EX-99.1 2 h17306exv99w1.txt PRESS RELEASE DATED AUGUST 3, 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 SECOND QUARTER RESULTS; ANNOUNCES SUCCESSFUL FIELD OPERATION OF COMPACT OIL TREATING TECHNOLOGY HOUSTON, AUGUST 3, 2004 -------------------------------------------------------------------------------- NATCO Group Inc. (NYSE: NTG) today announced second quarter 2004 revenue of $73.3 million and net income available to common shareholders of $0.2 million ($0.02 per share) as compared to revenue of $70.6 million and net loss of $0.1 million ($0.00 per share) for the second quarter of 2003. The 2004 second quarter earnings include charges of $0.6 million primarily related to net foreign exchange transaction losses, as compared to $0.5 million of net foreign exchange transaction losses for the second quarter of 2003. Excluding these charges, net of tax, the Company's net income available to common shareholders for the 2004 quarter would have been $0.6 million ($0.04 per share), as compared to $0.3 million ($0.02 per share) for the second quarter of 2003. The Company reported bookings of $79.3 million, a 19% increase over the second quarter of 2003. Booking highlights include: orders for a large CO2 processing facility and a Shell-Paques(TM) desulfurization system, both located in West Texas; an order for oil treating and water processing equipment for the Roncador field development in Brazil; additional equipment sales to Lukoil in Russia; and continued strong activity in traditional sales in the US Rocky Mountain region. Based on total bookings of $183.4 million over the first half of the year, the Company's backlog has increased 59% to $102.0 million between January 1 and June 30, 2004, reflecting solid improvement in market conditions. Higher bookings and backlog represents orders which will be taken to revenue in subsequent quarters, and NATCO anticipates revenue will increase substantially beginning in the second half of this year. The Company reiterated its guidance for 2004 earnings per share between $0.40 and $0.50 before net foreign exchange transaction losses and other charges taken in the first and second quarters of the year, as well as CEO separation costs, estimated at $1.5 million net of taxes, which will be recorded in the third quarter of 2004. Revenue in the Company's North American Operations segment for the second quarter was $42.7 million, a 38% increase over prior year. Segment profit for North American Operations was $5.3 million, more than twice the prior year level of $2.5 million. The highest growth rates in this segment were recorded in the Rocky Mountains, with equipment, parts and service revenue increasing well over 50% compared to the prior year. Reflecting customer demand in the area, NATCO initiated an expansion of its branch in Grand Junction, Colorado, in July and the outlook for continued growth in the Rocky Mountains remains positive. Traditional business in Canada also strengthened, with revenue up 30% compared to the prior year. Further increases are expected in the second half of 2004, reflecting a larger percent completion on projects for Lukoil. The Company's Sacroc facility continues to operate at levels well above the prior year. Other areas in the segment have experienced more moderate growth, while traditional business activity in the Gulf of Mexico has yet to recover. "Traction in our North American Operations segment continues to increase, partly in delayed response to the growth in rig count over the past year," commented CEO Nat Gregory. "Much of the higher bookings level we have seen since late 2003 is just now starting to kick in, so this should continue to be one of our primary growth engines for the second half of 2004 and beyond." Second quarter results for the Company's Automation and Control Systems segment continued to be down significantly from prior year, reflecting market weakness in the Gulf of Mexico and runoff of a number of large projects in 2003. Segment revenue declined 31% as compared to prior year, and segment profit was $0.6 million, as compared to $1.2 million in the second quarter of 2003. Segment profit improved modestly compared to the first quarter of 2004 due to higher margins despite decreased revenue. Gross margin percentage increased due to excellent execution on several projects completed in the quarter, combined with steps to reduce production expenses. Results for the Company's Engineered Systems segment were also down from prior year on reduced revenue. The reduction was due in part to a $7.1 million swing between the current quarter and prior year on revenue recorded for the Company's Kizomba-B seawater injection project. That project is currently 70% complete, with final equipment deliveries expected in late 2004 and early 2005. While segment revenue declined, bookings increased 35% as compared to prior year, and the Company continued to restore backlog in its Engineered Systems segment. Gross margin percentage was adversely affected in the quarter by cost increases related to an Angolan project. Gross margin percentage is expected to increase modestly during the remainder of the year. Corporate and other expenses increased significantly as compared to prior year. The Company incurred higher expenses for outside services, related in part to compliance with Section 404 of the Sarbanes-Oxley Act. The Company also recorded a $0.6 million provision against a receivable from the prior year due from Pemex. NATCO also announced the successful startup and field operation of its compact oil dehydration technology, Dual Frequency(TM). The technology was recently installed to de-bottleneck oil production equipment in Venezuela. Initial results indicate the capability of doubling throughput capacity of existing equipment in this case, and the Company anticipates additional applications for Dual Frequency(TM) technology to de-bottleneck upstream and downstream facilities in operation around the world. NATCO is a market leader in oil processing and has devoted considerable resources in recent years to develop technology that will reduce the size and increase the efficiency of oil dehydration and desalting equipment. 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 75 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 risks 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. NATCO GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2004 2003 --------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ................................................... $ 1,979 $ 1,751 Trade accounts receivable, net .............................................. 75,419 70,902 Inventories ................................................................. 38,593 34,573 Prepaid expenses and other current assets ................................... 8,249 7,770 --------- --------- Total current assets .................................................. 124,240 114,996 Property, plant and equipment, net ............................................ 36,008 37,076 Goodwill, net ................................................................. 79,875 80,097 Deferred income tax assets, net ............................................... 3,435 4,290 Other assets, net ............................................................. 1,294 1,269 --------- --------- Total assets .......................................................... $ 244,852 $ 237,728 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt ...................................... $ 10,026 $ 5,617 Accounts payable ............................................................ 32,441 38,976 Accrued expenses and other .................................................. 28,606 30,257 Customer advances ........................................................... 16,446 5,527 --------- --------- Total current liabilities ............................................. 87,519 80,377 Long-term debt, excluding current installments ................................ 38,919 38,003 Postretirement benefit and other long-term liabilities ........................ 12,208 12,771 --------- --------- Total liabilities ..................................................... 138,646 131,151 --------- --------- 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) ................................................... 14,222 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 15,922,661 and 15,854,067 shares as of June 30, 2004 and December 31, 2003, respectively ............ 159 159 Additional paid-in capital .................................................. 97,790 97,351 Accumulated earnings ........................................................ 7,942 8,115 Treasury stock, 795,692 shares at cost as of June 30, 2004 and December 31, 2003 ........................................................ (7,182) (7,182) Accumulated other comprehensive loss ........................................ (2,811) (2,127) Notes receivable from officers and stockholders ............................. (3,914) (3,840) --------- --------- Total stockholders' equity ............................................ 91,984 92,476 --------- --------- Commitments and contingencies Total liabilities and stockholders' equity ............................ $ 244,852 $ 237,728 ========= =========
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, ------------------------ ------------------------ 2004 2003 2004 2003 --------- --------- --------- --------- Revenues ......................................................... $ 73,347 $ 70,613 $ 145,331 $ 138,626 Cost of goods sold ............................................... 55,716 54,066 110,885 106,268 --------- --------- --------- --------- Gross profit ........................................... 17,631 16,547 34,446 32,358 Selling, general and administrative expense ...................... 13,584 12,999 26,879 25,643 Depreciation and amortization expense ............................ 1,364 1,254 2,738 2,484 Closure and other ................................................ 85 -- 85 230 Interest expense ................................................. 871 1,077 1,806 2,139 Write-off of unamortized loan costs .............................. -- -- 667 -- Interest cost on postretirement benefit liability ................ 225 210 450 419 Interest income .................................................. (44) (50) (106) (99) Other, net ....................................................... 518 553 972 899 --------- --------- --------- --------- Income before income taxes and cumulative effect of change in accounting principle .................................... 1,028 504 955 643 Income tax provision ............................................. 407 194 378 244 --------- --------- --------- --------- Net income before cumulative effect of change in accounting principle ................................. 621 310 577 399 Cumulative effect of change in accounting principle (net of tax benefit of $18 in 2003) .......................... -- -- -- 34 --------- --------- --------- --------- Net income ............................................. $ 621 $ 310 $ 577 $ 365 Preferred stock dividends ........................................ 375 374 750 399 --------- --------- --------- --------- Net income (loss) available to common stockholders ..... $ 246 $ (64) $ (173) $ (34) ========= ========= ========= ========= Earnings per share--basic: Net income (loss) before cumulative effect of change in accounting principle .................................................... $ 0.02 $ (0.00) $ (0.01) $ (0.00) Cumulative effect of change in accounting principle .............. -- -- -- -- --------- --------- --------- --------- Net income (loss) ...................................... $ 0.02 $ (0.00) $ (0.01) $ (0.00) ========= ========= ========= ========= Earnings per share--diluted: Net income (loss) before cumulative effect of change in accounting principle .................................................... $ 0.02 $ (0.00) $ (0.01) $ (0.00) Cumulative effect of change in accounting principle .............. -- -- -- -- --------- --------- --------- --------- Net income (loss) ...................................... $ 0.02 $ (0.00) $ (0.01) $ (0.00) ========= ========= ========= ========= Basic weighted average number of shares of common stock outstanding ....................................... 15,923 15,849 15,915 15,804 Diluted weighted average number of shares of common stock outstanding .................................... 16,033 15,849 15,915 15,804
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED SEGMENT INFORMATION (IN THOUSANDS, EXCEPT PERCENTAGES)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Revenue: North American Operations $ 42,713 $ 30,956 $ 80,221 $ 59,571 Engineered Systems 22,674 27,261 46,782 53,307 Automation & Control Systems 9,682 14,007 21,300 29,248 Eliminations (1,722) (1,611) (2,972) (3,500) --------- --------- --------- --------- Total revenue $ 73,347 $ 70,613 $ 145,331 $ 138,626 ========= ========= ========= ========= Gross profit: North American Operations $ 11,357 $ 8,261 $ 22,376 $ 15,614 Engineered Systems 4,556 5,918 8,804 11,790 Automation & Control Systems 1,718 2,368 3,266 4,954 Eliminations -- -- -- -- --------- --------- --------- --------- Total gross profit $ 17,631 $ 16,547 $ 34,446 $ 32,358 ========= ========= ========= ========= Gross profit % of revenue: North American Operations 26.6% 26.7% 27.9% 26.2% Engineered Systems 20.1% 21.7% 18.8% 22.1% Automation & Control Systems 17.7% 16.9% 15.3% 16.9% Total gross profit % of revenue 24.0% 23.4% 23.7% 23.3% Operating expenses: North American Operations $ 6,047 $ 5,773 $ 12,227 $ 11,581 Engineered Systems 3,972 5,101 8,394 9,732 Automation & Control Systems 1,155 1,119 2,315 2,387 Corporate and other 2,410 1,006 3,943 1,943 --------- --------- --------- --------- Total operating expenses $ 13,584 $ 12,999 $ 26,879 $ 25,643 ========= ========= ========= ========= Segment profit: North American Operations $ 5,310 $ 2,488 $ 10,149 $ 4,033 Engineered Systems 584 817 410 2,058 Automation & Control Systems 563 1,249 951 2,567 Corporate and other (2,410) (1,006) (3,943) (1,943) --------- --------- --------- --------- Total segment profit $ 4,047 $ 3,548 $ 7,567 $ 6,715 ========= ========= ========= ========= Bookings: North American Operations $ 46,234 $ 35,212 $ 100,570 $ 60,093 Engineered Systems 24,775 18,324 56,634 40,432 Automation & Control Systems 8,296 12,940 26,152 26,662 --------- --------- --------- --------- Total bookings $ 79,305 $ 66,476 $ 183,356 $ 127,187 ========= ========= ========= =========
As of June 30, ------------------------ Backlog: 2004 2003 -------- -------- North American Operations $ 36,812 $ 15,402 Engineered Systems 55,024 58,249 Automation & Control Systems 10,142 5,009 -------- -------- Total backlog $101,978 $ 78,660 ======== ========
NATCO GROUP INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF EARNINGS AND EARNINGS PER SHARE TO NON-GAAP DISCLOSURES
FOR THE QUARTER ENDED JUNE 30, 2004 ------------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income $ 621 Certain adjustments: Closure and other 85 Loss on foreign exchange, net (1) 468 Tax effect of certain adjustments (2) (219) ------ Adjusted net income $ 955 Preferred stock dividends accrued (375) ------ Income available to common shareholders (adjusted for certain items) $ 580 ====== BASIC EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders $ 580 15,923 $ 0.04 ======== EFFECT OF DILUTIVE SECURITIES Stock options -- 110 ------ ------ DILUTED EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders $ 580 16,033 $ 0.04 ====== ====== ========
FOR THE QUARTER ENDED JUNE 30, 2003 ------------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income $ 310 Certain adjustments: Loss on foreign exchange, net (1) 536 Tax effect of certain adjustments (2) (206) ------ Adjusted net income $ 640 Preferred stock dividends accrued (374) ------ Income available to common shareholders (adjusted for certain items) $ 266 ====== BASIC EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders $ 266 15,849 $ .02 ====== ======= EFFECT OF DILUTIVE SECURITIES Stock options -- 57 ------ ------ DILUTED EPS (ADJUSTED FOR CERTAIN ITEMS): Income available to common stockholders $ 266 15,906 $ .02 ====== ====== =======
(1) Included in Other Expense, Net in the accompanying income statement. (2) Calculated at the applicable effective tax rate for the period.