EnPro, Subsidiaries Reveal Asbestos Related Liabilities ------------------------------------------------------- Published December 13, 2002 Certain of the EnPro Industries Inc.'s subsidiaries, primarily Garlock Sealing Technologies, LLC and The Anchor Packing Company, have been among a number of defendants (typically 15 to 40 and often more than 100) in actions filed in various jurisdictions by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. Except for claims against Garlock and Anchor, the number of claims to date has not been significant. Among the products at issue in those actions are industrial sealing products, predominantly gaskets and packing products, manufactured and/or sold by Garlock or Anchor. 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, thus limiting the potential monetary impact of a particular judgment or settlement on any individual defendant. Since the first asbestos-related lawsuits were filed against Garlock in 1975, Garlock and Anchor have processed approximately 500,000 asbestos claims to conclusion and, together with their insurers, have paid approximately $780 million in settlements and judgments at a cost in fees and expenses of approximately $265 million. Of those claims resolved, approximately 2% have been claims of plaintiffs alleging the disease mesothelioma, approximately 6% have been claims of plaintiffs with lung or other cancers, and approximately 92% have been claims of plaintiffs alleging asbestosis, pleural plaques or other impairment of the respiratory system of varying degree. 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 its 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, while there are many cases in its current open caseload about which it has no disease information, the Company is only aware of around 7,000 that involve a claimant with mesothelioma, lung cancer or some other cancer. The Company believes that Garlock and Anchor are in a favorable position compared to many other asbestos defendants because, among other things, 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 non-friable, which means they cannot be crumbled by hand pressure. The 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, US sales of asbestos-containing industrial sealing products have not been a material part of Garlock's sales and those sales 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 US during 2000 and worldwide in mid-2001. Garlock settles and disposes of actions on a regular basis. In addition, some actions are disposed of at trial. Garlock's historical settlement strategy has been to try to match the timing of payments with recoveries received from insurance which, as described later, are currently limited to $80million per year. However, 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 2001, 2000 and 1999 increased over prior periods. In 2001, Garlock resumed its historical settlement strategy. In fact, Garlock reduced new settlement commitments from $180million in 2000 to $94million in 2001 and is on pace to reduce new commitments further in 2002. However, because of commitments made in 1999 and 2000 that will be paid over a number of years, the settlement amounts that Garlock will pay in 2002 through 2005 will continue to include amounts for settlements made during 1999, 2000 and early 2001, when the short-term strategy was employed. Settlements are made without any admission of liability and are generally made on a group basis with payments made to individual claimants over a period of one to four years. Settlement amounts vary depending upon a number of factors, including the jurisdiction where the action was brought, the nature of the disease alleged and the associated medical evidence, the occupation of the plaintiff, the presence or absence of other possible causes of the plaintiff's alleged illness, the availability of legal defenses, such as the statute of limitations, and whether the action is an individual one or part of a group. Garlock's allocable portion of the total settlement amount for an action typically has ranged from 1% to 2% of the total amount paid by all defendants in the action. 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 that the claimant worked with or around Garlock asbestos-containing products is required. Generally, 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. Garlock's share of adverse verdicts in these cases in the first nine months of 2002, together with the years 2001 and 2000, totaled approximately $5million in the aggregate, and some of those verdicts are on appeal. The insurance coverage available to Garlock is substantial. As of September30, 2002, Garlock had available $938million of insurance coverage from carriers that we believe to be solvent. Garlock classifies $61million of otherwise available insurance as insolvent. Of the solvent insurance, $690million (74%) is with US-based carriers whose credit rating by S&P is investment grade (BBB)or better, $115million (12%) is with other solvent US carriers and $133million (14%) is with various solvent London market carriers. Of the $938million, $147million is allocated to claims that have been paid by Garlock and submitted to its insurance companies for reimbursement and $122million has been committed to claim settlements not yet paid by Garlock. Thus, at September30, 2002, $669 million remained available for future asbestos-related payments. Arrangements with Garlock's insurance carriers limit the amount that can be received by it in any one year. The amount of insurance available to cover asbestos-related payments by Garlock currently is limited to $80 million per year. This limit automatically increases by 8% every three years, and the next scheduled increase is in 2003. Amounts paid by Garlock in excess of this annual limit that would otherwise be recoverable from insurance 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. As a result, Garlock is required to pay out of its own cash any amounts paid to settle or dispose of asbestos-related claims in excess of the annual limit and collect these amounts from its insurance carriers in subsequent years. Anchor is an inactive and insolvent subsidiary of Coltec. The insurance coverage available to Anchor of approximately $9 million as of September 30, 2002 is fully committed. Anchor continues to pay settlement amounts covered by its insurance but has not committed to settle any further actions since 1998. As cases reach the trial stage, Anchor is typically dismissed without payment. EnPro is pursuing various options, such as raising the annual limit and commuting policies at discounted values, to ensure as close a match as possible between payments by Garlock and recoveries received from insurance carriers. There can be no assurance that Garlock will be successful as to any or all of these options. Insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July1, 1984. Garlock and Anchor continue to be named as defendants in new actions, a few of which allege initial exposure after July1, 1984. To date, no payments with respect to these claims, pursuant to a settlement or otherwise, have been made. 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. In accordance with internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions against Garlock and Anchor have progressed to a stage where the cost to dispose of these actions can reasonably be estimated. These actions are classified as actions in advanced stages and are included in the table as such below. With respect to outstanding actions against Garlock and Anchor that are in preliminary procedural stages, as well as any actions that may be filed in the future, EnPro believes that insufficient information exists upon which judgments can be made as to the validity or ultimate disposition of such actions. Therefore, EnPro believes that it is impossible to estimate with any degree of accuracy or reasonableness what, if any, potential liability or costs may be incurred. COMPANY PROFILE EnPro Industries, Inc. (NYSE: NPO) 5605 Carnegie Blvd. Charlotte, NC 28209-4674 Phone: 704-731-1500 Fax: 704-731-1511 http://www.enproindustries.com Employees : 4,500 Revenue : $174,200,000 Net Income : $(500,000) Assets : $996,800,000 Liabilities : $590,100,000 (As of quarter end September 30, 2002) Description: EnPro Industries, once a subsidiary of Goodrich Corporation, was created with Goodrich's acquisition of Coltec Industries. EnPro manufactures products for a wide variety of customers in the agricultural, home heating, automotive, heavy-duty vehicle, and marine propulsion industries. Its products include industrial sealing systems (seals and gaskets), air compressors, wheel-end systems for large trucks and trailers, large diesel engines (used in naval ships, locomotives, and electric power plants), self-lubricated bearings, and sealing components for reciprocating compressors. EnPro was spun off from Goodrich in 2002.