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


                       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 MARCH 31, 2002,

                                       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)


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

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

                                  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 May 1, 2002, $0.01 par value per share, 15,803,797 shares


================================================================================



<PAGE>


                                NATCO GROUP INC.

                                    FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2002

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                     PAGE
                                                                      NO.
                                                                     ----
<S>                                                                  <C>
PART I -- FINANCIAL INFORMATION

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

              Condensed Consolidated Balance Sheets -- March 31,
              2002 (Unaudited) and December 31, 2001..............     3

              Unaudited Condensed Consolidated Statements of
              Operations -- Three Months Ended March 31, 2002 and
              2001................................................     4

              Unaudited Condensed Consolidated Statements of Cash
              Flows -- Three Months Ended March 31, 2002 and 2001.     5

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

Item 2.       Management's Discussion and Analysis of Financial
              Condition And Results of Operations.................    11

Item 3.       Quantitative and Qualitative Disclosures About
              Market Risk.........................................    17

PART II -- OTHER INFORMATION

Item 1.       Legal Proceedings...................................    18

Item 2.       Changes in Securities and Use of Proceeds...........    18

Item 3.       Defaults Upon Senior Securities.....................    18

Item 4.       Submission of Matters to a Vote of Security Holders.    18

Item 5.       Other Information...................................    18

Item 6.       Exhibits and Reports on Form 8-K....................    18

Signatures .......................................................    21
</Table>



                                       2
<PAGE>



                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                        NATCO GROUP INC. AND SUBSIDIARIES

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

<Table>
<Caption>
                                                                         MARCH 31,       DECEMBER 31,
                                                                           2002              2001
                                                                       ------------      ------------
                                                                        (unaudited)
<S>                                                                    <C>               <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents ......................................     $      1,856      $      3,093
  Trade accounts receivable, net .................................           75,798            67,922
  Inventories ....................................................           36,451            37,517
  Prepaid expenses and other current assets ......................            5,706             6,725
                                                                       ------------      ------------
        Total current assets .....................................          119,811           115,257
Property, plant and equipment, net ...............................           31,211            31,003
Goodwill, net ....................................................           80,126            79,907
Deferred income tax assets, net ..................................            5,751             4,378
Other assets, net ................................................            2,078             2,206
                                                                       ------------      ------------
        Total assets .............................................     $    238,977      $    232,751
                                                                       ============      ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current installments of long-term debt .........................     $      7,097      $      7,000
  Accounts payable ...............................................           32,204            30,440
  Accrued expenses and other .....................................           34,556            34,781
  Customer advances ..............................................              740             5,925
                                                                       ------------      ------------
        Total current liabilities ................................           74,597            78,146
Long-term debt, excluding current installments ...................           58,866            51,568
Postretirement benefit and other long-term liabilities ...........           14,952            14,107
                                                                       ------------      ------------
        Total liabilities ........................................          148,415           143,821
                                                                       ------------      ------------
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 15,803,797 and
    15,469,078 shares as of March 31, 2002 and December 31,
    2001, respectively ...........................................              158               155
  Class B Common stock, $.01 par value. Authorized 5,000,000
    shares; issued and outstanding 334,719 shares
    as of December 31, 2001 ......................................               --                 3
  Additional paid-in capital .....................................           97,223            97,223
  Accumulated earnings ...........................................            6,630             4,857
  Treasury stock, 795,692 shares at cost as of March 31, 2002
    and December 31, 2001.........................................           (7,182)           (7,182)
  Accumulated other comprehensive loss ...........................           (2,943)           (2,858)
  Note receivable from officer and stockholder ...................           (3,324)           (3,268)
                                                                       ------------      ------------
        Total stockholders' equity ...............................           90,562            88,930
                                                                       ------------      ------------
Commitments and contingencies
        Total liabilities and stockholders' equity ...............     $    238,977      $    232,751
                                                                       ============      ============
</Table>

See accompanying notes to unaudited condensed consolidated financial statements.

                                       3
<PAGE>


                        NATCO GROUP INC. AND SUBSIDIARIES

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

<Table>
<Caption>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                            ------------------------
                                                               2002           2001
                                                            ---------      ---------
<S>                                                         <C>            <C>
Revenues ..............................................     $  73,578      $  62,910
Cost of goods sold ....................................        55,315         46,917
                                                            ---------      ---------
          Gross profit ................................        18,263         15,993
Selling, general and administrative expense ...........        13,545         11,011
Depreciation and amortization expense .................         1,159          1,603
Interest expense ......................................         1,017            706
Interest cost on postretirement benefit liability .....           122            322
Interest income .......................................           (56)           (34)
Other, net ............................................          (397)            41
                                                            ---------      ---------
          Income before income taxes ..................         2,873          2,344
Income tax provision ..................................         1,100            968
                                                            ---------      ---------
          Net income ..................................     $   1,773      $   1,376
                                                            =========      =========
EARNINGS PER SHARE:
  Basic ...............................................     $    0.11      $    0.09
  Diluted .............................................     $    0.11      $    0.09
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING:
  Basic ...............................................        15,804         15,702
  Diluted .............................................        15,936         15,997
</Table>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       4
<PAGE>



                        NATCO GROUP INC. AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                 ------------------------
                                                                    2002           2001
                                                                 ---------      ---------
<S>                                                              <C>            <C>
Cash flows from operating activities:
  Net income ...............................................     $   1,773      $   1,376
  Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
     Deferred income tax expense ...........................           101          1,108
     Depreciation and amortization expense .................         1,159          1,603
     Non-cash interest income ..............................           (56)           (34)
     Interest cost on postretirement benefit liability .....           122            322
     Gain on the sale of property, plant and equipment .....            (8)           (68)
     Change in assets and liabilities, net of acquisitions:
       (Increase) decrease in trade accounts receivable ....        (8,774)         4,314
       (Increase) decrease in inventories ..................         1,159         (7,242)
       (Increase) decrease in prepaid expense and other
         current assets ....................................           793           (510)
       Increase in long-term assets ........................           (61)        (1,851)
       Increase in accounts payable ........................         1,569          4,077
       Increase in accrued expenses and other ..............           455          5,327
       Increase (decrease) in customer advances ............        (5,008)         3,610
                                                                 ---------      ---------
          Net cash provided by (used in) operating
           activities ......................................        (6,776)        12,032
                                                                 ---------      ---------
Cash flows from investing activities:
  Capital expenditures for property, plant and equipment ...        (1,480)        (1,277)
  Acquisitions, net of cash acquired .......................            --        (48,051)
  Other, net ...............................................          (219)           160
                                                                 ---------      ---------
          Net cash used in investing activities ............        (1,699)       (49,168)
                                                                 ---------      ---------
Cash flows from financing activities:
  Change in bank overdrafts ................................           406           (672)
  Net borrowings (repayments) under long-term revolving
   credit facilities .......................................         7,697         (7,800)

  Repayments of short-term borrowings ......................            --         (1,001)
  Repayments of long-term debt .............................        (1,750)            --
  Borrowings of long-term debt .............................         1,460         50,000
  Payments on postretirement benefit liability .............          (562)          (569)
  Other, net ...............................................           159            120
                                                                 ---------      ---------
          Net cash provided by financing activities ........         7,410         40,078
                                                                 ---------      ---------
Effect of exchange rate changes on cash and cash
  equivalents ..............................................          (172)          (250)
                                                                 ---------      ---------
Change in cash and cash equivalents ........................        (1,237)         2,692
Cash and cash equivalents at beginning of period ...........         3,093          1,031
                                                                 ---------      ---------
Cash and cash equivalents at end of period .................     $   1,856      $   3,723
                                                                 =========      =========
Cash payments for:
  Interest .................................................     $     644      $     605
  Income taxes .............................................     $   1,238      $     117
Significant non-cash financing activity:
  Issuance of common stock for acquisition .................     $      --      $      85
</Table>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       5
<PAGE>



                        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, 2001.

    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 2001 amounts in order to
present these results on a comparable basis with amounts for fiscal year 2002.

    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 January 1, 2002, all outstanding shares of the Company's Class B Common
Stock, 334,719 shares, were converted to Class A Common Stock, on a share for
share basis, in accordance with the terms under which the Class B shares were
originally issued. As of March 31, 2002, Class A Common Stock was the Company's
only class of equity securities outstanding.

    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 132,402 shares and
295,106 shares for the three-month periods ended March 31, 2002 and 2001,
respectively. 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 252,141 shares and 10,851 shares for the three-month periods
ended March 31, 2002 and 2001, 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 re-injection 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 was
being amortized over a twenty-year period, prior to the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" on January 1, 2002. See "Recent Accounting Pronouncements." Goodwill and
accumulated

                                        6
<PAGE>

amortization related to the Axsia acquisition were $48.4 million and $1.9
million, respectively, at March 31, 2002.

    Assuming the Axsia acquisition occurred on January 1, 2001, the unaudited
pro forma results of the Company for the three-month period ended March 31,
2001, would have been as follows:

<Table>
<Caption>
                                                       PRO FORMA RESULTS
                                                       ------------------
                                                       THREE MONTHS ENDED
                                                         MARCH 31, 2001
                                                       ------------------
                                                         (unaudited, in
                                                        thousands, except
                                                         per share data)
<S>                                                    <C>
Revenues .............................................     $  77,857
Income before income taxes ...........................            12
Net loss .............................................          (242)
Net loss per share:
  Basic ..............................................     $   (0.02)
  Diluted ............................................     $   (0.02)
</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, 2001, and are not intended to be a projection of
future results.

(5) INVENTORIES

    Inventories consisted of the following amounts:

<Table>
<Caption>
                                      MARCH 31,       DECEMBER 31,
                                        2002              2001
                                     -----------      ------------
                                     (unaudited)
                                            (in thousands)

<S>                                  <C>              <C>
Finished goods .................     $    12,341      $     9,902
Work-in-process ................          10,265           13,441
Raw materials and supplies .....          14,910           15,242
                                     -----------      -----------
  Inventories at FIFO ..........          37,516           38,585
Excess of FIFO over LIFO cost ..          (1,065)          (1,068)
                                     -----------      -----------
                                     $    36,451      $    37,517
                                     ===========      ===========
</Table>

(6) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

    Cost and estimated earnings on uncompleted contracts were as follows:

<Table>
<Caption>
                                                             MARCH 31,       DECEMBER 31,
                                                               2002              2001
                                                            -----------      ------------
                                                            (unaudited)
                                                                   (in thousands)
<S>                                                         <C>              <C>
Cost incurred on uncompleted contracts ................     $   157,184      $   131,702
Estimated earnings ....................................          52,013           51,343
                                                            -----------      -----------
                                                                209,197          183,045
Less billings to date .................................         192,307          169,925
                                                            -----------      -----------
                                                            $    16,890      $    13,120
                                                            ===========      ===========
Included in the accompanying balance sheet under the
captions:
  Trade accounts receivable ...........................     $    17,147      $    17,497
  Advance payments ....................................            (257)          (4,377)
                                                            -----------      -----------
                                                            $    16,890      $    13,120
                                                            ===========      ===========
</Table>


                                       7
<PAGE>

(7) LONG-TERM DEBT

    The consolidated borrowings of the Company were as follows:

<Table>
<Caption>
                                                                                    MARCH 31,       DECEMBER 31,
                                                                                      2002              2001
                                                                                  ------------      ------------
                                                                                  (unaudited)
                                                                                          (in thousands)
<S>                                                                               <C>               <C>
BANK DEBT
Term loan with variable interest rate (4.58% at March 31, 2002 and 4.25% at
   December 31, 2001) and quarterly payments of principal
   ($1,750) and interest, due March 16, 2006  ...............................     $     43,000      $     44,750
Revolving credit bank loans with variable interest rate (4.77% at
   March 31, 2002 and 4.52% at December 31, 2001) and quarterly
   interest payments, due March 15, 2004 ....................................           17,803            12,768
Promissory note with variable interest rate (5.15% at March 31,
   2002) and quarterly payments of principal ($24) and interest, due
   February 8, 2007  ........................................................            1,460                --
Revolving credit bank loans (Export Sales Facility) with variable
   interest rate (4.75% at March 31, 2002 and December 31, 2001) and
   monthly interest payments, due July 23, 2004  ............................            3,700             1,050
                                                                                  ------------      ------------
     Total ..................................................................     $     65,963      $     58,568
     Less current installments ..............................................           (7,097)           (7,000)
                                                                                  ------------      ------------
     Long-term debt .........................................................     $     58,866      $     51,568
                                                                                  ============      ============
</Table>


    On March 16, 2001, the Company entered into a 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. In October 2001, the Company amended this revolving
credit agreement to reduce the borrowing capacity in the U.S. from $35.0 million
to $30.0 million, and to increase the borrowing capacity in the U.K. from $5.0
million to $10.0 million. No other material modifications were made to the
agreement.

    Amounts borrowed under the term loan bear interest at a rate of 4.58% per
annum as of March 31, 2002. Amounts borrowed under the revolving portion of the
facility bear interest as follows:

    o   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

    o   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 following 2002, 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 February 6, 2002, the Company borrowed $1.5 million under a long-term
promissory note arrangement. This note accrues interest at the 90-day LIBOR plus
3.25% per annum, and requires quarterly payments of principal of approximately
$24,000 and interest for five years beginning May 2002. This promissory note is
collateralized by a manufacturing facility in Magnolia, Texas, purchased during
2001.

    The Company maintains a working capital facility for export sales that
provides for aggregate borrowings of $10.0 million, subject to borrowing base
limitations, under which borrowings of $3.7 million were outstanding at March
31, 2002. Letters of credit outstanding under the export sales credit facility
as of March 31, 2002 totaled $102,000. 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 2004.

    As of March 31, 2002, the Company was in compliance with all restrictive
debt covenants. NATCO had letters of credit outstanding under the revolving
credit facilities totaling $14.9 million at March 31, 2002. These letters of
credit constitute contract performance and warranty collateral and expire at
various dates through October 2004.


                                       8
<PAGE>


    The Company had unsecured letters of credit, guarantees and bonds totaling
$457,000 at March 31, 2002.

(8) INCOME TAXES

    NATCO's effective income tax rate for the three months ended March 31, 2002
was 38.3%, which exceeded the amount that would have resulted from applying the
U.S. federal statutory tax rate due to the impact of state income taxes, foreign
income tax rate differentials and certain permanent book-to-tax differences.

(9) 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.

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

<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
  MARCH 31, 2002
Revenues from unaffiliated customers     $     38,288     $     24,797     $     10,493     $         --      $     73,578
Inter-company revenues .............            1,087              312            1,372           (2,771)               --
Segment profit (loss) ..............            3,928            1,336              912           (1,061)            5,115
Total assets .......................          101,381          104,378           21,507           11,711           238,977
Capital expenditures ...............              623              543              228               86             1,480
Depreciation and amortization ......              667              296               95              101             1,159
THREE MONTHS ENDED
  MARCH 31, 2001
Revenues from unaffiliated customers     $     33,191     $     17,957     $     11,762     $         --      $     62,910
Inter-company revenues .............            1,410                8            1,045           (2,463)               --
Segment profit (loss) ..............            2,947            1,770            1,243           (1,019)            4,941
Total assets .......................           91,979          120,065           22,741           10,079           244,864
Capital expenditures ...............              454              740               75                8             1,277
Depreciation and amortization ......              885              448              150              120             1,603
</Table>


(10) COMMITMENTS AND CONTINGENCIES

    The Porta-Test International, Inc., ("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 January
2002, the Company accrued $219,000 under this arrangement related to the year
ended January 24, 2002. In April 2001, the Company paid $226,000 in accordance
with the purchase agreement. Any future liabilities incurred under this
arrangement will result in an increase in goodwill.

(11) NEW ACCOUNTING PRONOUNCEMENTS

    The Financial Accounting Standard Board ("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.



                                       9
<PAGE>



    The Company adopted SFAS No. 142 on January 1, 2002. Intangible assets
subject to amortization under the pronouncement as of March 31, 2002 and 2001
are summarized in the following table:

<Table>
<Caption>
                                                      QUARTER ENDED
                               ------------------------------------------------------------
                                        MARCH 31, 2002                 MARCH 31, 2001
                               ----------------------------    ----------------------------
                                  GROSS                           GROSS
                                 CARRYING      ACCUMULATED       CARRYING      ACCUMULATED
TYPE OF INTANGIBLE ASSET          AMOUNT       AMORTIZATION       AMOUNT       AMORTIZATION
------------------------       -----------     ------------    -----------     ------------
                                                 (unaudited, in thousands)
<S>                            <C>             <C>             <C>             <C>
Deferred Financing Fees ..     $     2,953     $     1,370     $     2,586     $       713
Patents ..................             101              10             101               6
Employment Contracts .....              --              --             818             615
Other ....................             267             128             274              62
                               -----------     -----------     -----------     -----------
  Total ..................     $     3,321     $     1,508     $     3,779     $     1,396
                               ===========     ===========     ===========     ===========
</Table>

    Amortization and interest expense of $184,000 and $134,000 were recognized
related to these assets for the quarters ended March 31, 2002 and 2001,
respectively. The estimated aggregate amortization and interest expense for
these assets for each of the following five fiscal years is: 2002 -- $790,000;
2003 -- $555,000; 2004 -- $270,000; 2005 -- $228,000; and 2006 -- $70,000. For
segment reporting purposes, these intangible assets and the related amortization
expense were recorded under "Corporate and Eliminations," excluding the
employment contracts which were allocated between the engineered systems and
North American operations business segments.

    Goodwill was the Company's only intangible asset that required no periodic
amortization as of the date of the adoption of SFAS No. 142. Net goodwill at
March 31, 2002 was $80.1 million, after a current quarter adjustment of $219,000
pursuant to the Porta-Test earn-out agreement in the North American operations
business segment. The pro forma impact of applying SFAS No. 142 to operating
results for the quarter ended March 31, 2001, would have been a reduction of
amortization expense of $543,000, resulting in net income of $1.9 million, and
an increase in basic and diluted earnings per share of $.03. Due to the
complexity of the calculations, the Company has not yet completed the impairment
testing to evaluate goodwill as of March 31, 2002. Therefore, the impact of this
pronouncement on the Company's financial condition and results of operations
cannot yet be determined. As permitted by the standard, the Company will
determine and quantify its exposure under this pronouncement during fiscal 2002,
after completing the required impairment testing.

    On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and standardizes the accounting model to be used for
asset dispositions and related implementation issues. This pronouncement did not
have a material impact on the Company's financial condition or results of
operations.

    In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard provides guidance on reporting and accounting for
obligations associated with the retirement of long-lived tangible assets and the
associated retirement costs. This standard is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company has not yet
determined the impact that this pronouncement will have on its financial
condition or results of operations.

(12) SUBSEQUENT EVENTS

     On April 15, 2002, the Company loaned an executive officer and director of
the Company $216,000 under a full-recourse note arrangement which accrues
interest at 6% per annum and matures on July 31, 2003. The funds were used to
pay tax burdens associated with stock options exercised during 2001.


                                       10
<PAGE>


    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 ("OPEC"), 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 Annual
Report on Form 10-K as of December 31, 2001, and in 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" "the Company" "we" and "our" are used throughout this
document and relate collectively to NATCO Group Inc. and its consolidated
subsidiaries.

    Our 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.

CRITICAL ACCOUNTING POLICIES

    The preparation of our consolidated financial statements requires management
to make certain estimates and assumptions that affect the results reported in
our consolidated financial statements and accompanying notes. These estimates
and assumptions are based on historical experience and on future expectations
that we believe to be reasonable under the circumstances. Note 2 to the
consolidated financial statements filed in our Annual Report on Form 10K at
December 31, 2001, contains a summary of our significant accounting policies. We
believe the following accounting policy is the most critical in the preparation
of our condensed consolidated financial statements:

    Revenue Recognition: Percentage-of-Completion Method. We recognize revenues
from significant contracts (greater than $250,000 and longer than four months in
duration) and all automation and controls contracts and orders on the
percentage-of-completion method of accounting. Earned revenue is based on the
percentage that costs incurred to date relate to total estimated costs of the
project, after giving effect to the most recent estimates of total cost. The
timing of costs incurred, and therefore when revenues are recognized, could be
affected by various internal or external factors including: changes in project
scope (change orders), changes in productivity, the cost or scarcity of labor
and equipment, governmental regulations, the political environment, weather
patterns or the timing of client acceptances and approval at benchmark stages of
the project. The cumulative impact of revisions in total cost estimate during
the progress of work is reflected in the year in which these changes become
known. Earned revenues reflect the original contract price adjusted for agreed
claims and change order revenues, if applicable. Losses expected to be incurred
on the jobs

                                       11
<PAGE>

in progress, after consideration of estimated minimum recoveries from claims and
change orders, are charged to income as soon as such losses are known. Customers
typically retain an interest in uncompleted projects, and we generally recognize
revenue and earnings to which the percentage-of-completion method applies over a
period of two to six quarters. We believe that our operating results should be
evaluated over a term of several years to evaluate performance under long-term
contracts, after all change orders, scope changes and cost recoveries have been
negotiated and realized. We record revenues and profits on all other sales as
shipments are made or services are performed.

RECENT ACCOUNTING PRONOUNCEMENTS

    The Financial Accounting Standards Board ("FASB") approved Statement of
Financial Accounting Standards ("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. We adopted
SFAS No. 142 on January 1, 2002, and continued to amortize certain net assets
totaling $1.8 million at March 31, 2002, and recorded amortization and interest
expense related to those assets for the quarter ended March 31, 2002 of
$184,000. We ceased periodic amortization of goodwill on the date of adoption.
Net goodwill at March 31, 2002 was $80.1 million. The pro forma impact of
applying SFAS No. 142 to operating results for the quarter ended March 31, 2001,
would have been a reduction of amortization expense of $543,000, resulting in
net income of $1.9 million, and an increase in basic and diluted earnings per
share of $.03. Due to the complexity of the calculations, we have not yet
completed the impairment testing required to determine the impact of this
standard on our financial condition or results of operations as of March 31,
2002. As permitted by the standard, we will determine and quantify our exposure
under this pronouncement during fiscal 2002, after completing the required
impairment testing.

    In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard provides guidance on reporting and accounting for
obligations associated with the retirement of long-lived tangible assets and the
related retirement costs. This standard is effective for financial statements
issued for fiscal years beginning after June 15, 2002. We have not yet
determined the impact that this pronouncement will have on our financial
condition or results of operations.

ACQUISITIONS

    On March 19, 2001, we 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 re-injection 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 our term loan
facility, and was accounted for using the purchase method of accounting. Results
of operations for Axsia have been included in our condensed consolidated
financial statements since the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired was being amortized over a
twenty-year period, prior to the adoption of SFAS No. 142. Goodwill and
accumulated amortization related to the Axsia acquisition were $48.4 million and
$1.9 million, respectively, at March 31, 2002.

INDUSTRY AND BUSINESS ENVIRONMENT

    We are 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. Our 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.

    As a leading provider of wellhead process equipment, systems and services
used in the production of oil and gas, our revenues and results of operations
are closely tied to demand for oil and gas products and spending by oil and gas
companies for exploration and development of oil and gas reserves. These
companies generally invest more in exploration and development efforts during
periods of favorable oil and gas commodity prices, and invest less during
periods of unfavorable oil and gas prices. As supply and demand change,
commodity prices fluctuate producing cyclical trends in the industry. During
periods of slow-down, revenues for service providers such as NATCO generally
decline, as existing projects are completed and new projects are postponed.
During periods of recovery, revenues for service providers can lag behind the
industry due to the timing of new project awards.

    Our business has been impacted by fluctuations in the oil and gas industry
in the United States and Canada over the past several years. As published by the
U.S. Department of Energy, the average price of domestic crude oil per barrel
for fiscal 2001 was relatively high at $21.86 per barrel, but fell to $15.49 per
barrel as of December 31, 2001, due in part to a general economic recession in
the U.S. However, stable production by OPEC and improved economic conditions in
the U.S. for the first quarter of 2002 have strengthened the price of crude oil.
For example, as of March 29, 2002, the spot price of West Texas Intermediate
crude per barrel

                                       12
<PAGE>

was $25.86, and rose to $26.46 per barrel as of April 26, 2002. The Henry Hub
natural gas spot price as of March 26, 2002 was $3.59 per thousand cubic feet
("mcf") as compared to an average of $4.12 per mcf for fiscal 2001 and $2.38 per
mcf at December 31, 2001. Although natural gas prices have fallen when compared
to fiscal 2001, the price was higher than projected by the U.S. Department of
Energy, and was, in part, a result of a stable recovery in the U.S. economy.

    These improvements in commodity prices have not yet translated into
increased drilling activity for exploration and production companies. Domestic
rotary rig counts, as published by Baker Hughes Incorporated, declined from 887
at December 28, 2001 to 761 at March 28, 2002. Canadian rotary rig count
increased from 198 to 251 at December 28, 2001 and March 28, 2002, respectively.
Although Canadian rig count did improve during the quarter ended March 31, 2002,
overall U.S. and Canadian rig counts declined.

    Increases in oil and gas prices generally have a positive effect on our
sales. If commodity prices remain higher, our customers should begin investing
in exploration and production efforts and rig counts should improve during
fiscal 2002. Although energy price levels and rig count increases are indicators
that additional oil and gas production may occur throughout 2002, there can be
no assurance that overall production will increase, that an increase in
production trends will continue through 2002 or that such an increase in
production would result in an increase in revenues for our Company.

    The following discussion of our historical results of operations and
financial condition should be read in conjunction with our condensed
consolidated financial statements and notes thereto.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

    Revenues. Revenues of $73.6 million for the three months ended March 31,
2002 increased $10.7 million, or 17%, from $62.9 million for the three months
ended March 31, 2001. The following table summarizes revenues by business
segment for the quarters ended March 31, 2002 and 2001, respectively.

<Table>
<Caption>
                                        THREE MONTHS ENDED
                                             MARCH 31,
                                     ----------------------------
                                                                                         PERCENTAGE
                                         2002             2001            CHANGE            CHANGE
                                     -----------      -----------      -----------       -----------
                                                                (unaudited)
                                                  (in thousands, except percentage change)
<S>                                  <C>              <C>              <C>               <C>
North American Operations ......     $    39,375      $    34,601      $     4,774            14 %
Engineered Systems .............          25,109           17,965            7,144            40 %
Automation and Control Systems..          11,865           12,807             (942)           (7)%
Corporate and Other ............          (2,771)          (2,463)            (308)           13 %
                                     -----------      -----------      -----------
          Total ................     $    73,578      $    62,910      $    10,668            17 %
                                     ===========      ===========      ===========
</Table>

    North American operations revenues increased $4.8 million, or 14%, for the
quarter ended March 31, 2002, as compared to the quarter ended March 31, 2001,
due primarily to certain Pemex projects managed through our direct sales office
in Mexico, which was opened in 2001. In addition, we experienced higher demand
for our export parts and service business and stable revenues for our
traditional production process equipment, despite a decline in oil field
activity when comparing rig counts at March 31, 2002 and 2001. NATCO Canada
experienced a modest increase in revenues for the quarter ended March 31, 2002
as compared to the respective period in 2001. Inter-company revenues for this
business segment were $1.1 million for the quarter ended March 31, 2002, as
compared to $1.4 million for the quarter ended March 31, 2001.

    Revenues for the engineered systems business segment increased $7.1 million,
or 40%, for the quarter ended March 31, 2002, as compared to the quarter ended
March 31, 2001. This increase was primarily due to the acquisition of Axsia in
March 2001, which provided revenues of $9.8 million for the three months ended
March 31, 2002 versus $3.9 million from the acquisition date through March 31,
2001. This increase was partially offset by a decline in revenues recognized
under long-term engineering projects, including the Carigali-Triton Operating
Company SDN BHD ("CTOC") contract, which provided $1.4 million of revenue for
the quarter ended March 31, 2002, as compared to $8.4 million for the quarter
ended March 31, 2001. Excluding the impact of the Axsia acquisition and the CTOC
project, revenues for this business segment increased $8.2 million for the
quarter ended March 31, 2002, compared to the respective period in 2001,
primarily due to an increase in the number of projects in process and a
significant contribution from several export projects for the quarter ended
March 31, 2002. Engineered systems revenues of $25.1 million for the quarter
ended March 31, 2002 included approximately $312,000 of inter-company revenues,
as compared to $8,000 of inter-company revenues for the quarter ended March 31,
2001.


                                       13
<PAGE>

    Revenues for the automation and control systems business segment decreased
$942,000, or 7%, for the quarter ended March 31, 2002, as compared to the
quarter ended March 31, 2001. This decrease in revenues was the result of an
overall decline in drilling activity in the Gulf of Mexico, a primary market for
the services of this business segment. Inter-company revenues of approximately
$1.4 million and $1.0 million were included in the results for the quarters
ended March 31, 2002 and 2001, respectively.

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

    Gross Profit. Gross profit for the quarter ended March 31, 2002 increased
$2.3 million, or 14%, to $18.3 million, compared to $16.0 million for the
quarter ended March 31, 2001. As a percentage of revenue, gross margins remained
constant at 25% for the quarters ended March 31, 2002 and 2001. The following
table summarizes gross profit by business segment for the quarters then ended:

<Table>
<Caption>
                                           THREE MONTHS ENDED
                                                MARCH 31,
                                     -----------------------------
                                                                                           PERCENTAGE
                                         2002             2001            CHANGE             CHANGE
                                     ------------     ------------     ------------       ------------
                                                                 (unaudited)
                                                  (in thousands, except percentage change)
<S>                                  <C>              <C>              <C>                <C>
North American Operations ......     $     10,250     $      8,406     $      1,844            22%
Engineered Systems .............            5,852            5,186              666            13%
Automation and Control Systems .            2,161            2,401             (240)          (10)%
                                     ------------     ------------     ------------
          Total ................     $     18,263     $     15,993     $      2,270            14%
                                     ------------     ------------     ------------
</Table>

    Gross profit for the North American operations business segment increased
$1.8 million, or 22%, for the quarter ended March 31, 2002, as compared to the
respective period in 2001. This increase in margin was due primarily to a 14%
increase in revenues. In addition, our CO2 field service operations and export
parts and services business provided more favorable margins in fiscal 2002 as
compared to fiscal 2001. As a percentage of revenue, gross margins were 26% and
24% for the quarters ended March 31, 2002 and 2001, respectively.

    Gross profit for the engineered systems business segment for the quarter
ended March 31, 2002 increased $666,000, or 13%, primarily due to several large
export projects. Axsia, which was acquired in March 2001, provided a
contribution of $3.0 million, however, the contribution of the CTOC project to
the first quarter of 2002 results was significantly less than that for the first
quarter of 2001. This decline in CTOC margin contribution more than offset the
increase in margin attributable to the operations of Axsia. Excluding the impact
of Axsia and the CTOC project, gross margin for the engineered systems business
segment increased approximately $956,000. Gross margin for engineered systems
represented 23% and 29% of the segment's revenues for the quarters ended March
31, 2002 and 2001, respectively. The overall decrease in margin as a percentage
of revenues reflects an increase in lower margin projects in the sales mix at
March 31, 2002 as compared to March 31, 2001.

    Gross profit for the automation and control systems business segment
decreased $240,000, or 10%, for the quarter ended March 31, 2002, as compared to
the quarter ended March 31, 2001. This decline was attributable to a 7% decline
in revenues for this business segment due to an overall decrease in activity in
the Gulf of Mexico, a primary market for this business segment, and by increased
competition for quote job projects in the Gulf of Mexico. Gross margin as a
percentage of revenue for the quarters ended March 31, 2002 and 2001, was 18%
and 19%, respectively.

    Selling, General and Administrative Expense. Selling, general and
administrative expense of $13.5 million increased $2.5 million, or 23%, for the
quarter ended March 31, 2002, as compared to the quarter ended March 31, 2001.
This increase was largely related to the following factors: (1) a full quarter
of operating expenses at Axsia during 2002 compared to less than one month of
operating expenses from the acquisition date through March 31, 2001, (2)
start-up costs related to the Singapore office opened in March 2001 to increase
marketing efforts in Southeast Asia, (3) start-up costs related to the Mexico
office opened in 2001, and (4) increased spending for technology and product
development.

    Depreciation and Amortization Expense. Depreciation and amortization expense
of $1.2 million for the quarter ended March 31, 2002, decreased $444,000, or
28%, compared to $1.6 million for the quarter ended March 31, 2001. Depreciation
expense of $1.1 million for the quarter ended March 31, 2002, increased
$162,000, or 17%, as compared to the respective period for 2001. This increase
was primarily due to the acquisition of Axsia in March 2001 and the addition of
capital assets purchased and constructed during fiscal 2001. Amortization
expense for the quarter ended March 31, 2002 was $25,000, as compared to
$631,000 for the quarter ended March 31, 2001. This decline in amortization
expense was attributable to a change in accounting method prescribed by SFAS No.
142, "Goodwill and Other Intangible Assets." This pronouncement, adopted on
January 1, 2002, requires that goodwill no longer be amortized over a prescribed
period but rather intangible assets not assigned a useful life be evaluated
annually for impairment. See



                                       14
<PAGE>

"Recent Accounting Pronouncements." Therefore, no goodwill amortization was
recorded for the quarter ended March 31, 2002, compared to $543,000 for the
quarter ended March 31, 2001. The results for the first quarter of 2001 also
include amortization expense associated with certain employment contracts that
were fully amortized as of December 31, 2001.

    Interest Expense. Interest expense was $1.0 million for the quarter ended
March 31, 2002, as compared to $706,000 for the respective period in 2001. This
increase of $311,000, or 44%, was due primarily to an increase in borrowings
under our term loan and revolving credit facilities and other long-term debt
arrangements that totaled $66.0 million at March 31, 2002, as compared to $56.9
million at March 31, 2001. We borrowed $50.0 million against a term loan
facility to acquire Axsia in March 2001 and to retire borrowings under a
predecessor revolving credit facility.

    Interest Cost on Postretirement Benefit Liability. Interest cost on
postretirement benefit liability decreased $200,000, or 62%, from $322,000 for
the quarter ended March 31, 2001 to $122,000 for the quarter ended March 31,
2002. This decrease in interest cost was due to a June 2001 amendment of the
plan that provides medical and dental coverage to retirees of a predecessor
company. Under the amended plan, retirees will bear more cost for coverages,
thereby reducing our projected liability and the related interest cost.

    Provision for Income Taxes. Income tax expense of $1.1 million for the
quarter ended March 31, 2002, increased $132,000 from $968,000 for the quarter
ended March 31, 2001. The primary reason for this increase in tax expense was an
increase in income before income taxes, which was $2.9 million for the quarter
ended March 31, 2002, as compared to $2.3 million for the respective period in
2001. The effective tax rate declined from 41.3% for the first quarter of 2001
to 38.3% for the first quarter of 2002, due to the impact of eliminating
non-deductible goodwill amortization as per SFAS No. 142, "Goodwill and Other
Intangible Assets." See "Recent Accounting Pronouncements."

LIQUIDITY AND CAPITAL RESOURCES

    As of March 31, 2002, we had cash and working capital of $1.9 million and
$45.2 million, respectively, as compared to cash and working capital of $3.1
million and $37.1 million, respectively, at December 31, 2001.

    Net cash used by operating activities for the three months ended March 31,
2002 was $6.8 million, compared to net cash provided by operations of $12.0
million for the three months ended March 31, 2001. Factors that contributed to
the increase in cash used by operating activities during the first quarter of
2002 included an increase in trade accounts receivable and a decline in customer
advance payments on long-term projects.

    Net cash used in investing activities for the three months ended March 31,
2002 was $1.7 million, of which $1.5 was used for capital expenditures. During
the three months ended March 31, 2001, $49.2 million was used for investing
activities primarily related to the acquisition of Axsia, which required $48.1
million, and capital expenditures of $1.3 million.

    Net cash provided by financing activities for the three-month periods ended
March 31, 2002 and 2001, were $7.4 million and $40.1 million, respectively. The
primary source of funds for financing activities for the three months ended
March 31, 2002 was net borrowings of $7.7 million under long-term revolving
credit facilities and borrowings of $1.5 million under a new long-term debt
arrangement, offset by repayments of $1.8 million under the term loan facility.
The primary source of funds for financing activities during the three months
ended March 31, 2001 was borrowings of $50.0 million under the term loan
facility, partially offset by net repayments of $7.8 million under the revolving
credit facilities and repayments of $1.0 million under short-term note
arrangements.

     We borrowed $1.5 million under a long-term promissory note arrangement on
February 6, 2002. This note accrues interest at the 90-day London Interbank
Offered Rate ("LIBOR") plus 3.25% per annum, and requires quarterly payments of
principal and interest for five years beginning May 2002. This promissory note
is collateralized by our manufacturing facility in Magnolia, Texas, purchased in
the fourth quarter of 2001.

    On March 16, 2001, we entered into a 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. In October 2001, we amended this revolving credit
agreement to reduce the borrowing capacity in the U.S. from $35.0 million to
$30.0 million, and to increase our borrowing capacity in the U.K. from $5.0
million to $10.0 million. No other material modifications were made to the
agreement.


                                       15
<PAGE>


    Amounts borrowed under the term loan facility bear interest at 4.58% per
annum as of March 31, 2002. Amounts borrowed under the revolving facilities bear
interest as follows:

    o   until April 1, 2002, at a rate equal to, at our election, either (1) the
        LIBOR plus 2.25% or (2) a base rate plus 0.75%; and

    o   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
        our 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 March 31, 2002, the weighted average interest rate of our borrowings
under the revolving credit facilities was 4.77%.

    We will pay commitment fees of 0.50% per year until April 1, 2002 and 0.30%
to 0.50% per year following 2002, 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 our domestic subsidiaries
and is secured by a first priority lien on all inventory, accounts receivable
and other material tangible and intangible assets. We have also pledged 65% of
the voting stock of our active foreign subsidiaries.

    On March 19, 2001, we borrowed the entire $50.0 million available under the
term loan portion of the facility and used $45.0 million to purchase all the
outstanding share capital of Axsia. The remaining borrowings of $5.0 million,
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 March 31, 2002, we had borrowings of $43.0 million
outstanding under the term loan facility.

    As of March 31, 2002, we were in compliance with all restrictive debt
covenants. We had letters of credit outstanding under the revolving credit
facilities totaling $14.9 million at March 31, 2002. These letters of credit
constitute contract performance and warranty collateral and expire at various
dates through October 2004.

    We maintain a working capital facility for export sales that provides for
aggregate borrowings of $10.0 million, subject to borrowing base limitations,
under which borrowings of $3.7 million were outstanding as of March 31, 2002.
Letters of credit outstanding under this facility at March 31, 2002 totaled
$102,000. 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 2004.

    We had unsecured letters of credit, guarantees and bonds outstanding at
March 31, 2002 of $457,000.

    Our sales backlog at March 31, 2002 was $77.0 million and included backlog
of $21.2 million related to Axsia, which was acquired on March 19, 2001. The
CTOC project provided only $140,000 of backlog at March 31, 2002, compared to
$4.1 million at March 31, 2001. Excluding the change in backlog attributable to
Axsia and the CTOC project, backlog increased from $37.4 million at March 31,
2001 to $55.7 million at March 31, 2002. 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. Although bookings continue to be
inconsistent between quarters, we expect backlog to increase during fiscal 2002
as international markets gain momentum.

    At March 31, 2002, borrowing base limitations and outstanding letters of
credit reduced our available borrowing capacity under the term loan and
revolving credit agreement and export sales credit agreement to $13.5 million
and $1.1 million, respectively. However, we believe that our operating cash
flow, supported by our borrowing capacity, will be adequate to fund operations
throughout 2002. Should we decide to pursue additional acquisition opportunities
during the remainder of 2002, the determination of our ability to finance these
acquisitions will be a critical element of the analysis of the opportunities.


                                       16
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Our operations are conducted around the world in a number of different
countries. Accordingly, future earnings are exposed to changes in foreign
currency exchange rates. The majority of our foreign currency transactions
relate to operations in Canada and the U.K. At NATCO Canada, most contracts are
denominated in Canadian dollars, and most of the costs incurred are in Canadian
dollars, thereby mitigating risks associated with currency fluctuations. At
Axsia, which is our U.K.-based operation acquired in March 2001, many contracts
are denominated in U.S. dollars, and occasionally in euros, whereas most of
costs may be in British pounds sterling. Consequently, we have currency risk in
our U.K. operations. No forward contracts or other derivative arrangements
existed at March 31, 2002, and we do not currently intend to enter into new
forward contracts or other derivative arrangements as part of our currency risk
management strategy.

    Our financial instruments are subject to change in interest rates, including
our revolving credit and term loan facility and our working capital facility for
export sales. At March 31, 2002, we had borrowings of $43.0 million outstanding
under the term loan portion of the revolving credit and term loan facility, at
an interest rate of 4.58%. Borrowings, which bear interest at floating rates,
outstanding under the revolving credit agreement at March 31, 2002, totaled
$17.8 million. As of March 31, 2002, the weighted average interest rate of our
borrowings under revolving credit facilities was 4.77%. Borrowings under the
working capital facility for export sales at March 31, 2002 totaled $3.7 million
and accrued interest at 4.75%.

    Based on past market movements and possible near-term market movements, we
do 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
our current level of borrowings, a 100 basis point increase in interest rates
under our variable interest rate facilities would decrease our current quarter
net income and cash flow from operations by approximately $100,000. In the event
of an adverse change in interest rates, we could take action to mitigate our
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.



                                       17
<PAGE>


                                     PART II

ITEM 1. LEGAL PROCEEDINGS

    We are a party to various routine legal proceedings that are incidental to
our business activities. We insure against the risk of these proceedings to the
extent deemed prudent, but we offer 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 our business activities. We do not, however,
believe the pending legal proceedings, individually or taken together, will have
a material adverse effect on our results of operations or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

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. We filed a report on Form 8-K on February 18, 2002,
        to announce earnings for the fourth quarter of 2001 and management's
        expectation for fiscal 2002.

    (c) Index of Exhibits


 EXHIBIT NO.                           DESCRIPTION
 -----------                           -----------

    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).

    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).


                                       18
<PAGE>

 EXHIBIT NO.                           DESCRIPTION
 -----------                           -----------

    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).

    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).

    10.6       -- 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).

    10.9       -- 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).

                                       19
<PAGE>

 EXHIBIT NO.                           DESCRIPTION
 -----------                           -----------

    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).

    10.15      -- 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).

----------

** Management contracts or compensatory plans or arrangements.



                                       20
<PAGE>

                                   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: May 13, 2002

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

Date: May 13, 2002



                                       21
<PAGE>


                                  EXHIBIT INDEX

<Table>
<Caption>

 EXHIBIT NO.                           DESCRIPTION
 -----------                           -----------
<S>            <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).

    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).

    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).
</Table>

<PAGE>

<Table>
<Caption>

 EXHIBIT NO.                           DESCRIPTION
 -----------                           -----------
<S>            <C>
    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).

    10.9       -- 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).

    10.12**    -- 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).

    10.15      -- 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>
<PAGE>

<Table>
<Caption>
 EXHIBIT NO.                           DESCRIPTION
 -----------                           -----------
<S>            <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,
                  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.