EX-99.1 3 h12964exv99w1.txt PRESS RELEASE DATED FEBRUARY 24, 2004 EXHIBIT 99.1 (NATCO GROUP LOGO) PRESS RELEASE 2950 North Loop West, Suite 700 Houston, TX 77092 PHONE: (713) 685-8062 FAX: (713) 683-7841 -------------------------------------------------------------------------------- NATCO GROUP REPORTS FOURTH QUARTER AND YEAR END RESULTS HOUSTON, FEBRUARY 24, 2004 -------------------------------------------------------------------------------- NATCO Group Inc. (NYSE: NTG) today announced fourth quarter 2003 revenue of $77.0 million and net loss available to shareholders of $0.8 million ($(0.05) per share) compared to revenue and net income of $75.0 million and $1.3 million ($0.08 per share) for the fourth quarter of 2002. The 2003 fourth quarter net loss includes $1.2 million of closure and severance costs related to the Company's previously announced restructuring program, $0.3 million of net foreign exchange transaction losses, tax valuation allowances of $0.4 million and a $0.2 million impact of a change in the annual effective tax rate, compared with $1.0 million of similar expenses in the fourth quarter of 2002. Excluding these charges, net of tax, the Company's earnings available to common shareholders for the quarter would have been $0.7 million ($0.04 per share) for the quarter as compared to $1.8 million ($0.11 per share) for the fourth quarter of 2002.(1) NATCO revenue increased 2.7% compared to the prior year fourth quarter. Gross margins as a percent of revenue decreased from 25.8% of revenue to 22.9% year over year. Total segment profit2 for the fourth quarter was $4.4 million as compared to $5.3 million in the prior year. Lower gross margin percent and segment profit as compared to prior year is due to lower revenue in the current quarter from Pemex and membrane replacement sales, which carry relatively high margins and were significant in the fourth quarter of 2002. Excluding these two items, NATCO's results for the fourth quarter 2003 show a strong favorable comparison to fourth quarter 2002. Total segment profit for the fourth quarter was also 31.4% higher than the results for the third quarter of 2003. "The fourth quarter results reflect improvement over the third quarter, taking into account restructuring charges, and close out two difficult years for the Company," commented Nat Gregory, Chairman and Chief Executive Officer. "The story at the beginning of 2004 is quite different. North American activity for traditional production equipment and services has improved greatly due to last year's increase in the domestic rig count. Our new Sacroc facility expansion, which went into service at the end of the year is performing well as 2004 begins and will contribute significantly to our profitability growth this year. Pemex revenue and membrane replacement sales should also contribute significantly to 2004 profitability, although results can vary significantly from quarter to quarter, as the fourth quarter of 2003 illustrates. There is an encouraging level of prospects and bid activity for international projects, and the restructuring program we initiated in 2003 provides a good foundation to drive revenue growth to the bottom line in 2004 and beyond." The Company's closure and severance costs for the fourth quarter represent an increase over prior guidance as additional cost initiatives were undertaken at year-end. The Company expects to realize $5.0 million annual run-rate in expense reductions by the second half of 2004. The Company expects earnings per share for 2004, assuming current activity levels and market conditions, to be in the range of $0.40 to $0.50 per share on revenue of approximately $300 to $320 million. Total segment profit and earnings per share for the first quarter of 2004 are expected to be comparable to the fourth quarter of 2003, with significant improvement expected in the second quarter of 2004. Debt at year-end was $43.6 million with an overall debt to total capitalization ratio of 28.9%. As the Company's current credit facility expires March 31, 2004, all term loan and revolving debt is classified as current on the accompanying balance sheet as of December 31, 2003. The Company is in the process of refinancing its credit facility and expects to complete the refinancing in early March. NATCO will host a conference call today, February 24, 2004 at 9:00 am Central Time, 10:00 am Eastern Time, to discuss the quarter's results. The conference call will be broadcast live over the Internet to provide interested persons the opportunity to listen. Persons wishing to listen to the conference call may do so by logging onto http://www.firstcallevents.com/service/ajwz401145836gf12.html at least 10 minutes prior to the call. The call will also be available for replay on NATCO's investor relations webpage. 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 Form S-1 and the 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 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 third 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)
DECEMBER 31, DECEMBER 31, 2003 2002 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................................. $ 1,751 $ 1,689 Trade accounts receivable, net............................. 70,902 74,677 Inventories................................................ 34,573 32,400 Deferred income taxes, net................................. 2,846 5,506 Income tax receivable...................................... 987 299 Prepaid expenses and other current assets.................. 3,937 3,500 ---------- --------- Total current assets................................. 114,996 118,071 Property, plant and equipment, net........................... 37,076 29,791 Goodwill, net................................................ 80,097 78,977 Deferred income tax assets, net.............................. 4,290 2,984 Other assets, net............................................ 1,269 1,772 ---------- --------- Total assets......................................... $ 237,728 $ 231,595 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt (1)................. $ 42,428 $ 7,097 Accounts payable........................................... 38,976 36,074 Accrued expenses and other................................. 30,257 37,243 Customer advances.......................................... 5,527 1,354 ---------- --------- Total current liabilities............................ 117,188 81,768 Long-term debt, excluding current installments .............. 1,192 45,257 Postretirement benefit and other long-term liabilities....... 12,771 12,718 ---------- --------- Total liabilities.................................... 131,151 139,743 ---------- --------- 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 December 31, 2003 and 2002, respectively............................................. 159 158 Additional paid-in capital................................. 97,351 97,223 Accumulated earnings....................................... 8,115 8,734 Treasury stock, 795,692 shares at cost as of December 31, 2003 and 2002............................. (7,182) (7,182) Accumulated other comprehensive loss....................... (2,127) (3,395) Notes receivable from officers and stockholders............ (3,840) (3,686) ----------- --------- Total stockholders' equity........................... 92,476 91,852 ---------- --------- Commitments and contingencies Total liabilities and stockholders' equity........... $ 237,728 $ 231,595 ========== =========
(1) The Company's current credit facility expires March 31, 2004 and, as such, all term and revolving debt is classified as current at December 31, 2003. The Company is in the process of refinancing its credit facility and expects to complete the refinancing in early March. NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------- -------------------- 2003 2002 2003 2002 ------- ------- -------- -------- Revenues........................................... $77,035 $75,002 $281,462 $289,539 Cost of goods sold................................. 59,414 55,650 215,459 219,354 ------- ------- -------- -------- Gross profit............................. 17,621 19,352 66,003 70,185 Selling, general and administrative expense........ 13,185 14,084 51,476 53,947 Depreciation and amortization expense.............. 1,418 1,318 5,069 4,958 Closure and other.................................. 1,158 548 2,105 548 Interest expense................................... 996 1,104 4,085 4,527 Interest cost on postretirement benefit liability.. 209 104 837 471 Interest income.................................... (49) (74) (190) (248) Other, net......................................... 381 636 1,211 400 ------- ------- ------- ------- Income before income taxes and cumulative effect of change in accounting principle.... 323 1,632 1,410 5,582 Income tax provision............................... 744 326 1,243 1,705 ------- ------- ------- ------- Net income (loss) before cumulative effect of change in accounting principle.............. (421) 1,306 167 3,877 Cumulative effect of change in accounting principle (net of tax benefit of $18)............ -- -- 34 -- ------- ------- ------- ------- Net income (loss)........................ $ (421) $ 1,306 $ 133 $ 3,877 Preferred stock dividends.......................... 375 -- 1,152 -- ------- ------- ------- ------- Net income (loss) available to common stockholders........................... $ (796) $ 1,306 $(1,019) $ 3,877 ======= ======= ======= ======= Earnings per share--basic: Net income (loss) before cumulative effect of change in accounting principle.................. $ (0.05) $ 0.08 $ (0.06) $ 0.25 Cumulative effect of change in accounting principle........................................ -- -- -- -- ------- ------- ------- ------- Net income (loss) available to common stockholders........................... $ (0.05) $ 0.08 $ (0.06) $ 0.25 ======= ======= ======= ======= Earnings per share--diluted: Net income (loss) before cumulative effect of change in accounting principle................... $ (0.05) $ 0.08 $ (0.06) $ 0.24 Cumulative effect of change in accounting principle........................................ -- -- -- -- ------- ------- ------- ------- Net (loss) income available to common stockholders........................... $ (0.05) $ 0.08 $ (0.06) $ 0.24 ======= ======= ======= ======= Basic weighted average number of shares of common stock outstanding......................... 15,854 15,804 15,841 15,804 Diluted weighted average number of shares of common stock outstanding...................... 15,854 15,867 15,841 15,920
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED SEGMENT INFORMATION (IN THOUSANDS)
Three Months Ended Year Ended December 31, December 31, ---------------------- ----------------------- 2003 2002 2003 2002 ------- ------- -------- -------- Revenue: North American Operations $40,381 $34,726 $132,670 $137,374 Engineered systems 24,136 27,928 98,280 107,041 Automation & Control Systems 14,027 14,282 56,679 52,142 Eliminations (1,509) (1,934) (6,167) (7,018) ------- ------- -------- -------- Total revenue $77,035 $75,002 $281,462 $289,539 ======= ======= ======== ======== Gross profit: North American Operations $ 9,595 $10,611 $33,775 $37,583 Engineered Systems 5,706 6,290 22,525 23,213 Automation & Control Systems 2,320 2,451 9,703 9,389 Eliminations -- -- -- -- ------- ------- -------- -------- Total gross profit $17,621 $19,352 $ 66,003 $ 70,185 ======= ======= ======== ======== Gross profit % of revenue: North American Operations 23.8% 30.6% 25.5% 27.4% Engineered Systems 23.6% 22.5% 22.9% 21.7% Automation & Control Systems 16.5% 17.2% 17.1% 18.0% Total gross profit % of revenue 22.9% 25.8% 23.5% 24.2% Operating expenses: North American Operations $ 6,401 $ 6,123 $ 23,657 $ 25,334 Engineered Systems 4,673 5,746 19,237 20,250 Automation & Control Systems 1,344 1,407 4,906 5,063 Corporate and other 767 808 3,676 3,300 ------- ------- -------- -------- Total operating expenses $13,185 $14,084 $ 51,476 $ 53,947 ======= ======= ======== ======== Segment profit: North American Operations $ 3,194 $ 4,488 $ 10,118 $ 12,249 Engineered Systems 1,033 544 3,288 2,963 Automation & Control Systems 976 1,044 4,797 4,326 Corporate and other (767) (808) (3,676) (3,300) ------- ------- -------- -------- Total segment profit $ 4,436 $ 5,268 $ 14,527 $ 16,238 ======= ======= ======== ======== Bookings: North American Operations $35,802 $34,628 $132,467 $126,104 Engineered Systems 20,098 6,752 71,445 105,698 Automation & Control Systems 13,629 15,450 51,401 46,575 ------- ------- -------- -------- Total bookings $69,529 $56,830 $255,313 $278,377 ======= ======= ======== ======== As of December 31, ----------------------- 2003 2002 -------- -------- Backlog: North American Operations $ 15,216 $ 14,051 Engineered Systems 45,009 71,059 Automation & Control Systems 3,726 4,989 -------- -------- Total backlog $ 63,951 $ 90,099 ======== ========
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF EARNINGS AND EARNINGS PER SHARE TO NON-GAAP DISCLOSURES (IN THOUSANDS)
FOR THE QUARTER ENDED DECEMBER 31, 2003 ---------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net loss............................................ $ (421) Certain adjustments: Closure and other................................ 1,158 Loss on foreign exchange, net(1)................. 273 Tax effect(2).................................... (595) Tax valuation allowances......................... 409 Impact of change in annual effective tax rate on current quarter........................ 204 ------- Adjusted net income................................. 1,028 Preferred stock dividends accrued................... (375) ------- Income available to common shareholders (adjusted for certain items)................... $ 653 ======= BASIC EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders............. $ 653 15,854 $ 0.04 ====== EFFECT OF DILUTIVE SECURITIES Stock options....................................... -- 50 ------- ------ DILUTED EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders............. $ 653 15,904 $ 0.04 ======= ====== ======
FOR THE QUARTER ENDED DECEMBER 31, 2002 ---------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income.......................................... $ 1,306 Certain adjustments: Closure and other................................ 548 Loss on foreign exchange, net(1)................. 409 Tax effect(2).................................... (474) ------- Adjusted net income................................. 1,789 Preferred stock dividends accrued................... -- ------- Income available to common shareholders (adjusted for certain items)................... $ 1,789 ======= BASIC EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders............. $ 1,789 15,804 $ 0.11 ====== EFFECT OF DILUTIVE SECURITIES Stock options....................................... -- 63 ------- ------ DILUTED EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders............. $ 1,789 15,867 $ 0.11 ======= ====== ======
(1) Included in Other, net in the accompanying income statement. (2) Calculated at the effective tax rate, assuming exclusion of Closure and other, Loss on foreign exchange, net and Tax valuation allowances.