NATCO Group Inc. Announces Second Quarter Results

- Record Quarterly Bookings and Ending Backlog

HOUSTON, Aug. 5 /PRNewswire-FirstCall/ -- NATCO Group Inc. (NYSE: NTG)
today announced revenue for the second quarter 2008 of $160.4 million, an
increase of 14% over second quarter 2007 revenue of $140.7 million. Net income
available to common stockholders for the second quarter 2008 was $6.2 million,
or $0.31 per diluted share. Included in net income available to common
stockholders for the second quarter 2008 are expenses associated with the
Company's ongoing review of certain payments made in a foreign jurisdiction
("FCPA review") of $3.2 million net of tax, or $0.16 per diluted share. The
current quarter's earnings compare with net income available to common
stockholders for the second quarter 2007 of $11.8 million, or $0.62 per
diluted share.
Segment profit was $12.1 million for the second quarter 2008, compared
with $20.2 million for the second quarter 2007. Included in segment profit for
the second quarter 2008 are expenses associated with the Company's ongoing
FCPA review of $5.0 million.
Bookings for the second quarter 2008 were a record $238.5 million, up 96%
from second quarter 2007 bookings of $121.4 million. Backlog at June 30, 2008,
totaled $273.1 million, an increase of $78.7 million or 40% over the June 30,
2007 backlog of $194.4 million.
John U. Clarke, NATCO's Chairman and CEO said, "As expected, the delay in
project bookings during 2007 resulted in lower revenue and earnings in the
second quarter 2008. However, with back-to-back record bookings quarters and
an all-time high backlog, the prospects for a return to year-over-year growth
in the second half of 2008 and 2009 are very good. Highlighting bookings
during the quarter is the previously announced $24.9 million CO2 membrane
project in the Bouri field offshore Libya. This project highlights the
importance and growing market for our technologies as enhanced oil recovery
and complex developments become a larger percentage of producing reserves."
For the year to date period ended June 30, 2008, the Company posted
revenue of $312.4 million, up 17% over year to date 2007; segment profit of
$30.2 million, including $7.1 million of FCPA review expense, compared with
$35.7 million year-to-date 2007; and net income available to common
stockholders in 2008, of $15.8 million, or $0.81 per diluted share, including
$4.6 million, or $0.23 per diluted share, of after tax FCPA review expense,
compared with net income available to common stockholders of $20.2 million, or
$1.07 per diluted share for year to date 2007.
Bookings for the 2008 year to date period were $414.9 million, up 63% from
2007 year to date bookings of $255.2 million.
For the second quarter 2008, the Standard and Traditional segment posted
revenue of $85.2 million, up 29% from the second quarter 2007 revenue of
$65.8 million. Segment profit decreased $2.5 million to $5.0 million
primarily as the result of higher steel pricing which negatively affected
margins and $2.5 million of costs during the quarter associated with the
ongoing FCPA review offset in part by the contribution from the recent Linco
acquisition. Second quarter 2008 bookings for the segment were $112.6 million
compared with $55.5 million for the second quarter 2007.
Revenue from the Integrated Engineered Solutions segment was $51.5 million
in the second quarter 2008, compared with $49.9 million in the second quarter
2007. Segment profit for the second quarter 2008 of $5.6 million decreased
from $8.5 million in the prior year period primarily as a result of increased
operating costs associated with the Company's ongoing initiatives in
downstream market penetration and Saudi joint venture organization and $1.8
million of costs associated with the Company's ongoing FCPA review during the
second quarter. Bookings in the second quarter 2008 totaled $104.2 million,
compared with $38.1 million in the second quarter 2007.
Revenue and segment profit contribution from the Automation & Controls
segment in the second quarter 2008 decreased 5% and 63%, respectively, over
the prior year's comparable period to $25.0 million and $1.5 million,
respectively. The decrease in revenue is attributable to reduced field
service activities on the nearly completed Kazakhstan facility upgrade
project. The decrease in segment profit is the result of lower contribution
from international field service operations, and $0.7 million of costs
associated with the Company's ongoing FCPA review.
Diluted weighted average shares outstanding of 19.8 million for the second
quarter 2008 increased from 19.6 million in the second quarter of 2007 as a
result of the impact of the Company's stock options and restricted stock
issued pursuant to the Company's stock compensation plans.
Mr. Clarke concluded, "The stage is set for improvement in the second half
of 2008. We continue to book project work at a record pace and expect 2009 to
return to the superior growth rates we have shown in recent years. Expenses we
are incurring today for our growth initiatives, including our downstream
market focus and Saudi JV organization, will begin to contribute meaningfully
in late 2008 and 2009. Additionally, we believe we are nearing the end of our
FCPA review which will allow us to focus on the many growth initiatives
underway."
The Company is reaffirming 2008 guidance with respect to segment profit of
$88 to $92 million, excluding special charges, based upon revenue of
approximately $610 to $630 million and earnings per diluted common share,
excluding special items, of $2.45 to $2.55. For the third quarter 2008, the
Company expects revenue of $160 to $170 million and segment profit, excluding
special charges, of $20 to $23 million.
The Company will hold its quarterly earnings conference call on Tuesday,
August 5, 2008, 9:00 a.m., central time. Interested parties are directed to
the investor relations page on the Company's website for information on
accessing the conference call or webcast.
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 over
80 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. Forward looking statements in this press release include, but
are not limited to, revenue, earnings and segment profit guidance, discussions
regarding markets and demand for our products. These statements may differ
materially from actual future events or results. Further, bookings and backlog
are not necessarily indicative of future 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 and Quarterly Reports on
Form 10-Q, which identify significant risk factors that could cause actual
results to differ from those contained in the forward-looking statements.

NATCO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)

June 30, December 31,
2008 2007
(unaudited)
ASSETS

Current assets:
Cash and cash equivalents $42,529 $63,577
Trade accounts receivable, less allowance
for doubtful accounts of $1,334 and $1,435
as of June 30, 2008 and December 31, 2007,
respectively 141,112 139,054
Inventories, net 49,282 46,456
Deferred income tax assets, net 6,972 6,927
Prepaid expenses and other current assets 8,581 5,266
Total current assets 248,476 261,280
Property, plant and equipment, net 56,442 46,651
Goodwill, net 109,563 99,469
Deferred income tax assets, net 691 3,373
Intangible and other assets, net 25,176 12,940
Total assets $440,348 $423,713

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable and other $50,874 $51,552
Accrued expenses 54,063 61,298
Customer advanced billings and payments 39,381 35,652
Other taxes payable - 2,478
Total current liabilities 144,318 150,980
Long-term deferred tax liabilities 3,451 3,418
Postretirement benefits and other long-term
liabilities 11,836 9,192
Total liabilities 159,605 163,590

Commitments and contingencies
Minority interest 2,362 1,226
Series B redeemable convertible preferred stock,
$.01 par value; 15,000 shares authorized, zero
and 9,915 issued and outstanding (net of issuance
costs) as of June 30, 2008 and December 31, 2007,
respectively - 9,401
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
5,000,000 shares (of which 500,000 are
designated as Series A and 15,000 are designated
as Series B); no shares issued and outstanding
(except Series B Preferred Shares above) - -
Series A preferred stock, $.01 par value; 500,000
shares authorized; no shares issued and
outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 20,036,760 and 18,646,778 shares
issued and outstanding as of June 30, 2008 and
December 31, 2007, respectively 200 186
Additional paid-in-capital 153,080 140,527
Retained earnings 117,537 101,739
Treasury stock, 1,500 and 1,168 shares as of
June 30, 2008 and December 31, 2007, respectively (54) (59)
Accumulated other comprehensive income 7,618 7,103
Total stockholders' equity 278,381 249,496
Total liabilities, redeemable convertible
preferred stock and stockholders' equity $440,348 $423,713

NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007

Revenue:
Products $134,356 $109,090 $256,783 $211,125
Services 26,042 31,604 55,585 56,998
Total revenue $160,398 $140,694 $312,368 $268,123
Cost of goods sold and
services:
Products $102,604 $82,284 $192,460 $160,101
Services 13,654 17,823 29,393 31,340
Total cost of goods
sold and services $116,258 $100,107 $221,853 $191,441
Gross profit $44,140 $40,587 $90,515 $76,682
Selling, general and
administrative expense 31,424 20,488 59,258 40,866
Depreciation and
amortization expense 2,799 1,501 4,851 2,891
Interest expense 139 37 234 180
Interest income (225) (621) (609) (962)
Minority interest (income)
expense 712 (85) 1,091 (24)
(Gain) loss on
unconsolidated investment (118) 22 (83) 108
Other, net (155) 508 992 1,064
Income before income taxes $9,564 $18,737 $24,781 $32,559
Income tax provision 3,371 6,595 8,735 11,640
Net income $6,193 $12,142 $16,046 $20,919
Preferred stock dividends - 375 248 750
Net income available to
common stockholders $6,193 $11,767 $15,798 $20,169

Earnings per share:
-Basic $0.32 $0.68 $0.83 $1.17
-Diluted $0.31 $0.62 $0.81 $1.07

Weighted average number of
shares of common stock
outstanding:
-Basic 19,552 17,259 18,960 17,229
-Diluted 19,807 19,565 19,811 19,524

NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED SEGMENT INFORMATION
(in thousands)

Three Months Ended Six Months Ended
June 30, March 31, June 30,
2008 2007 2008 2008 2007
Revenue:
Integrated
Engineered
Solutions $51,545 $49,942 $54,881 $106,426 $98,411
Standard &
Traditional 85,201 65,840 70,885 156,086 123,056
Automation &
Controls 24,982 26,431 28,243 53,225 49,501
Eliminations (1,330) (1,519) (2,039) (3,369) (2,845)
Total revenue $160,398 $140,694 $151,970 $312,368 $268,123

Gross profit:
Integrated
Engineered
Solutions $17,788 $16,080 $18,615 $36,403 $31,305
Standard &
Traditional 21,355 17,848 19,977 41,332 33,998
Automation &
Controls 4,997 6,659 7,783 12,780 11,379
Total gross profit $44,140 $40,587 $46,375 $90,515 $76,682

Gross profit % of
revenue:
Integrated
Engineered
Solutions 34.5% 32.2% 33.9% 34.2% 31.8%
Standard &
Traditional 25.1% 27.1% 28.2% 26.5% 27.6%
Automation &
Controls 20.0% 25.2% 27.6% 24.0% 23.0%
Total gross profit %
of revenue 27.5% 28.8% 30.5% 29.0% 28.6%

Operating expenses:
Integrated
Engineered
Solutions $12,167 $7,540 $10,327 $22,494 $14,594
Standard &
Traditional 16,373 10,382 14,567 30,940 21,247
Automation &
Controls 3,478 2,503 3,354 6,832 5,109
Total operating
expenses $32,018 $20,425 $28,248 $60,266 $40,950

Segment profit:
(1) EBITDA
Integrated
Engineered
Solutions $5,621 $8,540 $8,288 $13,909 $16,711
Standard &
Traditional 4,982 7,466 5,410 10,392 12,751
Automation &
Controls 1,519 4,156 4,429 5,948 6,270
Total segment
profit $12,122 $20,162 $18,127 $30,249 $35,732

Segment profit %
of Revenue
Integrated
Engineered
Solutions 10.9% 17.1% 15.1% 13.1% 17.0%
Standard &
Traditional 5.8% 11.3% 7.6% 6.7% 10.4%
Automation &
Controls 6.1% 15.7% 15.7% 11.2% 12.7%
Total segment profit
% of Revenue 7.6% 14.3% 11.9% 9.7% 13.3%

Bookings:
Integrated
Engineered
Solutions $104,198 $38,094 $79,560 $183,758 $84,726
Standard &
Traditional 112,573 55,537 68,707 181,280 116,676
Automation &
Controls 21,707 27,766 28,117 49,824 53,845
Total bookings $238,478 $121,397 $176,384 $414,862 $255,247

As of June 30, As of March 31,
Backlog: 2008 2007 2008
Integrated
Engineered
Solutions $173,625 $126,800 $120,890
Standard &
Traditional 93,097 54,509 65,518
Automation &
Controls 6,395 13,100 8,629
Total backlog $273,117 $194,409 $195,037

(1) The Company allocates corporate and other expenses to each of the
operating segments based on headcount, total assets and revenues.
Included in this allocation for the three months ended, June 30, 2008
is $5.0 million of costs related to a previously announced, and
ongoing, review of certain payments made in a foreign jurisdiction
allocated as follows: $1.8 million to the Integrated Engineered
Solutions segment, $2.5 million to the Standard & Traditional segment
and $0.7 million to the Automation & Controls segment. For the six
months ended June 30 2008 these costs were $7.1 millions allocated as
follows: $2.6 million to the Integrated Engineered Solutions segment,
$3.5 million to the Standard & Traditional segment, and $1.0 million
to the Automation & Controls segment. Total segment profit is a
non-GAAP financial measure that is reconciled to the Consolidated
Income Statement as shown below. The Company believes that segment
profit is one of the primary drivers and provides a more meaningful
presentation for measuring the liquidity and performance of the
Company.

(in thousands) (in thousands)
Three Months Ended Six Months Ended
June 30, March 31, June 30,
2008 2007 2008 2008 2007
Total segment
profit: $12,122 $20,162 $18,127 $30,249 $35,732
Depreciation
and amortization 2,799 1,501 2,052 4,851 2,891
Interest expense 139 37 95 234 180
Interest income (225) (621) (384) (609) (962)
Other, net (155) 508 1,147 992 1,064
Income from
continuing
operations before
income taxes $9,564 $18,737 $15,217 $24,781 $32,559
Income tax
provision 3,371 6,595 5,364 8,735 11,640
Net income $6,193 $12,142 $9,853 $16,046 $20,919
Preferred stock
dividends - 375 248 248 750
Net income available
to common
stockholders $6,193 $11,767 $9,605 $15,798 $20,169

SOURCE NATCO Group Inc.

Andy Smith of NATCO Group Inc., +1-713-849-7500, or fax, +1-713-849-8976