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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
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 Annual Report
on Form 11-K, the following financial statements of the Plan, notes to such
financial statements, and Report of Independent Registered Public Accounting
Firm on such financial statements are being filed in this Report.
(a) Report of Independent Registered Public Accounting Firm
(b) Statements of Net Assets Available for Plan Benefits - December 31,
2003 and 2002
(c) Statement of Changes in Net Assets Available for Plan Benefits -
Year ended December 31, 2003
(d) Notes to Financial Statements as of December 31, 2003 and 2002
(e) Schedule H, Line 4a - Schedule of Delinquent Participant
Contributions - Year Ended December 31, 2003
(f) Schedule H, Line 4i - Schedule of Assets (Held at End of Year) -
December 31,2003
The Independent Registered Public Accounting Firm's Consent to the incorporation
by reference of the foregoing financial statements in the Registration Statement
on Form S-8 (No. 333-111298) pertaining to the Plan is being filed as Exhibit
23.1 to this Report.
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
INDEX
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits, as of December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for Plan Benefits, Year ended December 31, 2003 3
Notes to Financial Statements as of December 31, 2003 and 2002 4
SUPPLEMENTAL SCHEDULES
Schedule I -- Schedule H, Line 4a - Schedule of Delinquent Participant Contributions, Year
Ended December 31, 2003 9
Schedule II -- Schedule H, Line 4i - Schedule of Assets (Held at End of Year), as of December 31, 2003 10
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 11
INDEX TO EXHIBIT 12
Exhibit 23.1 - Consent of Independent Registered Public Accounting Firm 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The NATCO Group Inc. 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, 2003 and 2002, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2003 and 2002, and changes in net assets available for plan
benefits for the year ended December 31, 2003 in conformity with U.S. generally
accepted accounting principles.
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 4a -
schedule of delinquent participant contributions for the year ended December 31,
2003 and the supplemental schedule H, line 4i - schedule of assets (held at end
of year) as of December 31, 2003 are presented for the purpose of additional
analysis and are not a required part of the basic financial statements, but are
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. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, are fairly stated, in all material respects, in relation to the
basic financial statements taken as a whole.
/s/ KPMG LLP
Houston, Texas
June 28, 2004
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2003 and 2002
2003 2002
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Assets:
Investments, at fair value (note 3) $40,779,424 $30,826,424
Employer contributions receivable 118,693 121,576
Participant contributions receivable 117,759 99,791
Loan repayments receivable 26,187 25,585
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Net assets available for plan benefits $41,042,063 $31,073,376
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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, 2003
Net assets available for plan benefits, beginning of year $ 31,073,376
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Investment income:
Dividends 239,221
Interest 294,725
Net appreciation in fair value of NATCO Group Inc. common stock 189,656
Net appreciation in fair value of registered investment companies 6,249,444
Net appreciation in fair value of Personal Choice Account 62,488
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7,035,534
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Contributions:
Employer 1,787,694
Participant 3,276,410
Rollovers 164,466
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5,228,570
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Benefits paid to participants (2,277,705)
Administrative expenses (17,712)
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Net increase 9,968,687
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Net assets available for plan benefits, end of year $ 41,042,063
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See accompanying notes to financial statements.
3
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Notes to Financial Statements
As of December 31, 2003 and 2002
(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 the Plan's sponsor, National Tank Company (the
Company), a wholly owned subsidiary of NATCO Group Inc., and
adopting affiliates who have three months of continuous service and
are age 18 or older. The Plan was amended and restated effective
January 1, 2002 and was further amended on December 20, 2002. The
Plan is administered by the NATCO Group Inc. Employee Benefits
Administration Committee (the Committee) appointed by National
Tank Company's Board of Directors and is subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended
(ERISA). J.P. Morgan Chase is the trustee of the Plan, replacing UMB
Bank, N.A. in December 2003. The assets of the Plan are held and
invested by J.P. Morgan Chase, American Century Investments, Schwab
Institutional Investments, and SEI Trust Company. Certain assets of
the Plan totaling $1,099,143 were transferred from the former
trustee, UMB Bank, N.A., to the new trustee, J.P. Morgan Chase in
December 2003. 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 or adopting affiliate,
as applicable, with an additional 2% of each participant's
compensation matched at 50%. The Company or adopting affiliate, as
applicable may also contribute an additional matching contribution
to the Plan equal to such amount determined at the discretion of the
Board of Directors of NATCO Group Inc. and 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 or adopting
affiliate, as applicable may make an employer discretionary
contribution upon approval of the Board of Directors of the Company.
The employer discretionary contribution is allocated to participants
based on the ratio of their compensation to all eligible
participants' compensation. The Board of Directors of the
Company did not elect to make an employer additional matching
contribution or discretionary contribution for the 2003 Plan year.
Employer contributions may be made in either NATCO Group Inc. common
stock, cash or a combination of both. During 2003, all employer
contributions were made in cash.
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 ($2,000 per participant
in 2003).
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Employees are permitted to rollover funds held in other qualified
plans into the Plan, as specified in the Plan document.
(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 NATCO Group Inc. common stock. Participants may also
invest up to 50% of their account through the Schwab Personal Choice
Retirement Account (the 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. The benefit to which a participant is entitled is limited
to that which 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 on such contributions are fully
vested. Employer contributions made before January 1, 1999 and the
earnings on such contributions become fully vested upon reaching the
age of 65, disability, or death. Participants otherwise vest in
employer contributions made before January 1, 1999 and the earnings
on such contributions as follows:
PERCENTAGE
YEARS OF VESTING SERVICE VESTED
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Less than 2 --
2 50
3 75
4 100
Forfeited nonvested accounts are used by the Company or adopting
affiliate 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
(g) IN-SERVICE WITHDRAWALS
While employed, participants 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 contract value.
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 synthetic guaranteed
investment contracts, bank investment contracts and investment
contracts (the Contracts). The contracts are recorded at contract
value which approximates fair value. For the year ended December 31,
2003, the annual rate of return for the Fund was 4.23%.
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 appreciation 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.
(c) RISKS AND UNCERTAINTIES
The Plan, through its 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
generally accepted accounting principles in the United States of
America requires the Company to make estimates and assumptions that
affect
6
the reported amounts of assets and liabilities and changes therein,
and disclosure of contingent assets and liabilities. 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
that exceed 5% of the Plan's net assets as of December 31, 2003 and 2002:
2003 2002
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American Century Investments:
Balanced Fund $2,640,774 $2,115,432
Equity Index Fund 2,707,513 1,916,662
Heritage Fund 4,947,947 3,894,294
Stable Asset Fund 4,728,927 4,272,904
Ultra Fund 9,625,182 7,116,640
Vista Fund 3,810,551 2,365,286
(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 interest bearing cash.
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
in NATCO Group Inc. common stock through the Personal Choice Account.
(5) FEDERAL INCOME TAX
The Plan received a favorable determination letter from the Internal
Revenue Service dated January 22, 2003, which states that the Plan is
designed to be qualified under Section 401(a) of the Internal Revenue Code
(the 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 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 employer contributions at any time and
to terminate the Plan subject to the provisions of ERISA. If the Plan is
7
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 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 company 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 recordkeeper, these
transactions qualify as party-in-interest transactions. Also, the interest
bearing cash held in the NATCO Group Inc. common stock fund is a money
market fund issued by J.P. Morgan Chase or UMB Bank, N.A. As J.P. Morgan
Chase and, prior to December 2003, UMB Bank, N.A. serve or served as
trustee of the Plan, these transactions qualify as party-in-interest
transactions. These transactions are covered by an exemption from the
"prohibited transaction" provisions of ERISA and the IRC.
(8) NONEXEMPT TRANSACTIONS
As reported in Schedule 1, participant contributions and loan repayments
during one pay period were not remitted to the trust within the timeframe
specified by The Department of Labor's Regulation 29 CFR 2510.3-102, thus
constituting nonexempt transactions between the Plan and the Company for
the year ended December 31, 2003.
8
SCHEDULE I
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Schedule H, Line 4a -- Schedule of Delinquent Participant Contributions
Year ended December 31, 2003
PARTICIPANT CONTRIBUTIONS TOTAL THAT CONSTITUTE NONEXEMPT
TRANSFERRED LATE TO PLAN PROHIBITED TRANSACTIONS
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$38,507 $38,507
See accompanying Report of Independent Registered Public Accounting Firm.
9
SCHEDULE II
NATCO GROUP
PROFIT SHARING AND SAVINGS PLAN
Schedule H, Line 4i -- Schedule of Assets (Held at End of Year)
December 31, 2003
IDENTITY OF ISSUE, BORROWER, CURRENT
LESSOR OR OTHER SIMILAR PARTY DESCRIPTION OF INVESTMENT VALUE
-------------------------------- ---------------------------------------- ------------
* American Century Investments Balanced Fund $ 2,640,774
* American Century Investments Diversified Bond Fund 1,653,979
* American Century Investments Equity Growth Fund 1,754,753
* American Century Investments Equity Index Fund 2,707,513
* American Century Investments Heritage Fund 4,947,947
* American Century Investments International Growth Fund 1,569,276
* American Century Investments Small Cap Value Fund 1,099,787
* American Century Investments Stable Asset Fund 4,728,927
* American Century Investments Strategic Allocation: Aggressive Fund 637,354
* American Century Investments Strategic Allocation: Moderate Fund 559,373
* American Century Investments Strategic Allocation: Conservative Fund 216,099
* American Century Investments Ultra Fund 9,625,182
* American Century Investments Value Fund 1,441,365
* American Century Investments Vista Fund 3,810,551
* NATCO Group Inc. NATCO Group Inc. common stock 1,105,271
Schwab Institutional Personal Choice Account Investments 672,679
* J.P. Morgan Chase Manhattan Bank Investment Fund 3,773
* Participant Loans Interest rates between 5.00% and 10.5% 1,604,821
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$ 40,779,424
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* Indicates transactions with a party-in-interest.
See accompanying Report of Independent Registered Public Accounting Firm.
10
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrative Committee of the NATCO Group Profit Sharing and Savings Plan
has duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
NATCO GROUP PROFIT SHARING AND SAVINGS PLAN
Date: June 28, 2004 By: /s/ RYAN S. LILES
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Ryan S. Liles
Member-The NATCO Group Inc. Employee Benefits
Administration Committee
11
INDEX TO EXHIBIT
The following document is filed as part of this report.
EXHIBIT NUMBER DESCRIPTION
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23.1 Consent of Independent Registered Public Accounting Firm
12