EnPro Industries(NPO) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Enpro Inc.'s unaudited consolidated financial statements and comprehensive notes for the periods ended June 30, 2025 and 2024 Consolidated Statements of Operations (Unaudited) This section provides the unaudited consolidated statements of operations for Q2 and 6M 2025 and 2024, detailing net sales, gross profit, operating income, and net income Consolidated Statements of Operations (Unaudited) - Key Figures (in millions, except per share amounts) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Net sales | $288.1 | $271.9 | $561.3 | $529.4 | | Gross profit | $124.8 | $119.0 | $243.0 | $225.2 | | Operating income | $45.7 | $48.0 | $87.5 | $76.0 | | Income before income taxes | $35.5 | $36.4 | $67.8 | $50.7 | | Net income | $26.4 | $26.7 | $50.9 | $39.2 | | Basic earnings per share | $1.26 | $1.27 | $2.42 | $1.87 | | Diluted earnings per share | $1.25 | $1.27 | $2.40 | $1.86 | - Net sales increased by 6.0% for both the quarter and six months ended June 30, 2025, compared to the prior year[7] - Net income for Q2 2025 slightly decreased to $26.4 million from $26.7 million in Q2 2024, while for the six months ended June 30, 2025, it increased to $50.9 million from $39.2 million in the prior year[7] Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited consolidated statements of cash flows for the six months ended June 30, 2025 and 2024, detailing operating, investing, and financing activities Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in millions) for Six Months Ended June 30 | Activity | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $73.2 | $49.5 | | Net cash used in investing activities | $(19.6) | $(223.1) | | Net cash used in financing activities | $(194.9) | $(19.0) | | Net decrease in cash and cash equivalents | $(129.2) | $(193.9) | | Cash and cash equivalents at end of period | $107.1 | $175.9 | - Net cash provided by operating activities increased to $73.2 million in 6M 2025 from $49.5 million in 6M 2024, primarily due to higher net income and lower incentive compensation payments[10][145] - Net cash used in investing activities significantly decreased to $19.6 million in 6M 2025 from $223.1 million in 6M 2024, mainly due to the absence of a large acquisition comparable to AMI in 2024[10][146] - Financing activities used $194.9 million in 6M 2025, driven by debt repayments ($851.5 million) and debt issuance costs ($7.7 million), partially offset by new debt proceeds ($680 million)[10][147] Consolidated Balance Sheets (Unaudited) This section provides the unaudited consolidated balance sheets as of June 30, 2025, and December 31, 2024, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheets (Unaudited) - Key Figures (in millions) as of | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total current assets | $424.7 | $512.3 | | Total assets | $2,375.3 | $2,491.5 | | Total current liabilities | $170.4 | $198.0 | | Long-term debt | $464.9 | $624.1 | | Total liabilities | $879.2 | $1,062.9 | | Total shareholders' equity | $1,496.1 | $1,428.6 | - Total assets decreased from $2,491.5 million at December 31, 2024, to $2,375.3 million at June 30, 2025, primarily due to a decrease in cash and cash equivalents[12] - Long-term debt significantly decreased from $624.1 million at December 31, 2024, to $464.9 million at June 30, 2025, reflecting debt repayments[12] - Total shareholders' equity increased to $1,496.1 million at June 30, 2025, from $1,428.6 million at December 31, 2024[12] Notes to Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited consolidated financial statements, covering accounting policies, taxes, EPS, inventories, goodwill, debt, and other key financial areas 1. Overview and Basis of Presentation Enpro Inc. is an industrial technology company focused on critical applications, with interim financial statements prepared in accordance with GAAP - Enpro Inc. is a leading-edge industrial technology company focused on critical applications in diverse growth markets such as semiconductor, industrial process, commercial vehicle, and sustainable power generation[15] - Strategic initiatives have focused the portfolio on proprietary, industrial technology products with high barriers to entry, compelling margins, strong cash flow, and perpetual recurring/aftermarket revenue streams[16] - New accounting guidance issued in December 2023 for income tax disclosures is not expected to have a significant impact, while guidance issued in November 2024 for cost and expense disaggregation is currently being evaluated[20][21] 2. Income Taxes This section details Enpro's effective tax rates for Q2 and 6M 2025 and 2024, and discusses the impact of foreign tax rates and recent U.S. tax law changes Effective Tax Rates | Period | 2025 | 2024 | | :-------------------- | :----- | :----- | | Quarter Ended June 30 | 25.5% | 26.7% | | Six Months Ended June 30 | 24.9% | 22.7% | - The effective tax rates are higher than the U.S. Federal tax rate primarily due to higher tax rates in most foreign jurisdictions and state tax on domestic earnings, partially offset by various tax credits[23][24] - The recently enacted 'One Big Beautiful Bill Act' in the U.S. includes provisions for 100% bonus depreciation and immediate expensing of R&E expenditures. The company is evaluating its impact on the effective tax rate, deferred tax assets/liabilities, and cash taxes payable, with effects to be reflected in Q3 2025[26] 3. Earnings Per Share This section outlines the calculation of basic and diluted earnings per share for the quarters and six months ended June 30, 2025 and 2024 Earnings Per Share (in millions, except per share amounts) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Net income | $26.4 | $26.7 | $50.9 | $39.2 | | Weighted-average shares – basic | 21.0 | 21.0 | 21.0 | 20.9 | | Weighted-average shares – diluted | 21.2 | 21.1 | 21.2 | 21.1 | | Basic earnings per share | $1.26 | $1.27 | $2.42 | $1.87 | | Diluted earnings per share | $1.25 | $1.27 | $2.40 | $1.86 | 4. Inventories This section details the company's inventory composition, showing an increase in total inventories driven by work in process at June 30, 2025 Inventories (in millions) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Finished products | $45.9 | $47.5 | | Work in process | $35.0 | $29.5 | | Raw materials | $62.4 | $61.8 | | Total inventories | $143.3 | $138.8 | - Work in process inventory increased by $5.5 million from December 31, 2024, to June 30, 2025[28] 5. Goodwill and Other Intangible Assets Goodwill increased to $904.6 million at June 30, 2025, primarily due to foreign currency translation adjustments in the Sealing Technologies segment. Identifiable intangible assets, mainly customer relationships and existing technology, had a gross carrying amount of $1,207.5 million at June 30, 2025, with amortization expense of $38.1 million for the six months ended June 30, 2025 Goodwill by Segment (in millions) | Segment | December 31, 2024 | Foreign Currency Translation | June 30, 2025 | | :-------------------------- | :---------------- | :--------------------------- | :------------ | | Sealing Technologies | $364.0 | $8.4 | $372.4 | | Advanced Surface Technologies | $532.2 | — | $532.2 | | Total | $896.2 | $8.4 | $904.6 | Identifiable Intangible Assets (in millions) as of June 30, 2025 | Category | Gross Carrying Amount | Accumulated Amortization | | :-------------------------- | :-------------------- | :----------------------- | | Customer relationships | $497.0 | $225.7 | | Existing technology | $570.1 | $166.0 | | Trademarks (definite-lived) | $70.4 | $38.8 | | Other (definite-lived) | $25.1 | $22.6 | | In-process R&D (indefinite-lived) | $14.0 | — | | Trademarks (indefinite-lived) | $30.9 | — | | Total | $1,207.5 | $453.1 | - Amortization expense for identifiable intangible assets was $38.1 million for the six months ended June 30, 2025, compared to $37.7 million in the prior-year period[30] 6. Accrued Expenses Total accrued expenses decreased to $100.6 million at June 30, 2025, from $116.0 million at December 31, 2024, primarily due to decreases in salaries, wages, employee benefits, and environmental liabilities Accrued Expenses (in millions) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Salaries, wages and employee benefits | $39.5 | $52.6 | | Interest | $2.7 | $4.4 | | Environmental | $8.6 | $11.3 | | Income taxes | $14.9 | $11.5 | | Taxes other than income taxes | $5.2 | $3.5 | | Operating lease liabilities | $11.1 | $10.2 | | Other | $18.6 | $22.5 | | Total | $100.6 | $116.0 | 7. Long-Term Debt Enpro amended its senior secured credit facility and issued new senior notes in 2025, managing its long-term debt structure and maintaining covenant compliance - On April 9, 2025, Enpro entered into an Amended Credit Facility Agreement, providing an $800.0 million senior secured revolving credit facility maturing on April 9, 2030[34] - The company repaid remaining term loan borrowings using funds from the new Revolving Credit Facility and $59.8 million of available cash[34] - On May 29, 2025, Enpro issued $450 million of 6.125% Senior Notes due 2033 and used a portion of the proceeds to redeem all outstanding 5.75% Senior Notes due 2026 ($350 million)[40][43] - As of June 30, 2025, borrowing availability under the Revolving Credit Facility was $770.4 million, and the company was in compliance with all covenants[39][43] 8. Pension Net periodic benefit cost for pension plans increased in 6M 2025, with the company planning to terminate its remaining U.S. defined benefit plan by year-end 2025 Net Periodic Benefit Cost (in millions) | Component | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Service cost | $0.1 | $0.1 | $0.2 | $0.2 | | Interest cost | $1.6 | $3.2 | $3.2 | $6.4 | | Expected return on plan assets | $(1.4) | $(3.5) | $(2.8) | $(7.1) | | Amortization of net loss | $0.6 | $0.4 | $1.2 | $0.8 | | Net periodic benefit cost | $0.9 | $0.2 | $1.8 | $0.3 | - Enpro plans to terminate and settle its remaining U.S. defined benefit pension plan by the end of 2025, with approximately $2.5 million of pension liabilities related to this plan at June 30, 2025[46] 9. Shareholders' Equity Total shareholders' equity increased to $1,496.1 million at June 30, 2025, driven by net income and other comprehensive income, with ongoing dividend payments and share repurchase authorization Changes in Shareholders' Equity (in millions) for Six Months Ended June 30, 2025 | Component | Balance, Dec 31, 2024 | Net Income | Other Comprehensive Income | Dividends | Incentive Plan Activity | Balance, June 30, 2025 | | :-------------------------- | :-------------------- | :--------- | :------------------------- | :-------- | :---------------------- | :--------------------- | | Total Shareholders' Equity | $1,428.6 | $50.9 | $23.9 | $(13.1) | $5.8 | $1,496.1 | - Total dividend payments of $13.2 million were made during the six months ended June 30, 2025, with a dividend of $0.31 per share declared for September 2025[49][50] - A new share repurchase authorization of up to $50.0 million was approved in October 2024, replacing a prior expired authorization, and expires in October 2026[51] - In February 2025, stock options for approximately 32,000 common shares were issued to key executives with an exercise price of $199.78 per share and a fair value of $85.99 per share[52][55] 10. Business Segment Information Enpro operates through Sealing Technologies and Advanced Surface Technologies (AST) segments, both showing sales growth in 6M 2025, with detailed sales data by geography and end market - Enpro's two reportable segments are Sealing Technologies and Advanced Surface Technologies (AST)[56] - Sealing Technologies focuses on metallic, non-metallic, and composite material gaskets, dynamic seals, and commercial vehicle solutions for industries like chemical processing, nuclear energy, and food/biopharmaceutical[57][58] - AST applies proprietary technologies for critical applications in high-growth markets, including cleaning, coating, testing for semiconductor manufacturing, specialized optical filters, wafer processing sub-systems, and edge-welded metal bellows[59] Segment Sales and Adjusted Segment EBITDA (in millions) | Metric | Q2 2025 Sales | Q2 2024 Sales | 6M 2025 Sales | 6M 2024 Sales | Q2 2025 Adj. EBITDA | Q2 2024 Adj. EBITDA | 6M 2025 Adj. EBITDA | 6M 2024 Adj. EBITDA | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Sealing Technologies | $187.5 | $184.0 | $367.1 | $355.6 | $63.3 | $65.4 | $122.0 | $118.4 | | Advanced Surface Technologies | $100.6 | $87.9 | $194.2 | $173.8 | $19.8 | $19.1 | $40.3 | $36.4 | | Total Consolidated Sales | $288.1 | $271.9 | $561.3 | $529.4 | | | | | | Total Adjusted Segment EBITDA | | | | | $83.1 | $84.5 | $162.3 | $154.8 | Net Sales by Geographic Area (in millions) | Region | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :------------- | :------ | :------ | :------ | :------ | | United States | $163.1 | $161.7 | $317.8 | $308.7 | | Europe | $42.4 | $40.0 | $83.0 | $77.8 | | Rest of world | $82.6 | $70.2 | $160.5 | $142.9 | | Total | $288.1 | $271.9 | $561.3 | $529.4 | Total Third-Party Sales by Major End Market (in millions) for Six Months Ended June 30, 2025 | End Market | Sealing Technologies | Advanced Surface Technologies | Total | | :---------------- | :------------------- | :---------------------------- | :---- | | Aerospace | $38.2 | $7.6 | $45.8 | | Commercial vehicle | $85.3 | — | $85.3 | | Food and pharmaceutical | $37.7 | — | $37.7 | | General industrial | $135.6 | $13.4 | $149.0 | | Oil and gas | $30.8 | $3.1 | $33.9 | | Power generation | $35.4 | — | $35.4 | | Semiconductors | $4.1 | $170.1 | $174.2 | | Total | $367.1 | $194.2 | $561.3 | 11. Derivatives and Hedging Enpro uses derivative instruments, including cross-currency swaps, to manage foreign currency risks and hedge net investments, with a forward contract settled in March 2025 - Enpro uses derivative instruments to control foreign currency exposure from foreign subsidiaries, intercompany loans, and foreign currency transactions[69] - A forward contract hedging a 95 million Euro intercompany note, with a notional amount of $103.7 million at December 31, 2024, was settled in March 2025[69][173] - Cross-currency swap agreements with a $100.0 million notional amount effectively convert fixed-rate USD Senior Notes interest payments to Euro-denominated debt interest payments, maturing October 15, 2026[71][174] - The cross-currency swap is designated as a net investment hedge, with fair value adjustments recorded in accumulated other comprehensive income[74] 12. Fair Value Measurements This section details assets and liabilities measured at fair value on a recurring basis, including deferred compensation and foreign currency derivatives Fair Value Measurements (in millions) as of | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Assets: | | | | Foreign currency derivatives | — | $7.9 | | Deferred compensation assets | $14.0 | $14.0 | | Liabilities: | | | | Deferred compensation liabilities | $14.8 | $14.8 | | Foreign currency derivatives | $4.4 | — | - Deferred compensation assets and liabilities are classified as Level 1, while foreign currency derivatives are classified as Level 2 in the fair value hierarchy[75] 13. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) improved to $(41.5) million at June 30, 2025, primarily due to positive unrealized translation adjustments Changes in Accumulated Other Comprehensive Income (Loss) by Component (after tax, in millions) for Six Months Ended June 30, 2025 | Component | Beginning Balance | Other Comprehensive Income before Reclassifications | Amounts Reclassified | Ending Balance | | :-------------------------- | :---------------- | :------------------------------------------ | :------------------- | :------------- | | Unrealized Translation Adjustments | $(5.4) | $22.9 | — | $17.5 | | Pension Plans | $(60.0) | — | $1.0 | $(59.0) | | Total | $(65.4) | $22.9 | $1.0 | $(41.5) | - Net current-period other comprehensive income for the six months ended June 30, 2025, was $23.9 million, a significant improvement from a loss of $11.6 million in the prior-year period[78] 14. Commitments and Contingencies Enpro is involved in environmental remediation activities at 21 sites with $38.7 million in liabilities, and faces personal injury claims related to TCE contamination - Enpro is involved in environmental investigation and remediation activities at 21 sites, with total liabilities of $38.7 million recorded at June 30, 2025[82][83] - For the Lower Passaic River Study Area, Enpro Holdings paid $5.9 million as part of a settlement in September 2022, with a remaining reserve of $0.7 million for ongoing work[89] - For the Arizona Uranium Mines, the reserve at June 30, 2025, was $11.6 million, reflecting estimated costs for on-site waste consolidation and enhanced caps. The U.S. government will reimburse 35% of necessary response costs, estimated at $3.8 million[91][93] - At the Water Valley Facility, 148 individuals filed workers' compensation petitions alleging injury from workplace exposure to toxic chemicals. No reserves have been accrued for these legal proceedings due to their early stage, but a $7.9 million reserve exists for ongoing cleanup and monitoring costs[97][98] Product Warranty Liability (in millions) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Balance at beginning of year | $5.7 | $6.4 | | Net charges to expense | $0.2 | $0.4 | | Settlements made | $(1.0) | $(0.7) | | Balance at end of period | $4.9 | $6.1 | 15. Acquisitions Enpro acquired Advanced Micro Instruments (AMI) in January 2024 and all remaining non-controlling interests in Alluxa in February 2024 - On January 29, 2024, Enpro acquired Advanced Micro Instruments, Inc. (AMI), a leading provider of highly-engineered analyzers and sensing technologies, integrated into the Sealing Technologies segment[104][119] Unaudited Pro Forma Condensed Consolidated Financial Results (in millions) for 2024 (as if AMI acquisition completed prior to 2024) | Metric | Quarter Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------------- | :-------------------------- | :----------------------------- | | Pro forma net sales | $271.9 | $532.2 | | Pro forma net income | $26.9 | $41.6 | - In February 2024, Enpro acquired all outstanding non-controlling equity interests in Alluxa for $17.9 million, making Enpro the sole owner[106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on Enpro's financial condition, cash flows, and operating results, including forward-looking statements and non-GAAP financial measures Forward-Looking Information This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including economic and geopolitical factors - The report contains forward-looking statements regarding future financial condition, results of operations, and business, which are subject to risks and uncertainties[108] - Key risk factors include economic conditions, geopolitical activity (e.g., Ukraine, Middle East, Taiwan), government tariffs and embargoes, raw material prices, ability to achieve growth in technology markets (semiconductor, life sciences), foreign currency fluctuations, interest rate changes, and contingent liabilities from discontinued operations[109][115] Non-GAAP Financial Information Enpro uses non-GAAP financial measures like adjusted net income and EBITDA to evaluate operating performance, providing additional insights for investors - Enpro utilizes non-GAAP financial measures such as adjusted net income, adjusted diluted earnings per share, adjusted EBITDA, and total adjusted segment EBITDA to evaluate operating performance[112] - These non-GAAP metrics are considered useful for investors to assess ongoing operations and performance, but are not necessarily comparable to similarly titled measures used by other companies[112] Overview Enpro is an industrial technology company operating through Sealing Technologies and Advanced Surface Technologies segments, with key financial highlights for Q2 and 6M 2025 - Enpro is an industrial technology company focused on critical applications across diverse end markets, operating 15 primary manufacturing and service facilities in 8 countries[113] - The company manages its business through two segments: Sealing Technologies and Advanced Surface Technologies (AST)[114] Financial Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Net sales | $288.1 | $271.9 | $561.3 | $529.4 | | Net income | $26.4 | $26.7 | $50.9 | $39.2 | | Diluted earnings per share | $1.25 | $1.27 | $2.40 | $1.86 | | Adjusted net income | $43.1 | $43.9 | $83.4 | $77.0 | | Adjusted diluted earnings per share | $2.03 | $2.08 | $3.93 | $3.65 | | Adjusted EBITDA | $71.1 | $74.0 | $138.9 | $132.5 | Results of Operations This section analyzes Enpro's consolidated and segment-level operating results for Q2 and 6M 2025 compared to 2024, detailing sales growth and EBITDA performance Second Quarter of 2025 Compared to the Second Quarter of 2024 Consolidated net sales increased 6.0% in Q2 2025, driven by growth in both Sealing Technologies and Advanced Surface Technologies, despite slight margin pressure Sales Growth (Q2 2025 vs. Q2 2024) | Entity | Organic | Foreign Currency | Total | | :-------------------------- | :------ | :--------------- | :---- | | Enpro Inc. | 5.6% | 0.4% | 6.0% | | Sealing Technologies | 1.5% | 0.4% | 1.9% | | Advanced Surface Technologies | 14.5% | —% | 14.5% | - Sealing Technologies' sales increased by $3.5 million to $187.5 million, with organic growth of 1.5% ($2.7 million) driven by aerospace, food & pharmaceutical, and strategic pricing[125] - Advanced Surface Technologies' sales increased by $12.8 million to $100.9 million, driven by growth in precision cleaning, optical coatings, and semiconductor tools[127] - Sealing Technologies' Adjusted Segment EBITDA decreased 3.2% to $63.3 million, with margin narrowing to 33.8% due to transactional foreign exchange headwinds and mix variations[126] - Advanced Surface Technologies' Adjusted Segment EBITDA increased 3.7% to $19.8 million, but margin decreased to 19.6% due to unfavorable foreign currency exchange rates ($2.8 million) and increased labor/overhead ($2.5 million)[128] - Net income for Q2 2025 was $26.4 million ($1.25 diluted EPS), slightly down from $26.7 million ($1.27 diluted EPS) in Q2 2024[132] Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 Consolidated net sales increased 6.0% for the first six months of 2025, with both segments contributing to growth and a significant increase in net income Sales Growth (6M 2025 vs. 6M 2024) | Entity | Organic | Acquisition | Foreign Currency | Total | | :-------------------------- | :------ | :---------- | :--------------- | :---- | | Enpro Inc. | 5.8% | 0.6% | (0.4)% | 6.0% | | Sealing Technologies | 3.0% | 0.9% | (0.7)% | 3.2% | | Advanced Surface Technologies | 11.8% | —% | —% | 11.8% | - Sealing Technologies' sales increased by $11.5 million to $367.1 million, with organic growth of 2.9% ($10.4 million) driven by aerospace, food & pharmaceutical, and strategic pricing/mix[134] - Advanced Surface Technologies' sales increased by $20.6 million to $194.7 million, driven by growth in precision cleaning solutions, optical coatings, and semiconductor tools[136] - Sealing Technologies' Adjusted Segment EBITDA increased 3.0% to $122.0 million, with margin remaining flat at 33.2%[135] - Advanced Surface Technologies' Adjusted Segment EBITDA increased 10.7% to $40.3 million, but margin slightly decreased to 20.7% due to unfavorable foreign currency exchange rates ($3.0 million) and increased operating expenses ($4.3 million)[137] - Net income for 6M 2025 was $50.9 million ($2.40 diluted EPS), up from $39.2 million ($1.86 diluted EPS) in 6M 2024[141] Backlog The consolidated backlog was $273.8 million as of June 30, 2025, with approximately 95% expected to be satisfied within one year - As of June 30, 2025, the consolidated backlog (remaining performance obligations) was $273.8 million[142] - Approximately 95% of these obligations are expected to be satisfied within one year[142] Liquidity and Capital Resources Enpro funds cash requirements through cash balances, revolver borrowings, and operations, with $14.8 million cash in the U.S. and $92.3 million outside the U.S. as of June 30, 2025 - Cash requirements are funded from cash balances, revolver borrowings, and cash generated from operations, with proactive pursuit of acquisition opportunities[143] - As of June 30, 2025, Enpro held $14.8 million of cash in the U.S. and $92.3 million outside the U.S.[143] - Undistributed earnings of foreign subsidiaries, estimated at $174 million as of June 30, 2025, are not expected to incur significant incremental U.S. or foreign tax upon repatriation[144] Cash Flows Operating cash flow increased in 6M 2025, while investing activities decreased significantly due to the absence of a large acquisition, and financing activities were driven by debt management - Operating activities provided $73.2 million of cash in 6M 2025, up from $49.5 million in 6M 2024, driven by higher net income and lower incentive compensation payments[145] - Investing activities used $19.6 million in 6M 2025, a significant decrease from $223.1 million in 6M 2024, primarily due to the 2024 acquisition of AMI[146] - Financing activities used $194.9 million in 6M 2025, mainly due to $851.5 million in debt repayments and $7.7 million in debt issuance costs, partially offset by $680 million in debt proceeds[147] Capital Resources Enpro amended its credit facility and issued new senior notes in 2025, maintaining an $800.0 million revolving credit facility and a $50.0 million share repurchase authorization - Enpro entered into an Amended Credit Facility Agreement on April 9, 2025, providing an $800.0 million senior secured revolving credit facility maturing on April 9, 2030[148] - Borrowings under the Revolving Credit Facility bear interest at either an alternate base rate or Term SOFR rate plus an applicable margin, subject to adjustment based on consolidated total net leverage ratio[149] - The Amended Credit Facility Agreement includes financial covenants such as a maximum consolidated total net leverage ratio of 4.0 to 1.0 and a minimum consolidated interest coverage ratio of 2.5 to 1.0[152] - On May 29, 2025, Enpro issued $450 million of 6.125% Senior Notes due 2033, which are unsecured, unsubordinated obligations[155] - The company has a share repurchase authorization of up to $50.0 million, approved in October 2024 and expiring in October 2026[160] Critical Accounting Estimates This section refers to the annual report for a discussion of critical accounting estimates - The company refers to its annual report on Form 10-K for the fiscal year ended December 31, 2024, for a discussion of its critical accounting estimates[161] Contingencies This section refers to Note 14 of the Consolidated Financial Statements for a description of the company's contingencies - A description of the company's contingencies is included in Note 14 to the Consolidated Financial Statements in this report[163] Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Measures This section provides reconciliations of non-GAAP financial measures, including adjusted net income and adjusted EBITDA, to their comparable GAAP measures - Reconciliations of net income to adjusted net income, adjusted diluted earnings per share, and adjusted EBITDA are provided to help readers understand the impact of certain selected items[164][165] Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted EPS (in millions, except per share amounts) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Net income | $26.4 | $26.7 | $50.9 | $39.2 | | Adjusted income before income taxes | $57.5 | $58.5 | $111.1 | $102.7 | | Adjusted income tax expense | $(14.4) | $(14.6) | $(27.7) | $(25.7) | | Adjusted net income | $43.1 | $43.9 | $83.4 | $77.0 | | Adjusted diluted earnings per share | $2.03 | $2.08 | $3.93 | $3.65 | Reconciliation of Net Income to Adjusted EBITDA (in millions) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Net income | $26.4 | $26.7 | $50.9 | $39.2 | | Adjusted EBITDA | $71.1 | $74.0 | $138.9 | $132.5 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Enpro manages market risks from foreign currency exchange rates and interest rates through operating activities and derivative instruments, while commodity risk is mitigated by passing costs to customers Foreign Currency Risk Enpro manages foreign currency risks from subsidiary balance sheet translations, intercompany loans, and transactions using derivative instruments like cross-currency swaps - Enpro is exposed to foreign currency risks from foreign subsidiary balance sheet translations, intercompany loans, and foreign currency transactions[172] - A forward contract hedging a 95 million Euro intercompany note, with a notional amount of $103.7 million at December 31, 2024, was settled in March 2025[172][173] - Cross-currency swap agreements with a $100.0 million notional amount are used to convert fixed-rate USD Senior Notes interest payments to Euro-denominated debt interest payments, maturing October 15, 2026[174] Commodity Risk Enpro is exposed to commodity price fluctuations for raw materials, which are mitigated by passing costs to customers and lean initiatives, without using hedging instruments - The company is exposed to price fluctuations in commodity raw materials such as steel, engineered plastics, copper, and polymers[176] - Enpro aims to mitigate commodity risk by passing price increases to customers and implementing lean initiatives, and does not hedge commodity risk with market risk sensitive instruments[176] Item 4. Controls and Procedures Enpro's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[178] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[179] PART II. OTHER INFORMATION Item 1. Legal Proceedings. This section refers to Note 14 for environmental and legal matters, stating that other ordinary course litigation is not expected to have a material adverse effect - A description of environmental and other legal matters is incorporated by reference from Note 14 to the Consolidated Financial Statements[181] - The company believes that the outcome of other ordinary course litigation will not materially adversely affect its financial condition, results of operations, and cash flows[181] Item 1A. Risk Factors. This section refers to the Annual Report on Form 10-K for detailed risk factors, noting increased raw material costs and supply chain disruptions as a material change - Reference is made to the Annual Report on Form 10-K for a detailed discussion of business risk factors[182] - A material change in risk factors includes increased costs for raw materials and potential supply chain disruptions, which could adversely affect the business, despite efforts to pass on higher costs[183] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Enpro made no share repurchases under its authorization in Q2 2025, but transferred 594 shares to a rabbi trust for the Deferred Compensation Plan Share Purchases in Q2 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :----------------------------- | :--------------------------- | | April 1 - April 30, 2025 | — | — | | May 1 - May 31, 2025 | — | — | | June 1 - June 30, 2025 | 594 | $191.00 | | Total | 594 | $191.00 | - No shares were purchased under the $50.0 million share repurchase authorization during Q2 2025[185] - 594 shares were transferred to a rabbi trust for the Deferred Compensation Plan for Non-Employee Directors in June 2025, valued at a weighted average price of $191.00 per share[186] Item 5. Other Information. No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025[187] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q report, including key agreements, equity plans, and certifications - The exhibit index includes the Indenture dated May 29, 2025, the Second Amendment to Third Amended and Restated Credit Agreement dated April 9, 2025, and the Enpro Inc. Amended and Restated 2020 Equity Compensation Plan[190] - Certifications from the Chief Executive Officer and Chief Financial Officer, along with InlineXBRL taxonomy extension documents, are also filed as exhibits[190]