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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 001-15603
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NATCO GROUP PROFIT SHARING AND SAVINGS PLAN
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NATCO Group Inc.
Brookhollow Central III
2950 N. Loop West, Suite 700
Houston, Texas 77092
REQUIRED INFORMATION
The NATCO Group Profit Sharing and Savings Plan is subject to the requirements
of the Employee Retirement Income Security Act of 1974, also known as ERISA.
ITEM 4. In lieu of the requirements of Items 1, 2, and 3 of this Form 11-K, the
following financial statements of the Plan, notes to such financial statements,
and the Independent Auditors Report on such financial statements are being filed
in this Report.
(a) Independent Auditors' Report
(b) Statements of Net Assets Available for Plan Benefits - December
31, 2002 and 2001
(c) Statement of Changes in Net Assets Available for Plan Benefits -
Year ended December 31, 2002
(d) Notes to Financial Statements
The Independent Auditors' Consent to the incorporation by reference of the
foregoing financial statements in the Registration Statement on Form S-8 (No.
333-46410) pertaining to the Plan is being filed as Exhibit 23.1 to this Report.
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
INDEX
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Statements of Net Assets Available for Plan Benefits
December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 2002 3
Notes to Financial Statements
December 31, 2002 and 2001 4
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002 9
Schedules not listed above are omitted because of the absence of conditions
under which they are required under the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974.
SIGNATURE 10
INDEX TO EXHIBITS 11
Exhibit 23.1 - Independent Auditors' Consent 12
Exhibit 99.1 - Certification of Chief Executive Officer of the NATCO Group
Profit Sharing and Savings Plan pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13
Exhibit 99.2 - Certification of Principal Financial Officer of the NATCO
Group Profit Sharing and Savings Plan pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 14
INDEPENDENT AUDITORS' REPORT
The NATCO Group Employee Benefits Administration Committee:
We have audited the accompanying statements of net assets available for plan
benefits of the NATCO Group Profit Sharing and Savings Plan (the Plan) as of
December 31, 2002 and 2001, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 2002. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 2002 and 2001, and changes in net assets available for plan
benefits for the year ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule H, line 4i -
schedule of assets (held at end of year) as of December 31, 2002 is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements, but is supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. This supplemental schedule
is the responsibility of the Plan's management. The supplemental schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
/s/KPMG LLP
Houston, Texas
June 13, 2003
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2002 and 2001
2002 2001
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Assets:
Investments, at fair value (note 3) $30,826,424 $31,982,039
Employer contributions receivable 121,576 9,180
Participant contributions receivable 99,791 20,281
Interest receivable -- 16,325
Loan repayments receivable 25,585 --
Cash, noninterest bearing -- 603,739
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Net assets available for plan benefits $31,073,376 $32,631,564
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See accompanying notes to financial statements.
2
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 2002
Net assets available for plan benefits, beginning of year $32,631,564
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Investment income (loss):
Dividends 250,485
Interest 306,794
Net depreciation in fair value of NATCO Group Inc. common stock (107,250)
Net depreciation in fair value of registered investment companies (5,277,633)
Net depreciation in fair value of Personal Choice Account (99,345)
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(4,926,949)
Contributions:
Employer 1,784,765
Participant 3,119,576
Rollovers 267,663
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5,172,004
Benefits paid to participants (1,787,890)
Administrative expenses (15,353)
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Net decrease (1,558,188)
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Net assets available for plan benefits, end of year $31,073,376
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See accompanying notes to financial statements.
3
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(1) DESCRIPTION OF THE PLAN
The following description of the NATCO Group Profit Sharing and Savings
Plan (the Plan) provides only general information. Participants should
refer to the Plan Agreement for a more complete description of the Plan's
provisions.
(a) GENERAL
The Plan is a defined contribution plan covering all eligible
employees of National Tank Company (the Company), the Plan's
sponsor, and adopting affiliates who have three months of
continuous service and are age 18 or older. The Plan has been
amended and restated effective as of January 1, 2002 and was
further amended on December 20, 2002. The Plan is administered
by the NATCO Group Employee Benefits Administration Committee
(the Committee) appointed by the Company's board of directors
and is subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). UMB Bank, N.A.
serves as trustee of the Plan. The assets of the Plan are held
and invested by UMB Bank, N.A., American Century Investments,
Schwab Institutional Investments, and SEI Trust Company. J.P.
Morgan/American Century Retirement Plan Services is the
recordkeeper for the Plan.
(b) CONTRIBUTIONS
Each year, participants may contribute from 1% to 50% of their
pre-tax annual compensation, as defined by the Plan document, to
the Plan. Participant contributions up to 3% of each participant's
compensation are matched 100% by the Company, with an additional
2% of each participant's compensation matched at 50%. The Company
may also contribute an additional matching contribution to the
Plan at the discretion of the Company's board of directors equal
to such amount determined at it's discretion as a percentage of
each participant's compensation. In no event shall the aggregate
employer matching contributions for any Plan year exceed 6% of the
participant's compensation. In addition, the Company may make an
employer discretionary contribution at the discretion of the
Company's board of directors. The employer discretionary
contribution is allocated to participants based on the ratio of
their compensation to all eligible participant's compensation. The
Company's board of directors did not elect to make an employer
additional matching contribution or discretionary contribution for
the 2002 Plan year. Employer contributions may be made either in
NATCO Group Inc. common stock, cash or a combination of both.
Participants who are age 50 or older before the close of the Plan
year may elect to make a catch-up contribution, subject to certain
limitations under the Internal Revenue Code ($1,000 per
participant in 2002).
Employees are permitted to rollover money held in other qualified
plans into the Plan, as specified in the Plan document.
4
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(c) INVESTMENT OPTIONS
Each participant can elect to invest all or a portion of his or
her contributions among any of the available 13 registered
investment companies or the common/collective trust offered by
American Century Investments or Company common stock. Participants
may also invest up to 50% of their account through the Schwab
Personal Choice Retirement Account (Personal Choice Account)
offered by Schwab Institutional Investments. The Personal Choice
Account allows participants to invest in additional registered
investment companies and individual stocks subject to certain
minimum balance requirements and other restrictions, as defined in
the Plan document.
(d) PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contributions and employer matching contributions and allocations
of the employer discretionary contributions, if any, and Plan
earnings or losses, and charged with an allocation of
administrative expenses. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from
the participant's vested account.
(e) VESTING
Each participant's pre-tax contributions, after-tax contributions
from prior plans, rollovers, employer contributions made beginning
January 1, 1999 and the earnings thereon are fully vested.
Employer contributions made before January 1, 1999 and the
earnings thereon become fully vested upon reaching age 65,
disability, or death. Participants otherwise vest in employer
contributions made before January 1, 1999 and the earnings thereon
as follows:
PERCENTAGE
YEARS OF VESTING SERVICE VESTED
------------------------------------ ------------------
Less than 2 --
2 50
3 75
4 100
Forfeited nonvested accounts are used by the Company to reduce
future employer matching contributions.
(f) PARTICIPANT LOANS RECEIVABLE
Participants may borrow from their participant accounts a minimum
of $1,000 and a maximum of the lesser of $50,000 (reduced by the
highest outstanding balance of loans from the Plan in the prior
twelve months) or 50% of their vested account balance. The loans
are secured by the balance in the participant's account and bear
interest at prime plus 1%. Principal and interest are paid ratably
through biweekly payroll deductions over a period of one to five
years, unless the loan qualifies as a principle residence loan,
for which the term may be greater than five years, as specified
under the Plan.
5
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(g) IN-SERVICE WITHDRAWALS
While employed, a participant may make withdrawals from their
after-tax and rollover accounts and certain prior plan accounts,
as defined in the Plan document. Certain additional in-service
withdrawals are permitted upon attainment of age 59-1/2 and proven
financial hardship.
(h) PAYMENT OF BENEFITS
Upon retirement, death, or disability, participants or
beneficiaries are entitled to a distribution equal to the total
value of their accounts. On termination of service, participants
may elect to receive a lump-sum amount equal to the vested value
of their account or, if vested benefits exceed $5,000, defer
distribution until normal retirement age or death. Participants
with holdings in NATCO Group Inc. common stock may request the
distribution from the NATCO Group Inc. common stock fund in the
form of common stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America.
(b) INVESTMENT VALUATION AND INCOME RECOGNITION
Investments in registered investment companies and common stocks
are valued at fair value, based upon quoted market values.
Participant loans receivable are valued at cost which approximates
fair value. The Plan's investment in the common/collective trust
fund is stated at fair value, which is determined by quoted market
prices of underlying securities. The American Century Stable Asset
Fund (the Fund), which is a common/collective trust, is valued at
$1 per unit. The Fund invests a substantial portion of its assets
in guaranteed investment contracts, bank investment contracts, and
synthetic investment contracts (the Contracts). Although the
Contracts of the Fund are fully benefit-responsive, the Fund is
not fully benefit-responsive due to certain restrictions and
limitations on withdrawals from the Fund. For the year ended
December 31, 2002, the annual rate of return for the American
Century Stable Asset Fund was 5.36%.
Purchases and sales of securities are recorded on a trade-date
basis. Interest is recorded as earned. Dividends are recorded on
the ex-dividend date.
Net depreciation in fair value of NATCO Group Inc. common stock,
registered investment companies, and the Personal Choice Account
include realized gains (losses) from the sale of investments and
unrealized appreciation (depreciation) resulting from changes in
market value.
6
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(c) RISKS AND UNCERTAINTIES
The Plan, through it's participants, may invest in various types
of investment securities. Investment securities are exposed to
various risks, such as interest rate, market and credit risks. Due
to the level of risk associated with certain investment
securities, it is at least reasonably possible that changes in the
values of investment securities will occur in the near term.
(d) USE OF ESTIMATES
The presentation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the Company to make estimates and assumptions
that affect the reported amounts of net assets available for plan
benefits and changes therein. Actual results could differ from
those estimates.
(e) PAYMENT OF BENEFITS
Benefits are recorded when paid.
(f) ADMINISTRATIVE EXPENSES
All cost and expenses of administering the Plan are paid by the
Company, except transaction expenses incurred by participants
withdrawing loans or investing in the Personal Choice Account,
which are charged to the accounts of participants initiating such
transactions.
(3) INVESTMENTS
The following table represents the fair value of individual investments
which exceed 5% of the Plan's net assets as of December 31, 2002 and
2001:
2002 2001
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American Century Investments:
Balanced Fund $2,115,432 $2,410,818
Equity Index Fund 1,916,662 2,504,777
Heritage Fund 3,894,294 4,456,950
Stable Asset Fund 4,272,904 3,497,070
Ultra Fund 7,116,640 8,517,610
Vista Fund 2,365,286 2,810,520
(4) NATCO GROUP INC. COMMON STOCK AND VOTING RIGHTS
The NATCO Group Inc. common stock fund consists of shares of NATCO Group
Inc. common stock and units of the UMB Bank Scout Prime Fund.
Each participant is entitled to exercise voting rights attributable to
the shares allocated to his or her account and is notified by the trustee
prior to the time that such rights are to be exercised. If the
participant does not exercise these rights, the shares are voted by the
trustee as directed by the Committee.
Participants also have voting rights with respect to their investments
through the Personal Choice Account.
7
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(5) FEDERAL INCOME TAX
A favorable determination letter from the Internal Revenue Service was
received on January 29, 2003, which states that the Plan is designed to
be qualified under Section 401(a) of the Internal Revenue Code (IRC), and
the related trust is, therefore, exempt from taxation under Section
501(a) of the IRC. The document submitted for determination has been
subsequently amended. However, the plan administrator believes that the
Plan is currently designed and being operated in compliance with the
applicable requirements of the IRC.
(6) PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. If the Plan is
terminated, the assets of the Plan may be used exclusively for the
benefit of participants and their beneficiaries. Upon termination of the
Plan, participants become 100% vested.
(7) PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of the NATCO Group Inc. common
stock. As NATCO Group Inc. is the parent company of the Plan's sponsor,
these transactions qualify as party-in-interest transactions. In
addition, certain Plan investments are shares of registered investment
companies' funds and a common/collective trust fund issued by American
Century Investments. As American Century Investments is an affiliate of
J.P. Morgan/American Century Retirement Plan Services, the Plan's record
keeper, these transaction qualify as party-in-interest transactions.
These transactions are covered by an exemption from the "prohibited
transaction" provisions of ERISA and the IRC.
8
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002
IDENTITY OF ISSUE,
BORROWER, LESSOR, OR CURRENT
OTHER SIMILAR PARTY DESCRIPTION OF INVESTMENT VALUE
---------------------------------- ----------------------------------------- -----------
* American Century Investments Balanced Fund $ 2,115,432
* American Century Investments Diversified Bond Fund 1,422,765
* American Century Investments Equity Growth Fund 1,120,007
* American Century Investments Equity Index Fund 1,916,662
* American Century Investments Heritage Fund 3,894,294
* American Century Investments International Growth Fund 1,127,198
* American Century Investments Small Cap Value Fund 581,742
* American Century Investments Stable Asset Fund 4,272,904
* American Century Investments Strategic Allocation: Aggressive Fund 375,607
* American Century Investments Strategic Allocation: Moderate Fund 379,640
* American Century Investments Strategic Allocation: Conservative Fund 149,541
* American Century Investments Ultra Fund 7,116,640
* American Century Investments Value Fund 1,044,477
* American Century Investments Vista Fund 2,365,286
* NATCO Group Inc. NATCO Group Inc. Common Stock 963,045
Schwab Institutional Personal Choice Account investments 580,917
UMB Bank Scout Prime Fund 465
* Participant Loans Interest rates between 5.25% and 10.5% 1,399,802
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$30,826,424
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* Indicates transactions with a party-in-interest.
See accompanying independent auditors' report.
9
SIGNATURE
The Plan. Pursuant to the requirements of the Securities and Exchange Act of
1934, the NATCO Group Employee Benefits Administration Committee, has duly
caused this annual report to be signed on its behalf by the undersigned
hereunder duly authorized.
NATCO GROUP PROFIT SHARING
AND SAVINGS PLAN
Date: June 30, 2003 By: /s/ Ryan S. Liles
---------------------------------
Ryan S. Liles
Vice President and Controller
and NATCO Group Employee Benefits
Administration Committee
Member
10
INDEX TO EXHIBITS
The following documents are filed as part of this report.
EXHIBIT NUMBER DESCRIPTION
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23.1 Independent Auditors' Consent
99.1 Certification of Chief Executive Officer of the
NATCO Group Profit Sharing and Savings Plan
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Certification of Principal Financial Officer of the
NATCO Group Profit Sharing and Savings Plan
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
11