EX-99.1 3 h07964exv99w1.txt PRESS RELEASE DATED AUGUST 4, 2003 EXHIBIT 99.1 [NATCOGROUP LOGO] [PRESS RELEASE] 2950 North Loop West, Suite 700 Houston, TX 77092 PHONE: (713) 685-8062 FAX: (713) 683-7841 NATCO GROUP REPORTS SECOND QUARTER RESULTS HOUSTON, AUGUST 4, 2003 -------------------------------------------------------------------------------- NATCO Group Inc. (NYSE: NTG) today announced second quarter 2003 revenue and earnings of $70.6 million and $0.3 million compared to $74.4 million and $1.1 million, respectively, for the second quarter of 2002. Earnings available to common shareholders are $0.0 million ($0.00 per diluted share), after adjusting for a $0.4 million preferred stock dividend, compared to $1.1 million ($0.07 per diluted share) for the second quarter of 2002. Included in second quarter 2003 and 2002 earnings, classified as other expense, net, are unrealized foreign exchange transaction losses of $0.6 million and $0.2 million, respectively. Excluding these charges, net of tax, earnings available to common shareholders for the current quarter were $0.3 million ($0.02 per diluted share) and $1.3 million ($0.08 per diluted share) for the second quarter of 2002 (see footnote (1) below). The year over year decrease in second quarter revenue reflects lower sales for both traditional production equipment in North America and larger international production systems projects. The company's gross profit as a percentage of revenue was essentially flat year over year, with stronger relative performance at its Houston engineered systems operation offset by lower gross profit at the company's engineered systems operation in the UK. Gross profit percentage declined for the automation and controls segment, against modestly higher revenue compared to the second quarter of 2002. The company's second quarter operating expenses were in line with the second quarter of 2002. Segment profit (see footnote (2) below) for the second quarter of 2003 was $3.5 million, compared to $4.6 million for the second quarter of the prior year. The decrease was due in part to lower engineered systems results, as well as lower sales of traditional production equipment in North America that were partially offset by an increased contribution from the company's CO2 membrane field operations. The expansion of the company's Sacroc facility remains on target and is expected to begin contributing additional income in the fourth quarter. New bookings of $66.5 million were below the $101.1 million reported for the second quarter of 2002, which included two very large West African projects. Bookings in the company's key North American segment, however, were 14% higher than the prior year quarter and 42% higher than the first quarter of 2003. "U.S. traditional bookings were relatively strong in the latter part of the second quarter, Canadian traditional bookings have picked up recently, and overall North American bookings are up compared to last year," commented Nat Gregory, Chairman and CEO. "Traditional production equipment sales historically lag the trend in rig activity, and the company expects the increase in the rig count since the beginning of the year to favorably impact results for the second half of 2003. Further, only modest revenue and profit were recorded in the second quarter from projects for Petroleos Mexicanos (Pemex), although a number of projects are currently underway, and we expect a solid contribution from projects for Pemex in the second half of 2003. This long overdue improvement in our North American segment should drive an increase in our overall profitability." The company's consolidated debt as of June 30, 2003 was $47.8 million. In July, the company amended its loan agreements to modify certain financial covenants. NATCO Group Inc. is a leading provider of wellhead process equipment, systems and services used in the production of oil and gas. NATCO has designed, manufactured and marketed production equipment and services for more than 70 years. NATCO production equipment is used onshore and offshore in most major oil and gas producing regions of the world. Statements made in this press release that are forward-looking in nature are intended to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and may involve risk and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to documents filed by NATCO Group Inc. with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which identifies significant risk factors which could cause actual results to differ from those contained in the forward-looking statements. (1) These figures represent non-GAAP financial measures as defined under Regulation G. The most directly comparable financial measures calculated in accordance with GAAP are presented in the first sentence of the first paragraph of this press release. A schedule reconciling the non-GAAP and GAAP presentations is included in tabular form at the end of this press release. (2) The company calculates segment profit, previously defined as "Internal Profit" in the first quarter of 2003, as income before net interest expense, income taxes, depreciation and amortization expense, other expense, net, and accounting changes. This information is used internally by the company's management to evaluate the results of operations. The company's management has chosen to present this information to investors as comparative information about the company's on-going financial performance. During the quarter, the company changed its definition of segment profit from what was previously disclosed in the December 31, 2002 form 10-K. NATCO GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2003 2002 ---------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................................. $ 796 $ 1,689 Trade accounts receivable, net............................. 74,554 74,677 Inventories................................................ 35,851 32,400 Prepaid expenses and other current assets.................. 8,541 7,611 ---------- --------- Total current assets................................. 119,742 116,377 Property, plant and equipment, net........................... 35,595 31,485 Goodwill, net................................................ 79,809 78,977 Deferred income tax assets, net.............................. 2,633 2,984 Other assets, net............................................ 1,424 1,772 ---------- --------- Total assets......................................... $ 239,203 $ 231,595 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt..................... $ 17,392 $ 7,097 Accounts payable........................................... 34,729 36,074 Accrued expenses and other................................. 33,629 37,243 Customer advances.......................................... 2,876 1,354 ---------- --------- Total current liabilities............................ 88,626 81,768 Long-term debt, excluding current installments............... 30,366 45,257 Postretirement benefit and other long-term liabilities....... 12,296 12,718 ---------- --------- Total liabilities.................................... 131,288 139,743 ---------- --------- Series B redeemable convertible preferred stock (aggregate redemption value of $15,000), $.01 par value. 15,000 shares authorized, issued and outstanding (net of issuance costs).................................... 14,101 -- Stockholders' equity: Preferred stock $.01 par value. Authorized 5,000,000 shares (of which 500,000 are authorized under Series A and 15,000 are authorized under Series B); no shares issued and outstanding (except Series B shares above)........... -- -- Series A preferred stock, $.01 par value. Authorized 500,000 shares; no shares issued and outstanding......... -- -- Common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 15,854,067 and 15,803,797 shares as of June 30, 2003 and December 31, 2002, respectively.......................... 159 158 Additional paid-in capital................................. 97,334 97,223 Accumulated earnings....................................... 8,700 8,734 Treasury stock, 795,692 shares at cost as of June 30, 2003 and December 31, 2002.................................... (7,182) (7,182) Accumulated other comprehensive loss....................... (1,432) (3,395) Notes receivable from officers and stockholders............ (3,765) (3,686) ----------- --------- Total stockholders' equity........................... 93,814 91,852 ---------- --------- Commitments and contingencies Total liabilities and stockholders' equity........... $ 239,203 $ 231,595 ========== =========
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 2003 2002 2003 2002 ------- ------- -------- -------- Revenues........................................... $70,613 $74,396 $138,626 $147,974 Cost of goods sold................................. 54,066 56,734 106,268 112,049 ------- ------- -------- -------- Gross profit............................. 16,547 17,662 32,358 35,925 Selling, general and administrative expense........ 12,999 13,019 25,643 26,564 Depreciation and amortization expense.............. 1,254 1,193 2,484 2,352 Interest expense................................... 1,077 1,152 2,139 2,169 Interest cost on postretirement benefit liability.. 210 123 419 245 Interest income.................................... (50) (97) (99) (153) Other, net......................................... 553 432 1,129 35 ------- ------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle................. 504 1,840 643 4,713 Income tax provision............................... 194 706 244 1,806 ------- ------- -------- -------- Net income before cumulative effect of change in accounting principle............ 310 1,134 399 2,907 Cumulative effect of change in accounting principle (net of tax benefit of $18)......... -- -- 34 -- ------- ------- -------- -------- Net income............................... $ 310 $ 1,134 $ 365 $ 2,907 ======= ======= ======== ======== Earnings per share--basic: Net income before cumulative effect of change in accounting principle.......................... $ -- $ 0.07 $ -- $ 0.18 Cumulative effect of change in accounting principle.......................... -- -- -- -- ------- ------- -------- -------- Net income............................... $ -- $ 0.07 $ -- $ 0.18 ======= ======= ======== ======== Earnings per share--diluted: Net income before cumulative effect of change in accounting principle.......................... $ -- $ 0.07 $ -- $ 0.18 Cumulative effect of change in accounting principle.......................... -- -- -- -- ------- ------- -------- -------- $ -- $ 0.07 $ -- $ 0.18 Net income............................... ======= ======= ======== ======== Basic weighted average number of shares of common stock outstanding...................... 15,849 15,804 15,827 15,804 Diluted weighted average number of shares of common stock outstanding................... 15,906 15,957 15,890 15,947
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED SEGMENT INFORMATION (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Revenue: North American Operations $ 30,956 $ 32,736 $ 59,571 $ 71,112 Engineered systems 27,261 30,310 53,307 55,419 Automation & Control Systems 14,007 13,130 29,248 24,995 Eliminations (1,611) (1,780) (3,500) (3,552) --------- --------- --------- --------- Total revenue $ 70,613 $ 74,396 $ 138,626 $ 147,974 ========= ========= ========= ========= Gross profit: North American Operations $ 8,261 $ 8,630 $ 15,614 $ 18,880 Engineered Systems 5,918 6,472 11,790 12,324 Automation & Control Systems 2,368 2,560 4,954 4,721 Eliminations -- -- -- -- --------- --------- --------- --------- Total gross profit $ 16,547 $ 17,662 $ 32,358 $ 35,925 ========= ========= ========= ========= Gross profit % of revenue: North American Operations 26.7% 26.4% 26.2% 26.5% Engineered Systems 21.7% 21.4% 22.1% 22.2% Automation & Control Systems 16.9% 19.5% 16.9% 18.9% Total gross profit % of revenue 23.4% 23.7% 23.3% 24.3% Operating expenses: North American Operations $ 5,406 $ 5,684 $ 10,820 $ 11,689 Engineered Systems 4,571 4,174 8,674 8,202 Automation & Control Systems 1,119 1,054 2,387 2,303 Technology & Product Development 897 860 1,819 1,679 Corporate and other 1,006 1,247 1,943 2,691 --------- --------- --------- --------- Total operating expenses $ 12,999 $ 13,019 $ 25,643 $ 26,564 ========= ========= ========= ========= Segment profit: North American Operations $ 2,855 $ 2,946 $ 4,794 $ 7,191 Engineered Systems 1,347 2,298 3,116 4,122 Automation & Control Systems 1,249 1,506 2,567 2,418 Technology & product development (897) (860) (1,819) (1,679) Corporate and other (1,006) (1,247) (1,943) (2,691) --------- --------- --------- --------- Total segment profit $ 3,548 $ 4,643 $ 6,715 $ 9,361 ========= ========= ========= ========= Bookings: North American Operations $ 35,212 $ 30,976 $ 60,093 $ 61,014 Engineered Systems 18,324 60,204 40,432 70,416 Automation & Control Systems 12,940 9,905 26,662 18,977 --------- --------- --------- --------- Total bookings $ 66,476 $ 101,085 $ 127,187 $ 150,407 ========= ========= ========= =========
As of June 30, ----------------------------- 2003 2002 --------- --------- Backlog: North American Operations $ 15,402 $ 14,624 Engineered Systems 58,249 86,291 Automation & Control Systems 5,009 2,779 --------- --------- Total backlog $ 78,660 $ 103,694 ========= =========
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF EARNINGS AND EARNINGS PER SHARE TO NON-GAAP DISCLOSURES (IN THOUSANDS)
FOR THE QUARTER ENDED JUNE 30, 2003 ----------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT -------------- -------------- ---------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income....................................... $ 310 Less: Preferred stock dividends accrued......... (374) ------ Net income available to common shareholders.... (64) Certain adjustments: Unrealized foreign exchange transaction losses included in other expense, net........ 577 Tax effect..................................... (219) ----- Income available to common shareholders (adjusted for certain items)................. $ 294 ===== BASIC EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders.......... $ 294 15,849 $ .02 ===== EFFECT OF DILUTIVE SECURITIES Stock options.................................... -- 57 ----- ------ DILUTED EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders.......... $ 294 15,906 $ .02 ===== ====== =====
FOR THE QUARTER ENDED JUNE 30, 2002 ----------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT -------------- -------------- ---------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income....................................... $1,134 Certain adjustments: Unrealized foreign exchange transaction losses included in other expense, net........ 276 Tax effect..................................... (105) ------ Income available to common shareholders (adjusted for certain items)................. $1,305 ====== BASIC EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders.......... $1,305 15,804 $ .08 ===== EFFECT OF DILUTIVE SECURITIES Stock options.................................... -- 153 ------ ------ DILUTED EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders.......... $1,305 15,957 $ .08 ====== ====== =====