<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001,

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                    FOR THE TRANSITION PERIOD FROM        TO

                         COMMISSION FILE NUMBER 1-15603

                                NATCO GROUP INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
                   DELAWARE                                       22-2906892
(State or other jurisdiction of incorporation                  (I.R.S. Employer
               or organization)                              Identification No.)

            2950 NORTH LOOP WEST,
                  7TH FLOOR,
                HOUSTON, TEXAS                                      77092
   (Address of principal executive offices)                       (Zip Code)
</TABLE>

                                  713-683-9292
              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

    As of August 1, 2001 Class A, $0.01 par value per share 15,165,368 shares
                Class B, $0.01 par value per share 587,048 shares

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<PAGE>   2
                                NATCO GROUP INC.

                                    FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2001

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                  PAGE
                                                                                   NO.
                                                                                   ---
<S>                                                                               <C>
PART I -- FINANCIAL INFORMATION

         Item 1.        Financial Statements................................        3

                        Unaudited Condensed Consolidated Balance Sheets --
                        June 30, 2001 and December 31, 2000.................        3

                        Unaudited Condensed Consolidated Statements of
                        Operations -- Three Months Ended June 30, 2001 and
                        2000, and Six Months Ended June 30, 2001 and 2000...        4

                        Unaudited Condensed Consolidated Statements of Cash
                        Flows -- Six Months Ended June 30, 2001 and 2000....        5

                        Notes to Unaudited Condensed Consolidated Financial
                        Statements..........................................        6

         Item 2.        Management's Discussion and Analysis of Financial
                        Condition and Results of Operations.................       12

         Item 3.        Quantitative and Qualitative Disclosures About
                        Market Risk.........................................       19

         PART II -- OTHER INFORMATION

         Item 1.        Legal Proceedings...................................       20

         Item 2.        Changes in Securities and Use of Proceeds...........       20

         Item 3.        Defaults Upon Senior Securities.....................       20

         Item 4.        Submission of Matters to a Vote of Security Holders.       20

         Item 5.        Other Information...................................       21

         Item 6.        Exhibits and Reports on Form 8-K....................       21

         Signatures     ....................................................       24
</TABLE>


                                       2
<PAGE>   3
                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                        NATCO GROUP INC. AND SUBSIDIARIES

                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                      JUNE 30,         DECEMBER 31,
                                                                        2001               2000
                                                                        ----               ----
<S>                                                                  <C>               <C>
                                ASSETS

Current assets:
  Cash and cash equivalents .................................        $   4,708         $   1,031
  Trade accounts receivable, net ............................           89,072            53,807
  Inventories ...............................................           36,170            28,677
  Prepaid expenses and other current assets .................            9,093             2,965
                                                                     ---------         ---------
        Total current assets ................................          139,043            86,480
Property, plant and equipment, net ..........................           26,397            23,430
Goodwill, net ...............................................           81,628            36,534
Deferred income tax assets, net .............................            4,704             5,409
Other assets, net ...........................................            2,602             1,273
                                                                     ---------         ---------
        Total assets ........................................        $ 254,374         $ 153,126
                                                                     =========         =========

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current installments of long-term debt ....................        $   7,000         $      --
  Notes payable .............................................               --             1,005
  Accounts payable ..........................................           41,992            23,133
  Accrued expenses and other ................................           40,353            12,098
  Customer advances .........................................            3,461             1,163
                                                                     ---------         ---------
        Total current liabilities ...........................           92,806            37,399
Long-term debt, excluding current installments ..............           60,263            14,959
Postretirement benefit liability ............................           14,243            14,589
                                                                     ---------         ---------
        Total liabilities ...................................          167,312            66,947
                                                                     ---------         ---------
Stockholders' equity:
  Preferred stock $.01 par value. Authorized 5,000,000
    shares; no shares issued and outstanding ................               --                --
  Class A Common stock, $.01 par value. Authorized
    45,000,000 shares; issued and outstanding 15,165,368 and
    14,977,354 shares as of June 30, 2001 and December 31,
    2000, respectively ......................................              152               150
  Class B Common stock, $.01 par value. Authorized 5,000,000
    shares; issued and outstanding 587,048 and 699,874 shares
    as of June 30, 2001 and December 31, 2000, respectively .                6                 7
  Additional paid-in capital ................................           96,998            96,601
  Accumulated earnings/(deficit) ............................            1,390              (506)
  Treasury stock, 677,238 shares at cost as of
    June 30, 2001 and December 31, 2000 .....................           (6,316)           (6,316)
  Accumulated other comprehensive loss ......................           (2,013)           (1,864)
  Note receivable from officer and stockholder ..............           (3,155)           (1,893)
                                                                     ---------         ---------
        Total stockholders' equity ..........................           87,062            86,179
                                                                     ---------         ---------
Commitments and contingencies
        Total liabilities and stockholders' equity ..........        $ 254,374         $ 153,126
                                                                     =========         =========
</TABLE>


                  See accompanying notes to unaudited condensed
                       consolidated financial statements.


                                      3
<PAGE>   4
                        NATCO GROUP INC. AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                 JUNE 30,                        JUNE 30,
                                                                 --------                        --------
                                                            2001           2000            2001            2000
                                                            ----           ----            ----            ----
<S>                                                      <C>            <C>            <C>             <C>
Revenues ..........................................      $ 82,559       $ 55,935       $ 145,469       $ 107,790
Cost of goods sold ................................        62,254         39,757         109,171          78,494
                                                         --------       --------       ---------       ---------
          Gross profit ............................        20,305         16,178          36,298          29,296
Selling, general and administrative expense .......        13,625          9,880          24,677          19,289
Depreciation and amortization expense .............         2,183          1,263           3,786           2,543
Unusual charges ...................................         1,600             --           1,600           1,528
Interest expense ..................................         1,583            438           2,289             774
Interest cost on postretirement benefit liability .           322            322             644             643
Interest income ...................................           (74)           (44)           (108)           (140)
                                                         --------       --------       ---------       ---------
          Income before income taxes ..............         1,066          4,319           3,410           4,659
Income tax provision ..............................           546          1,848           1,514           1,994
                                                         --------       --------       ---------       ---------
          Net income ..............................      $    520       $  2,471       $   1,896       $   2,665
                                                         ========       ========       =========       =========
EARNINGS PER SHARE:
  Basic ...........................................      $   0.03       $   0.17       $    0.12       $    0.19
  Diluted .........................................      $   0.03       $   0.16       $    0.12       $    0.18
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING:
  Basic ...........................................        15,745         14,829          15,724          13,961
  Diluted .........................................        16,089         15,391          16,043          14,591
</TABLE>

                  See accompanying notes to unaudited condensed
                       consolidated financial statements.

                                       4
<PAGE>   5
                        NATCO GROUP INC. AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  SIX MONTHS ENDED
                                                                       JUNE 30,
                                                                       --------
                                                                 2001           2000
                                                                 ----           ----
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Net income ...........................................      $  1,896       $  2,665
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Deferred income tax benefit ........................          (290)          (355)
    Depreciation and amortization expense ..............         3,786          2,543
    Non-cash interest income ...........................           (84)           (58)
    Interest cost on postretirement benefit liability ..           644            643
    Gain on the sale of property, plant and equipment ..           (74)           (17)
    Change in assets and liabilities, net of
      acquisitions:
      Increase in trade accounts receivable ............        (3,954)        (8,459)
      Increase in inventories ..........................        (6,611)        (5,097)
      Increase in prepaid expense and other current
        assets .........................................        (1,844)          (619)
      (Increase) decrease in long-term assets ..........        (1,579)           756
      Increase in accounts payable .....................         9,799          4,471
      Increase (decrease) in accrued expenses and
        other ..........................................        (2,602)           145
      Increase in customer advances ....................         2,344            540
                                                              --------       --------
          Net cash provided by (used in) operating
            activities .................................         1,431         (2,842)
                                                              --------       --------
Cash flows from investing activities:
  Capital expenditures for property, plant and .........        (3,109)        (4,340)
    equipment
  Proceeds from the sale of property, plant and ........           173             --
    equipment
  Acquisitions, net of cash acquired ...................       (48,191)       (17,229)
  Proceeds of note receivable ..........................            --          1,067
  Issuance of related party note receivable ............        (1,178)            --
  Proceeds from settlement .............................         1,500             --
  Other, net ...........................................            --             20
                                                              --------       --------
          Net cash used in investing activities ........       (50,805)       (20,482)
                                                              --------       --------
Cash flows from financing activities:
  Change in bank overdrafts ............................         2,136          2,933
  Net borrowings under long-term revolving credit
    facilities .........................................         4,129            513
  Repayments of short-term borrowings ..................        (1,001)            --
  Repayments of long-term debt .........................        (1,750)       (27,858)
  Borrowings of long-term debt .........................        50,000             --
  Issuance of common stock, net ........................            98         47,194
  Receipt from affiliate of remainder of net present
    value of postretirement benefit liability ..........            --            600
  Payments on postretirement benefit liability .........        (1,007)          (683)
  Other, net ...........................................            92            147
                                                              --------       --------
          Net cash provided by financing activities ....        52,697         22,846
                                                              --------       --------
Effect of exchange rate changes on cash and cash
  equivalents ..........................................           354           (365)
                                                              --------       --------
Change in cash and cash equivalents ....................         3,677           (843)
Cash and cash equivalents at beginning of period .......         1,031          1,747
                                                              --------       --------
Cash and cash equivalents at end of period .............      $  4,708       $    904
                                                              ========       ========
Cash payments for:
  Interest .............................................      $  1,567       $    611
  Income taxes .........................................      $  1,159       $     39
Significant non-cash investing and financing activities:
  Promissory notes issued for business acquisition .....      $     --       $  1,026
  Partial settlement of a note arrangement with
    treasury shares ....................................      $     --       $  1,525
  Debt assumed in acquisition ..........................      $     --       $  2,862
  Issuance of common stock for acquisition .............      $     85       $  4,077
</TABLE>


                  See accompanying notes to unaudited condensed
                       consolidated financial statements.


                                       5
<PAGE>   6
                        NATCO GROUP INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

         The accompanying condensed consolidated interim financial statements
and related disclosures are unaudited and have been prepared by NATCO Group
Inc., ("the Company") pursuant to generally accepted accounting principles for
interim financial statements and the rules and regulations of the Securities and
Exchange Commission. As permitted by these regulations, certain information and
footnote disclosures that would typically be required in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. However, the Company's management believes that these
statements reflect all the normal recurring adjustments necessary for a fair
presentation, in all material respects, of the results of operations for the
periods presented, so that these interim financial statements are not
misleading. These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K filing for the year ended December 31, 2000.

         To prepare financial statements in accordance with generally accepted
accounting principles, the Company's management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses incurred during the
reporting period. Actual results could differ from those estimates. Furthermore,
certain reclassifications have been made to fiscal year 2000 amounts in order to
present these results on a comparable basis with amounts for fiscal year 2001.

         References to "NATCO" and "the Company" are used throughout this
document and relate collectively to NATCO Group Inc. and its consolidated
subsidiaries.

(2) CAPITAL STOCK

         On February 1, 2001, NATCO issued 8,520 shares of Class B Common Stock
to the former shareholders of The Cynara Company ("Cynara"), in connection with
the achievement of certain performance criteria defined in the November 1998
purchase agreement. Goodwill was increased $85,000 as a result of this
transaction.

(3) EARNINGS PER SHARE

         Basic earnings per share was computed by dividing net income by the
weighted average number of shares outstanding for the period. Diluted earnings
per common and common equivalent share was computed by dividing net income by
the weighted average number of common and common equivalent shares outstanding
for the period. For purposes of this calculation, outstanding employee stock
options were considered common stock equivalents. Included in diluted shares
were common stock equivalents related to employee stock options of 344,028
shares and 319,652 shares for the quarter and six-month period ended June 30,
2001, respectively. For the respective periods in 2000, common stock equivalents
related to employee stock options totaled 561,814 shares and 629,487 shares.
Anti-dilutive stock options were excluded from the calculation of common stock
equivalents. The impact of these anti-dilutive shares would have been a
reduction of 12,464 shares and 11,598 shares for the quarter and six-month
period ended June 30, 2001, respectively. The impact of anti-dilutive shares
would have been a reduction of 12,260 shares and 6,130 shares for the quarter
and six-month period ended June 30, 2000, respectively.

(4) ACQUISITIONS

         On March 19, 2001, the Company acquired all the outstanding share
capital of Axsia Group Limited ("Axsia"), a privately held company based in the
United Kingdom, for approximately $42.8 million, net of cash acquired. Axsia
specializes in the design and supply of water reinjection systems for oil and
gas fields, oily water treatment, oil separation, hydrogen production and other
process equipment systems. This acquisition was financed with borrowings under
NATCO's term loan facility, and was accounted for using the purchase method of
accounting. Results of operations for Axsia have been included in NATCO's
condensed consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair values of the net assets acquired is


                                       6
<PAGE>   7
being amortized over a twenty-year period. Goodwill and accumulated amortization
related to the Axsia acquisition were $47.8 million and $675,000, respectively,
at June 30, 2001. Although the Axsia purchase price allocation has not yet been
finalized, NATCO's management does not believe that the final purchase price
allocation will differ materially from that as of June 30, 2001.

         Assuming the Axsia acquisition occurred on January 1, of the respective
year, the unaudited pro forma results of the Company for the six-month periods
ended June 30, 2001 and 2000, respectively, would have been as follows:

<TABLE>
<CAPTION>
                                    PRO FORMA RESULTS
                                    SIX MONTHS ENDED
                                    ----------------
                             JUNE 30, 2001    JUNE 30, 2000
                             -------------    -------------
                              (unaudited)      (unaudited)
<S>                          <C>              <C>
Revenues ............          $160,416          $130,778
Income before income              1,010             2,621
Net income ..........               210               560
Net income per share:
  Basic .............          $   0.01          $   0.04
  Diluted ...........          $   0.01          $   0.04
</TABLE>


         These pro forma results assume debt service costs associated with the
Axsia acquisition, net of tax effect, calculated at the Company's effective tax
rate for the applicable period, and nondeductible goodwill amortization.
Although prepared on a basis consistent with NATCO's condensed consolidated
financial statements, these pro forma results do not purport to be indicative of
the actual results which would have been achieved had the acquisition been
consummated on January 1, of the respective year, and are not intended to be a
projection of future results.

         Effective January 8, 2001, the Company entered into a Compromise
Settlement Agreement with Phlipco, Inc., successor by merger to Enterra
Petroleum Equipment Group, Inc. and Weatherford International, Inc., which
resulted in a cash payment of $1.5 million to NATCO on May 31, 2001, to settle
certain contingencies related to NATCO's acquisition of Total Engineering
Systems Team, Inc. ("TEST") in 1997. The proceeds of this payment, net of
related costs, were used to reduce goodwill related to the TEST acquisition.

(5) UNUSUAL CHARGES

         In June 2001, the Company recorded an unusual charge of $1.6 million.
The charge consisted of $920,000 pursuant to an approved plan to close and merge
an existing NATCO office into the operations of Axsia, acquired in March 2001.
This charge included costs for severance, office consolidation and other
expenses. Also, the Company withdrew a public debt offering and recorded an
unusual charge of $680,000 for costs incurred related to the proposed offering.

         Pursuant to an employment agreement, an executive officer was entitled
to a bonus upon the occurrence of any sale or public offering of the Company.
The bonus equaled one and one-half percent (1.5%) of the value of all securities
owned by stockholders of the Company prior to the sale or offering, including
common stock valued at the price per share received in either the sale or public
offering, and any debt held by such stockholders. In July 1999, the Company
amended the employment agreement to eliminate the bonus and agreed to lend the
officer $1.2 million to purchase 136,832 shares of common stock. Per the
agreement, the officer would receive a bonus equal to the outstanding principal
and interest of the note upon the sale or public offering of the Company. During
February 2000, after the Company completed an initial public offering of its
Class A common stock, NATCO recorded expense of $1.3 million in settlement of
its obligation under this agreement. The officer used the proceeds, net of tax,
to repay the Company approximately $665,000. The outstanding balance of this
note, including accrued interest, at June 30, 2001, was approximately $633,000.
The loan accrues interest at 6% annually.

         During the first quarter of 2000, NATCO incurred relocation charges of
approximately $208,000 associated with the consolidation of an existing Company
facility with a facility that was acquired in connection with the acquisition of
Porta-Test International, Inc. ("Porta-Test").


                                       7
<PAGE>   8
(6) INVENTORIES

         Inventories consisted of the following amounts:

<TABLE>
<CAPTION>
                                       JUNE 30,          DECEMBER 31,
                                         2001                2000
                                         ----                ----
                                      (UNAUDITED)
                                              (IN THOUSANDS)
<S>                                   <C>                <C>
Finished goods ..............          $  7,949           $  7,641
Work-in-process .............            12,183             10,403
Raw materials and supplies ..            16,698             11,203
                                       --------           --------
  Inventories at FIFO .......            36,830             29,247
Excess of FIFO over LIFO cost              (660)              (570)
                                       --------           --------
                                       $ 36,170           $ 28,677
                                       ========           ========
</TABLE>

(7) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

         Cost and estimated earnings on uncompleted contracts were as follows:

<TABLE>
<CAPTION>
                                                                        JUNE 30,          DECEMBER 31,
                                                                          2001                2000
                                                                          ----                ----
                                                                       (UNAUDITED)
                                                                                (IN THOUSANDS)
<S>                                                                    <C>                <C>
Cost incurred on uncompleted contracts .......................          $ 152,843           $ 67,477
Estimated earnings ...........................................             52,393             34,475
                                                                        ---------           --------
                                                                          205,236            101,952
Less billings to date ........................................            187,894             91,301
                                                                        ---------           --------
                                                                        $  17,342           $ 10,651
                                                                        =========           ========
Included in the accompanying balance sheet under the captions:
  Trade accounts receivable ..................................          $  18,652           $ 10,651
  Advance payments ...........................................             (1,310)                --
                                                                        ---------           --------
                                                                        $  17,342           $ 10,651
                                                                        =========           ========
</TABLE>

(8) SHORT-TERM DEBT

         In conjunction with the purchase of Porta-Test in January 2000, the
Company issued a one-year promissory note for $1 million denominated in Canadian
dollars, which accrued interest at 15% per annum. On January 24, 2001, the note
was repaid along with accrued interest.

         During February 2000, the Company issued a one-year promissory note for
$338,000, with interest payable per annum at 10%, in conjunction with the
acquisition of Modular Production Equipment, Inc. ("MPE"). In February 2001, the
Company paid $206,000 as principal and interest.

(9) LONG-TERM DEBT

         The consolidated borrowings of the Company were as follows:

<TABLE>
<CAPTION>
                                                                   JUNE 30,       DECEMBER 31,
                                                                     2001             2000
                                                                     ----             ----
                                                                 (UNAUDITED)
                                                                        (IN THOUSANDS)
<S>                                                              <C>              <C>
BANK DEBT
Term loan with variable interest rate (5.99% at June 30,
  2001) and quarterly payments of principal ($1,750) and
  interest, due March 16, 2006 .........................          $ 48,250           $    --

Revolving credit bank loans with variable interest rate
  (8.58% at December 31, 2000) and quarterly payment of
  interest, due November 30, 2001 ......................                --            14,959

Revolving credit bank loans with variable interest rate
  (7.22% at June 30, 2001)  and quarterly payment of
  interest, due March 15, 2004 .........................            17,413                --

Revolving credit bank loans (Export Sales Facility) with
  variable interest rate (7.00% at June 30, 2001) and
  monthly payment of interest, due  March 15, 2004 .....             1,600                --
          Less current installments ....................            (7,000)               --
                                                                  --------           -------
          Long-term debt ...............................          $ 60,263           $14,959
                                                                  ========           =======
</TABLE>

         On March 16, 2001, the Company entered into a new credit facility that
consisted of a $50.0 million term loan, a $35.0 million U.S. revolving facility,
a $10.0 million Canadian revolving facility and a $5.0 million U.K. revolving
facility. The term loan matures on March 15, 2006, and each of the revolving
facilities matures on March 15, 2004.


                                       8
<PAGE>   9
         Amounts borrowed under the term loan bear interest at a rate of 5.99%
per annum as of June 30, 2001. Amounts borrowed under the revolving portion of
the facility bear interest as follows:

         -        until April 1, 2002, at a rate equal to, at the Company's
                  election, either (1) the London Interbank Offered Rate
                  ("LIBOR") plus 2.25% or (2) a base rate plus 0.75%; and

         -        on and after April 1, 2002, at a rate based upon the ratio of
                  funded debt to EBITDA (as defined in the credit facility) and
                  ranging from, at the Company's election, (1) a high of LIBOR
                  plus 2.50% to a low of LIBOR plus 1.75% or, (2) a high of a
                  base rate plus 1.0% to a low of a base rate plus 0.25%.

         NATCO will pay commitment fees of 0.50% per year until April 1, 2002
and 0.30% to 0.50% per year, depending upon the ratio of funded debt to EBITDA,
on and after April 1, 2002, in each case on the undrawn portion of the facility.

         The revolving credit facility is guaranteed by all the Company's
domestic subsidiaries and is secured by a first priority lien on all inventory,
accounts receivable and other material tangible and intangible assets. NATCO has
also pledged 65% of the voting stock of its active foreign subsidiaries.

         Borrowings of $50.0 million under the term loan facility were used
primarily for the acquisition of Axsia. The remaining borrowings, along with
additional borrowings under the revolving credit facility, were used to repay
$16.5 million outstanding under a predecessor revolving credit and term loan
facility.

         As of June 30, 2001, the Company was in compliance with all restrictive
debt covenants. NATCO had letters of credit outstanding under the revolving
credit facilities totaling $19.1 million at June 30, 2001. These letters of
credit constitute contract performance and warranty collateral and expire at
various dates through October 2004.

         The Company maintains a working capital facility for export sales that
provides for aggregate borrowings of $10.0 million, subject to borrowing base
limitations, of which $1.6 million was outstanding as of June 30, 2001. The
Company had no letters of credit outstanding under this facility as of June 30,
2001. The export sales credit facility is secured by specific project inventory
and receivables, and is partially guaranteed by the EXIM Bank. The export sales
credit facility loans mature in July 2003.

         The Company had unsecured letters of credit totaling $936,000 at June
30, 2001.

(10) INCOME TAXES

         NATCO's effective income tax rate for the quarter ended June 30, 2001
was 51.2%, which exceeded the amount that would have resulted from applying the
U.S. federal statutory tax rate, and was due primarily to non-deductible
goodwill amortization expense of $1.0 million. A tax benefit associated with the
exercise of employee stock options of $54,000 and $214,000, respectively, was
allocated to equity during the quarter and six-month period ended June 30, 2001.

(11) INDUSTRY SEGMENTS

         The accounting policies of the reportable segments were consistent with
the policies used to prepare the Company's condensed consolidated financial
statements for the respective periods presented. The Company evaluates the
performance of its operating segments based on income before net interest
expense, income taxes, depreciation and amortization expense, accounting
changes, and nonrecurring items.

         In the first quarter of 2001, the Company changed the presentation of
its reportable segments by combining the traditional production equipment and
services business segment with the NATCO Canada business segment, to form the
North American Operations business segment. This change has been retroactively
reflected in all periods presented.

         In July 2000, the Company changed its presentation of certain assets
acquired from Cynara in November 1998, and the related operating results, for
segment reporting purposes. The majority of the assets were reclassified to the
North American operations business segment from the engineered systems business
segment. This change has been retroactively reflected in all periods presented.

         Summarized financial information concerning the Company's reportable
segments is shown in the following table.


                                       9
<PAGE>   10
<TABLE>
<CAPTION>
                                                NORTH                            AUTOMATION
                                               AMERICAN       ENGINEERED         & CONTROL            CORPORATE &
                                              OPERATIONS        SYSTEMS           SYSTEMS            ELIMINATIONS      TOTAL

                                                                         (unaudited, in thousands)
<S>                                           <C>             <C>                <C>                 <C>             <C>
    THREE MONTHS ENDED
      JUNE 30, 2001
    Revenues from unaffiliated customers        $36,704         $34,413           $11,442             $    --        $ 82,559
    Revenues from affiliates............            857              30               849               (1,736)           --
    Segment profit (loss)...............          3,088           2,954             1,426               (2,388)         5,080
    Total assets........................         96,126         125,547            20,116               12,585        254,374
    Capital expenditures................            551             672               181                  428          1,832
    Depreciation and amortization.......            595           1,380               111                   97          2,183

    THREE MONTHS ENDED
      JUNE 30, 2000
    Revenues from unaffiliated customers        $27,466         $17,937           $10,532             $    --        $ 55,935
    Revenues from affiliates............          1,823             --              1,122               (2,945)           --
    Segment profit (loss)...............          2,644           3,158             1,841               (1,344)         6,299
    Total assets........................         81,409          36,242            19,044               10,257        146,952
    Capital expenditures................            735           1,558                50                  145          2,488
    Depreciation and amortization.......            704             407               144                    8          1,263

    SIX MONTHS ENDED
      JUNE 30, 2001
    Revenues from unaffiliated customers        $69,895         $52,370           $23,204             $    --        $145,469
    Revenues from affiliates............          2,267              38             1,894               (4,199)           --
    Segment profit (loss)...............          6,035           4,724             2,669               (3,407)        10,021
    Total assets........................         96,126         125,547            20,116               12,585        254,374
    Capital expenditures................          1,005           1,412               256                  436          3,109
    Depreciation and amortization.......          1,480           1,828               261                  217          3,786

    SIX MONTHS ENDED
      JUNE 30, 2000
    Revenues from unaffiliated customers        $53,720         $34,785           $19,285             $    --        $107,790
    Revenues from affiliates............          3,192             --              2,014               (5,206)           --
    Segment profit (loss)...............          3,174           6,384             2,498               (3,576)         8,480
    Total assets........................         81,409          36,242            19,044               10,257        146,952
    Capital expenditures................          1,311           2,694               141                  194          4,340
    Depreciation and amortization.......          1,546             642               280                   75          2,543
</TABLE>

(12) DERIVATIVE ARRANGEMENTS

         As of June 30, 2001, the Company was party to several foreign currency
derivative arrangements as a result of the acquisition of Axsia on March 19,
2001. Specifically, the Company held foreign currency forward contracts used as
a hedge against fluctuations in foreign currency exchange rates. In accordance
with Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," the Company's policy is to
record these contracts on the balance sheet at fair market value and to record
any changes in fair value as charges to income in the current period. The
Company had no derivative financial instruments as of January 1, 2001.

         The objective of these derivative arrangements is to absorb the cash
flow impact of possible exchange rate changes for Axsia projects that were
required to settle in a currency other than British pounds sterling. Under these
derivative arrangements, the Company agreed to sell British pounds sterling at a
contractual strike price in exchange for a specified amount of the local
currency. For example, the Company purchases units of the local currency in
order to settle commitments with its vendors. Based upon the current exchange
rate, a gain or loss on the underlying liability is recorded, as well as an
offsetting gain or loss on the derivative forward contract. The nature of these
derivative arrangements provides a hedge to mitigate exchange rate exposure.

         The following table summarizes the Company's commitments to sell
British pounds sterling under derivative forward contracts as of June 30, 2001:

<TABLE>
<CAPTION>
                                                                  LOCAL                                  POUNDS          FAIR VALUE
                                                                 CURRENCY        STRIKE PRICE           STERLING          IN POUNDS
CONTRACT TYPE            DATES              LOCAL CURRENCY        AMOUNT             RANGE             EQUIVALENT         STERLING
<S>               <C>                       <C>                 <C>             <C>                    <C>               <C>
    Sell          8/1/2001 to 1/31/2002     Euros                  945,281      1.5623 to 1.6223          586,880           569,001
    Sell          7/1/2001 to 2/28/2002     US dollars          22,741,286      1.4710 to 1.5700       14,982,066        16,169,856
    Sell          7/1/2001 to 9/30/2001     Kuwaiti dinars         136,000           .04495               302,558           316,132
</TABLE>

         At June 30, 2001, the Company confirmed the fair market value of its
forward contracts with the counter-party financial institutions. The Company
intends to fulfill these foreign currency contract commitments that extend
through February 2002 and does not currently intend to enter into new derivative
arrangements as part of its risk management strategy.


                                       10
<PAGE>   11
(13) COMMITMENTS AND CONTINGENCIES

         The Porta-Test purchase agreement, executed in January 2000, contains a
provision to calculate a payment to certain former stockholders of Porta-Test
Systems, Inc. for a three-year period ended January 24, 2003, based upon sales
of a limited number of specified products designed by or utilizing technology
that existed at the time of the acquisition. Liability under this arrangement is
contingent upon attaining certain performance criteria, including gross margins
and sales volumes for the specified products. If applicable, payment is required
annually. In April 2001, the Company paid $226,000 under this arrangement
related to the year ended January 24, 2001. Any future liabilities incurred
under this arrangement will result in an increase in goodwill.


                                       11
<PAGE>   12
         ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

         Management's Discussion and Analysis includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(each a "Forward-Looking Statement"). The words "believe," "expect," "plan,"
"intend," "estimate," "project," "will," "could," "may" and similar expressions
are intended to identify Forward-Looking Statements. Forward-Looking Statements
in this document include, but are not limited to, discussions regarding
indicated trends in the level of oil and gas exploration and production and the
effect of such conditions on the Company's results of operations (see " --
Industry and Business Environment"), future uses of and requirements for
financial resources (see " -- Liquidity and Capital Resources"), and anticipated
backlog levels for 2001 (see " -- Liquidity and Capital Resources"). The
Company's expectations about its business outlook, customer spending, oil and
gas prices and the business environment for the Company and the industry in
general are only its expectations regarding these matters. No assurance can be
given that actual results may not differ materially from those in the
Forward-Looking Statements herein for reasons including, but not limited to:
market factors such as pricing and demand for petroleum related products, the
level of petroleum industry exploration and production expenditures, the effects
of competition, world economic conditions, the level of drilling activity, the
legislative environment in the United States and other countries, policies of
the Organization of Petroleum Exporting Countries, conflict in major petroleum
producing or consuming regions, the development of technology which could lower
overall finding and development costs, weather patterns and the overall
condition of capital and equity markets for countries in which the Company
operates.

         The following discussion should be read in conjunction with the
financial statements, related notes and other financial information appearing
elsewhere in this Form 10-Q. Readers are also urged to carefully review and
consider the various disclosures advising interested parties of the factors that
affect the Company, including without limitation, the disclosures made under the
caption "Risk Factors" and the other factors and risks discussed in the
Company's Registration Statement on Form S-1/A and subsequent reports filed with
the Securities and Exchange Commission. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
Forward-Looking Statement to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any Forward-Looking Statement is based.

OVERVIEW

         References to "NATCO" and "the Company" are used throughout this
document and relate collectively to NATCO Group Inc. and its consolidated
subsidiaries.

         NATCO's operations are organized into three separate business segments:
North American operations, a segment which primarily provides standardized
components, replacement parts and used components and equipment servicing;
engineered systems, a segment which primarily provides customized, large scale
integrated oil and gas production systems; and automation and control systems, a
segment which provides control panels and systems that monitor and control oil
and gas production.

         NATCO recognizes revenues from significant contracts (contracts greater
than $250,000 and longer than four months in duration) and all automation and
control systems contracts and orders on the percentage of completion method. The
Company records revenues and profits on other sales as shipments are made.
Earned revenue is based on the percentage that costs incurred to date bear to
total estimated costs. If estimated total costs on any contract or
work-in-process indicate a loss, the Company recognizes the entire loss
immediately. NATCO generally recognizes revenue and earnings to which the
percentage of completion method applies over a period of two to six quarters.
Customers typically retain an interest in uncompleted projects.

ACQUISITIONS

         On March 19, 2001, the Company acquired all the outstanding share
capital of Axsia Group Limited ("Axsia"), a privately held company based in the
United Kingdom, for approximately $42.8 million, net of cash acquired. Axsia
specializes in the design and supply of water reinjection systems for oil and
gas fields, oily water treatment, oil separation, hydrogen production and other
process equipment systems. This acquisition was financed with borrowings under
NATCO's term loan facility, and was accounted for using the purchase method of
accounting. Results of operations for Axsia have been included in NATCO's
condensed consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair values of the net assets acquired is
being amortized over a twenty-year period. Goodwill and accumulated amortization
related to the Axsia acquisition were $47.8 million and $675,000, respectively,
at June 30, 2001. The purchase price allocation has not yet been finalized, but
NATCO's management does not believe that the final purchase price allocation
will differ materially from that as of June 30, 2001.


                                       12
<PAGE>   13
INDUSTRY AND BUSINESS ENVIRONMENT

         NATCO is a leading provider of equipment, systems and services used in
the production of crude oil and natural gas, primarily at the wellhead, to
separate oil and gas within a production stream and to remove contaminants. The
Company's products and services are used in onshore and offshore fields in most
major oil and gas producing regions of the world. Separation and decontamination
of a production stream is needed at almost every producing well in order to meet
the specifications of transporters and end users.

         One indicator of capital spending in the oil and gas industry is
commodity prices. Energy prices were low in early 1999 but began to rise
steadily mid-year as production cuts by OPEC and other oil producing countries
reduced excess inventory levels. Energy prices remained high until the spring of
2000 when these same producers elected to increase production to bring energy
prices down to more sustainable levels. In early 2001, energy prices continued a
modest decline. The average price of oil per barrel during 2000, using the West
Texas Intermediate spot price, was approximately $30, and the average natural
gas price per MMBtu during 2000, using the NYMEX Henry Hub price, was
approximately $4 per MMBtu. The spot price of these commodities as of June 30,
2001 was approximately $26 per barrel of oil and $3 per MMBtu of natural gas.

         Another indicator of capital spending in the oil and gas industry is
the number of operating rigs in the U.S. and Canada, which has increased from
1,247 at June 30, 2000 to 1,597 at June 30, 2001, as published by Baker Hughes.

         The increase in oil prices since 1999 has had a positive effect on the
Company's overall sales in 2000 and 2001. Current price levels and recent rig
count improvements have contributed to improved overall industry conditions and
should also cause NATCO's customers to continue to increase their exploration
and development efforts. Although energy price levels and rig count increases
are indicators that additional oil and gas production may occur throughout 2001,
there can be no assurance that overall production will increase, that an
increase in production trends will continue through 2001 or that such an
increase in production would result in an increase in revenues for the Company.

         The following discussion of NATCO's historical results of operations
and financial condition should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto.

RESULTS OF OPERATIONS

         In the first quarter of 2001, the Company changed its presentation of
its reportable segments by combining the traditional production equipment and
services business segment with the NATCO Canada business segment, to form the
North American operations business segment. This change has been retroactively
reflected in all periods presented.

         In July 2000, the Company changed its presentation of certain assets
that were acquired from The Cynara Company ("Cynara") in November 1998, and the
related operating results, for segment reporting purposes. The majority of the
assets were reclassified to the North American operations business segment from
the engineered systems business segment. This change has been retroactively
reflected in all periods presented.

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

         Revenues. Revenues of $82.6 million for the three months ended June 30,
2001 increased $26.6 million, or 48%, from $55.9 million for the three months
ended June 30, 2000. The following table summarizes revenues by business segment
for the quarters ended June 30, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                           JUNE 30,
                                                           --------
                                                                                                    PERCENTAGE
                                                    2001              2000             CHANGE         CHANGE
                                                    ----              ----             ------         ------
                                                                            (UNAUDITED)
                                                             (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                              <C>                <C>                <C>          <C>
         North American Operations ....          $ 37,561           $ 29,289           $ 8,272          28%
         Engineered Systems ...........            34,443             17,937            16,506          92%
         Automation and Control Systems            12,291             11,654               637           5%
         Corporate and Other ..........            (1,736)            (2,945)            1,209          41%
                                                 --------           --------           -------
                   Total ..............          $ 82,559           $ 55,935           $26,624          48%
                                                 --------           --------           -------
</TABLE>

         North American operations revenues increased $8.3 million, or 28%, for
the quarter ended June 30, 2001, as compared to the quarter ended June 30, 2000,
due to an increase in oilfield activity that resulted from continued favorable
oil and gas prices, and was


                                       13
<PAGE>   14
consistent with increased rig count in the United States and Canada. The Company
experienced increased demand for its production process equipment, domestic
parts and services and CO2 membrane technology products and field services.
These increases in equipment sales were offset slightly by a decline in
affiliated revenues in Canada, as several large projects in fiscal 2000 were
completed. Affiliated revenues for this business segment were $857,000 for the
quarter ended June 30, 2001, as compared to $1.8 million for the quarter ended
June 30, 2000.

         Revenues for the engineered systems business segment increased $16.5
million, or 92%, for the quarter ended June 30, 2001, as compared to the quarter
ended June 30, 2000. This increase was primarily due to the acquisition of Axsia
in March 2001, which provided revenues of $27.1 million for the three months
ended June 30, 2001. This increase was partially offset due to a decline in
revenues recognized under long-term engineering projects, including the
Carigali-Triton Operating Company SDN BHD ("CTOC") contract, which provided
$13.2 million of revenue for the quarter ended June 30, 2000, as compared to
$581,000 for the quarter ended June 30, 2001. Excluding the impact of the Axsia
acquisition and the CTOC project, revenues for this business segment increased
$2.0 million for the quarter ended June 30, 2001, compared to the respective
period in 2000, primarily due to an increase in export projects. Engineered
systems revenues of $34.4 million for the quarter ended June 30, 2001 included
approximately $30,000 of affiliated revenues. No affiliated revenues were
included in the results of this business segment for the quarter ended June 30,
2000.

         Revenues for the automation and control systems business segment
increased $637,000, or 5%, for the quarter ended June 30, 2001, as compared to
the quarter ended June 30, 2000. This increase in revenues was the result of
higher demand for the Company's products and an increase in field services for
both time and materials and quote job projects. Affiliated revenues of
approximately $849,000 and $1.1 million were included in the results for the
quarters ended June 30, 2001 and 2000, respectively.

         The change in revenues for corporate and other represents the
elimination of revenues of affiliates as discussed above.

         Gross Profit. Gross profit for the quarter ended June 30, 2001
increased $4.1 million, or 26%, to $20.3 million, compared to $16.2 million for
the quarter ended June 30, 2000. As a percentage of revenue, gross margins
declined from 29% for the quarter ended June 30, 2000 to 25% for the quarter
ended June 30, 2001. The following table summarizes gross profit by business
segment for the quarters then ended:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED
                                                         JUNE 30,
                                                         --------
                                                                                                  PERCENTAGE
                                                   2001            2000            CHANGE           CHANGE
                                                   ----            ----            ------           ------
                                                                        (UNAUDITED)
                                                          (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                              <C>              <C>              <C>            <C>
         North American Operations ....          $ 9,130          $ 7,738          $ 1,392            18%
         Engineered Systems ...........            8,568            5,592            2,976            53%
         Automation and Control Systems            2,607            2,849             (242)           (8)%
                                                 -------          -------          -------
                   Total ..............          $20,305          $16,179          $ 4,126            26%
                                                 -------          -------          -------
</TABLE>


         Gross profit for the North American operations business segment
increased $1.4 million, or 18%, for the quarter ended June 30, 2001, as compared
to the respective period in 2000. This increase in margin was due primarily to a
28% increase in revenues, slightly offset by an unfavorable sales mix, as the
sales increase generally related to lower margin standard production equipment.
As a percentage of revenue, gross margins were 24% and 26% for the quarters
ended June 30, 2001 and 2000, respectively.

         Gross profit for the engineered systems business segment for the
quarter ended June 30, 2001 increased $3.0 million, or 53%, primarily due to a
$7.3 million contribution from Axsia, which was acquired in March 2001, offset
by a decline in contribution from large higher margin engineered systems
projects, including CTOC. Excluding the impact of Axsia and the CTOC project,
gross margin for the engineered systems business segment increased approximately
$488,000 due to an increase in export projects. Gross margin for engineered
systems represented 25% and 31% of the segment's revenues for the quarters ended
June 30, 2001 and 2000, respectively.

         Gross profit for the automation and control systems business segment
decreased $242,000, or 8%, for the quarter ended June 30, 2001, as compared to
the quarter ended June 30, 2000. This decrease was related to a decline in
revenues from quote jobs that generally provide more favorable margins. However,
the increase in time and materials jobs resulted in an overall 5% increase in
revenues for the segment. Gross margin as a percentage of revenue for the
quarters ended June 30, 2001 and 2000, was 21% and 24%, respectively.

         Selling, General and Administrative Expense. Selling, general and
administrative expense of $13.6 million increased $3.7 million, or 38%, for the
quarter ended June 30, 2001, as compared to the respective period in 2000. This
increase was largely related to the following factors: (1) the results of
operations for Axsia which was acquired on March 19, 2001, (2) start-up costs
related to the Singapore office opened in March 2001 to increase marketing
efforts in Southeast Asia, (3) increased spending for technology and


                                       14
<PAGE>   15
product development, (4) an increase in unabsorbed costs from the Company's CO2
membrane manufacturing facility, related to the windup of the CTOC project, and
(5) higher employee medical costs.

         Depreciation and Amortization Expense. Depreciation and amortization
expense of $2.2 million for the quarter ended June 30, 2001, increased $920,000,
or 73%, compared to $1.3 million for the quarter ended June 30, 2000.
Depreciation expense of $1.0 million for the quarter ended June 30, 2001,
increased $311,000, or 42%, as compared to the respective period for 2000. This
increase was primarily due to the acquisition of Axsia in March 2001 that
provided depreciation expense of $111,000 for the quarter, and capital
expenditures of $8.1 million incurred during fiscal 2000, including a
significant upgrade to the manufacturing facility in Pittsburg, California,
completed and put into service in the fourth quarter of 2000. Amortization
expense of $1.1 million for the quarter ended June 30, 2001, increased $609,000,
or 116%, as compared to $525,000 for the quarter ended June 30, 2000. This
increase was primarily due to amortization of goodwill associated with the Axsia
acquisition of approximately $600,000.

         Unusual Charges. Unusual charges for the quarter ended June 30, 2001
were $1.6 million, of which approximately $920,000 related to certain
restructuring costs to streamline activities and consolidate offices in
connection with the Company's acquisition of Axsia in March 2001, and an
additional $680,000 related to the Company's decision to withdraw a public debt
offering.

         Interest Expense. Interest expense was $1.6 million for the quarter
ended June 30, 2001, as compared to $438,000 for the respective period in 2000.
This increase of $1.1 million, or 261%, was due primarily to an increase in
borrowings under the Company's term loan and revolving credit facilities. The
Company borrowed $50.0 million against its new term loan facility to acquire
Axsia in March 2001 and retire borrowings under its predecessor revolving credit
facility. Outstanding debt at June 30, 2001 under the Company's credit
facilities totaled $67.3 million, as compared to $6.6 million at June 30, 2000.

         Provision for Income Taxes. Income tax expense of $546,000 for the
quarter ended June 30, 2001, decreased $1.3 million from $1.8 million for the
quarter ended June 30, 2000. The primary reason for this decrease in tax expense
was a decrease in income before income taxes, which was $1.1 million for the
quarter ended June 30, 2001, as compared to $4.3 million for the respective
period in 2000. The effective tax rate increased from 42.8% in 2000 to 51.2% in
2001, due to the impact of non-deductible goodwill amortization expense.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

         Revenues. Revenues of $145.5 million for the six months ended June 30,
2001 increased $37.7 million, or 35%, from $107.8 million for the six months
ended June 30, 2000. The following table summarizes revenues by business segment
for the six-month periods ended June 30, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED
                                                            JUNE 30,
                                                            --------
                                                                                                      PERCENTAGE
                                                    2001               2000              CHANGE         CHANGE
                                                    ----               ----              ------         ------
                                                                             (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                              <C>                 <C>                 <C>          <C>
         North American Operations ....          $  72,162           $  56,912           $15,250          27%
         Engineered Systems ...........             52,408              34,785            17,623          51%
         Automation and Control Systems             25,098              21,299             3,799          18%
         Corporate and Other ..........             (4,199)             (5,206)            1,007          19%
                                                 ---------           ---------           -------
                   Total ..............          $ 145,469           $ 107,790           $37,679          35%
                                                 ---------           ---------           -------
</TABLE>


         North American operations revenues increased $15.3 million, or 27%, for
the six months ended June 30, 2001, as compared to the six months ended June 30,
2000, due to an increase in oilfield activity in the United States and Canada,
the Company's primary markets, as a result of continued favorable oil and gas
prices. The Company experienced increased demand for its production process
equipment, domestic parts and services, export parts and services and CO2
membrane technology products. These increases in equipment sales were offset
slightly by a decline in Canadian operations, due to a delayed recovery in crude
oil development in Canada and a lull in activity for several key customers.
Affiliated revenues for this business segment were $2.3 million for the six
months ended June 30, 2001, as compared to $3.2 million for the six months ended
June 30, 2000.

         Revenues for the engineered systems business segment increased $17.6
million, or 51%, for the six months ended June 30, 2001, as compared to the six
months ended June 30, 2000. This increase was primarily due to the acquisition
of Axsia in March 2001, which provided revenues of $31.0 million since the date
of acquisition. This increase was partially offset by a decline in revenues
recognized under long-term engineering projects, including the CTOC contract,
which provided $23.2 million of revenue for the six months ended June 30, 2000
as compared to $8.9 million for the six months ended June 30, 2001. Excluding
the impact of Axsia and the CTOC project, revenues for this business segment
increased $957,000 for the six months ended June 30, 2001 as compared to the
respective period in 2000, due primarily to export engineered systems.
Engineered systems revenues of $52.4 million for the six


                                       15
<PAGE>   16
months ended June 30, 2001 included approximately $38,000 of affiliated
revenues. No affiliated revenues were included in the results of this business
segment for the six months ended June 30, 2000.

         Revenues for the automation and control systems business segment
increased $3.8 million, or 18%, for the six months ended June 30, 2001, as
compared to the respective period in 2000. This increase in revenues was the
result of higher demand for the Company's electrical and instrumentation
products and an increase in field services for both time and materials and quote
job projects. Affiliated revenues of approximately $1.9 million and $2.0 million
were included in the results for the six-month periods ended June 30, 2001 and
2000, respectively.

         The change in revenues for corporate and other represents the
elimination of revenues of affiliates as discussed above.

         Gross Profit. Gross profit for the six months ended June 30, 2001
increased $7.0 million, or 24%, to $36.3 million, compared to $29.3 million for
the six months ended June 30, 2000. As a percentage of revenue, gross margins
declined from 27% for the six months ended June 30, 2000 to 25% for the six
months ended June 30, 2001. The following table summarizes gross profit by
business segment for the periods then ended:

<TABLE>
<CAPTION>
                                                     SIX MONTHS ENDED
                                                         JUNE 30,
                                                         --------
                                                                                               PERCENTAGE
                                                   2001             2000           CHANGE        CHANGE
                                                   ----             ----           ------        ------
                                                                         (UNAUDITED)
                                                          (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                              <C>              <C>              <C>         <C>
         North American Operations ....          $17,536          $13,339          $4,197          31%
         Engineered Systems ...........           13,754           11,390           2,364          21%
         Automation and Control Systems            5,008            4,568             440          10%
                                                 -------          -------          ------
                   Total ..............          $36,298          $29,297          $7,001          24%
                                                 -------          -------          ------
</TABLE>

         Gross profit for the North American operations business segment
increased $4.2 million, or 31%, for the six months ended June 30, 2001, as
compared to the respective period in 2000. This increase in margin was due
primarily to a 27% increase in revenues and favorable sales mix, including
higher sales of domestic and export part and services and CO2 membrane
operations products, which generally provide higher margins than standard
production equipment. As a percentage of revenue, gross margins were 24% and 23%
for the six-month periods ended June 30, 2001 and 2000, respectively.

         Gross profit for the engineered systems business segment for the six
months ended June 30, 2001 increased approximately $2.4 million, or 21%,
primarily due to an $8.0 million contribution from Axsia, offset by a decline in
large engineered systems projects such as the CTOC project which provided gross
margin of $9.1 million for the six months ended June 30, 2000, as compared to
$3.5 million for the six months ended June 30, 2001. Excluding the impact of
Axsia and the CTOC project, gross margins for the engineered systems business
segment increased slightly in 2001 as compared to 2000. Gross margin represented
26% and 33% of the segment's revenues for the six-month periods ended June 30,
2001 and 2000, respectively. The decline in gross margin as a percentage of
revenues was consistent with a decline in large high margin projects such as
CTOC.

         Gross profit for the automation and control systems business segment
increased $440,000, or 10%, for the six months ended June 30, 2001, as compared
to the six months ended June 30, 2000. This increase was directly related to an
18% increase in revenues offset slightly by a shift in sales mix from higher
margin quote jobs to time and materials jobs. Gross margin as a percentage of
revenue for the six-month periods ended June 30, 2001 and 2000, was 20% and 21%,
respectively.

         Selling, General and Administrative Expense. Selling, general and
administrative expense of $24.7 million increased $5.4 million, or 28%, for the
six months ended June 30, 2001, as compared to the respective period in 2000.
This increase was largely related to the following factors: (1) the results of
operations for Axsia which was acquired on March 19, 2001, (2) start-up costs
related to the Singapore office opened in March 2001 to increase marketing
efforts in Southeast Asia, (3) increased spending for technology and product
development, (4) an increase in unabsorbed costs from the Company's CO2 membrane
manufacturing facility, related to the windup of the CTOC project, and (5)
higher employee medical costs.

         Depreciation and Amortization Expense. Depreciation and amortization
expense of $3.8 million for the six months ended June 30, 2001, increased $1.2
million, or 49%, compared to $2.5 million for the six months ended June 30,
2000. Depreciation expense of $2.0 million for the six months ended June 30,
2001, increased $365,000, or 22%, as compared to the respective period for 2000.
This increase was primarily due to the acquisition of Axsia in March 2001 and
capital expenditures of $8.1 million during fiscal 2000, which included a
significant upgrade to the manufacturing facility in Pittsburg, California,
completed and put into service in the fourth quarter of 2000. Amortization
expense of $1.8 million for the six months ended June 30, 2001, increased
$878,000, or 99%, as compared to $887,000 for the six months ended June 30,
2000. This increase was primarily due to amortization of goodwill associated
with the Axsia, Porta-Test International, Inc. ("Porta-Test"), Modular
Production Equipment, Inc. ("MPE") and Engineered


                                       16
<PAGE>   17
Specialties, Inc. ("ESI") acquisitions completed in March 2001, January 2000,
February 2000 and April 2000, respectively. Also, amortization expense increased
due to an increase in goodwill related to the acquisition of Cynara in November
1998. Pursuant to the Cynara purchase agreement, NATCO issued 8,520 shares and
418,145 shares of the Company's Class B common stock during February 2001 and
June 2000, respectively, to Cynara's former shareholders based upon the
achievement of certain performance criteria, and the cost of such shares was
charged to goodwill.

         Unusual Charges. Unusual charges for the six months ended June 30, 2001
were $1.6 million, compared to $1.5 million for the six months ended June 30,
2000. Costs incurred in 2001 include approximately $920,000 related to certain
restructuring costs to streamline activities and consolidate offices in
connection with the Company's acquisition of Axsia in March 2001, and an
additional $680,000 related to the Company's decision to withdraw a public debt
offering. Costs incurred for the six months ended June 30, 2000 were primarily
for compensation expense associated with the employment agreement of an
executive officer. The terms of the agreement entitled the officer to a sum
equal to an outstanding note and accrued interest, totaling $1.2 million at
December 31, 1999, upon the sale of the Company's Class A common stock in an
initial public offering. NATCO completed its initial public offering on January
27, 2000, and, per the agreement, the Company recorded compensation expense for
the amount of the note and accrued interest, including related payroll burdens,
totaling $1.3 million. In addition, the Company recorded relocation expenses
totaling $208,000 associated with the consolidation of an existing Company
facility with a facility that was acquired with the acquisition of Porta-Test.

         Interest Expense. Interest expense was $2.3 million for the six months
ended June 30, 2001, as compared to $774,000 for the respective period in 2000.
This 196% increase in interest expense was due primarily to an increase in
long-term debt under the new term loan and revolving credit facilities from $6.6
million at June 30, 2000 to $67.3 million at June 30, 2001. The Company borrowed
$50.0 million against its new term loan facility to acquire Axsia and to retire
borrowings under its predecessor revolving credit facility.

         Provision for Income Taxes. Income tax expense of $1.5 million for the
six months ended June 30, 2001, decreased $480,000 from $2.0 million for the six
months ended June 30, 2000. The primary reason for this decrease in tax expense
was a decrease in income before income taxes, which was $3.4 million for the six
months ended June 30, 2001, as compared to $4.7 million for the respective
period in 2000. In addition, the effective tax rate increased from 43% in 2000
to 44% in 2001, due primarily to non-deductible goodwill amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2001, the Company had cash and working capital of $4.7
million and $46.2 million, respectively, as compared to cash and working capital
of $1.0 million and $49.1 million, respectively, at December 31, 2000.

         Net cash provided by operating activities for the six months ended June
30, 2001 was $1.4 million, compared to net cash used in operations of $2.8
million for the six months ended June 30, 2000. Factors, which contributed to
the increase in cash provided by operating activities during 2001, included an
increase in customer advance payments and accounts payable in greater proportion
than the increase in accounts receivable.

         Net cash used in investing activities for the six months ended June 30,
2001 was $50.8 million, of which $48.2 was used to acquire Axsia and $3.1
million was used for capital expenditures. For the six months ended June 30,
2000, $20.5 million was used for investing activities primarily to acquire
Porta-Test, MPE and ESI, and for capital expenditures.

         Net cash provided by financing activities for the six months ended June
30, 2001 was $52.7 million, as compared to net cash provided by financing
activities for the six months ended June 30, 2000 of $22.8 million. The primary
source of funds for financing activities for the six months ended June 30, 2001
was net borrowings of $48.3 million under the term loan facility and net
borrowing of $4.1 million under the Company's revolving credit facility. The
primary source of funds for financing activities during the six months ended
June 30, 2000 was the issuance of the Company's Class A common stock through an
initial public offering and the exercise of an over-allotment option by NATCO's
underwriters, which provided $37.7 million and $10.5 million, respectively.
These proceeds were used primarily to retire $27.9 million of outstanding debt
under a term loan arrangement, to repay $3.0 million borrowed under the
revolving credit agreement for the purchase of Porta-Test, and to repay $2.9
million of debt assumed in the acquisitions of Porta-Test and MPE.

         On March 16, 2001, the Company entered into a new credit facility that
consisted of a $50.0 million term loan, a $35.0 million U.S. revolving facility,
a $10.0 million Canadian revolving facility and a $5.0 million U.K. revolving
facility. The term loan matures on March 15, 2006, and each of the revolving
facilities matures on March 15, 2004.


                                       17
<PAGE>   18
         Amounts borrowed under the term loan facility bear interest at 5.99%
per annum as of June 30, 2001. Amounts borrowed under the revolving facilities
bear interest as follows:

         -        until April 1, 2002, at a rate equal to, at the Company's
                  election, either (1) the London Interbank Offered rate
                  ("LIBOR") plus 2.25% or (2) a base rate plus 0.75%; and

         -        on and after April 1, 2002, at a rate based upon the ratio of
                  funded debt to EBITDA (as defined in the credit facility) and
                  ranging from, at the Company's election, (1) a high of LIBOR
                  plus 2.50% to a low of LIBOR plus 1.75% or, (2) a high of a
                  base rate plus 1.0% to a low of a base rate plus 0.25%.

         As of June 30, 2001, the weighted average interest rate of NATCO's
borrowings under its revolving credit facility was 7.22%.

         NATCO will pay commitment fees of 0.50% per year until April 1, 2002
and 0.30% to 0.50% per year, depending upon the ratio of funded debt to EBITDA,
on and after April 1, 2002, in each case on the undrawn portion of the facility.

         The revolving credit facility is guaranteed by all the Company's
domestic subsidiaries and is secured by a first priority lien on all inventory,
accounts receivable and other material tangible and intangible assets. NATCO has
also pledged 65% of the voting stock of its active foreign subsidiaries.

         On March 19, 2001, NATCO borrowed $50.0 million under the term loan
portion of this new facility and used $45.0 million to purchase all the
outstanding share capital of Axsia. The remaining borrowings were used to repay
$16.5 outstanding under a predecessor revolving credit and term loan facility.
As of June 30, 2001, the Company had borrowings of $48.3 million outstanding
under the term loan facility.

         As of June 30, 2001, the Company was in compliance with all restrictive
debt covenants. NATCO had letters of credit outstanding under the revolving
credit facilities totaling $19.1 million at June 30, 2001. These letters of
credit constitute contract performance and warranty collateral and expire at
various dates through October 2004.

         The Company maintains a working capital facility for export sales that
provides for aggregate borrowings of $10.0 million, subject to borrowing base
limitations, of which $1.6 million was outstanding at June 30, 2001. The Company
had no letters of credit outstanding under this facility at June 30, 2001. The
export sales credit facility is secured by specific project inventory and
receivables, and is partially guaranteed by the EXIM Bank. The export sales
credit facility loans mature in July 2003.

         The Company has unsecured letters of credit outstanding at June 30,
2001 of $936,000.

         The Company's sales backlog at June 30, 2001 was $101.3 million and
included backlog of $25.0 million related to Axsia, which was acquired on March
19, 2001. In addition, backlog at June 30, 2001 included $3.5 million related to
the CTOC project, which contributed $35.1 million to backlog at June 30, 2000.
Excluding the impact of the Axsia acquisition and the CTOC project, backlog at
June 30, 2001 was $72.7 million as compared to $25.0 million at June 30, 2000.
This increase in backlog was partially due to bookings of production equipment
systems for large offshore projects in West Africa, Brazil and the Gulf of
Mexico. Management expects to continue to build backlog in modest increments
throughout fiscal 2001, with the potential for additional increases due to
planned Southeast Asian CO2 separation projects for 2002.

         At June 30, 2001, borrowing base limitations reduced the Company's
available borrowing capacity under the term loan and revolving credit agreement
and export sales credit agreement to $41.4 million and $1.2 million,
respectively. However, NATCO's management believes that the Company's operating
cash flow, supported by its borrowing capacity, will be adequate to fund
operations throughout 2001. Should the Company decide to pursue additional
acquisition opportunities during the remainder of 2001, the determination of the
Company's ability to finance these acquisitions will be a critical element of
the analysis of the opportunities.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB")
approved Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." This standard requires that any business combination initiated
after June 30, 2001 be accounted for using the purchase method of accounting.
This standard became effective on July 1, 2001. The Company does not expect this
pronouncement to have a material effect on its financial condition or results of
operations.

         The FASB approved SFAS No. 142, "Goodwill and Other Intangible Assets"
in June 2001. This pronouncement requires that intangible assets with indefinite
lives, including goodwill, cease being amortized and be evaluated on an
impairment basis. Intangible assets with a defined term, such as patents, would
continue to be amortized over the useful life of the asset. This pronouncement


                                       18
<PAGE>   19
becomes effective on January 1, 2002, for companies with calendar year ends. The
Company has not determined the impact that this pronouncement will have on its
financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's operations are conducted around the world in a number of
different countries. Accordingly, future earnings are exposed to changes in
foreign currency exchange rates when transactions are denominated in currencies
other than the Company's functional currencies, the primary currencies in which
the Company conducts its business in various jurisdictions. The majority of the
Company's foreign currency transactions are denominated in the Canadian dollar
and British pounds sterling, which are the functional currencies of NATCO Canada
and Axsia, respectively. At NATCO Canada, contracts are generally denominated
and settled in the functional currency, thereby mitigating risks associated with
currency fluctuations. At Axsia, contracts may be denominated and settled in
currencies other than the functional currency. The Company has entered into
certain currency forward contract arrangements whereby the Company purchases
foreign currencies at a specified strike price in order to hedge exposure to
currency fluctuations on contracts denominated in currencies other than the
functional currency. The Company's policy is to record these contracts and their
underlying balance sheet accounts at fair market value and to record any changes
in fair value as charges to income in the current period. The nature of these
derivative arrangements is to offset any negative impact of changes in foreign
currency exchange rates, as any gain or loss recorded on the underlying asset or
liability would be offset by a contrasting gain or loss on the derivative asset
or liability. As such, these contracts are an effective hedge to mitigate
exchange rate exposure related to these transactions. At June 30, 2001, the
Company obtained the fair market value of the forward contracts from the
counter-party financial institutions. The Company intends to fulfill these
contractual commitments. NATCO does not intend to enter into new derivative
arrangements as part of its risk management strategy.

         The Company's financial instruments are subject to change in interest
rates, including its revolving credit and term loan facility and its working
capital facility for export sales. At June 30, 2001, the Company had borrowings
of $48.3 million outstanding under the term loan portion of the revolving credit
and term loan facility, at an interest rate of 5.99%. Borrowings, which bear
interest at floating rates, outstanding under the revolving credit agreement at
June 30, 2001, totaled $17.4 million. As of June 30, 2001, the weighted average
interest rate of the Company's borrowings under its revolving credit facility
was 7.22%. Borrowings totaling $1.6 million were outstanding under the working
capital facility for export sales at June 30, 2001, at a weighted average
interest rate of 7.00%.

         Based on past market movements and possible near-term market movements,
the Company's management does not believe that potential near-term losses in
future earnings, fair values or cash flows from changes in interest rates are
likely to be material. Assuming the Company's current level of borrowings, a 100
basis point increase in interest rates under its variable interest rate
facilities would decrease the Company's current quarter net income and cash flow
from operations by less than $100,000. In the event of an adverse change in
interest rates, the Company could take action to mitigate its exposure. However,
due to the uncertainty of actions that could be taken and the possible effects,
this calculation assumes no such actions. Furthermore, this calculation does not
consider the effects of a possible change in the level of overall economic
activity that could exist in such an environment.


                                       19
<PAGE>   20
                                     PART II

ITEM 1. LEGAL PROCEEDINGS

         The Company is a party to various routine legal proceedings that are
incidental to its business activities. The Company insures against the risk of
these proceedings to the extent deemed prudent by its management, but the
Company offers no assurance that the type or value of this insurance will meet
the liabilities that may arise from any pending or future legal proceedings
related to its business activities. The Company's management does not, however,
believe the pending legal proceedings, individually or taken together, will have
a material adverse effect on the Company's results of operations or financial
condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)      There were no sales of equity securities sold by the Company during the
         three months ended June 30, 2001 that were not registered under the
         Securities Act of 1933, as amended (the "Securities Act"). However, on
         February 1, 2001, the Company sold and issued (without payment of any
         selling commission to any person) 8,520 shares of Class B Common Stock
         to the former shareholders of The Cynara Company, in connection with
         the achievement of certain performance criteria defined in the November
         1998 purchase agreement.

         The sales of the above securities were exempt from registration in
         reliance on Section 4(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Annual Meeting of Stockholders of NATCO Group Inc. was held on May
24, 2001 in Houston, Texas. At the Annual Meeting, the holders of 15,355,071
shares out of 15,736,019 shares entitled to vote as of the record date, were
represented in person or by proxy, constituting a quorum. Proposals which were
submitted to a vote of security holders included the following and were adopted
by the margins indicated:

         (1)      Election of two (2) Class III members of the Board of
                  Directors, each to hold office for a three-year term expiring
                  at the annual meeting of stockholders in 2004.

<TABLE>
<CAPTION>
                                                      Number of Shares
                                   -----------------------------------------------------------
                                       For                Withheld             Broker Non-Vote
                                       ---                --------             ---------------
<S>                                <C>                    <C>                  <C>
Nathaniel A. Gregory               14,491,195             863,876                      0
Herbert S. Winokur, Jr.            15,304,221              50,850                      0
</TABLE>


         Messrs. John U. Clarke and Patrick M. McCarthy will continue to serve
as directors of the Company, each with a term expiring at the annual meeting of
stockholders in 2002. Messrs. Keith K. Allan, Howard I. Bull and George K.
Hickox, Jr. will continue to serve as directors of the Company, each with a term
expiring at the annual meeting of stockholders in 2003.

         (2)      Ratification of KPMG LLP as the Company's independent public
                  accountants for the fiscal year beginning January 1, 2001.

<TABLE>
<CAPTION>
                       Number of Shares
       ---------------------------------------------------
       For                 Against               Abstained
       ---                 -------               ---------
<S>                    <C>                       <C>
   15,347,384               5,460                  2,326
</TABLE>

         (3)      Approval of the 2001 Stock Incentive Plan.

<TABLE>
<CAPTION>
                       Number of Shares
   -------------------------------------------------------
       For                 Against               Abstained
       ---                 -------               ---------
<S>                    <C>                       <C>
   10,768,378             1,244,382               619,574
</TABLE>


                                       20
<PAGE>   21
ITEM 5. OTHER INFORMATION

         None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      See Index of Exhibits for a list of those exhibits filed
                  herewith, which index includes and identifies management
                  contracts or compensatory plans or arrangements required to be
                  filed as exhibits to this Form 10-Q by Item 601(10)(iii) of
                  Regulation S-K.

         (b)      Reports on Form 8-K. The Company filed a report on Form 8-K on
                  June 8, 2001, pursuant to the Securities and Exchange
                  Commission's rules for the acquisition of a significant
                  subsidiary, to provide audited consolidated financial
                  statements and related pro forma financial statements for
                  Axsia Group Ltd., acquired on March 19, 2001.

         (c)      Index of Exhibits

<TABLE>
<CAPTION>
                EXHIBIT
                  NO.               DESCRIPTION
                  ---               -----------
<S>                        <C>      <C>
                  2.1      --       Amended and Restated Agreement and Plan of
                                    Merger dated November 17, 1998 but effective
                                    March 26, 1998 among the Company, NATCO
                                    Acquisition Company, National Tank Company
                                    and The Cynara Company (incorporated by
                                    reference to Exhibit 2.1 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  2.2      --       Stock Purchase Agreement dated as of May 7,
                                    1997 among Enterra Petroleum Equipment
                                    Group, Inc., National Tank Company and
                                    Weatherford Enterra, Inc. (incorporated by
                                    reference to Exhibit 2.2 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  2.3      --       Stock Purchase Agreement dated as of January
                                    25, 2001 but effective March 16, 2001
                                    between the Company and Axsia Group Limited
                                    (incorporated by reference to Exhibit 2.3 of
                                    the Company's Annual Report on Form 10-K for
                                    the period ended December 31, 2000).

                  2.4      --       Amendment of Stock Purchase Agreement dated
                                    as of March 16, 2001 between the Company and
                                    Axsia Group Limited (incorporated By
                                    reference to Exhibit 2.4 of the Company's
                                    Annual Report on Form 10-K for the period
                                    ended December 31, 2000).

                  3.1      --       Restated Certificate of Incorporation of the
                                    Company, as amended by Certificate of
                                    Amendment dated November 18, 1998 and
                                    Certificate of Amendment dated November 29,
                                    1999 (incorporated by reference to Exhibit
                                    3.1 of the Company's Registration Statement
                                    No. 333-48851 on Form S-1).

                  3.2      --       Certificate of Designations of Series A
                                    Junior Participating Preferred Stock
                                    (incorporated by reference to Exhibit 3.2 of
                                    the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  3.3      --       Amended and Restated Bylaws of the Company,
                                    as amended (incorporated by reference to
                                    Exhibit 3.3 of the Company's Quarterly
                                    Report on Form 10-Q for the period ended
                                    March 31, 2000).

                  4.1      --       Specimen Common Stock certificate
                                    (incorporated by reference to Exhibit 4.1 of
                                    the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  4.2      --       Rights Agreement dated as of May 15, 1998 by
                                    and among the Company and ChaseMellon
                                    Shareholder Services, L.L.C., as Rights
                                    Agent (incorporated by reference to Exhibit
                                    4.2 of the Company's Registration Statement
                                    No. 333-48851 on Form S-1).

                  4.3      --       Registration Rights Agreement dated as of
                                    November 18, 1998 among the Company and
                                    Capricorn Investors, L.P. and Capricorn
                                    Investors II, L.P. (incorporated by
                                    reference to Exhibit 4.3 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).
</TABLE>


                                       21
<PAGE>   22
<TABLE>
<CAPTION>
                EXHIBIT
                  NO.               DESCRIPTION
                  ---               -----------
<S>                        <C>      <C>
                  4.4      --       Registration Rights Agreement dated as of
                                    November 18, 1998 among the Company and the
                                    former stockholders of The Cynara Company
                                    (incorporated by reference to Exhibit 4.4 of
                                    the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.1**   --       Directors Compensation Plan (incorporated by
                                    reference to Exhibit 10.1 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.2**   --       Form of Nonemployee Director's Option
                                    Agreement (incorporated by reference to
                                    Exhibit 10.2 of the Company's Registration
                                    Statement No. 333-48851 on Form S-1).

                  10.3**   --       Employee Stock Incentive Plan (incorporated
                                    by reference to Exhibit 10.3 of the
                                    Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.4**   --       Form of Nonstatutory Stock Option Agreement
                                    (incorporated by reference to Exhibit 10.24
                                    to the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.5     --       Commitment Letter dated November 24, 1994
                                    from The Bank of Nova Scotia to NATCO
                                    Canada, Ltd. (incorporated by reference to
                                    Exhibit 10.5 of the Company's Registration
                                    Statement No. 333-48851 on Form S-1).

                  10.6     --       Service and Reimbursement Agreement dated as
                                    of July 1, 1997 between the Company and
                                    Capricorn Management, G.P. (incorporated by
                                    reference to Exhibit 10.6 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.7**   --       Form of Indemnification Agreement between
                                    the Company and its Officers and directors
                                    (incorporated by reference to Exhibit 10.0
                                    of the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.8     --       Securities Exchange Agreement dated as of
                                    March 5, 1998 by and among the Company,
                                    Capricorn Investors, L.P. and Capricorn
                                    Investors II, L.P. (incorporated by
                                    reference to Exhibit 10.10 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.9     --       Stockholders' Agreement by and among the
                                    Company, Capricorn Investors, L.P. and
                                    Capricorn Investors II, L.P. (incorporated
                                    by reference to Exhibit 10.11 of the
                                    Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.10**  --       Employment Agreement dated as of July 31,
                                    1997 between the Company and Nathaniel A.
                                    Gregory, as amended as of July 12, 1999
                                    (incorporated by reference to Exhibit 10.12
                                    of the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.11    --       Stockholder's Agreement dated as of November
                                    18, 1998 among the Company, Capricorn
                                    Investors, L.P., Capricorn Investors II,
                                    L.P. and the former stockholders of The
                                    Cynara Company (incorporated by reference to
                                    Exhibit 10.19 of the Company's Registration
                                    Statement No. 333-48851 on Form S-1).

                  10.12**  --       Change of Control Policy dated as of
                                    September 28, 1999 (incorporated by
                                    reference to Exhibit 10.20 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.13**  --       Severance Pay Summary Plan Description
                                    (incorporated by reference to Exhibit 10.21
                                    of the Company's Registration Statement No.
                                    333-48851 on Form S-1).
</TABLE>

                                       22
<PAGE>   23
<TABLE>
<CAPTION>
                EXHIBIT
                  NO.               DESCRIPTION
                  ---               -----------
<S>                        <C>      <C>
                  10.14    --       Loan Agreement ($22,000,000 U.S. Revolving
                                    Loan Facility, $10,000,000 Canadian
                                    Revolving Loan Facility and $32,500,000 Term
                                    Loan Facility) dated as of November 20, 1998
                                    among National Tank Company, NATCO Canada,
                                    Ltd., Chase Bank of Texas, National
                                    Association, The Bank of Nova Scotia and the
                                    other lenders parties thereto and joined in
                                    by NATCO Group, Inc., as amended
                                    (incorporated by reference to Exhibit 10.22
                                    to the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.15    --       International Revolving Loan Agreement dated
                                    as of June 30, 1997 between National Tank
                                    Company and Texas Commerce Bank, National
                                    Association, as amended (incorporated by
                                    reference to Exhibit 10.23 to the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.16    --       Loan Agreement ($35,000,000 U.S. Revolving
                                    Loan Facility, $10,000,000 Canadian
                                    Revolving Loan Facility, $5,000,000 U.K.
                                    Revolving Loan Facility and $50,000,000 Term
                                    Loan Facility) dated as of March 16, 2001
                                    among NATCO Group Inc., NATCO Canada, Ltd.,
                                    Axsia Group Limited, The Chase Manhattan
                                    Bank, Royal Bank of Canada, Chase Manhattan
                                    International Limited, Bank One, N.A. (Main
                                    Office Chicago, Illinois), Wells Fargo Bank
                                    Texas, National Association, JP Morgan, a
                                    Division of Chase Securities, Inc., and the
                                    other lenders now or hereafter Parties
                                    hereto (incorporated by reference to Exhibit
                                    10.16 of the Company's Annual Report on Form
                                    10-K for the period ended December 31,
                                    2000).
</TABLE>

----------

**       Management contracts or compensatory plans or arrangements.


                                       23
<PAGE>   24
                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                      NATCO Group Inc.
                                      (Registrant)

                                      By: /s/ J. Michael Mayer
                                          --------------------------------------
                                          Name: J. Michael Mayer
                                          Senior Vice President and
                                          Chief Financial Officer

Date: August 10, 2001

                                      By: /s/ Ryan S. Liles
                                          --------------------------------------
                                          Name: Ryan S. Liles
                                          Vice President and Controller
                                          (Principal Accounting Officer)

Date: August 10, 2001


                                       24
<PAGE>   25
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
             EXHIBIT
                NO.                             DESCRIPTION
                ---                             -----------
<S>                     <C>      <C>
               2.1      --       Amended and Restated Agreement and Plan of
                                 Merger dated November 17, 1998 but effective
                                 March 26, 1998 among the Company, NATCO
                                 Acquisition Company, National Tank Company
                                 and The Cynara Company (incorporated by
                                 reference to Exhibit 2.1 of the Company's
                                 Registration Statement No. 333-48851 on Form
                                 S-1).

               2.2      --       Stock Purchase Agreement dated as of May 7,
                                 1997 among Enterra Petroleum Equipment
                                 Group, Inc., National Tank Company and
                                 Weatherford Enterra, Inc. (incorporated by
                                 reference to Exhibit 2.2 of the Company's
                                 Registration Statement No. 333-48851 on Form
                                 S-1).

               2.3      --       Stock Purchase Agreement dated as of January
                                 25, 2001 but effective March 16, 2001
                                 between the Company and Axsia Group Limited
                                 (incorporated by reference to Exhibit 2.3 of
                                 the Company's Annual Report on Form 10-K for
                                 the period ended December 31, 2000).

               2.4      --       Amendment to Stock Purchase Agreement dated
                                 as of March 16, 2001 between the Company and
                                 Axsia Group Limited (incorporated by
                                 reference to Exhibit 2.4 of the Company's
                                 Annual Report on Form 10-K for the period
                                 ended December 31, 2000).

               3.1      --       Restated Certificate of Incorporation of the
                                 Company, as amended by Certificate of
                                 Amendment dated November 18, 1998 and
                                 Certificate of Amendment dated November 29,
                                 1999 (incorporated by reference to Exhibit
                                 3.1 of the Company's Registration Statement
                                 No. 333-48851 on Form S-1).

               3.2      --       Certificate of Designations of Series A
                                 Junior Participating Preferred Stock
                                 (incorporated by reference to Exhibit 3.2 of
                                 the Company's Registration Statement No.
                                 333-48851 on Form S-1).

               3.3      --       Amended and Restated Bylaws of the Company,
                                 as amended. (incorporated by reference to
                                 Exhibit 3.3 of the Company's Quarterly
                                 Report on Form 10-Q for the period ended
                                 March 31, 2000).

               4.1      --       Specimen Common Stock certificate
                                 (incorporated by reference to Exhibit 4.1 of
                                 the Company's Registration Statement No.
                                 333-48851 on Form S-1).

               4.2      --       Rights Agreement dated as of May 15, 1998 by
                                 and among the Company and ChaseMellon
                                 Shareholder Services, L.L.C., as Rights
                                 Agent (incorporated by reference to Exhibit
                                 4.2 of the Company's Registration Statement
                                 No. 333-48851 on Form S-1).

               4.3      --       Registration Rights Agreement dated as of
                                 November 18, 1998 among the Company and
                                 Capricorn Investors, L.P. and Capricorn
                                 Investors II, L.P. (incorporated by
                                 reference to Exhibit 4.3 of the Company's
                                 Registration Statement No. 333-48851 on Form
                                 S-1).

               4.4      --       Registration Rights Agreement dated as of
                                 November 18, 1998 among the Company and the
                                 former stockholders of The Cynara Company
                                 (incorporated by reference to Exhibit 4.4 of
                                 the Company's Registration Statement No.
                                 333-48851 on Form S-1).

               10.1**   --       Directors Compensation Plan (incorporated by
                                 reference to Exhibit 10.1 of the Company's
                                 Registration Statement No. 333-48851 on Form
                                 S-1).

               10.2**   --       Form on Nonemployee Director's Option
                                 Agreement (incorporated by reference to
                                 Exhibit 10.2 of the Company's Registration
                                 Statement No. 333-48851 on Form S-1).
</TABLE>

                                       25
<PAGE>   26
<TABLE>
<CAPTION>
                EXHIBIT
                   NO.                             DESCRIPTION
                   ---                             -----------
<S>                        <C>      <C>
                  10.3**   --       Employee Stock Incentive Plan (incorporated
                                    by Reference to Exhibit 10.3 of the
                                    Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.4**   --       Form of Nonstatutory Stock Option Agreement
                                    (incorporated by reference to Exhibit 10.24
                                    to the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.5     --       Commitment Letter dated November 24, 1994
                                    from The Bank of Nova Scotia to NATCO
                                    Canada, Ltd. (incorporated by reference to
                                    Exhibit 10.5 of the Company's Registration
                                    Statement No. 333-48851 on Form S-1).

                  10.6     --       Service and Reimbursement Agreement dated as
                                    of July 1, 1997 between the Company and
                                    Capricorn Management, G.P. (incorporated by
                                    reference to Exhibit 10.6 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.7**   --       Form of Indemnification Agreement between
                                    the Company and its officers and directors
                                    (incorporated by reference to Exhibit 10.9
                                    of the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.8     --       Securities Exchange Agreement dated as of
                                    March 5, 1998 by and among the Company,
                                    Capricorn Investors, L.P. and Capricorn
                                    Investors II, L.P. (incorporated by
                                    reference to Exhibit 10.10 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.9     --       Stockholders' Agreement by and among the
                                    Company, Capricorn Investors, L.P. and
                                    Capricorn Investors II, L.P. (incorporated
                                    by reference to Exhibit 10.11 of the
                                    Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.10**  --       Employment Agreement dated as of July 31,
                                    1997 between the Company and Nathaniel A.
                                    Gregory, as amended as of July 12, 1999
                                    (incorporated by reference to Exhibit 10.12
                                    of the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.11    --       Stockholder's Agreement dated as of November
                                    18, 1998 among the Company, Capricorn
                                    Investors, L.P., Capricorn Investors II,
                                    L.P. and the former stockholders of The
                                    Cynara Company (incorporated by reference to
                                    Exhibit 10.19 of the Company's Registration
                                    Statement No. 333-48851 on Form S-1).

                  10.12**  --       Change of Control Policy dated as of
                                    September 28, 1999 (incorporated by
                                    reference to Exhibit 10.20 of the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).

                  10.13**  --       Severance Pay Summary Plan Description
                                    (incorporated by reference to Exhibit 10.21
                                    of the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.14    --       Loan Agreement ($22,000,000 U.S. Revolving
                                    Loan Facility, $10,000,000 Canadian
                                    Revolving Loan Facility and $32,500,000 Term
                                    Loan Facility) dated as of November 20, 1998
                                    among National Tank Company, NATCO Canada,
                                    Ltd., Chase Bank of Texas, National
                                    Association, The Bank of Nova Scotia and the
                                    other lenders parties thereto and joined in
                                    by NATCO Group, Inc., as amended
                                    (incorporated by reference to Exhibit 10.22
                                    to the Company's Registration Statement No.
                                    333-48851 on Form S-1).

                  10.15    --       International Revolving Loan Agreement dated
                                    as of June 30, 1997 between National Tank
                                    Company and Texas Commerce Bank, National
                                    Association, as amended (incorporated by
                                    reference to Exhibit 10.23 to the Company's
                                    Registration Statement No. 333-48851 on Form
                                    S-1).
</TABLE>
                                       26
<PAGE>   27
<TABLE>
<CAPTION>
                EXHIBIT
                   NO.                             DESCRIPTION
                   ---                             -----------
<S>                        <C>      <C>
                  10.16    --       Loan Agreement ($35,000,000 U.S., Revolving
                                    Loan Facility, $10,000,000 Canadian
                                    Revolving Loan Facility, $5,000,000 U.K.
                                    Revolving Loan Facility and $50,000,000 Term
                                    Loan Facility) dated as of March 16, 2001
                                    among NATCO Group Inc., NATCO Canada, Ltd.,
                                    Axsia Group Limited, The Chase Manhattan
                                    Bank, Royal Bank of Canada, Chase Manhattan
                                    International Limited, Wells Fargo Bank
                                    Texas, National Association, JP Morgan, A
                                    Division of Chase Securities, Inc. and the
                                    other lenders now or hereafter parties
                                    hereto (incorporated by reference to Exhibit
                                    10.16 of the Company's Annual Report on Form
                                    10-K for the period ended December 31,
                                    2000).
</TABLE>


----------

** Management contracts or compensatory plans or arrangements.


                                       27