closed and primarily deal with soil and groundwater remediation. Investigations have been completed for 14 sites and are in progress at four sites. The laws governing investigation and remediation of these sites can impose joint and several liability for the associated costs. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties that generated the wastes that contributed to the contamination.

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     The Company’s policy is to accrue environmental investigation and remediation costs when it is both 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. Liabilities are provided for all sites based on the factors discussed above. As assessments and remediation progress at individual sites, these liabilities are reviewed periodically and adjusted to reflect additional technical data and legal information. As of June 30, 2004 and December 31, 2003, EnPro had an accrued liability of $34.7 million and $35.4 million, respectively, for estimated future expenditures relating to environmental contingencies. The amounts recorded in the condensed consolidated financial statements have been recorded on an undiscounted basis. Although the Company is pursuing insurance recoveries in connection with certain of these matters, no receivable has been recorded with respect to any potential recoveries of costs in connection with any environmental matter.

     The Company believes that its reserves are adequate based on currently available information. Actual costs to be incurred for identified situations in future periods may vary from estimates because of the inherent uncertainties in evaluating environmental exposures due to unknown conditions, changing government regulations and legal standards regarding liability. Subject to the imprecision in estimating future environmental costs, the Company believes that maintaining compliance with current environmental laws and government regulations will not require significant capital expenditures or have a material adverse effect on its financial condition or cash flows, but could be material to its results of operations in a given period.

     Colt Firearms and Central Moloney

     The Company has contingent liabilities related to divested businesses for which certain of its subsidiaries retained liability or are obligated under indemnity agreements. These contingent liabilities include, but are not limited to, potential product liability and associated claims related to the Company’s former Colt Firearms subsidiary for firearms manufactured prior to its divestiture in 1990 and the Company’s former Central Moloney subsidiary for electrical transformers manufactured prior to its divestiture in 1994. No material product liability claims are currently pending against the Company related to Colt Firearms or Central Moloney. Colt Firearms has been named as a defendant in 37 cases filed by municipalities seeking to recover costs arising from gun-related injuries. Many of these cases have been dismissed or are inactive. Colt Firearms is seeking indemnification from Coltec for these claims to the extent they involve firearms manufactured prior to March 1990. The Company has rejected Colt Firearms’ claims for indemnification relating to the municipal gun cases in all instances on various legal grounds. As a result, Colt Firearms has filed a lawsuit in New York State Court seeking reimbursement of costs incurred in defending municipal cases.

     The Company also has ongoing obligations, which are included in retained liabilities of previously owned businesses in the condensed consolidated balance sheets, with regard to workers’ compensation, retiree medical and other retiree benefit matters that relate to the Company’s periods of ownership of these operations.

     Crucible Materials Corporation

     The Company, through its Coltec subsidiary, owns 44% of the outstanding common stock of Crucible Materials Corporation (“Crucible”). Crucible, which is engaged primarily in the manufacture and distribution of high technology specialty metal products, was a wholly owned subsidiary of Coltec until 1985. The Crucible common stock owned by the Company was held by an irrevocable non-voting trust (the “Ownership Trust”) until the Ownership Trust expired in May 2004. Since the creation of the Ownership Trust,

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Coltec has not participated in the management of Crucible’s affairs nor has the Company exercised influence over the ongoing activities and business strategies of Crucible. The Company intends to divest the Crucible common shares it owns later this year.

     Based on an evaluation of the recoverability of its investment in Crucible’s common stock, the investment is valued at zero in the Company’s condensed consolidated balance sheets. In addition, due to the lack of any oversight of Crucible’s activities, and due to the uncertainty surrounding the future recoverability of its investment in Crucible, the Company does not include its proportionate share of Crucible’s net income (loss) in its results of operations.

     A substantial portion of the remaining 56% of the shares of Crucible are owned by Crucible-sponsored pension and profit sharing plans and the Crucible Employee Stock Ownership Plan. As Crucible’s employees retire, they are entitled to redeem those shares and be paid the fair value of the shares by Crucible. In addition, provided certain conditions are met, Crucible’s pension plans have the right to sell their shares of Crucible common stock to Crucible. When shares are purchased by Crucible, the shares are retired and Coltec’s percentage ownership in Crucible increases.

     If Coltec’s percentage ownership of Crucible’s common stock were ever to exceed 50%, Coltec may be deemed to be a “controlling person” with respect to the Crucible pension funds. As such, Coltec could be subject to certain liabilities with respect to Crucible’s pension obligations. If Crucible’s pension plans were to be terminated and the plans’ assets were not sufficient to cover the plans’ liabilities, Crucible and all members of its “controlled group” would be responsible for the unfunded termination liability. To the extent that Crucible could not fund any shortfall, Coltec and the Company could become responsible for funding the shortfall.

     The combined fair value of the assets in Crucible’s pension plans was approximately $22 million less than the accumulated benefit obligations at December 31, 2003. This amount is subject to change as the market value of the assets and interest rates fluctuate, as employees’ benefits change based on either plan amendments or additional credited service, and as contributions, if any, are made to the plans. In addition, in the event of a plan termination, the calculation of the actual termination liability would be based on more conservative interest rate assumptions and the deficit would likely be higher than the amount reflected above.

     Coltec’s ownership of Crucible’s common stock might never exceed 50% and Coltec might never become part of a “controlled group.” In addition, Crucible’s pension plans might never be terminated and Coltec might never bear any liability for any unfunded termination liability.

     In conjunction with the closure of a Crucible plant in the early 1980s, Coltec was required to fund two irrevocable trusts for retiree medical benefits for union employees at the plant. The first trust (the “Benefits Trust”) pays for these retiree medical benefits on an ongoing basis. Coltec has no continuing connection to the Benefits Trust, and thus the assets and liabilities of this trust are not included in the Company’s condensed consolidated balance sheets. Under the terms of the trust agreement, the trustees retained an actuary to assess the adequacy of the assets in the Benefits Trust in 1995, and another actuarial report will be required in 2005 and 2015. If, at either or both of the future valuation dates, it is determined that the trust assets are not adequate to fund the payment of the medical benefits, Coltec will be required to contribute additional amounts. Based on preliminary information, an additional contribution in 2005 is not anticipated. In the event there are ever excess assets in the Benefits Trust, those excess assets will not revert to Coltec.

     Because of the possibility of future contributions to the Benefits Trust, Coltec was required to establish a second trust (the “Back-Up Trust”) to cover potential shortfalls in the Benefits Trust. The assets and liabilities of the Back-Up Trust are reflected in the Company’s condensed consolidated balance

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sheets in other non-current assets and in retained liabilities of previously owned businesses, respectively, and amounted to $27.7 million each at June 30, 2004. If the actuary determines that there are excess assets in the Back-Up Trust at the Benefits Trust valuation dates, the excess assets will revert to Coltec based on a distribution formula and will be recorded in income upon receipt.

     The Company also has ongoing obligations, which are included in retained liabilities of previously owned businesses in the condensed consolidated balance sheets, with regard to workers’ compensation, retiree medical and other retiree benefit matters, in addition to those mentioned previously, that relate to the Company’s period of ownership of this operation.

     Debt and Capital Lease Guarantees

     As of June 30, 2004, the Company had contingent liabilities for potential payments on guarantees of certain debt and lease obligations totaling $10.8 million. These guarantees arose from the divestiture of Crucible and Central Moloney and expire at various dates through 2010. There is no liability for these guarantees reflected in the Company’s condensed consolidated balance sheets. In the event that Crucible or Central Moloney does not fulfill its obligations under its debt or lease agreements, the Company could be responsible for these obligations.

     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 claim data and historical experience warrant.

     Changes in the carrying amount of the product warranty liability for the six months ended June 30, 2004 are as follows:

     Asbestos

     History. Certain of the Company’s subsidiaries, primarily Garlock Sealing Technologies, LLC (“Garlock”) and The Anchor Packing Company (“Anchor”), are among a number of defendants (typically 15 to 40 and sometimes more than 100) in actions filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. Among the products at issue in these actions are industrial sealing products, predominantly gaskets and packing products. The damages claimed vary from action to action, and in some cases plaintiffs seek both compensatory and punitive damages. To date, neither Garlock nor Anchor has been required to pay any punitive damage awards, although there can be no assurance that they will not be required to do so in the future. Liability for compensatory damages has historically been allocated among all responsible defendants. Since the first asbestos-related lawsuits were filed against Garlock in 1975, Garlock and Anchor have processed more than 500,000 asbestos claims to conclusion (including judgments, settlements and dismissals) and, together with their insurers, have paid more than $980 million in settlements and judgments and approximately $300 million in fees and expenses.

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     Claims Mix. Of those claims resolved, approximately 3% have been claims of plaintiffs alleging the disease mesothelioma, approximately 6% have been claims of plaintiffs with lung or other cancers, and more than 90% have been claims of plaintiffs alleging asbestosis, pleural plaques or other impairment of the respiratory system. Because the more serious disease cases tend to work through the system more quickly than the non-malignancy cases and the cases filed by those who are not impaired, the Company believes that the disease mix in the current open caseload, on a percentage basis, is even more skewed toward pleural plaques and includes a large number of claims made by plaintiffs who have suffered no disease and have no measurable impairment of any kind. In fact, out of the 141,800 open cases, the Company is aware of only approximately 12,000 that involve a claimant with mesothelioma, lung cancer or some other cancer.

     Product Defenses. The asbestos-containing products formerly sold by Garlock and Anchor were encapsulated, which means the asbestos fibers were incorporated into the product during the manufacturing process and sealed in a binder. They are also nonfriable, which means they cannot be crumbled by hand pressure. The U.S. Occupational Safety and Health Administration, which began generally requiring warnings on asbestos-containing products in 1972, has never required that a warning be placed on products such as Garlock’s gaskets. Notwithstanding that no warning label has been required, Garlock included one on all of its asbestos-containing products beginning in 1978. Further, gaskets such as those previously manufactured and sold by Garlock are one of the few asbestos-containing products still permitted to be manufactured under regulations of the Environmental Protection Agency. Since the mid-1980s, U.S. sales of asbestos-containing industrial sealing products have not been a material part of Garlock’s sales and sales of asbestos-containing products have been predominantly to sophisticated purchasers such as the U.S. Navy and large petrochemical facilities. These purchasers generally have extensive health and safety procedures and are familiar with the risks associated with the use and handling of industrial sealing products that contain asbestos. Garlock discontinued distributing asbestos-containing products in the U.S. during 2000 and worldwide in mid-2001.

     Garlock’s product defenses enabled it to win defense verdicts in four of the five cases that it tried to verdict in 2003. Those trials were in California, Kentucky (two) and Texas. In all four cases, the jury determined that Garlock’s products were not defective and that Garlock was not negligent. In November 2003, an Ohio jury awarded compensatory damages in the amount of $6.4 million to the family of a 75-year-old deceased mesothelioma patient who alleged exposure to Garlock asbestos-containing products during his 48-year career as a steamfitter. Garlock is entitled to a credit for the amount of monies paid to the plaintiff by defendants who settled before or during trial. Garlock intends to appeal the verdict. Garlock and its attorneys believe it is probable that the verdict will be set aside on appeal and a new trial ordered.

     During the first half of 2004, Garlock began six trials. Garlock won a defense verdict in one case, the judge directed verdicts in favor of Garlock in two cases, and one trial was continued to a later date. Verdicts were rendered against Garlock in the other two cases.

     An El Paso, Texas jury awarded a deceased 64-year-old pipefitter $2.6 million in compensatory damages in April, allocating to Garlock a 25% share, and $1 million in punitive damages. Garlock intends to appeal. The Company is confident that Garlock will prevail, particularly on the issue of punitive damages. Garlock is entitled to a set-off against any ultimate award for settlements collected by the plaintiff from other defendants, and those set-offs are significant, potentially offsetting the entire verdict.

     In May, a Baltimore jury returned a verdict against Garlock and two other defendants, assessing a one-third share to each, and awarded $10.2 million total in compensatory damages to a 52-year-old boiler technician who died from mesothelioma. No judgment has been entered as of August 9, 2004. Garlock has filed post-trial motions and is considering its appellate rights.

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     Settlements. Garlock settles and disposes of actions on a regular basis. Garlock’s historical settlement strategy has been to try to match the timing of payments with recoveries received from insurance, which are limited by agreement to $86.4 million per year ($21.6 million per quarter). That limit increases every three years, and the next scheduled increase will take effect in the third quarter of 2006. In 1999 and 2000, Garlock implemented a short-term aggressive settlement strategy. The purpose of this short-term strategy was to achieve a permanent reduction in the number of overall asbestos claims through the settlement of a larger than normal number of claims, including some claims not yet filed as lawsuits. Mainly due to this short-term aggressive settlement strategy, but also because of a significant overall increase in claims filings, the settlement amounts paid in each of the years 1999 through 2003 were greater than the amounts paid in any year prior to 1999. In 2001, Garlock resumed its historical settlement strategy. In fact, Garlock reduced new settlement commitments from $180 million in 2000 to $94 million in 2001, $86.1 million in 2002, and $85.7 million in 2003. Because many of the commitments made in 1999, 2000, and early 2001 are being paid over a number of years, the settlement amounts that Garlock will pay in 2004 and 2005 will continue to include some amounts for those settlements.

     Settlements are made without any admission of liability. Settlement amounts vary depending upon a number of factors, including the jurisdiction where the action was brought, the nature and extent of the disease alleged and the associated medical evidence, the age and occupation of the plaintiff, the presence or absence of other possible causes of the plaintiff’s alleged illness, the availability of legal defenses, and whether the action is an individual one or part of a group.

     Before any payment on a settled claim is made, the claimant is required to submit a medical report acceptable to Garlock substantiating the asbestos-related illness and meeting specific criteria of disability. In addition, sworn testimony or other evidence that the claimant worked with or around Garlock asbestos-containing products is required. The claimant is also required to sign a full and unconditional release of Garlock, its subsidiaries, parent, officers, directors, affiliates and related parties from any liability for asbestos-related injuries or claims.

     When a settlement demand is not reasonable given the totality of the circumstances, Garlock generally will try the case. Garlock has been successful in winning a substantial majority of the cases it has tried to verdict.

     Status of Anchor. Anchor is an inactive and insolvent indirect subsidiary of Coltec. There is no remaining insurance coverage available to Anchor. Anchor has not committed to settle any actions since 1998. As cases reach the trial stage, Anchor is typically dismissed without payment.

     Insurance Coverage. The insurance coverage available to Garlock is substantial. As of June 30, 2004, Garlock had available $789 million of insurance coverage from carriers that it believes to be solvent. Garlock classifies $63 million of otherwise available insurance as insolvent. The Company believes Garlock will recover some of the insolvent insurance over time. In fact, Garlock recovered $2.2 million from insolvent carriers during the first half of 2004, $5.8 million during 2003 and $2.0 million during 2002. Of the solvent insurance, $598 million (76%) is with US-based carriers whose credit rating by S&P is investment grade (BBB) or better, and whose AM Best rating is excellent (A-) or better, $64 million (8%) is with other solvent US carriers and $127 million (16%) is with various solvent London market carriers. Of the $789 million, $223 million is allocated to claims that have been paid by Garlock and submitted to its insurance companies for reimbursement and $262 million is allocated to the Company’s estimated liability for future payments. Thus, as of June 30, 2004, $304 million remains available for additional future asbestos-related settlements. The $304 million of remaining insurance does not reflect the effect of the agreement with Equitas described in the next paragraph.

     The Company reached agreement with Equitas, the London-based entity responsible for the pre-1993 Lloyds’ of London policies in our insurance block, concerning the settlement of its exposure to our

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subsidiaries’ insurance claims. As a result of the settlement, Garlock expects to receive $30 million in payment of overdue receivables in the third quarter of 2004, and another $88 million will be placed in an independent trust. The funds in the trust will be available to pay the Equitas share of future claims and the trust will be billed monthly for that share, just as Equitas was billed. As a result of that agreement, the $118 million of payments made by Equitas will commute $158 million of total nominal coverage. The $40 million difference reflects discounting for present value and for the Equitas solvency risk. The Company expects a portion of the discounted amount to be recoverable from after-tax earnings on the trust assets, which will also be available for the payment of claims that it submits to the trust. The $304 million of remaining insurance reported in the previous paragraph does not reflect the $40 million discount provided in the Equitas settlement because the settlement was finalized in the third quarter.

     Arrangements with Garlock’s insurance carriers limit the amount of insurance proceeds that it is entitled to receive in any one year. The amount of insurance available to cover asbestos-related payments by Garlock is limited to $86.4 million per year ($21.6 million per quarter). Because Garlock from time to time collects some insolvent insurance and because some of Garlock’s carriers pay as if there were no annual limit, Garlock receives amounts in excess of the cap amount in some periods. Amounts paid by Garlock in excess of insurance recoveries in any year that would be recoverable from insurance but for the limit may be collected from the insurance companies in subsequent years so long as insurance is available, subject to the annual limit available in each subsequent year. To the extent that Garlock pays such amounts in a given year, these payments are recorded as a receivable.

     Garlock continues to be involved in a dispute with its London market carriers other than Equitas and one of its U.S. carriers that has some policies reinsured through the London market. The dispute concerns documentation requirements and settlement standards that Garlock asserts are not required in the insurance funding agreement. These insurers continue to withhold payment pending satisfaction of those requirements and standards. Garlock has demanded payment in accordance with the terms of the agreement and has initiated arbitration of the issue.

     As Garlock pursues resolution of the dispute with these carriers, the Company anticipates that net asbestos cash outflows will continue to be impacted. Garlock anticipates that it will resolve the dispute later in the year or early in 2005. In the event the dispute is resolved in 2004, the Company anticipates that net asbestos cash outflows will be lower in 2004 than in 2003. The carriers that continue to be involved in the dispute will owe Garlock approximately $15.4 million of the $86.4 million due under the cap agreement in 2004, in addition to the $6.1 million of delinquent payments carried forward from periods prior to 2004. There can be no assurance that the arbitration will be resolved during 2004, or that, even if resolved, payment will be received prior to year end.

     In November 2003, Coltec received a letter and arbitration demand from one of its insurers claiming that the insurer was relieved of liability on a $40 million Coltec policy in connection with a 1998 settlement and payment in full by a related insurer of a $2 million Anchor policy. Coltec disputes this contention and intends to vigorously pursue the coverage in the arbitration. The $40 million policy is included in the $598 million of investment grade U.S.-based coverage.

     Insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. Garlock and Anchor continue to be named as defendants in new actions, a few of which allege initial exposure after July 1, 1984. To date, no payments have been made with respect to these claims, pursuant to a settlement or otherwise. In addition, Garlock and Anchor believe that they have substantial defenses to these claims and therefore automatically reject them for settlement. However, there can be no assurance that any or all of these defenses will be successful in the future.

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     Quantitative Claims Information. Historically, the Company recorded an accrual for asbestos-related claims for actions in advanced stages of processing and settled claims only. No accrual was recorded for claims in early procedural stages or for unasserted claims. Based on recent developments, the Company has reconsidered this position and has established an accrual for both asserted claims and unasserted claims estimated for a future period over which management believes the liability can reasonably be estimated.

     Due to the uncertain nature of the estimated liability for early-stage and future claims, management’s estimate covers a broad range, and the Company believes no single amount in the range is a better estimate than any other amount in the range. Therefore, in accordance with applicable accounting rules, the Company recorded a liability at June 30, 2004, for early-stage and future claims of $155 million, the amount the Company believes to be the low end of the range, and the Company recorded a liability for advanced stage cases and settled claims of $108.5 million. Thus, the Company’s total accrual for current and estimated future claims is $263.5 million. The Company also recorded a corresponding receivable from its insurance carriers. The upper end of management’s estimated range of liability for current and potential future claims over the estimated period exceeds $1 billion.

     The significant assumptions underlying the material components of the estimated range of liability include: the number and trend of claims to be asserted; the mix of alleged diseases or impairment; the trend in the number of claims for non-malignant cases; the probability that some existing and potential future claims will eventually be dismissed without payment; and the estimated amount to be paid per claim. The number of future actions filed per year and the payments made to resolve those claims could exceed those reflected in the Company’s past experience and those reflected in its estimate.

     The Company will periodically review the period over which it can make a reasonable estimate, the assumptions underlying its estimate, and the range of reasonably possible potential liabilities, and adjust the liability if necessary. Changing circumstances that could arise in the future and new data that may become available could cause an increase in the obligation in the future by an amount that cannot currently be reasonably estimated, and that increase could be significant and material. If the amount of the estimated liability ever exceeds the amount of insurance available for asbestos claims, the excess would be charged to earnings. The charge would be non-cash and would not impact the Company’s liquidity.

     The recording of a liability for early-stage and unasserted claims will not alter the Company’s strategy for managing its potential asbestos liabilities and insurance assets and will have no impact on the ultimate amount paid for asbestos-related claims against its subsidiaries.

     The table below quantitatively depicts the liability described above and the amount that the Company expects Garlock to recover from insurance related to this liability.

(1)

Consists only of actions actually filed with a court of competent jurisdiction. Each action in which both Garlock and Anchor are named as a defendant is shown as a single action. Multiple actions filed by the same plaintiff in more than one jurisdiction are also counted as one action.

(2)

At June 30, 2004, included $223.3 million representing cumulative payments made for which Garlock has not received a corresponding insurance recovery in part due to the annual limit imposed under Garlock’s insurance policies,which will be recovered in future periods to the extent insurance is available, and in part due to the dispute with its London market insurers. Also included at June 30, 2004, is $262.1 million representing amounts recoverable under insurance policies related to the estimated liability for settled claims, actions in advanced stages of processing, and for early-stage and unasserted claims. At June 30, 2004, the Company classified

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		$118.8 million as a current asset and $366.6 million as a non-current asset in the condensed consolidated balance sheet.
(3)		Includes amounts with respect to the estimated liability for settled claims and actions in advanced stages of processing, whether or not an action has actually been filed with a court of competent jurisdiction. At June 30, 2004, the Company classified $94.8 million as a current liability and $13.7 million as a non-current liability in the condensed consolidated balance sheet.

(4)		Includes an estimate of potential liabilities for early-stage cases and future claims likely to be filed against Garlock within the next five years. The amount reflects the low end of an estimated range of potential liabilities, and the Company cautions that the range is very broad, as future asbestos exposures remain highly uncertain and the assumptions used to estimate this range are highly subjective. At June 30, 2004, the Company classified this amount as a non-current liability in the condensed consolidated balance sheet.
(5)		Includes amounts with respect to all payments for claims settlements and expenses and recoveries made in the period. In the six months ended June 30, 2004 and 2003, the Company added $39.1 million and $18.1 million, respectively, of the net cash flows to the asbestos insurance receivable in the condensed consolidated balance sheets, and the Company recorded $4.0 million and $5.4 million, respectively, as an expense in the condensed consolidated statements of operations. This expense related primarily to uninsured legal fees and administrative costs net of recoveries from insolvent insurance carriers.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is management’s discussion and analysis of certain significant factors that have affected our financial condition, cash flows and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements and the related notes. You should read this in conjunction with those financial statements and the audited consolidated financial statements and related notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2003.

Overview and Outlook

     Overview. EnPro Industries, Inc. (“EnPro” or the “Company”) was incorporated on January 11, 2002, as a wholly owned subsidiary of the Goodrich Corporation (“Goodrich”) in anticipation of Goodrich’s announced distribution of its Engineered Industrial Products segment to existing Goodrich shareholders, which took place on May 31, 2002 (the “Distribution”).

     We are a leader in the design, development, manufacturing and marketing of proprietary engineered industrial products, including: sealing products; self-lubricating, non-rolling, metal polymer bearing products; air compressor systems and vacuum pumps; reciprocating compressor components; and heavy-duty diesel and natural gas engines. We also design, manufacture and sell other engineered industrial products such as polytetrafluoroethylene (“PTFE”) products.

     We manage our business as two segments: a sealing products segment and an engineered products segment. For purposes of our segment disclosures, segment profit is total segment revenue reduced by operating expenses and restructuring and new facilities costs identifiable with the segment. Corporate expenses, net interest expense, asbestos-related expenses, gains/losses or impairments related to the sale of assets, income taxes and other expenses not directly attributable to the segments are not included in the computation of segment profit. The accounting policies of the reportable segments are the same as those for EnPro.

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     Our sealing products segment designs, manufactures and sells sealing products, including sheet gaskets, metallic gaskets, resilient metal seals, compression packing, rotary lip seals, elastomeric seals, hydraulic components, expansion joints and PTFE 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 and semiconductor fabrication. In many of these industries, performance and durability are vital for safety and environmental protection. Many of our products are used in applications that are highly demanding, e.g., where extreme temperatures, extreme pressures, corrosive environments and/or worn equipment make sealing difficult.

     During 2003, there were changes to the mix of businesses in the sealing products segment. On October 1, 2003, we acquired Pikotek, a specialty manufacturer of critical service flange gaskets, seals and electrical flange isolation kits primarily for upstream oil and gas production. In 2003, we also acquired a specialty metallic gasket seal line that serves critical applications in the nuclear energy industry, and sold a PTFE reprocessing product line and a sealing products distributor.

     Our engineered products segment includes operations that design, manufacture and sell self-lubricating, non-rolling, metal polymer bearing products; air compressor systems and vacuum pumps; reciprocating compressor components; and heavy-duty medium-speed diesel and natural gas engines. In the second quarter of 2004, we divested one of the specialized tooling operations, Sterling Die. In July 2004, we consummated the divestiture of Haber Tool, thereby completing the divestiture of the specialized tooling operations.

     Since the Distribution, we have focused on four management initiatives: increasing productivity through our Total Customer Value, or TCV, lean enterprise program; expanding our product offerings and customer base through our EnNovation initiative and new operations in new geographic markets; strengthening the mix of our business by strategic acquisitions and divestitures; and managing the asbestos settlements of our subsidiaries to minimize the impact on cash flows and enhance our liquidity.

     Outlook. The second half of 2004 should benefit from increased demand in our key markets compared to the same period last year. However, order activity in our industrial markets in the second half of the year is typically lower than the first two quarters and we expect that to be the case this year. Shipments of engines, principally for U.S. Navy shipbuilding programs, in the second half of 2004 will bolster sales levels compared to last year, but the addition of these sales and lower activity in our other markets will lead to a weaker mix of business in the second half of 2004 compared to the first half of the year. As a result, segment profit in the second half of 2004 is likely to be lower than it was in the first half of the year, but better than in the second half of 2003.

     Our cash flows in the second half of the year are expected to benefit from the resolution of a dispute with Equitas, one of our insurance carriers, over the reimbursement of our asbestos-related claims. We expect to receive approximately $30 million of delinquent insurance reimbursements from Equitas, which will reduce our net asbestos-related payments for the year. Refer to our discussion of “- Contingencies – Asbestos” that follows for additional information regarding this matter. We anticipate that the cash flows we generate from operations and our current cash balances will be sufficient to cover net asbestos-related

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payments and higher capital spending anticipated in 2004. Investments that we are making in a new Quincy Compressor facility in China, a new GGB plant in Slovakia and restructuring activities at certain U.S. operations are expected to result in a significant increase in capital expenditures compared to the year ended December 31, 2003.

     See our discussion regarding “ – Forward-Looking Information” that follows for additional information about factors that may cause future results or events to differ from those indicated in this section and elsewhere in this report.

Results of Operations – Second Quarter of 2004 Compared to the Second Quarter of 2003

     Sales of $216.3 million in 2004 increased 9% from $198.3 million in the comparable quarter of 2003. Increased volume at nearly every operation was the primary driver for the increase and led to strong double digit sales increases at a number of our larger operations. The improvement in order activity and sales volume is in line with the improvements in industrial economic indicators during the quarter and the first half of the year. Approximately two percentage points of the increase in sales is attributable to the increase in the value of the euro as compared to the U.S. dollar. This change favorably impacted revenue at the European operations of Garlock Sealing Technologies, GGB and France Compressor Products.

     Segment profit increased 11%, from $25.3 million in 2003 to $28.0 million in 2004. The 2004 results include an additional $2.2 million of restructuring expenses compared to last year. Similar to sales, the most significant cause for the increase was additional volume. Although cost of sales was impacted negatively by rising raw materials prices, especially in metals and increases in energy prices, these negative effects were partially mitigated by cost reductions in connection with Total Customer Value, or TCV, initiatives and some selective price increases. Segment margins were essentially flat at 12.8% and 12.9% in 2003 and 2004, respectively.

     Net income of $8.4 million, or $0.40 per share, in 2004 was 26% lower than the net income of $11.4 million, or $0.56 per share, in 2003. Earnings per share are expressed on a diluted basis. The decline in net income was caused primarily by certain of the items discussed below.

     Corporate expenses increased to $6.8 million in 2004 from $5.5 million in the comparable quarter last year. The increase was primarily due to the rise in EnPro’s stock price and the effect that had on stock-based compensation expense and an increase in long-term and 2004 incentive compensation expenses.

     Asbestos-related expenses, which relate primarily to legal fees and administrative costs not covered by insurance, were $1.1 million in 2004 compared to $2.5 million in the prior year. The reduction was principally a result of lower write-offs of asbestos insurance receivables related to an insolvent insurance carrier.

     We incurred a $3.3 million loss on the divestitures of the Sterling Die and Haber Tool operations in 2004, which is shown as a loss on the sale of assets in the condensed consolidated statement of operations.

     Results of operations in 2004 included a $1.0 million charge for a decline in the fair value of our call options on Goodrich common stock. The fair value of the call options increased by $1.0 million in the comparable quarter of 2003, resulting in a $2 million fluctuation in pre-tax earnings quarter-over-quarter. The call options are derivative instruments and are carried at fair value with changes in the fair value reflected in income. Changes in the fair value of the call options do not affect cash flows. We use the call options to protect against the risk that our 5-1/4% Convertible Preferred Securities – Term Income

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Deferred Equity Securities (“TIDES”), which under certain circumstances are convertible into Goodrich and EnPro common stock, could exceed their aggregate liquidation value if converted.

Following is a discussion of operating results for each segment:

     Sealing Products. Sales of $96.3 million in 2004 were 11% higher than the $86.5 million reported in the same quarter of 2003. Without the positive effect of the U.S. dollar-euro exchange rate change, sales increased 9% quarter-over-quarter. Sales at Stemco showed the largest percentage increase as heavy-duty trucking production and aftermarket orders continued to expand quarter-over-quarter and Stemco continued to capture additional market share. This industry is forecasting additional growth in 2004 as it continues to rebound from a historical low point in 2001. Garlock Sealing Technologies’ sales increased in the Klozure rotary lip seal product line, which benefited from strong order levels from customers in the primary metals, mining and pulp and paper industries. Garlock Sealing Technologies’ European sales increased primarily due to favorable exchange rates.

     Segment profit increased 14%, from $14.8 million in 2003 to $16.8 million in the same period this year. Earnings for Garlock Sealing Technologies benefited from increased volume and a more profitable mix. Higher unit volume and selected price increases were the primary catalysts for Stemco’s higher earnings. Most operations also reported improvements in profit resulting from cost reductions, but this was partially offset by pressure on raw materials and energy pricing and inflationary increases in salaries and other expenses. Operating margins increased slightly from 17.1% in 2003 to 17.4% in 2004.

     Engineered Products. Sales were $120.2 million in the second quarter of 2004, which is a 7% increase compared to sales of $112.1 million in the same period last year. Excluding favorable exchange rate changes that bolstered sales at GGB and France Compressor Products, sales increased 5%. GGB also experienced improved demand in industrial and automotive markets in the Americas and throughout Europe. In 2004, Fairbanks Morse Engine shipped fewer new engines as compared to 2003 due to difficulties encountered in the production and testing of a new engine type. Engine parts and services revenues were essentially flat. Order levels and sales volumes improved at Quincy Compressor in 2004 as compared to 2003 for nearly all of their product lines.

     Segment profit increased 7%, from $10.5 million in 2003 to $11.2 million in 2004. Excluding the effect of favorable exchange rate changes, segment profit increased by 3%. Operating margins were flat at 9.3% and 9.4% in 2004 and 2003, respectively. Profit at France Compressor Products was lower quarter-over-quarter because of $2.3 million of expenses incurred in connection with the relocation of its primary U.S. manufacturing facility to a new location. Without these expenses, earnings at France Compressor products would have been essentially flat compared to last year and profits for the segment would have shown a much more dramatic improvement over 2003. GGB benefited from higher volume, which was partially offset by higher raw materials costs primarily in metals. Profits in 2004 at Fairbanks Morse Engine were essentially flat when compared to 2003. Higher volume and cost reductions partially offset by expenses incurred in connection with their new facility in China increased earnings at Quincy Compressor compared to last year.

Results of Operations – Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003

     Sales increased 13% to $430.1 million in 2004 from $382.3 million in 2003. Segment profit increased from $47.2 million in 2003 to $56.9 million in 2004, which is a 21% improvement. Sales increased 9% and segment profit increased 17% compared to last year without the positive effect of stronger foreign exchange rates. Net income of $19.8 million, or $0.94 per share, in 2004 was 13% higher than the $17.5 million, or $0.86 per share, in 2003. Earnings per share are expressed on a diluted

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basis. The factors affecting the results of operations for the first six months of 2004 and 2003 were substantially the same as those discussed for the second quarter, with the following exceptions.

     In addition to the $3.3 million loss on the divestitures of the Sterling Die and Haber Tool operations in 2004, we realized a $1.5 million gain on the sale of a building in connection with the planned relocation of the U.S. operations of France Compressor Products to a new facility. The effect of these transactions is included in loss on sale of assets, net.

     The fair value of the call options on Goodrich common stock declined by $0.2 million and $1.0 million during the six months ended June 30, 2003 and 2004, respectively.

Liquidity and Capital Resources

     Cash Flows

     Operating activities used $12.2 million and provided $2.2 million of cash during the first half of 2004 and 2003, respectively. In 2004, the cash was used mainly for payments for asbestos-related claims, net of insurance proceeds, and to fund an increase in working capital. Working capital increased, and typically does so in the first half of the year, as a result of increased activity. Payments for asbestos-related claims settlements and expenses, net of insurance proceeds, during 2004 were $43.1 million compared to $23.5 million in 2003. Although total asbestos-related payments before insurance proceeds were essentially flat, a delay in insurance collections in 2004 due to a dispute with certain insurance carriers led to the increase in net asbestos-related payments. See our discussion of “ — Contingencies — Asbestos” that follows for additional information regarding the resolution of this dispute with one of the insurance carriers and the status of the dispute with the remaining insurers involved in this matter.

     Investing activities used $7.4 million and $8.2 million of cash in the first half of 2004 and 2003, respectively. The cash spent on capital expenditures in 2004 was partially offset by cash receipts on the sale of a building and the Sterling Die operation. Capital expenditures in 2004 were nearly double the 2003 amount as we continued to invest in projects expected to improve our competitive position.

     Financing activities used cash amounting to $4.0 million in 2004 and provided $4.1 million of cash in 2003. The cash used in 2004 includes the repayment of a promissory note and an industrial revenue bond, whereas the cash provided in 2003 relates to borrowings on the promissory note.

     Capital Resources

     Our primary U.S. subsidiaries have a revolving credit facility. Any borrowings under the senior secured revolving credit facility would be collateralized by receivables, inventories, equipment, intellectual property, insurance receivables and all other personal property assets of EnPro and its U.S. subsidiaries and by a pledge of 65% of the capital stock of their direct foreign subsidiaries. The maximum available amount under the facility is $60 million. We have not borrowed against this credit facility.

     A subsidiary of EnPro has outstanding approximately $145 million of TIDES due April 15, 2028. The TIDES are convertible at the option of the holders into a combination of Goodrich common stock and EnPro common stock. The value of Goodrich and EnPro common stock could increase to a level where the cost to acquire shares to fulfill a conversion could exceed, with no maximum, the $145 million aggregate liquidation value. To protect against this risk, we purchased call options on shares of Goodrich common stock expiring in 2007 in an amount that would enable us to purchase the Goodrich common stock at a cost equal to the liquidation value if TIDES holders convert. The call options are derivative instruments and are carried at fair value in the condensed consolidated balance

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sheets with changes in the fair value reflected currently in our earnings. Such changes may have a material effect on our results of operations in a given period, but will not result in any cash obligation. While we have hedged our exposure to conversion costs in excess of the aggregate liquidation value, we cannot assure you that we will have the financial resources to redeem these securities, or effectively hedge this exposure beyond the term of the call options.

     Our ability to raise capital through the issuance of additional equity may be constrained because it might cause the Distribution to be taxable under Section 355(e) of the Internal Revenue Code and we have agreed to indemnify Goodrich for any tax due if our actions cause such a tax.

Critical Accounting Policies and Estimates

     Refer to the annual report on Form 10-K for the fiscal year ended December 31, 2003, for a complete list of our critical accounting policies and estimates. Our critical accounting policies and estimates have been updated during the quarter-end June 30, 2004, as follows:

     Asbestos. Historically, we recorded an accrual for asbestos-related claims for actions in advanced stages of processing and settled claims only. No accrual was recorded for claims in early procedural stages or for unasserted claims. Based on recent developments, we have reconsidered this position and have established an accrual for both asserted claims and unasserted claims estimated for a future period over which management believes the liability can reasonably be estimated. Due to the uncertain nature of the estimated liability for early-stage and future claims, management’s estimate covers a broad range, and we believe no single amount in the range is a better estimate than any other amount in the range. In accordance with the applicable accounting rules, we record a liability for these claims and a corresponding receivable from our insurance carriers, at the lower end of the range of estimated potential liability.

     The significant assumptions underlying the material components of the estimated range of liability include: the number and trend of claims to be asserted; the mix of alleged diseases or impairment; the trend in the number of claims for non-malignant cases; the probability that some existing and potential future claims will eventually be dismissed without payment; and the estimated amount to be paid per claim. The number of future actions filed per year and the payments made to resolve those claims could exceed those reflected in our past experience and those reflected in our estimate.

     We will periodically review the period over which we can make a reasonable estimate, the assumptions underlying our estimate, and the range of reasonably possible potential liabilities, and adjust the liability if necessary. Changing circumstances that could arise in the future and new data that may become available could cause an increase in the obligation in the future by an amount that cannot currently be reasonably estimated, and that increase could be significant and material. If the amount of the estimated liability ever exceeds the amount of insurance available for asbestos claims, the excess would be charged to earnings. The charge would be non-cash and would not impact our liquidity.

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, which seek remedies or damages, are pending or threatened against EnPro or its subsidiaries. From time to time, we and our subsidiaries are also involved as plaintiffs in legal proceedings involving contract, patent protection, environmental and other matters. Gain contingencies, if any, are recognized when they are realized.

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     Environmental

     Our facilities and operations are subject to federal, state and local environmental and occupational health and safety requirements of the U.S. and foreign countries. We take a proactive approach in addressing the applicability of all environmental, health and safety laws as they relate to our manufacturing operations and in proposing and implementing any remedial plans that may be necessary. We also conduct comprehensive compliance and management system audits at our facilities to maintain compliance and improve operational efficiency.

     Although we believe that past operations were in substantial compliance with the then applicable regulations, we or one of our subsidiaries have been notified that we are, or it is, among the potentially responsible parties under environmental laws for the cost of investigating and, in some cases, remediating contamination by hazardous materials at 18 sites at which the costs are expected to exceed $100 thousand at each site. The majority of these sites relate to remediation projects at former operating facilities that were sold or closed and primarily deal with soil and groundwater remediation. Investigations have been completed for 14 sites and are in progress at four sites. The laws governing investigation and remediation of these sites can impose joint and several liability for the associated costs. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties that generated the wastes that contributed to the contamination.

     Our policy is to accrue environmental investigation and remediation costs when it is both 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. Liabilities are provided for all sites based on the factors discussed above. As assessments and remediation progress at individual sites, these liabilities are reviewed periodically and adjusted to reflect additional technical data and legal information. As of June 30, 2004 and December 31, 2003, we had an accrued liability of $34.7 million and $35.4 million, respectively, for estimated future expenditures relating to environmental contingencies. The amounts recorded in the condensed consolidated financial statements have been recorded on an undiscounted basis. Although we are pursuing insurance recoveries in connection with certain of these matters, no receivable has been recorded with respect to any potential recoveries of costs in connection with any environmental matter.

     We believe that our reserves are adequate based on currently available information. Actual costs to be incurred for identified situations in future periods may vary from estimates because of the inherent uncertainties in evaluating environmental exposures due to unknown conditions, changing government regulations and legal standards regarding liability. Subject to the imprecision in estimating future environmental costs, we believe that maintaining compliance with current environmental laws and government regulations will not require significant capital expenditures or have a material adverse effect on our financial condition or cash flows, but could be material to our results of operations in a given period.

     Colt Firearms and Central Moloney

     We have contingent liabilities related to divested businesses for which certain of our subsidiaries retained liability or are obligated under indemnity agreements. These contingent liabilities include, but are not limited to, potential product liability and associated claims related to Coltec’s former Colt Firearms subsidiary for firearms manufactured prior to its divestiture in 1990 and Coltec’s former Central Moloney subsidiary for electrical transformers manufactured prior to its divestiture in 1994. No material product liability claims are currently pending against Coltec related to Colt Firearms or Central Moloney. Colt Firearms has been named as a defendant in 37 cases filed by municipalities seeking to recover costs

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arising from gun-related injuries. Many of those cases have been dismissed or are inactive. Colt Firearms is seeking indemnification from Coltec for these claims to the extent they involve firearms manufactured prior to March 1990. We have rejected Colt Firearms’ claims for indemnification relating to the municipal gun cases in all instances on various legal grounds. As a result, Colt Firearms has filed a lawsuit in New York State Court seeking reimbursement of costs incurred in defending municipal cases.

     Coltec also has ongoing obligations, which are included in retained liabilities of previously owned businesses in our condensed consolidated balance sheets, with regard to workers’ compensation, retiree medical and other retiree benefit matters that relate to Coltec’s periods of ownership of these operations.

     Crucible Materials Corporation

     Through our Coltec subsidiary, we own 44% of the outstanding common stock of Crucible Materials Corporation (“Crucible”). Crucible, which is engaged primarily in the manufacture and distribution of high technology specialty metal products, was a wholly owned subsidiary of Coltec until 1985. The Crucible common stock owned by the Company was held by an irrevocable non-voting trust (the “Ownership Trust”) until the Ownership Trust expired in May 2004. Since the creation of the Ownership Trust, Coltec has not participated in the management of Crucible’s affairs nor have we exercised influence over the ongoing activities and business strategies of Crucible. The Company intends to divest the Crucible common shares it owns later this year.

     Based on an evaluation of the recoverability of our investment in Crucible’s common stock, the investment is valued at zero in our condensed consolidated balance sheets. In addition, due to the lack of any oversight of Crucible’s activities, and due to the uncertainty surrounding the future recoverability of our investment in Crucible, we do not include our proportionate share of Crucible’s net income (loss) in our results of operations.

     A substantial portion of the remaining 56% of the shares of Crucible are owned by Crucible-sponsored pension and profit sharing plans and the Crucible Employee Stock Ownership Plan. As Crucible’s employees retire, they are entitled to redeem those shares and be paid the fair value of the shares by Crucible. In addition, provided certain conditions are met, Crucible’s pension plans have the right to sell their shares of Crucible common stock to Crucible. When shares are purchased by Crucible, the shares are retired and Coltec’s percentage ownership in Crucible increases.

     If Coltec’s percentage ownership of Crucible’s common stock were ever to exceed 50%, Coltec may be deemed to be a “controlling person” with respect to the Crucible pension funds. As such, Coltec could be subject to certain liabilities with respect to Crucible’s pension obligations. If Crucible’s pension plans were to be terminated and the plans’ assets were not sufficient to cover the plans’ liabilities, Crucible and all members of its “controlled group” would be responsible for the unfunded termination liability. To the extent that Crucible could not fund any shortfall, Coltec and EnPro could become responsible for funding the shortfall.

     The combined fair value of the assets in Crucible’s pension plans was approximately $22 million less than the accumulated benefit obligations at December 31, 2003. This amount is subject to change as the market value of the assets and interest rates fluctuate, as employees’ benefits change based on either plan amendments or additional credited service, and as contributions, if any, are made to the plans. In addition, in the event of a plan termination, the calculation of the actual termination liability would be based on more conservative interest rate assumptions and the deficit would likely be higher than the amount reflected above.

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     Coltec’s ownership of Crucible’s common stock might never exceed 50% and Coltec might never become part of a “controlled group.” In addition, Crucible’s pension plans might never be terminated and Coltec might never bear any liability for any unfunded termination liability.

     In conjunction with the closure of a Crucible plant in the early 1980s, Coltec was required to fund two irrevocable trusts for retiree medical benefits for union employees at the plant. The first trust (the “Benefits Trust”) pays for these retiree medical benefits on an ongoing basis. Coltec has no continuing connection to the Benefits Trust, and thus the assets and liabilities of this trust are not included in our condensed consolidated balance sheets. Under the terms of the trust agreement, the trustees retained an actuary to assess the adequacy of the assets in the Benefits Trust in 1995, and another actuarial report will be required in 2005 and 2015. If, at either or both of the future valuation dates, it is determined that the trust assets are not adequate to fund the payment of the medical benefits, Coltec will be required to contribute additional amounts. Based on preliminary information, an additional contribution in 2005 is not anticipated. In the event there are ever excess assets in the Benefits Trust, those excess assets will not revert to Coltec.

     Because of the possibility of future contributions to the Benefits Trust, Coltec was required to establish a second trust (the “Back-Up Trust”) to cover potential shortfalls in the Benefits Trust. The assets and liabilities of the Back-Up Trust are reflected on our condensed consolidated balance sheets in other non-current assets and in retained liabilities of previously owned businesses, respectively, and amounted to $27.7 million each at June 30, 2004. If the actuary determines that there are excess assets in the Back-Up Trust at the Benefits Trust valuation dates, the excess assets will revert to Coltec based on a distribution formula and will be recorded in income upon receipt.

     Coltec also has ongoing obligations, which are included in retained liabilities of previously owned businesses in the condensed consolidated balance sheets, with regard to workers’ compensation, retiree medical and other retiree benefit matters, in addition to those mentioned previously, that relate to its period of ownership of Crucible.

     Debt and Capital Lease Guarantees

     As of June 30, 2004, we had contingent liabilities for potential payments on guarantees of certain debt and lease obligations totaling $10.8 million. These guarantees arose from the divestiture of Crucible and Central Moloney and expire at various dates through 2010. There is no liability for these guarantees reflected in our condensed consolidated balance sheets. In the event that Crucible or Central Moloney does not fulfill its obligations under its debt or lease agreements, we could be responsible for these obligations.

     Asbestos

     History. Certain of Coltec’s subsidiaries, primarily Garlock Sealing Technologies, LLC (“Garlock”) and The Anchor Packing Company (“Anchor”), are among a number of defendants (typically 15 to 40 and sometimes more than 100) in actions filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. Among the products at issue in these actions are industrial sealing products, predominantly gaskets and packing products. The damages claimed vary from action to action, and in some cases plaintiffs seek both compensatory and punitive damages. To date, neither Garlock nor Anchor has been required to pay any punitive damage awards, although there can be no assurance that they will not be required to do so in the future. Liability for compensatory damages has historically been allocated among all responsible defendants. Since the first asbestos-related lawsuits were filed against Garlock in 1975, Garlock and Anchor have processed more than 500,000 asbestos

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claims to conclusion (including judgments, settlements and dismissals) and, together with their insurers, have paid approximately $980 million in settlements and judgments and approximately $300 million in fees and expenses.

     Claims Mix. Of those claims resolved, approximately 3% have been claims of plaintiffs alleging the disease mesothelioma, approximately 6% have been claims of plaintiffs with lung or other cancers, and more than 90% have been claims of plaintiffs alleging asbestosis, pleural plaques or other impairment of the respiratory system. Because the more serious disease cases tend to work through the system more quickly than the non-malignancy cases and the cases filed by those who are not impaired, we believe that the disease mix in our current open caseload, on a percentage basis, is even more skewed toward pleural plaques and includes a large number of claims made by plaintiffs who have suffered no disease and have no measurable impairment of any kind. In fact, out of the 141,800 open cases, we are aware of only approximately 12,000 that involve a claimant with mesothelioma, lung cancer or some other cancer.

     Product Defenses. The asbestos-containing products formerly sold by Garlock and Anchor were encapsulated, which means the asbestos fibers were incorporated into the product during the manufacturing process and sealed in a binder. They are also nonfriable, which means they cannot be crumbled by hand pressure. The U.S. Occupational Safety and Health Administration, which began generally requiring warnings on asbestos-containing products in 1972, has never required that a warning be placed on products such as Garlock’s gaskets. Notwithstanding that no warning label has been required, Garlock included one on all of its asbestos-containing products beginning in 1978. Further, gaskets such as those previously manufactured and sold by Garlock are one of the few asbestos-containing products still permitted to be manufactured under regulations of the Environmental Protection Agency. Since the mid-1980s, U.S. sales of asbestos-containing industrial sealing products have not been a material part of Garlock’s sales and sales of asbestos-containing products have been predominantly to sophisticated purchasers such as the U.S. Navy and large petrochemical facilities. These purchasers generally have extensive health and safety procedures and are familiar with the risks associated with the use and handling of industrial sealing products that contain asbestos. Garlock discontinued distributing asbestos-containing products in the U.S. during 2000 and worldwide in mid-2001.

     Garlock’s product defenses enabled it to win defense verdicts in four of the five cases that it tried to verdict in 2003. Those trials were in California, Kentucky (two) and Texas. In all four cases, the jury determined that Garlock’s products were not defective and that Garlock was not negligent. In November 2003, an Ohio jury awarded compensatory damages in the amount of $6.4 million to the family of a 75-year-old deceased mesothelioma patient who alleged exposure to Garlock asbestos-containing products during his 48-year career as a steamfitter. Garlock is entitled to a credit for the amount of monies paid to the plaintiff by defendants who settled before or during trial. Garlock intends to appeal the verdict. Garlock and its attorneys believe it is probable that the verdict will be set aside on appeal and a new trial ordered.

     During the first half of 2004, Garlock began six trials. Garlock won a defense verdict in one case, the judge directed verdicts in favor of Garlock in two cases, and one trial was continued to a later date. Verdicts were rendered against Garlock in the other two cases.

     An El Paso, Texas jury awarded a deceased 64-year-old pipefitter $2.6 million in compensatory damages in April, allocating to Garlock a 25% share, and $1 million in punitive damages. Garlock intends to appeal. We are confident that Garlock will prevail, particularly on the issue of punitive damages. Garlock is entitled to a set-off against any ultimate award for settlements collected by the plaintiff from other defendants, and those set-offs are significant, potentially offsetting the entire verdict.

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     In May, a Baltimore jury returned a verdict against Garlock and two other defendants, assessing a one-third share to each, and awarded $10.2 million total in compensatory damages to a 52-year-old boiler technician who died from mesothelioma. No judgment has been entered as of August 9, 2004. Garlock has filed post-trial motions and is considering its appellate rights.

     Settlements. Garlock settles and disposes of actions on a regular basis. Garlock’s historical settlement strategy has been to try to match the timing of payments with recoveries received from insurance, which are limited by agreement to $86.4 million per year ($21.6 million per quarter). That limit increases every three years, and the next scheduled increase will take effect in the third quarter of 2006. In 1999 and 2000, Garlock implemented a short-term aggressive settlement strategy. The purpose of this short-term strategy was to achieve a permanent reduction in the number of overall asbestos claims through the settlement of a larger than normal number of claims, including some claims not yet filed as lawsuits. Mainly due to this short-term aggressive settlement strategy, but also because of a significant overall increase in claims filings, the settlement amounts paid in each of the years 1999 through 2003 were greater than the amounts paid in any year prior to 1999. In 2001, Garlock resumed its historical settlement strategy. In fact, Garlock reduced new settlement commitments from $180 million in 2000, to $94 million in 2001, $86.1 million in 2002, and $85.7 million in 2003. Because many of the commitments made in 1999, 2000 and early 2001 are being paid over a number of years, the settlement amounts that Garlock will pay in 2004 and 2005 will continue to include some amounts for those settlements.

     Settlements are made without any admission of liability. Settlement amounts vary depending upon a number of factors, including the jurisdiction where the action was brought, the nature and extent of the disease alleged and the associated medical evidence, the age and occupation of the plaintiff, the presence or absence of other possible causes of the plaintiff’s alleged illness, the availability of legal defenses, and whether the action is an individual one or part of a group.

     Before any payment on a settled claim is made, the claimant is required to submit a medical report acceptable to Garlock substantiating the asbestos-related illness and meeting specific criteria of disability. In addition, sworn testimony or other evidence that the claimant worked with or around Garlock asbestos-containing products is required. The claimant is also required to sign a full and unconditional release of Garlock, its subsidiaries, parent, officers, directors, affiliates and related parties from any liability for asbestos-related injuries or claims.

     When a settlement demand is not reasonable given the totality of the circumstances, Garlock generally will try the case. Garlock has been successful in winning a substantial majority of the cases it has tried to verdict.

     Status of Anchor. Anchor is an inactive and insolvent indirect subsidiary of Coltec. There is no remaining insurance coverage available to Anchor. Anchor has not committed to settle any actions since 1998. As cases reach the trial stage, Anchor is typically dismissed without payment.

     Insurance Coverage. The insurance coverage available to Garlock is substantial. As of June 30, 2004, Garlock had available $789 million of insurance coverage from carriers that it believes to be solvent. Garlock classifies $63 million of otherwise available insurance as insolvent. We believe Garlock will recover some of the insolvent insurance over time. In fact, Garlock recovered $2.2 million from insolvent carriers during the first half of 2004, $5.8 million during 2003, and $2.0 million during 2002. Of the solvent insurance, $598 million (76%) is with US-based carriers whose credit rating by S&P is investment grade (BBB) or better, and whose AM Best rating is excellent (A-) or better, $64 million (8%) is with other solvent US carriers and $127 million (16%) is with various solvent London market carriers. Of the $789 million, $223 million is allocated to claims that have been paid by Garlock and submitted to its insurance companies for reimbursement and $262 million is allocated to our

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estimated liability for future payments. Thus, as of June 30, 2004, $304 million remains available for additional future asbestos-related settlements. The $304 million of remaining insurance does not reflect the effect of the agreement with Equitas described in the next paragraph.

     We reached agreement with Equitas, the London-based entity responsible for the pre-1993 Lloyds’ of London policies in our insurance block, concerning the settlement of its exposure to our subsidiaries’ insurance claims. As a result of the settlement, Garlock expects to receive $30 million in payment of overdue receivables in the third quarter of 2004, and another $88 million will be placed in an independent trust. The funds in the trust will be available to pay the Equitas share of future claims and the trust will be billed monthly for that share, just as Equitas was billed. As a result of that agreement, the $118 million of payments made by Equitas will commute $158 million of total nominal coverage. The $40 million difference reflects discounting for present value and for the Equitas solvency risk. We expect a portion of the discounted amount to be recoverable from after-tax earnings on the trust assets, which will also be available for the payment of claims that we submit to the trust. The $304 million of remaining insurance reported in the previous paragraph does not reflect the $40 million discount provided in the Equitas settlement because the settlement was finalized in the third quarter.

     Arrangements with Garlock’s insurance carriers limit the amount of insurance proceeds that it is entitled to receive in any one year. The amount of insurance available to cover asbestos-related payments by Garlock is limited to $86.4 million per year ($21.6 million per quarter). Because Garlock from time to time collects some insolvent insurance and because some of Garlock’s carriers pay as if there were no annual limit, Garlock receives amounts in excess of the cap amount in some periods. Amounts paid by Garlock in excess of insurance recoveries in any year that would be recoverable from insurance but for the limit may be collected from the insurance companies in subsequent years so long as insurance is available, subject to the annual limit available in each subsequent year. To the extent that Garlock pays such amounts in a given year, these payments are recorded as a receivable.

     Garlock continues to be involved in a dispute with its London market carriers other than Equitas and one of its U.S. carriers that has some policies reinsured through the London market. The dispute concerns documentation requirements and settlement standards that Garlock asserts are not required in the insurance funding agreement. These insurers continue to withhold payment pending satisfaction of those requirements and standards. Garlock has demanded payment in accordance with the terms of the agreement and has initiated arbitration of the issue.

     As Garlock pursues resolution of the dispute with these carriers, we anticipate that net asbestos cash outflows will continue to be impacted. Garlock anticipates that it will resolve the dispute later in the year or early in 2005. In the event the dispute is resolved in 2004, we anticipate that net asbestos cash outflows will be lower in 2004 than in 2003. The carriers that continue to be involved in the dispute will owe Garlock approximately $15.4 million of the $86.4 million due under the cap agreement in 2004, in addition to the $6.1 million of delinquent payments carried forward from periods prior to 2004. There can be no assurance that the arbitration will be resolved during 2004, or that, even if resolved, payment will be received prior to year end.

     In November 2003, Coltec received a letter and arbitration demand from one of its insurers claiming that the insurer was relieved of liability on a $40 million Coltec policy in connection with a 1998 settlement and payment in full by a related insurer of a $2 million Anchor policy. Coltec disputes this contention and intends to vigorously pursue the coverage in the arbitration. The $40 million policy is included in the $598 million of investment grade U.S.-based coverage.

     Insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. Garlock and Anchor continue to be named as defendants in new actions, a few of which allege initial exposure after July 1, 1984. To date, no payments have been made with respect to these claims, pursuant to a settlement or otherwise. In addition, Garlock and Anchor believe that they

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have substantial defenses to these claims and therefore automatically reject them for settlement. However, there can be no assurance that any or all of these defenses will be successful in the future.

     Quantitative Claims Information. Historically, we recorded an accrual for asbestos-related claims for actions in advanced stages of processing and settled claims only. No accrual was recorded for claims in early procedural stages or for unasserted claims. Based on recent developments, we have reconsidered this position and have established an accrual for both asserted claims and unasserted claims estimated for a future period over which management believes the liability can reasonably be estimated.

     Due to the uncertain nature of the estimated liability for early-stage and future claims, management’s estimate covers a broad range, and we believe no single amount in the range is a better estimate than any other amount in the range. Therefore, in accordance with applicable accounting rules, we recorded a liability at June 30, 2004, for early-stage and future claims of $155 million, the amount we believe to be the low end of the range, and we recorded a liability for advanced stage cases and settled claims of $108.5 million. Thus, our total accrual for current and estimated future claims is $263.5 million. We also recorded a corresponding receivable from our insurance carriers. The upper end of management’s estimated range of liability for current and potential future claims over the estimated period exceeds $1 billion.

     The significant assumptions underlying the material components of the estimated range of liability include: the number and trend of claims to be asserted; the mix of alleged diseases or impairment; the trend in the number of claims for non-malignant cases; the probability that some existing and potential future claims will eventually be dismissed without payment; and the estimated amount to be paid per claim. The number of future actions filed per year and the payments made to resolve those claims could exceed those reflected in our past experience and those reflected in our estimate.

     We will periodically review the period over which we can make a reasonable estimate, the assumptions underlying our estimate, and the range of reasonably possible potential liabilities, and adjust the liability if necessary. Changing circumstances that could arise in the future and new data that may become available could cause an increase in the obligation in the future by an amount that cannot currently be reasonably estimated, and that increase could be significant and material. If the amount of the estimated liability ever exceeds the amount of insurance available for asbestos claims, the excess would be charged to earnings. The charge would be non-cash and would not impact our liquidity.

     The recording of a liability for early-stage and unasserted claims will not alter our strategy for managing potential asbestos liabilities and insurance assets and will have no impact on the ultimate amount paid for asbestos-related claims against our subsidiaries.

     The table below quantitatively depicts the liability described above and the amount that we expect Garlock to recover from insurance related to this liability.

(1)		Consists only of actions actually filed with a court of competent jurisdiction. Each action in which both Garlock and Anchor are named as a defendant is shown as a single action. Multiple actions filed by the same plaintiff in more than one jurisdiction are also counted as one action.
(2)		At June 30, 2004, included $223.3 million representing cumulative payments made for which Garlock has not received a corresponding insurance recovery in part due to the annual limit imposed under Garlock’s insurance policies, which will be recovered in future periods to the

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		extent insurance is available, and in part due to the dispute with its London market insurers. Also included at June 30, 2004, is $262.1 million representing amounts recoverable under insurance policies related to the estimated liability for settled claims, actions in advanced stages of processing, and for early-stage and unasserted claims. At June 30, 2004, we classified $118.8 million as a current asset and $366.6 million as a non-current asset in the condensed consolidated balance sheets.
(3)		Includes amounts with respect to the estimated liability for settled claims and actions in advanced stages of processing, whether or not an action has actually been filed with a court of competent jurisdiction. At June 30, 2004, we classified $94.8 million as a current liability and $13.7 million as a non-current liability in the condensed consolidated balance sheet.
(4)		Includes an estimate of potential liabilities for early-stage cases and future claims likely to be filed against Garlock within the next five years. The amount reflects the low end of an estimated range of potential liabilities, and we caution that the range is very broad, as future asbestos exposures remain highly uncertain and the assumptions used to estimate this range are highly subjective. At June 30, 2004, we classified this amount as a non-current liability in the condensed consolidated balance sheet.
(5)		Includes amounts with respect to all payments for claims settlements and expenses and recoveries made in the period. In the six months ended June 30, 2004 and 2003, we added $39.1 million and $18.1 million, respectively, of the net cash flows to the asbestos insurance receivable in the condensed consolidated balance sheets, and we recorded $4.0 million and $5.4 million, respectively, as an expense in the condensed consolidated statements of operations. This expense relates primarily to uninsured legal fees and administrative costs net of recoveries from insolvent insurance carriers.

     The number of new actions filed increased considerably in the first six months of 2003 from the first six months of 2002 (33,900 compared to 16,200). We believe that the numbers were much higher than they otherwise would have been because of tort reform efforts in general and in Mississippi and Texas in particular. In the second half of 2003, the number of new actions was much lower than in the comparable 2002 period (10,800 compared to 25,500). In the first half of 2004, that trend continued and the number of new actions was much lower than the number in the comparable period of 2003 (11,800 compared to 33,900). In fact, the number of new actions received in the trailing twelve months ended June 30, 2004, was the lowest for any twelve-month period since before 1990.

     Strategy. Garlock’s current strategy is to focus on trial-listed cases and other cases in advanced stages of processing, to reduce new settlement commitments each year, to accelerate insurance collections, and to proactively support legislative and other efforts aimed at asbestos reform. Garlock believes that this strategy should continue to result in the reduction of the negative annual cash flow impact from asbestos claims, as previous settlements work their way through the payment process. Garlock believes that, as predicted in various epidemiological studies that are publicly available, the incidence of asbestos-related disease should decline steadily over the next decade and thereafter, so that the level of claims activity against Garlock will eventually decline to a level that can be paid from the cash flow expected from Garlock’s operations even if Garlock exhausts its insurance coverage. There can be no assurance that epidemiological predictions about incidence of asbestos-related disease will prove to be accurate, or that, even if they are, there will be a commensurate decline in the number of asbestos-related claims filings. In fact, such studies indicate that asbestos-related diseases have been in decline for several years, yet asbestos-related claims filings increased through the first half of 2003. New filings have been lower for the past four quarters, but declining incidence of disease is but one possible factor in the decline.

     Considering the foregoing, as well as the experience of Coltec’s subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, recent

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bankruptcies of other defendants, and legislative efforts, and given the substantial amount of insurance coverage that Garlock expects to be available from its solvent carriers, we believe that pending actions against Garlock and Anchor are not likely to have a material adverse effect on our financial condition, but could be material to our results of operations or cash flows in a given period. We anticipate that asbestos-related actions will continue to be filed against Garlock. Because of the uncertainty as to the number and timing of potential future actions, as well as the amount that will have to be paid to settle or satisfy any such actions in the future, those future actions could have a material adverse effect on our financial condition, results of operations and cash flows.

     Reform Legislation. The outlook for federal legislation to provide national asbestos litigation reform continues to be uncertain. We are supportive generally of proposed legislation that would set up a national trust fund as the exclusive means for the recovery of asbestos-related claims. We are not certain as to what contributions we would be required to make to such a trust, although we anticipate that they would be substantial and that they would continue for a significant number of years. While we are cautiously optimistic that reform legislation ultimately will be adopted by the U.S. Congress, there is no assurance that proposed legislation currently under consideration by the Senate or any other asbestos legislation will ultimately become law.

New Accounting Pronouncement

     See Note 1 to the condensed consolidated financial statements for a description of a new accounting pronouncement.

Forward-Looking Information

     This Quarterly Report on Form 10-Q includes statements that reflect projections or expectations of the future financial condition, results of operations and business of EnPro that are subject to risk and uncertainty. We believe those statements to be “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this document, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “should,” “could,” “would” or “may” and similar expressions generally identify forward-looking statements.

     We cannot guarantee that actual results or events will not differ materially from those projected, estimated, assigned or anticipated in any of the forward-looking statements contained in this document. In addition to those factors specifically noted in the forward-looking statements and those identified in the Company’s annual report on Form 10-K for the year ended December 31, 2003, other important factors that could result in those differences include:

•		the resolution of current and potential future asbestos claims against certain of our subsidiaries, which depends on such factors as the possibility of asbestos reform legislation, the financial viability of insurance carriers, the timing of payments of claims and related expenses, the timing of insurance collections, limitations on the amount that may be recovered from insurance carriers, the bankruptcies of other defendants and the results of litigation;
•		the estimated liability for early-stage and potential future asbestos claims that may be received is highly uncertain, is based on very subjective assumptions and is at the low end of a very broad range of estimates;
•		general economic conditions in the markets served by our businesses, some of which are cyclical and experience periodic downturns;

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•		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 and lease 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 document or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in interest rates and foreign currency exchange rates that could impact our financial condition, results of operations and cash flows. We manage our exposure to these and other market risks through regular operating and financing activities, or through the use of derivative financial instruments. We intend to use such derivative financial instruments as risk management tools and not for speculative investment purposes. For information about our interest rate risk and foreign currency risk, see “Quantitative and Qualitative Disclosures about Market Risk” in our annual report on Form 10-K for the fiscal year ended December 31, 2003, and the following section of this disclosure.

Foreign Currency Risk

     We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to control our exposure to these risks through our normal operating activities and, where appropriate, through foreign currency forward contracts and option contracts. The following table provides information about our outstanding foreign currency forward contracts and option contracts as of June 30, 2004.

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Item 4. Controls and Procedures

     As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to reasonably assure that they will be timely alerted to material information required to be included in our periodic reports filed with the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, no change in our internal control over financial reporting has occurred during, or subsequent to, the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

     A description of environmental, asbestos and legal matters is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contingencies.”

     In addition to the matters noted above, we are from time to time subject to, and are presently involved in, other litigation and legal proceedings arising out of the ordinary course of business. We believe that the outcome of such other litigation and legal proceedings will not have a material adverse affect on our financial condition, results of operations and cash flows.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

     The following table sets forth all purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares of the Company’s common stock during each month in the second quarter of 2004.

(1)

Shares were purchased by a rabbi trust the Company established in connection with its Deferred Compensation Plan for Non-Employee Directors, pursuant to which non-employee directors may elect to defer directors’ fees into common stock units. The rabbi trust purchased these shares from Coltec Industries Inc (“Coltec”), which is a wholly-owned subsidiary of the Company. The Company does not consider the purchase of shares from Coltec in this context to be pursuant to a publicly announced plan or program.

(2)

Coltec furnished the 1,320 shares to the rabbi trust in exchange for management and other services provided by the Company. The number of shares was calculated using a price of $23.11, the average price of the Company’s common stock on June 30, 2004.

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Item 4. Submission of Matters to a Vote of Security Holders.

     The Annual Meeting of Shareholders was held on May 6, 2004. The following sets forth the voting results on each of the matters voted upon at the meeting:

(a)

Election of Directors

     There were no broker non-votes with respect to the election of directors.

(b)

Approval of the Senior Executive Annual Performance Plan

(c)

Approval of the Long-Term Incentive Plan

Item 6. Exhibits and Reports on Form 8-K.

(a)

Exhibits

     The exhibits to this Report on Form 10-Q are listed in the accompanying Exhibit Index.

(b)

Reports on Form 8-K

     We furnished a Current Report on Form 8-K on April 29, 2004, announcing our earnings for the quarter ended March 31, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charlotte, North Carolina on this 9^th day of August, 2004.

	ENPRO INDUSTRIES, INC.
	By:	/s/ Richard L. Magee
		Richard L. Magee
		Senior Vice President, General Counsel and Secretary

	By:	/s/ Donald G. Pomeroy II
		Donald G. Pomeroy II
		Vice President and Controller (Chief Accounting Officer)

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EXHIBIT INDEX

* Filed herewith