<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 JUNE 30, 2003,

                                       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 incorporation              (I.R.S. Employer
             or organization)                             Identification No.)


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


                                  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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12 b-2 of the Exchange Act).  Yes  [X]  No  [ ]

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

       As of August 1, 2003, $0.01 par value per share, 15,854,067 shares


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

<PAGE>

                                NATCO GROUP INC.

                                    FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2003

                                TABLE OF CONTENTS

                                                                      PAGE
                                                                       NO.
PART I -- FINANCIAL INFORMATION

Item 1.    Financial Statements....................................     3
           Condensed Consolidated Balance Sheets-- June 30,
           2003 (unaudited) and December 31, 2002..................     3
           Unaudited Condensed Consolidated Statements of
           Operations -- Three and Six  Months  Ended  June 30,
           2003 and 2002...........................................     4
           Unaudited Condensed Consolidated Statements of Cash
           Flows-- Six Months Ended June 30, 2003 and 2002.........     5
           Notes to Unaudited Condensed Consolidated Financial
           Statements..............................................     6

Item 2.    Management's Discussion  and  Analysis of Financial
           Condition
           and Results of Operations...............................    16

Item 3.    Quantitative and Qualitative Disclosures About
           Market Risk.............................................    25
Item 4.    Controls and Procedures.................................    26

PART II -- OTHER INFORMATION

Item 5.    Submission of Matters to a Vote of Security Holders.....    27

Item 6.         Exhibits and Reports on Form 8-K...................    27

Signatures ........................................................    29


                                       2

<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                        NATCO GROUP INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                  JUNE 30,     DECEMBER 31,
                                                                    2003           2002
                                                                 ----------    ------------
                                                                 (UNAUDITED)
<S>                                                              <C>             <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents..................................    $      796      $   1,689
  Trade accounts receivable, net.............................        74,554         74,677
  Inventories................................................        35,851         32,400
  Prepaid expenses and other current assets..................         8,541          7,611
                                                                 ----------      ---------
        Total current assets.................................       119,742        116,377

  Property, plant and equipment, net.........................        35,595         31,485
  Goodwill, net..............................................        79,809         78,977
  Deferred income tax assets, net............................         2,633          2,984
  Other assets, net..........................................         1,424          1,772
                                                                 ----------      ---------
        Total assets.........................................    $  239,203      $ 231,595
                                                                 ==========      =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current installments of long-term debt.....................    $   17,392      $   7,097
  Accounts payable...........................................        34,729         36,074
  Accrued expenses and other.................................        33,629         37,243
  Customer advances..........................................         2,876          1,354
                                                                 ----------      ---------
        Total current liabilities............................        88,626         81,768

Long-term debt, excluding current installments...............        30,366         45,257
Postretirement benefit and other long-term liabilities.......        12,296         12,718
                                                                 ----------      ---------
        Total liabilities....................................       131,288        139,743
                                                                 ----------      ---------

Series B redeemable convertible preferred stock (aggregate
  redemption value of $15,000), $.01 par value. 15,000 shares
  authorized, issued and outstanding  (net of issuance costs)        14,101             --

Stockholders' equity:
  Preferred stock $.01 par value.  Authorized  5,000,000 shares
  (of which  500,000 are  designated as Series A and 15,000 are
  designated  as Series B); no shares  issued  and  outstanding          --             --
  (except Series B shares above).............................
  Series A preferred stock, $.01 par value. Authorized 500,000
  shares; no shares issued and outstanding...................            --             --
  Common stock, $.01 par value. Authorized
  50,000,000  shares;  issued and outstanding  15,854,067 and
  15,803,797 shares as of June 30, 2003 and December 31, 2002,
  respectively...............................................           159            158

  Additional paid-in capital.................................        97,334         97,223
  Accumulated earnings.......................................         8,700          8,734
  Treasury  stock,  795,692  shares at cost as of June 30, 2003
    and December 31, 2002....................................        (7,182)        (7,182)

  Accumulated other comprehensive loss.......................        (1,432)        (3,395)
  Notes receivable from officers and stockholders............        (3,765)        (3,686)
                                                                 ----------      ---------
        Total stockholders' equity...........................        93,814         91,852
                                                                 ----------      ---------
Commitments and contingencies

        Total liabilities and stockholders' equity...........    $  239,203      $ 231,595
                                                                 ==========      =========
</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        SIX MONTHS ENDED
                                                            JUNE 30,                JUNE 30,
                                                       2003         2002        2003        2002
                                                    ----------   ----------  ----------  ----------
<S>                                                  <C>         <C>         <C>         <C>
Revenues........................................... $   70,613   $   74,396  $  138,626  $  147,974
Cost of goods sold.................................     54,066       56,734     106,268     112,049
                                                    ----------   ----------  ----------  ----------
          Gross profit.............................     16,547       17,662      32,358      35,925
Selling, general and administrative expense........     12,999       13,019      25,643      26,564
Depreciation and amortization expense..............      1,254        1,193       2,484       2,352
Interest expense...................................      1,077        1,152       2,139       2,169
Interest cost on postretirement benefit liability..        210          123         419         245
Interest income....................................        (50)         (97)        (99)       (153)
Other, net.........................................        553          432       1,129          35
                                                    ----------   ----------  ----------  ----------
          Income before income taxes and
            cumulative effect of change in
            accounting principle...................        504        1,840         643       4,713
Income tax provision...............................        194          706         244       1,806
                                                    ----------   ----------  ----------  ----------
     Net income before cumulative effect of change
         in accounting principle...................        310        1,134         399       2,907
Cumulative effect of change in accounting
  principle (net of tax benefit of $18)............         --           --          34          --
                                                    ----------   ----------  ----------  ----------

          Net income............................... $      310   $    1,134  $      365  $    2,907
                                                    ==========   ==========  ==========  ==========

Earnings per share--basic:
Net income  before  cumulative  effect of change in
   accounting principle............................ $       --   $     0.07  $       --  $     0.18
Cumulative effect of change in accounting
  principle........................................         --           --          --          --
          Net income............................... $       --   $     0.07  $       --  $     0.18
                                                    ==========   ==========  ==========  ==========
Earnings per share--diluted:
Net income before cumulative effect of change in
   accounting principle............................ $       --   $     0.07  $       --  $     0.18
Cumulative effect of change in accounting
  principle........................................         --          --           --  $       --
          Net income...............................    $    --   $     0.07  $       --  $     0.18
                                                    ==========   ==========  ==========  ==========

Basic weighted average number of shares of
  common stock outstanding.........................     15,849       15,804      15,827      15,804
Diluted weighted average number of shares
  of common stock outstanding......................     15,906       15,957      15,890      15,947
</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)

                                                           SIX MONTHS ENDED
                                                                JUNE 30,
                                                          ---------------------
                                                            2003         2002
                                                          ---------   ---------
Cash flows from operating activities:
  Net income...........................................   $     365   $   2,907
  Adjustments to reconcile net income to net cash
     used in operating activities:
     Cumulative effect of change in accounting
       principle.......................................          34          --
     Deferred income tax expense.......................         190       1,564
     Depreciation and amortization expense.............       2,484       2,352
     Non-cash interest income..........................         (79)       (115)
     Loss on revaluation of warrants...................          32          --
     Interest cost on postretirement benefit
       liability.......................................         419         245
     Gain on the sale of property, plant and
       equipment.......................................        (208)         (7)
     Change in assets and liabilities:
       (Increase) decrease in trade accounts
         receivable....................................       1,227      (6,486)
       (Increase) decrease in inventories..............      (2,683)      2,044
       (Increase) decrease in prepaid expense and
         other current assets..........................        (566)
                                                                            757
       (Increase) decrease in long-term assets.........          35        (111)
       Increase in accounts payable....................       1,315         908
       Decrease in accrued expenses and other..........      (4,763)     (1,168)
       Increase (decrease) in customer advances........       1,485      (3,257)
                                                          ---------    --------
          Net cash used in operating activities........        (713)       (367)
                                                          ----------   --------
Cash flows from investing activities:
  Capital expenditures for property, plant and
    equipment..........................................      (6,656)     (2,859)
  Proceeds from the sale of property, plant and
    equipment..........................................         649          36
  Issuance of related party note receivable............          --        (216)
  Acquisitions, net....................................          --        (241)
                                                          ---------    --------
          Net cash used in investing activities........      (6,007)     (3,280)
                                                          ----------   --------
Cash flows from financing activities:
  Change in bank overdrafts............................      (3,374)      1,721
  Net borrowings (repayments) under long-term
    revolving credit facilities........................      (1,603)      3,895
  Repayments of long-term debt.........................      (3,549)     (3,524)
  Borrowings of long-term debt.........................          --       1,460
  Proceeds from the issuance of preferred
    stock, net.........................................      14,101          --
  Issuance of common stock.............................         111          --
  Payments on postretirement benefit liability.........        (916)     (1,041)
  Other, net...........................................         377         344
                                                          ---------    -------
          Net cash provided by financing activities           5,147       2,855
                                                          ---------    -------
Effect of exchange rate changes on cash and cash
   equivalents.........................................         680         601
                                                          ---------    -------
Change in cash and cash equivalents....................        (893)       (191)
Cash and cash equivalents at beginning of period.......       1,689       3,093
                                                          ---------    -------
Cash and cash equivalents at end of period.............   $     796    $  2,902
                                                          =========    =======
Cash payments for:
  Interest.............................................   $   1,788    $    888
  Income taxes.........................................   $   1,026    $  2,211


           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" or "NATCO") 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 Annual Report on Form 10-K filing for the year ended December 31,
2002.

    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 2002 amounts in order to
present these results on a comparable basis with amounts for fiscal year 2003.
These reclassifications had no impact on net income.

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

(2) EMPLOYEE STOCK OPTIONS

    The Company accounts for its employee stock option plans by applying the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," as permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 allows entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. If entities continued to apply the provision of APB Opinion No. 25, pro
forma net income and earnings per share disclosures would be required for all
employee stock option grants made in 1995 and subsequent years, as if the fair
value-based method defined in SFAS No. 123 had been applied. In December 2002,
SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure, an amendment to FASB Statement No. 123," was issued and provided
alternative methods to transition to the fair value method of accounting for
stock-based compensation, on a volunteer basis, and required additional
disclosures at annual and interim reporting dates. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and to provide the pro
forma disclosures required by SFAS No. 123.

    The Company determines pro forma net income and earnings per share by
applying the Black-Scholes Single Option--Reduced Term valuation method. This
valuation model requires management to make highly subjective assumptions about
volatility of NATCO's common stock, the expected term of outstanding stock
options, the Company's risk-free interest rate and expected dividend payments
during the contractual life of the options. These pro forma net earnings and
earnings per share amounts for the three-month and six-month periods ended June
30, 2003 and 2002, summarize as follows:


                                       6

<PAGE>

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED         SIX MONTHS ENDED
                                                        JUNE 30,                   JUNE 30,
                                                   ------------------         ------------------
                                                    2003         2002         2003          2002
                                                    ----         ----         ----          ----
                                               (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                             <C>           <C>          <C>          <C>
Net income before cumulative effect of
  change in accounting principle -- as
  reported...................................   $    310    $  1,134       $    399     $   2,907
Deduct:  Total stock-based employee
  compensation  expense determined under
  fair value based method for all awards,
  net of related tax effects.................        170         244            321           485
                                                --------    --------       --------     ---------
Pro forma net income........................    $    140    $    890       $     78     $   2,422
                                                ========    ========       ========     =========
Earnings (loss) per share:
   Basic-- as reported......................    $     --    $   0.07       $     --      $   0.18
   Basic-- pro forma .......................    $  (0.01)   $   0.06       $  (0.02)     $   0.15

   Diluted-- as reported....................    $     --    $   0.07       $     --      $   0.18
   Diluted-- pro forma......................    $  (0.01)   $   0.06       $  (0.02)     $   0.15
</TABLE>

    Pursuant to the NATCO Group Inc. Directors Compensation Plan, as amended,
and the NATCO Group Inc. 2001 Stock Incentive Plan, the Company granted 2,500
restricted shares to each of its five non-employee directors during June 2003.
These restricted shares vest 100% on June 3, 2006, but are forfeitable if
service discontinues prior to this date (other than for death, disability or
retirement). The Company will recognize expense of $85,000 related to these
grants ratably over the vesting period. In addition, the Company granted each of
these non-employee directors options to purchase 2,500 shares of the Company's
common stock at fair market value on the date of grant. These options vest 100%
following one year of service, on the anniversary date of their issuance.

(3) CAPITAL STOCK AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

    On March 25, 2003, the Company issued 15,000 shares of its Series B
Convertible Preferred Stock ("Series B Preferred Shares") and warrants to
purchase 248,800 shares of NATCO's common stock, to Lime Rock Partners II, L.P.,
a private investment fund, for an aggregate purchase price of $15.0 million. Of
the aggregate purchase price, approximately $99,000 was allocated to the
warrants. Proceeds from the issuance of these securities, net of related
estimated issuance costs of approximately $800,000, were used to reduce the
Company's outstanding revolving debt balances and for other general corporate
purposes.

    Each of the Series B Preferred Shares has a face value of $1,000 and pays a
cumulative dividend of 10% per annum of face value, which is payable
semi-annually on June 15 and December 15 of each year, except the initial
dividend payment which was payable on July 1, 2003. Each of the Series B
Preferred Shares is convertible, at the option of the holder thereof, into (i) a
number of shares of common stock equal to the face value of such Series B
Preferred Share divided by the conversion price, which was $7.805 (or an
aggregate of 1,921,845 shares) at June 30, 2003, and (ii) a cash payment equal
to the amount of dividends on such share that have accrued since the prior
semi-annual dividend payment date. As of June 30, 2003, the Company had accrued
dividends payable of $399,000 related to the Series B Preferred Shares, which
were paid on July 1, 2003.

    In the event of a change in control, as defined in the certificate of
designations for the preferred shares, each holder of the Series B Preferred
Shares has the right to convert the Series B Preferred Shares into common stock
or to cause the Company to redeem for cash some or all of the Series B Preferred
Shares at an aggregate redemption price equal to the sum of (i) $1,000 (adjusted
for stock splits, stock dividends, etc.) multiplied by the number of shares to
be redeemed, plus (ii) an amount (not less than zero) equal to the product of
$500 (adjusted for stock splits, stock dividends, etc.) multiplied by the
aggregate number of the Series B Preferred Shares to be redeemed less the sum of
the aggregate amount of dividends paid in cash since the issuance date, plus any
gain on the related stock warrants. If the holder of the Series B Preferred
Shares converts upon a change in control occurring on or before March 25, 2006,
the holder would also be entitled to receive cash in an amount equal to the
dividends that would have accrued through March 25, 2006 less the sum of the
aggregate amount of dividends paid in cash through the date of conversion, and
the aggregate amount of dividends accrued in prior periods but not yet paid.

    The Company has the right to redeem the Series B Preferred Shares for cash
on or after March 25, 2008, at a redemption price per share equal to the face
value of the Series B Preferred Shares plus the amount of dividends that have
been accrued but not paid since the most recent semi-annual dividend payment
date.

    Due to the cash redemption features upon a change in control as described
above, the Series B Preferred Shares do not qualify for permanent equity
treatment in accordance with the Emerging Issues Task Force Topic D-98:
"Classification and Measurement of Redeemable Securities," which specifically
requires that permanent equity treatment be precluded for any security with
redemption


                                       7

<PAGE>

features that are not solely within the control of the issuer. Therefore, the
Company has accounted for the Series B Preferred Shares as temporary equity in
the accompanying balance sheet. No value has been assigned to the Company's
right to redeem the Series B Preferred Shares on or after March 25, 2008.

    If the Series B Preferred Shares are converted under contingent redemption
features, any redemption amount greater than carrying value would be recorded as
a reduction of income available to common shareholders when the event becomes
probable.

    If the Company fails to pay dividends for two consecutive periods or any
redemption price due with respect to the Series B Preferred Shares for a period
of sixty days following the payment date, the Company will be in default under
the terms of such shares. During a default period, (1) the dividend rate on the
Series B Preferred Shares would increase to 10.25%, (2) the holders of the
Series B Preferred Shares would have the right to elect or appoint a second
director to the Board of Directors and (3) the Company would be restricted from
paying dividends on, or redeeming or acquiring its common or other outstanding
stock, with limited exceptions. If the Company fails to set aside or make
payments in cash of any redemption price due with respect to the Series B
Preferred Shares, and the holders elect, the Company's right to redeem the
shares may be terminated.

    The warrants issued to Lime Rock Partners II, L.P. have an exercise price of
$10.00 per share of common stock and expire on March 25, 2006. The Company can
force the exercise of the warrants if NATCO's common stock trades above $13.50
per share for 30 consecutive days. The warrants contain a provision whereby the
holder could require the Company to make a net-cash settlement for the warrants
in the case of a change in control. The warrants were deemed to be derivative
instruments and, therefore, the warrants were recorded at fair value as of the
issuance date. Fair value, as agreed with the counter-party to the agreement,
was calculated by applying a pricing model that included subjective assumptions
for stock volatility, expected term that the warrants would be outstanding, a
dividend rate of zero and an overall liquidity factor. The resulting liability
of $99,000 was recorded as of the issuance date. At June 30, 2003, this
liability was $131,000, reflecting the change in fair market value of the
warrants since the date of acquisition, with a resulting charge to income of
$32,000. Changes in fair value in future periods will be recorded as charges to
net income during the period of the change, as applicable.

    On January 1, 2002, all outstanding shares of the Company's Class B Common
Stock, 334,719 shares, were converted automatically to Class A Common Stock, on
a share for share basis, in accordance with the terms under which the Class B
Common Stock was originally issued, resulting in a single class that was
re-designated "Common Stock."

(4) EARNINGS PER SHARE

    The Company computed basic earnings per share by dividing net income
available to common shareholders by the weighted average number of shares
outstanding for the period. Net income available to common shareholders at June
30, 2003, represented net income before cumulative effect of change in
accounting principle less preferred stock dividends accrued. The Company
determined diluted earnings per common and potential common share at June 30,
2003, as net income before the cumulative effect of change in accounting
principle divided by the weighted average number of shares outstanding for the
period, after applying the if-converted method to determine any incremental
shares associated with convertible preferred stock, warrants and restricted
stock outstanding. Since the effect of the incremental shares associated with
convertible preferred stock, warrants and restricted stock was anti-dilutive at
June 30, 2003, these shares were not considered common and potential common
shares for purposes of calculating earnings per share at June 30, 2003, in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." However, outstanding employee stock options were
considered potential common shares for purposes of this calculation. For the
three and six months ended June 30, 2003, potential common shares related to
employee stock options included in diluted weighted average shares were 56,549
shares and 63,498 shares, respectively. Diluted shares for the three and six
months ended June 30, 2002 included potential common shares related to employee
stock options of 153,639 shares and 143,079 shares, respectively. Anti-dilutive
stock options were excluded from the calculation of potential common shares. If
anti-dilutive shares were included in the calculation for the three and six
months ended June 30, 2003, the impact would have been a reduction of 487,231
shares and 476,474 shares, respectively. If anti-dilutive shares were included
for the three and six months ended June 30, 2002, the impact would have been a
reduction of 184,655 shares and 218,212 shares, respectively. The following
table presents the computation of basic and diluted earnings per common and
potential common share for the three and six months ended June 30, 2003 and
2002, respectively:


                                       8

<PAGE>

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30, 2003                 THREE MONTHS ENDED JUNE 30, 2002
                                    -----------------------------------------------   --------------------------------------------
                                       INCOME           SHARES          PER-SHARE        INCOME          SHARES         PER-SHARE
                                    (NUMERATOR)      (DENOMINATOR)       AMOUNT        (NUMERATOR)    (DENOMINATOR)      AMOUNT
                                    -----------      -------------    ------------     -----------    -------------   ------------
                                                            (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                 <C>              <C>              <C>              <C>            <C>             <C>
Income before cumulative
effect of change in accounting
principle                           $       310                                        $     1,134
Less:  Preferred stock
dividends accrued                          (374)                                                --
                                    -----------                                        -----------
Basic EPS:
Income (loss) available to
common stockholders before
cumulative effect of change in
accounting principle                $       (64)            15,849    $         --     $     1,134           15,804   $       0.07
                                                                      ============                                    ============
Effect of dilutive securities:
Stock options                                --                 57                              --              153
                                    -----------        -----------                     -----------       ----------
Diluted EPS:
Income (loss) available to
common stockholders before
cumulative effect of change in
accounting principle + assumed
conversions                         $       (64)            15,906    $         --     $     1,134            15,957  $       0.07
                                    ===========        ===========    ============     ===========       ===========  ============
</TABLE>

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED JUNE 30, 2003                   SIX MONTHS ENDED JUNE 30, 2002
                                    -----------------------------------------------   --------------------------------------------
                                       INCOME           SHARES          PER-SHARE        INCOME          SHARES         PER-SHARE
                                    (NUMERATOR)      (DENOMINATOR)       AMOUNT        (NUMERATOR)    (DENOMINATOR)      AMOUNT
                                    -----------      -------------    ------------     -----------    -------------   ------------
                                                            (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                 <C>              <C>              <C>              <C>            <C>             <C>
Income before cumulative
effect of change in accounting
principle                           $       399                                        $     2,907
Less:  Preferred stock
dividends accrued                          (399)                                                --
                                                                                       -----------
Basic EPS:
Income available to common
stockholders before cumulative
effect of change in accounting
principle                           $        --             15,827    $         --     $     2,907            15,804  $       0.18
                                                                      ============                                    ============
Effect of dilutive securities:
Stock options
                                             --                 63                              --               143
                                    -----------        -----------                     -----------       -----------
Diluted EPS:
Income available to common
stockholders before cumulative
effect of change in accounting
principle + assumed conversions     $        --             15,890    $         --     $     2,907            15,947  $       0.18
                                    ===========        ===========    ============     ===========       ===========  ============
</TABLE>

 (5) INVENTORIES

    Inventories consisted of the following amounts:


                                             JUNE 30,         DECEMBER 31,
                                               2003              2002
                                            ----------        ---------
                                            (UNAUDITED)
                                                  (IN THOUSANDS)
          Finished goods..............      $ 12,810          $ 13,088
          Work-in-process.............         8,919             6,486
          Raw materials and supplies..        15,656            14,362
                                            --------          --------
            Inventories at FIFO.......        37,385            33,936
          Excess of FIFO over LIFO cost       (1,534)           (1,536)
                                            --------          --------
                                            $ 35,851          $ 32,400
                                            ========          ========


                                       9

<PAGE>

(6) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

    Cost and estimated earnings on uncompleted contracts were as follows:

<TABLE>
<CAPTION>
                                                          JUNE 30,        DECEMBER 31,
                                                            2003              2002
                                                        -------------    ---------
                                                         (UNAUDITED)
                                                                 (IN THOUSANDS)
<S>                                                   <C>             <C>
Cost incurred on uncompleted contracts...........     $  89,273       $  87,586
Estimated earnings...............................        23,231          19,656
                                                      ---------       ---------
                                                        112,504         107,242
Less billings to date............................        91,747          87,187
                                                      ---------       ---------
                                                      $  20,757       $  20,055
                                                      =========       =========
Included in the accompanying balance sheet
  under the captions:
  Trade accounts receivable......................     $  22,174       $  20,262

  Advance payments...............................        (1,417)           (207)
                                                      ---------       ---------

                                                      $  20,757       $  20,055
                                                      =========       =========
</TABLE>

(7) CLOSURE AND OTHER

    As of December 31, 2002, the Company had recorded a liability totaling
$304,000, related to certain restructuring costs incurred in connection with the
closure of a manufacturing facility in Edmonton, Alberta, Canada. As of June 30,
2003, this liability totaled $120,000. The following table summarizes changes to
the restructuring liability by cost type:

<TABLE>
<CAPTION>
                                          BALANCE AT                               EFFECT OF
                                          DECEMBER 31,       AMOUNTS PAID        EXCHANGE RATE       BALANCE AT
                                              2002          AND ADJUSTMENTS         CHANGES         JUNE 30, 2003
                                        -----------------   ----------------    ----------------    --------------
                                                                (UNAUDITED, IN THOUSANDS)
<S>                                     <C>                 <C>                 <C>                 <C>
Employee severance                         $        21        $      (23)         $         2         $      --
Lease termination and other                        283              (196)                  33               120
                                           -----------        ----------          -----------         ---------
   Total                                   $       304        $     (219)         $        35         $     120
                                           ===========        ==========          ===========         =========
</TABLE>

    The portion of the accrual related to lease termination and other during
the six months ended June 30, 2003, was reduced by approximately $196,000 of
which $74,000 related to amounts paid and $122,000 related to a change in the
assessment of liability under the lease arrangement for this facility.

    The Company recorded non-operating expense associated with this
restructuring plan of $225,000 during the six months ended June 30, 2003,
related to equipment moving costs, employee relocations and certain severance
cost, totaling $125,000, that was not identified as a restructuring cost as of
the plan measurement date.

(8) LONG-TERM DEBT

    The consolidated borrowings of the Company were as follows:

<TABLE>
<CAPTION>
                                                                 JUNE 30,         DECEMBER 31,
                                                                   2003               2002
                                                               -------------     -------------
                                                                (UNAUDITED)
                                                             (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                                           <C>                <C>
BANK DEBT
Term loan with variable interest rate (3.74% at
  June 30, 2003 and 4.21% at December 31, 2002)
  and quarterly  payments of principal  ($1,750)
  and interest, due March 15, 2006..........................   $      34,250     $      37,750

Revolving credit bank loans with variable interest
  rate (4.26% at June 30, 2003 and 4.43% at
  December 31, 2002) and quarterly interest payments,
  due March  15, 2004.......................................          10,295             8,967

Promissory note with variable interest rate (4.65%
  at June 30, 2003 and 4.65% at December 31, 2002)
  and quarterly payments of principal ($24) and
  interest, due February 8, 2007............................           1,338             1,387

Revolving credit bank loans (export sales facility)
  with variable interest rate (4.00% at June 30, 2003
  and 4.25% December 31, 2002) and monthly interest
  payments, due July 23, 2004...............................           1,875             4,250
                                                               -------------     -------------
      Total.................................................   $      47,758     $      52,354

      Less  current installments............................         (17,392)           (7,097)
                                                               -------------     -------------
       Long-term debt.......................................   $      30,366     $      45,257
                                                               =============     =============
</TABLE>


                                       10

<PAGE>

    The Company maintains a credit facility that consists of a $50.0 million
term loan, a $30.0 million U.S. revolving facility, a $10.0 million Canadian
revolving facility and a $10.0 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 July 2002, the Company's lenders approved the amendment of various
provisions of the term loan and revolving credit facility agreement, effective
April 1, 2002. This amendment revised certain restrictive debt covenants,
modified certain defined terms, allowed for future capital investment in the
Company's Sacroc CO2 processing facility in West Texas, facilitates the issuance
of up to $7.5 million of subordinated indebtedness, increased the aggregate
amount of operating lease expense allowed during a fiscal year and permitted an
increase in borrowings under the export sales credit facility, without further
consent, up to a maximum of $20.0 million. These modifications resulted in
higher commitment fee percentages and interest rates than in the original loan
agreements, based on the Funded Debt to EBITDA ratio, as defined in the
underlying agreement as amended.

    In July 2003, the Company's lenders approved an amendment of the existing
term loan and revolving credit facility, effective April 1, 2003, and as of June
30, 2003, the Company was in compliance with all restrictive debt covenants, as
amended. The amendment modified several restrictive covenant terms, including
the Fixed Charge Coverage Ratio and Funded Debt to EBITDA Ratio, each as defined
in the agreement. Had the amendment not been obtained, the company would have
been non-compliant with such restrictive covenants. The Company expects to be in
compliance with the financial covenants under the term loan and revolving credit
facility, as amended, for the next twelve months.

    Amounts borrowed under the term loan bear interest at a rate of 3.74% per
annum as of June 30, 2003. Amounts borrowed under the revolving portion of the
facility bear interest at a rate based upon the ratio of Funded Debt to EBITDA
and ranging from, at the Company's election, (1) a high of the London Inter-bank
Borrowing Rate ("LIBOR") plus 3.00% to a low of LIBOR plus 1.75% or, (2) a high
of a base rate plus 1.50% to a low of a base rate plus 0.25%.

     NATCO is required to pay commitment fees of 0.30% to 0.625% per year
depending upon the ratio of Funded Debt to EBITDA, on the undrawn portion of the
facility. As of June 30, 2003, the Company's commitment fees were calculated at
a rate of 0.625%.

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

     On February 6, 2002, the Company borrowed $1.5 million under a long-term
promissory note. 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, with a final balloon payment due
February 2007. This promissory note is collateralized by a manufacturing
facility in Magnolia, Texas that the Company purchased in the fourth quarter of
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 $1.9 million were outstanding at June 30,
2003. Letters of credit outstanding under the export sales credit facility as of
June 30, 2003 totaled $50,000. Fees related to these letters of credit at June
30, 2003, were approximately 1% of the outstanding balance. 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.

    NATCO had letters of credit outstanding under the revolving credit
facilities totaling $17.9 million at June 30, 2003. Fees related to these
letters of credit at June 30, 2003, ranged from approximately 1% to 3.25% of the
outstanding balance. These letters of credit support contract performance and
warranties and expire at various dates through April 2007.

    The Company had unsecured letters of credit, guarantees and bonds totaling
$1.6 million at June 30, 2003.

(9) INCOME TAXES

    NATCO's effective income tax rate for the six months ended June 30, 2003 was
38%, 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, losses in foreign subsidiaries and certain
permanent book-to-tax differences.

(10) INDUSTRY SEGMENTS

    The Company's operations are organized into three separate business
segments: North American Operations, a segment which primarily provides
traditional, standard and small custom production equipment and components,
replacement parts, used equipment and components, equipment servicing and field
operating support including operations of our domestic membrane facility;
Engineered


                                       11

<PAGE>

 Systems, a segment which primarily provides customized and more
complex technological equipment, large scale integrated oil and gas production
systems, and equipment and services provided by certain international
operations, including Axsia; and Automation and Control Systems, a segment which
provides control panels and systems that monitor and control oil and gas
production, as well as installation and start-up and other field services
related to instrumentation and electrical systems.

    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, other, net and accounting
changes.

    In June 2003, the Company changed the presentation of its reportable
segments by reclassifying certain research and development costs and corporate
allocations to the "Corporate and Other" segment, and excluding other, net, from
the determination of segment profit (loss). This change has been retroactively
reflected in all periods presented.

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

<TABLE>
<CAPTION>
                                                NORTH                          AUTOMATION
                                               AMERICAN       ENGINEERED       & CONTROL          CORPORATE &
                                              OPERATIONS        SYSTEMS         SYSTEMS              OTHER            TOTAL
                                              ----------      ----------       ----------         -----------         -----
                                                                         (UNAUDITED, IN THOUSANDS)
<S>                                           <C>             <C>                <C>              <C>                 <C>
    THREE MONTHS ENDED
      JUNE 30, 2003
    Revenues from unaffiliated customers      $  30,779       $  27,225         $  12,609            $     --       $  70,613
    Inter-segment revenues..............            177              36             1,398               (1,611)            --
    Segment profit (loss)...............          2,855           1,347             1,249               (1,903)         3,548
    Total assets........................         98,264         109,947            20,618               10,374        239,203
    Capital expenditures................          3,214             320                31                   19          3,584
    Depreciation and amortization.......            587             464               102                  101          1,254
    THREE MONTHS ENDED
      JUNE 30, 2002
    Revenues from unaffiliated customers      $  32,514       $  29,909         $  11,973            $      --      $  74,396
    Inter-segment revenues..............            222             401             1,157               (1,780)            --
    Segment profit (loss)...............          2,946           2,298             1,506               (2,107)         4,643
    Total assets........................        104,523         100,554            21,198               10,845        237,120
    Capital expenditures................            392             911                50                   26          1,379
    Depreciation and amortization.......            638             421                99                   35          1,193
    SIX MONTHS ENDED
      JUNE 30, 2003
    Revenues from unaffiliated customers      $  58,744       $  53,241         $  26,641            $      --      $ 138,626
    Inter-segment revenues..............            827              66             2,607               (3,500)            --
    Segment profit (loss)...............          4,794           3,116             2,567               (3,762)         6,715
    Total assets........................         98,264         109,947            20,618               10,374        239,203
    Capital expenditures................          5,697             809               130                   20          6,656
    Depreciation and amortization.......          1,162             937               195                  190          2,484
    SIX MONTHS ENDED
      JUNE 30, 2002
    Revenues from unaffiliated customers      $  70,802       $  54,706         $  22,466            $      --      $ 147,974
    Inter-segment revenues..............            310             713             2,529               (3,552)            --
    Segment profit (loss)...............          7,191           4,122             2,418               (4,370)         9,361
    Total assets........................        104,523         100,554            21,198               10,845        237,120
    Capital expenditures................          1,015           1,454               278                  112          2,859
    Depreciation and amortization.......          1,305             717               194                  136          2,352
</TABLE>

     The following table reconciles total segment profit to net income before
cumulative effect of change in accounting principle:

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                  ----------------------------    -------------------------
                                                     2003           2002             2003           2002
                                                  ----------     ----------       ----------     ----------
                                                                   (UNAUDITED, IN THOUSANDS)
<S>                                               <C>            <C>              <C>            <C>
Total segment profit                              $    3,548     $    4,643       $    6,715     $    9,361
Net interest expense                                   1,237          1,178            2,459          2,261
Depreciation and amortization                          1,254          1,193            2,484          2,352
Other, net                                               553            432            1,129             35
                                                  ----------     ----------       ----------     ----------
  Net income before income taxes and
   cumulative effect of change in
   accounting principle                                  504          1,840              643          4,713

  Income taxes                                           194            706              244          1,806
                                                  ----------     ----------       ----------     ----------
    Net income before cumulative effect of
    change in accounting principle                $      310     $    1,134       $      399     $    2,907
                                                  ==========     ==========       ==========     ==========
</TABLE>

                                       12

<PAGE>
     The impact on segment profit (loss) of the June 2003 change in measurement
method used was as follows:

<TABLE>
<CAPTION>
                                 -----------------------------------------------------------------------------------------
                                                               THREE MONTHS ENDED JUNE 30, 2003
                                 -----------------------------------------------------------------------------------------
                                  NORTH AMERICAN       ENGINEERED        AUTOMATION &          CORPORATE &
                                    OPERATIONS          SYSTEMS         CONTROL SYSTEMS       ELIMINATIONS       TOTAL
                                  --------------      -----------       ---------------       ------------    ------------
                                                                   (UNAUDITED, IN THOUSANDS)
<S>                              <C>                  <C>               <C>                   <C>             <C>
Original segment
  profit (loss):                  $      2,373        $       292          $     1,249         $      (919)   $      2,995
Other expense, net                         300                171                   --                  82             553
R&D and other                              182                884                   --              (1,066)             --
                                  ------------        -----------          -----------         -----------    ------------
 Segment profit (loss)            $      2,855        $     1,347          $     1,249         $    (1,903)   $      3,548
                                  ============        ===========          ===========         ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                 -----------------------------------------------------------------------------------------
                                                               THREE MONTHS ENDED JUNE 30, 2002
                                 -----------------------------------------------------------------------------------------
                                  NORTH AMERICAN       ENGINEERED        AUTOMATION &          CORPORATE &
                                    OPERATIONS          SYSTEMS         CONTROL SYSTEMS       ELIMINATIONS       TOTAL
                                  --------------      -----------       ---------------       ------------    ------------
                                                                   (UNAUDITED, IN THOUSANDS)
<S>                              <C>                  <C>               <C>                   <C>              <C>
Original segment
  profit (loss):                  $      2,672        $       892          $     1,504         $      (857)   $      4,211
Other expense, net                          48                350                   (7)                 41             432
R&D and other                              226              1,056                    9              (1,291)             --
                                  ------------        -----------          -----------         -----------    ------------
 Segment profit (loss)                 $ 2,946        $     2,298          $     1,506         $    (2,107)   $      4,643
                                  ============        ===========          ===========         ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                 -----------------------------------------------------------------------------------------
                                                                 SIX MONTHS ENDED JUNE 30, 2003
                                 -----------------------------------------------------------------------------------------
                                  NORTH AMERICAN       ENGINEERED        AUTOMATION &          CORPORATE &
                                    OPERATIONS          SYSTEMS         CONTROL SYSTEMS       ELIMINATIONS       TOTAL
                                  --------------      -----------       ---------------       ------------    ------------
                                                                   (UNAUDITED, IN THOUSANDS)
<S>                              <C>                  <C>               <C>                   <C>             <C>
Original segment
  profit (loss):                  $      3,638        $     1,264          $     2,567         $    (1,883)   $      5,586
Other expense, net                         753                 84                   --                 292           1,129
R&D and other                              403              1,768                   --              (2,171)             --
                                  ------------        -----------          -----------         -----------    ------------
 Segment profit (loss)            $      4,794        $     3,116          $     2,567         $    (3,762)   $      6,715
                                  ============        ===========          ===========         ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                 -----------------------------------------------------------------------------------------
                                                                 SIX MONTHS ENDED JUNE 30, 2002
                                 -----------------------------------------------------------------------------------------
                                  NORTH AMERICAN       ENGINEERED        AUTOMATION &          CORPORATE &
                                    OPERATIONS          SYSTEMS         CONTROL SYSTEMS       ELIMINATIONS       TOTAL
                                  --------------      -----------       ---------------       ------------    ------------
                                                                   (UNAUDITED, IN THOUSANDS)
<S>                              <C>                  <C>               <C>                   <C>             <C>
Original segment
  profit (loss):                  $      6,600        $     2,227          $     2,416         $    (1,917)   $      9,326
Other expense, net                         123               (160)                  (7)                 79              35
R&D and other                              468              2,055                    9              (2,532)             --
                                  ------------        -----------          -----------         -----------    ------------
 Segment profit (loss)            $      7,191        $     4,122          $     2,418         $    (4,370)   $      9,361
                                  ============        ===========          ===========         ===========    ============
</TABLE>

(11) COMMITMENTS AND CONTINGENCIES

    The Porta-Test International, Inc. 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 23, 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 was contingent upon attaining certain performance
criteria, including gross margins and sales volumes for the specified products.
If applicable, payment was required annually. In January 2002, the Company
recorded a liability of $219,000 under this arrangement for the twelve-month
period ended January 23, 2002, resulting in an increase in goodwill, of which
$197,000 was paid in August 2002. Because the performance criteria was not met,
the Company did not record additional liability under this arrangement for the
twelve-month period ended January 23, 2003.

(12) GOODWILL IMPAIRMENT TESTING

    The Financial Accounting Standards 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.



                                       13
<PAGE>
    The Company adopted SFAS No. 142 on January 1, 2002. Intangible assets
subject to amortization under the pronouncement as of June 30, 2003 and 2002
are summarized in the following table:

<TABLE>
<CAPTION>
                                           AS OF JUNE 30, 2003             AS OF JUNE 30, 2002
                                      ----------------------------    -----------------------------
    TYPE OF INTANGIBLE ASSET             GROSS                            GROSS
                                       CARRYING        ACCUMULATED       CARRYING     ACCUMULATED
                                        AMOUNT         AMORTIZATION       AMOUNT      AMORTIZATION
---------------------------------     ------------    -------------    ------------    ------------
                                                           (UNAUDITED, IN THOUSANDS)
<S>                                    <C>            <C>              <C>             <C>
Deferred financing fees               $     3,308      $     2,340      $    3,022     $     1,556
Patents                                       155               29             101              13
Other                                         365              229             261             146
                                      -----------      -----------      ----------     -----------
   Total                              $     3,828      $     2,598      $    3,384     $     1,715
                                      ===========      ===========      ==========     ===========
</TABLE>

    Amortization and interest expense of $209,000 and $208,000 were recognized
related to these assets for the three months ended June 30, 2003 and 2002,
respectively, and $428,000 and $409,000 for the six-month periods ended June 30,
2003 and 2002, respectively. The estimated aggregate amortization and interest
expense for these assets for each of the following five fiscal years is:
2003--$626,000; 2004--$384,000; 2005--$342,000; 2006--$151,000; and
2007--$27,000. For segment reporting purposes, these intangible assets and the
related amortization expense were recorded under "Corporate and Other."

    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
June 30, 2003 was $79.8 million. The Company tested impairment of goodwill at
December 31, 2002 and management determined that goodwill was not impaired.

 (13) CHANGE IN ACCOUNTING PRINCIPLE

    Effective January 1, 2003, NATCO recorded the cumulative effect of change in
accounting principle related to the adoption of SFAS No. 143, "Accounting for
Asset Retirement Obligations." This standard required the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which a legal obligation associated with the retirement of tangible long-lived
assets that result from acquisition, construction, development and/or normal use
of the assets, was incurred. In addition, the standard requires the Company to
record a corresponding asset that will be depreciated over the life of the asset
that gave rise to the liability. Subsequent to the initial measurement of the
asset retirement obligation, the Company will be required to adjust the related
liability at each reporting date to reflect changes in estimated retirement cost
and the passage of time. A loss of $34,000, net of tax, was recorded as of
January 1, 2003, as a result of this change in accounting principle. The related
asset retirement obligation and asset cost of $96,000, associated with an
obligation to remove certain leasehold improvements upon termination of lease
arrangements, including concrete pads and equipment. The asset cost will be
depreciated over the remaining useful life of the related assets. There was no
significant change in the asset or liability during the three or six months
ended June 30, 2003.

(14) NEW ACCOUNTING PRONOUNCEMENTS

    In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
This statement amends existing guidance on reporting gains and losses on
extinguishment of debt, prohibiting the classification of the gain or loss as
extraordinary. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback
accounting for certain lease modifications that have economic effects similar to
sale-leaseback arrangements. The Company adopted SFAS No. 145 with respect to
the revision of Statement No. 13 on May 15, 2002, and with respect to the
amendment of SFAS No. 4, on January 1, 2003, with no material impact on the
Company's financial condition or results of operations.

    In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities," which addresses significant issues regarding the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that were previously accounted
for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity." SFAS No. 146 became effective for the Company on January 1, 2003. The
adoption of SFAS No. 146 had no material impact on the Company's financial
condition or results of operations.


                                       14

<PAGE>

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The interpretation
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation taken. The initial
recognition and measurement provisions of the interpretation are applicable to
guarantees issued or modified after December 31, 2002. Application of this
interpretation did not have a material impact on the Company's financial
condition or results of operations.

    In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment to FASB Statement No.
123." This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods to transition, on a volunteer
basis, to the fair value method of accounting for stock-based employee
compensation. Additionally, this statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain disclosure modifications are required for fiscal
years ending after December 31, 2002, if a transition to SFAS No. 123 is
elected. The Company has not elected transition to SFAS No. 123 as of June 30,
2003. See Note 2, Employee Stock Options.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement provides
additional guidance to account for derivative instruments, including certain
derivative instruments embedded in other contracts as well as hedging activities
under SFAS No. 133. This pronouncement becomes effective for new contract
arrangements and hedging transactions entered into after June 30, 2003, with
exceptions for certain SFAS No. 133 implementation issues begun prior to June
15, 2003. The Company expects the adoption of this pronouncement to have no
material impact on its financial condition or results of operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement provides guidance on how to classify and measure certain financial
instruments that have characteristics of both liabilities and equity, and
generally requires treatment of these instruments as liabilities, including
certain obligations that the issuer can or must settle by issuing its own equity
securities. This pronouncement, which was effective for all financial
instruments entered into or modified after May 31, 2003, and will otherwise be
effective on July 1, 2003, will require cumulative effect of a change in
accounting principle treatment upon adoption. The Company does not expect this
pronouncement to have a material impact on its financial condition or results of
operation.

(15) RELATED PARTY TRANSACTIONS

     Under the terms of an employment agreement in effect prior to 1999, the
Company loaned its Chief Executive Officer $1.2 million in July 1999 to purchase
136,832 shares of common stock. During February 2000, after the Company
completed the initial public offering of its Class A common stock, also pursuant
to the terms of that employment agreement, the Company paid this executive
officer a bonus equal to the principal and interest accrued under this note
arrangement and recorded compensation expense of $1.3 million. The officer used
the proceeds of this settlement, net of tax, to repay the Company approximately
$665,000. In addition, on October 27, 2000, the Company's board of directors
agreed to provide a full recourse loan to this executive officer to facilitate
the exercise of certain outstanding stock options. The amount of the loan was
equal to the cost to exercise the options plus any personal tax burdens that
resulted from the exercise. The maturity of these loans was July 31, 2003, and
interest accrued at rates ranging from 6% to 7.8% per annum. As of June 30,
2002, these outstanding notes receivable totaled $3.4 million, including
principal and accrued interest. Effective July 1, 2002, the notes were reviewed
by the Company's board and amended to extend the maturity dates to July 31,
2004, and to require interest to be calculated at an annual rate based on LIBOR
plus 300 basis points, adjusted quarterly, applied to the notes balances as of
June 30, 2002, including previously accrued interest. As of June 30, 2003, the
balance of the notes (principal and accrued interest) due from this officer
under these loan arrangements was $3.5 million. These loans to this executive
officer, which were made on a full recourse basis in prior periods to facilitate
direct ownership in the Company's common stock, are currently subject to and in
compliance with provisions of the Sarbanes-Oxley Act of 2002.

     As previously agreed in 2001, the Company loaned an employee who is an
executive officer and director $216,000 on April 15, 2002, 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 the exercise cost and personal tax burdens
associated with stock options exercised during 2001. Effective July 1, 2002, the
note was amended to extend the maturity date to July 31, 2004, and to require
interest to be calculated at an annual rate based on LIBOR plus 300 basis
points, adjusted quarterly, applied to the note balance as of June 30, 2002,
including previously accrued interest. As of June 30, 2003, the balance of the
note (principal and interest) due from this officer under this loan arrangement
was approximately $228,000. This loan to this executive officer, which was made
on a full recourse basis from time to time in prior periods to facilitate direct
ownership in the Company's common stock, is currently subject to and in
compliance with provisions of the Sarbanes-Oxley Act of 2002.


                                       15

<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. 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 2003 (see "--Liquidity and
Capital Resources"). Our expectations about our business outlook, customer
spending, oil and gas prices, our business environment and that of the industry
in general are only our expectations regarding these matters. Actual results may
differ materially from those expressed in the forward-looking statements 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 involving the United States or in major petroleum
producing or consuming regions, acts of terrorism, 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 we
operate.

    The following discussion should be read in conjunction with the financial
statements, related notes and other financial information appearing elsewhere in
this Quarterly Report on Form 10-Q. Readers also are urged to review and
consider carefully the various disclosures advising interested parties of the
factors that affect our business, including without limitation, the disclosures
made under the caption "Risk Factors" and the other factors and risks discussed
in our Annual Report on Form 10-K as of December 31, 2002, and in subsequent
reports filed with the Securities and Exchange Commission. We expressly disclaim
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement to reflect any change in our expectations or any
change in events, conditions or circumstances on which any forward-looking
statement is based.

OVERVIEW

    References to "NATCO," "we" and "our" are used throughout this document and
relate collectively to NATCO Group Inc. and its consolidated subsidiaries.

    We organize our operations into three separate business segments: North
American Operations, a segment that primarily provides traditional, standard and
small custom production equipment and components, replacement parts, used
equipment and components, equipment servicing and field operating support
including operations of our domestic membrane facility; Engineered Systems, a
segment that primarily provides customized and more complex technological
equipment, large scale integrated oil and gas production systems, and equipment
and services provided by certain international operations, including Axsia; and
Automation and Control Systems, a segment that provides control panels and
systems that monitor and control oil and gas production, as well as installation
and start-up and other field services related to instrumentation and electrical
systems.

CRITICAL ACCOUNTING POLICIES

    Our management makes certain estimates and assumptions in preparing our
consolidated financial statements that affect the results reported in the
accompanying notes. We base these estimates and assumptions 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 10-K for the year ended December 31, 2002, contains a
summary of our significant accounting policies. We believe the following
accounting policies are 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 certain 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 recognition of revenue, could be
affected by various internal or external factors including, but not limited to:
changes in project scope (change orders), changes in productivity, scheduling,
the cost and availability of labor, the cost and availability of raw materials,
the weather, client delays in providing approvals at benchmark stages of the
project and the timing of deliveries from third-party providers of key
components. The cumulative impact of revisions in total cost estimates during
the progress of work is reflected in the period in which


                                       16

<PAGE>

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 in progress, after consideration of
estimated probable minimum recoveries from claims and change orders, are charged
to income as soon as such losses are known. Claims for additional contract
revenue are recognized if it is probable that the claim will result in
additional revenue and the amount can be reliably estimated. We generally
recognize revenue and earnings to which the percentage-of-completion method
applies over a period of two to six quarters. In the event a project is
terminated by the customer before completion, our customer is liable for costs
incurred under the contract. 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.

    Impairment Testing: Goodwill. As required by Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
we evaluate goodwill annually for impairment by comparing the fair value of
operating assets to the carrying value of those assets, including any related
goodwill. As required by SFAS No. 142, we identify separate reportable units for
purposes of this evaluation. In determining carrying value, we segregate assets
and liabilities that, to the extent possible, are clearly identifiable by
specific reportable unit. All inter-company receivables/payables are excluded.
Certain corporate and other assets and liabilities, that are not clearly
identifiable by specific reportable unit, are allocated based on the ratio of
each unit's net assets relative to total net assets. The fair value is then
compared to the carrying value of the reportable unit to determine whether or
not impairment has occurred at the reportable unit level. In the event an
impairment is indicated, an additional test is performed whereby an implied fair
value of goodwill is determined through an allocation of the fair value to the
reporting unit's assets and liabilities, whether recognized or unrecognized, in
a manner similar to a purchase price allocation, in accordance with SFAS No.
141, "Business Combinations." Any residual fair value after this purchase price
allocation would be assumed to relate to goodwill. If the carrying value of the
goodwill exceeded the residual fair value, we would record an impairment charge
for that amount. No impairment charge was recorded at December 31, 2002, and no
indications of impairment were noted during the three-month or six-month period
ended June 30, 2003. Net goodwill was $79.8 million and $79.0 million at June
30, 2003 and December 31, 2002, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

    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. On January 1, 2003, we
adopted this pronouncement and recorded a loss of $34,000, net of tax effect, as
the cumulative effect of change in accounting principle. In addition, we
recorded an asset retirement obligation liability and asset cost of $96,000,
associated with an obligation to remove certain leasehold improvements upon
termination of lease arrangements, including concrete pads and equipment. We
will depreciate the asset cost over the remaining useful life of the related
assets.

    In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
This statement provides guidance for income statement classification of gains
and losses on extinguishment of debt and accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 became effective and was adopted on January 1, 2003,
with no material impact on our financial condition or results of operations.

    In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities," which addresses significant issues regarding the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that were previously accounted
for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity." SFAS No. 146 became effective on January 1, 2003. The adoption of
SFAS No. 146 had no material impact on our financial condition or results of
operations.

    In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement provides
additional guidance to account for derivative instruments, including certain
derivative instruments embedded in other contracts as well as hedging activities
under SFAS No. 133. This pronouncement becomes effective for new contract
arrangements and hedging transactions entered into after June 30, 2003, with
exceptions for certain SFAS No. 133 implementation issues begun prior to June
15, 2003. We do not expect this pronouncement to have a material impact on our
financial condition or results of operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement provides guidance on how to classify and measure certain financial
instruments that have characteristics of both liabilities and equity, and
generally requires treatment of these instruments as liabilities, including
certain obligations that the issuer can or must settle by issuing its own equity
securities. This pronouncement, which was effective for all


                                       17

<PAGE>

financial instruments entered into or modified after May 31, 2003, and will
otherwise be effective on July 1, 2003, will require cumulative effect of a
change in accounting principle treatment upon adoption. We do not expect this
pronouncement to have a material impact on our financial condition or results of
operation.


INDUSTRY AND BUSINESS ENVIRONMENT

    As a leading provider of wellhead process equipment, systems and services
used in the production of crude oil and natural 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 lower demand, 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.

    Changes in commodity prices have impacted our business over the past several
years. The following table summarizes the price of domestic crude oil per barrel
and the wellhead price of natural gas per thousand cubic feet ("mcf") for the
six months ended June 30, 2003 and 2002, as well as averages for the years ended
December 31, 2002 and 2001, derived from published reports by the U.S.
Department of Energy, and the rotary rig count, as published by Baker Hughes
Incorporated.

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED JUNE              YEAR ENDED
                                                                  30,                      DECEMBER 31,
                                                        -------------------------     ----------------------------
                                                            2003           2002           2002            2001
                                                        ------------   ------------   ------------    ------------
<S>                                                     <C>            <C>            <C>             <C>
Average price of domestic first-purchase crude
  oil per barrel in the U.S.                            $    28.09(a)  $      20.22   $      22.51    $      21.86
Average wellhead price of natural gas per mcf in
  the U.S.                                              $     5.27(b)  $       2.67   $       2.95    $       4.12
Average North American rig count                             1,308            1,071          1,093           1,497
</TABLE>

    --------------------
(a)      Calculated using published data from the U.S. Department of Energy
         for the five months ended May 31, 2003; data for June 2003 is not yet
         available.
(b)      Calculated based upon estimates by the U.S. Department of Energy,
         Energy Information  Administration for the six months ended
         June 30, 2003.

    At June 30, 2003, the spot price of West Texas Intermediate crude oil per
barrel was $30.01 per barrel, the price of Henry Hub natural gas was $5.31 per
mcf per the New York Mercantile Exchange ("NYMEX") and the North American rig
count was 1,384, per Baker Hughes Incorporated. At July 31, 2003, the spot price
of West Texas Intermediate crude oil was $30.73 per barrel, the price of Henry
Hub natural gas was $4.63 per mcf per the NYMEX, and the North American rig
count was 1,515, per Baker Hughes Incorporated. These spot prices reflect the
overall volatility of oil and gas commodity prices in the current and recent
periods.

    Historically, we have viewed operating rig counts as a benchmark of spending
in the oil and gas industry for exploration and development efforts. Our
traditional equipment sales and services business generally correlates to
changes in rig activity, but tends to lag behind the North American rig count
trend. With the North American rig count increasing in the first six months of
2003, we expect traditional equipment and services in the U.S. and Canada to
show improving results during the second half of 2003, based upon historical
results.

    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.


                                       18

<PAGE>

RESULTS OF OPERATIONS

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
(unaudited)

    Revenues. Revenues of $70.6 million for the three months ended June 30, 2003
decreased $3.8 million, or 5%, from $74.4 million for the three months ended
June 30, 2002. The following table summarizes revenues by business segment for
the three-month periods ended June 30, 2003 and 2002, respectively.

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED
                                                      JUNE 30,
                                                --------------------              PERCENTAGE
                                                  2003       2002       CHANGE      CHANGE
                                                --------   --------     -------     ------
                                                               (UNAUDITED)
                                                (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                             <C>        <C>          <C>         <C>
         North American Operations.........     $ 30,956   $ 32,736    $ (1,780)      (5%)
         Engineered Systems................       27,261     30,310      (3,049)     (10%)
         Automation and Control Systems....       14,007     13,130         877        7%
         Corporate and Other...............       (1,611)    (1,780)        169       (9%)
                                                --------   --------    --------
              Total........................     $ 70,613   $ 74,396    $ (3,783)      (5%)
                                                ========   ========    ========
</TABLE>

    North American Operations revenues decreased $1.8 million, or 5%, for the
three months ended June 30, 2003, compared to the three months ended June 30,
2002, despite an increase in the average number of operating rotary rigs in
North America, from 952 for the three months ended June 30, 2002 to 1,227 for
the three months ended June 30, 2003. The decrease in revenues was primarily due
to reductions in sales of our traditional equipment for the three months ended
June 30, 2003 compared to the comparable period in 2002, partially offset by an
increase in revenues from our CO2 membrane field operations. Revenues related to
our Canadian operations also declined, consistent with activity levels in the
Canadian marketplace, although several large projects were substantially
completed and shipped during the second quarter of 2003. Inter-segment revenues
for this business segment were $177,000 for the three months ended June 30,
2003, compared to $222,000 for the three months ended June 30, 2002.

    Revenues for the Engineered Systems segment decreased $3.0 million, or 10%,
for the three months ended June 30, 2003, compared to the three months ended
June 30, 2002. This decrease was primarily due to reduced sales of larger
international production system jobs for the three months ended June 30, 2003
relative to the comparable period in 2002. Engineered Systems revenues of $27.3
million for the three months ended June 30, 2003 included approximately $36,000
of inter-segment revenues, compared to $401,000 of inter-segment revenues for
the three months ended June 30, 2002.

    Revenues for the Automation and Control Systems segment increased $877,000,
or 7%, for the three months ended June 30, 2003, compared to the three months
ended June 30, 2002. This increase was primarily attributable to the
contribution of several large jobs. Inter-segment sales increased from $1.2
million for the three months ended June 30, 2002 to $1.4 million for the three
months ended June 30, 2003.

    The change in revenues for Corporate and Other represents the elimination of
inter-segment revenues as discussed above.

    Gross Profit. Gross profit for the three months ended June 30, 2003
decreased $1.1 million, or 6%, to $16.5 million, compared to $17.7 million for
the three months ended June 30, 2002. As a percentage of revenue, gross profit
declined from 24% for the three months ended June 30, 2002 to 23% for the three
months ended June 30, 2003. The following table summarizes gross profit by
business segment for the three-month periods then ended:


                                       19

<PAGE>

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED
                                                      JUNE 30,
                                                 ------------------
                                                                                  PERCENTAGE
                                                   2003      2002      CHANGE       CHANGE
                                                --------   --------   --------     --------
                                                               (UNAUDITED)
                                                 (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                             <C>        <C>        <C>         <C>
          North American Operations.........    $  8,261   $  8,630   $   (369)       (4%)
          Engineered Systems................       5,918      6,472       (554)       (9%)
          Automation and Control Systems....       2,368      2,560       (192)       (8%)
                                                --------     ------   --------
                Total.......................    $ 16,547     $17,662  $ (1,115)       (6%)
                                                ========     =======  ========
</TABLE>

    Gross profit for the North American Operations business segment decreased
$369,000, or 4%, for the three months ended June 30, 2003, compared to the three
months ended June 30, 2002, due to a 5% decline in revenues for the respective
periods. As a percentage of revenue, gross margins were 27% and 26% for the
three months ended June 30, 2003 and 2002, respectively.

    Gross profit for the Engineered Systems segment for the three months ended
June 30, 2003 declined $554,000, or 9%, compared to the three months ended June
30, 2002, and was consistent with the overall decline in revenues of 10% for
this business segment for the respective periods. Gross margin as a percentage
of revenues for Engineered Systems was 22% and 21% for the three-month periods
ended June 30, 2003 and 2002, respectively.

    Gross profit for the Automation and Control Systems segment decreased
$192,000, or 8%, for the three months ended June 30, 2003, compared to the three
months ended June 30, 2002, despite a 7% increase in revenues. The decline was
primarily attributable to the mix of jobs, with a decline in higher margin jobs
for the three months ended June 30, 2003 compared to the three months ended June
30, 2002. Gross margin as a percentage of revenue for the three-month periods
ended June 30, 2003 and 2002, was 17% and 19%, respectively.

    Selling, General and Administrative Expense. Selling, general and
administrative expense of $13.0 for the three months ended June 30, 2003, was
consistent with the results for the three months ended June 30, 2002. Overall
expense increases related to higher employee medical costs, professional fees
and corporate insurance policies, were offset by cost savings from a decline in
variable compensation based on operating results. Overall headcount was reduced
from 1,769 employees at June 30, 2002 to 1,626 employees at June 30, 2003.

    Depreciation and Amortization Expense. Depreciation and amortization expense
of $1.3 million for the three months ended June 30, 2003, increased $61,000, or
5%, compared to the results for the three months ended June 30, 2002.
Depreciation expense of $1.2 million for the three months ended June 30, 2003,
increased $67,000, or 6%, compared to the respective period for 2002. This
increase related to the addition of capital assets purchased and constructed
during 2002 and early 2003, including a significant expansion of the Sacroc gas
processing facility. Amortization expense of $22,000 for the three months ended
June 30, 2003 was consistent with the results for the respective period in 2002.

    Interest Cost on Postretirement Benefit Liability. Interest cost on
postretirement liability of $210,000 for the three months ended June 30, 2003,
increased $87,000, or 71%, compared to the three months ended June 30, 2002.
This increase in expense was due to a change in the discount rate used to
actuarially determine our obligation under this arrangement.

    Other, net. Other, net was $553,000 for the three months ended June 30, 2003
and primarily related to foreign exchange transaction losses at our Canadian and
UK-based subsidiaries. Other, net of $432,000 for the three months ended June
30, 2002, primarily represented net foreign currency exchange transaction losses
related to our UK-based operations.

    Provision for Income Taxes. Income tax expense for the three months ended
June 30, 2003 was $194,000 compared to $706,000 for the three months ended June
30, 2002. The primary reason for this decrease in tax expense was a decline in
income before income taxes from $1.8 million for the three months ended June 30,
2002 to $504,000 for the three months ended June 30, 2003. The effective tax
rate remained at 38% for each of the three-month periods ended June 30, 2003 and
2002.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
(unaudited)

    Revenues. Revenues of $138.6 million for the six months ended June 30, 2003
decreased $9.3 million, or 6%, from $148.0 million for the six months ended June
30, 2002. The following table summarizes revenues by business segment for the
six-month periods ended June 30, 2003 and 2002, respectively.


                                       20



<PAGE>

<TABLE>
<CAPTION>
                                                  SIX MONTHS ENDED
                                                       JUNE 30,
                                                -------------------
                                                                                   PERCENTAGE
                                                   2003       2002       CHANGE      CHANGE
                                                --------   --------     --------   ---------
                                                                 (UNAUDITED)
                                                  (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                             <C>        <C>          <C>        <C>
         North American Operations.........     $  59,571  $  71,112    $ (11,541)    (16%)
         Engineered Systems................        53,307     55,419       (2,112)     (4%)
         Automation and Control Systems....        29,248     24,995        4,253      17%
         Corporate and Other...............        (3,500)    (3,552)          52      (1%)
                                                ---------  ---------    ---------
                   Total...................     $ 138,626  $ 147,974    $  (9,348)     (6%)
                                                =========  =========    =========
</TABLE>

    North American Operations revenues decreased $11.5 million, or 16%, for the
six months ended June 30, 2003, compared to the six months ended June 30, 2002,
despite an increase in the average North American operating rotary rig count
from 1,071 to 1,308 for the six months ended June 30, 2002 and 2003,
respectively. We experienced a reduction in sales primarily for our traditional
equipment due to the timing of project awards, and a decline in contribution
from our Latin American operations. Revenues related to our Canadian operations
also declined, with fewer jobs in progress in 2003 compared to 2002, despite the
substantial completion of several large jobs as of June 30, 2003. Inter-segment
revenues for this business segment were $827,000 for the six months ended June
30, 2003, as compared to $310,000 for the six months ended June 30, 2002.

    Revenues for the Engineered Systems segment decreased $2.1 million, or 4%,
for the six months ended June 30, 2003, as compared to the six months ended June
30, 2002. This decrease was primarily due to a decline in the number of large
international production system jobs in 2003 relative to 2002, as several large
jobs were completed during the 2002 period. Partially offsetting this decrease
was an increase in revenues provided by our UK-based operations. Engineered
Systems revenues of $53.3 million for the six months ended June 30, 2003
included approximately $66,000 of inter-segment revenues, as compared to
$713,000 of inter-segment revenues for the six months ended June 30, 2002.

    Revenues for the Automation and Control Systems segment increased $4.3
million, or 17%, for the six months ended June 30, 2003, compared to the six
months ended June 30, 2002. This increase was primarily related to a general
increase in the number of jobs during the six months ended June 30, 2003
relative to the comparable period in 2002. Inter-segment sales increased from
$2.5 million for the six months ended June 30, 2002 to $2.6 million for the six
months ended June 30, 2003.

    The change in revenues for Corporate and Other represents the elimination of
inter-segment revenues as discussed above.

    Gross Profit. Gross profit for the six months ended June 30, 2003 decreased
$3.6 million, or 10%, to $32.4 million, compared to $35.9 million for the six
months ended June 30, 2002. As a percentage of revenue, gross profit declined
from 24% for the six months ended June 30, 2002 to 23% for the comparable period
in 2003. The following table summarizes gross profit by business segment for the
periods then ended:

<TABLE>
<CAPTION>
                                                  SIX MONTHS ENDED
                                                       JUNE 30,
                                                -------------------
                                                                                   PERCENTAGE
                                                   2003       2002       CHANGE      CHANGE
                                                --------   --------     --------   ---------
                                                                 (UNAUDITED)
                                                  (IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S>                                             <C>        <C>          <C>        <C>
         North American Operations.........     $  15,614  $  18,880    $  (3,266)    (17%)
         Engineered Systems................        11,789     12,324         (535)     (4%)
         Automation and Control Systems....         4,954      4,721          233       5%
                                                ---------  ---------     --------
                   Total...................     $  32,357  $  35,925    $  (3,568)    (10%)
                                                =========  =========    =========
</TABLE>

    Gross profit for the North American Operations business segment decreased
$3.3 million, or 17%, for the six months ended June 30, 2003, compared to the
six months ended June 30, 2002, due to a 16% decline in revenues for the
respective periods. As a percentage of revenue, gross margins were 26% and 27%
for the six-month periods ended June 30, 2003 and 2002, respectively.

    Gross profit for the Engineered Systems segment for the six months ended
June 30, 2003 decreased $535,000, or 4%, compared to the six months ended June
30, 2002, consistent with a decline in sales of 4% for the segment during the
respective period. Gross margin as a percentage of revenues for Engineered
Systems was 22% for each of the six-month periods ended June 30, 2003 and 2002.

    Gross profit for the Automation and Control Systems segment increased
$233,000, or 5%, for the six months ended June 30, 2003,


                                       21

<PAGE>

as  compared to the six months  ended June 30,  2002,  due to a 17%  increase in
revenues for the respective period, partially offset by lower margins due to the
mix of sales  jobs  for the six  months  ended  June 30,  2003  relative  to the
comparable  period in 2002.  Gross  margin as a  percentage  of revenue  for the
six-month periods ended June 30, 2003 and 2002, was 17% and 19%, respectively.

    Selling, General and Administrative Expense. Selling, general and
administrative expense of $25.6 million decreased $921,000, or 3%, for the six
months ended June 30, 2003, compared to the six months ended June 30, 2002. This
decrease was primarily related to cost savings from certain restructuring
activities in the U.S. and Canada as well as a decline in variable compensation
based on operating results, partially offset by increases related to higher
employee medical costs, professional fees and corporate insurance policies.
Overall headcount was reduced from 1,769 employees at June 30, 2002 to 1,626
employees at June 30, 2003.

    Depreciation and Amortization Expense. Depreciation and amortization expense
of $2.5 million for the six months ended June 30, 2003, increased $132,000, or
6%, compared to the results for the six months ended June 30, 2002. Depreciation
expense of $2.4 million for the six months ended June 30, 2003 increased
$140,000, or 6%, compared to the respective period for 2002, related to the
addition of capital assets purchased and constructed during 2002 and early 2003,
including a significant expansion of the Sacroc gas processing facility.
Amortization expense of $45,000 for the six months ended June 30, 2003 was
comparable with the results for the respective period in 2002.

    Interest Cost on Postretirement Benefit Liability. Interest cost on
postretirement benefit liability of $419,000 for the six months ended June 30,
2003, increased $174,000, or 71%, compared to the six months ended June 30,
2002. This increase in expense was due to a change in the discount rate used to
actuarially determine our obligation under this arrangement.

    Other, net. Other, net was $1.1 million for the six months ended June 30,
2003 and included severance and relocation costs associated with reductions in
force in the U.S. and the consolidation of operations at our Canadian
subsidiary, as well as foreign exchange transaction gains and losses, primarily
on inter-company balances associated with our Canadian and UK-based operations.
Other, net for the six months ended June 30, 2002, primarily represented net
foreign currency exchange transaction losses of $35,000.

    Provision for Income Taxes. Income tax expense for the six months ended June
30, 2003 was $244,000 compared to $1.8 million for the six months ended June 30,
2002. The primary reason for this decrease was a decline in income before income
taxes from $4.7 million for the six months ended June 30, 2002 to $643,000 for
the six months ended June 30, 2003. The effective tax rate was 38% for each of
the six-month periods ended June 30, 2003 and 2002.

    Cumulative Effect of Change in Accounting Principle.  The cumulative effect
of change in accounting principle of $34,000, net of tax effect,  related to the
adoption of SFAS No. 143,  "Accounting  for Asset  Retirement  Obligations,"  on
January 1, 2003. See Recent Accounting Pronouncements.

LIQUIDITY AND CAPITAL RESOURCES

    As of June 30, 2003, we had cash and working capital of $796,000 and $31.1
million, respectively, as compared to cash and working capital of $1.7 million
and $34.6 million, respectively, at December 31, 2002.

    Net cash used in operating activities for the six months ended June 30, 2003
was $713,000, compared to $367,000 for the six months ended June 30, 2002.
Factors that contributed to the increase in cash used in operating activities
during 2003 included an increase in inventory, decrease in net income and a
decrease in accrued expenses, partially offset by an increase in accounts
payable and customer advance payments.

    Net cash used in investing activities for the six months ended June 30, 2003
was $6.0 million, of which $6.7 million was used for capital expenditures,
primarily related to the expansion of our Sacroc gas-processing facility,
partially offset by proceeds from the sale of fixed assets totaling $649,000,
which related primarily to the sale of a building in the UK. For the six months
ended June 30, 2002, cash used in investing activities was $3.3 million and
related primarily to capital expenditures.

    Net cash provided by financing activities for the six months ended June 30,
2003 was $5.1 million. The primary source of funds for financing activities for
the six months ended June 30, 2003 was proceeds from the issuance of our Series
B Convertible Preferred Stock and related warrants of $14.1 million, net of
issuance costs, offset by repayments of long-term borrowings and revolving
credit borrowings of $3.5 million and $1.6 million, respectively, as well as a
decline in bank overdrafts of $3.4 million. Net cash provided by financing
activities for the six months ended June 30, 2002 was $2.9 million. The primary
source of funds for financing activities during the six months ended June 30,
2002 was borrowings of $3.9 million under our revolving credit facilities,
borrowings of $1.5 million under a long-term promissory note arrangement related
to the purchase of our Magnolia manufacturing facility and an increase in cash
overdrafts of $1.7 million, partially offset by repayments of $3.5 million under
our long-term facilities and post-retirement


                                       22

<PAGE>
benefit payments of $1.0 million.

     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 Inter-bank
Offered Rate ("LIBOR") plus 3.25% per annum, and requires quarterly payments of
principal of approximately $24,000 and interest for five years beginning May
2002, with a final balloon payment due February 2007. This promissory note is
collateralized by our manufacturing facility in Magnolia, Texas that we
purchased in the fourth quarter of 2001.

     We maintain a credit facility that consists of a $50.0 million term loan, a
$30.0 million U.S. revolving facility, a $10.0 million Canadian revolving
facility and a $10.0 million U.K. revolving facility. The term loan matures on
March 15, 2006, and each of the revolving facilities matures on March 15, 2004.
On or before March 15, 2004, we expect to extend or refinance our loan
agreements to have continued access to comparable credit facilities on
reasonable terms.

     In July 2002, our lenders approved the amendment of various provisions of
the term loan and revolving credit facility agreement, effective April 1, 2002.
This amendment revised certain restrictive debt covenants, modified certain
defined terms, allowed for future capital investment in our Sacroc CO2
processing facility in West Texas, facilitates the issuance of $7.5 million of
subordinated debt, increased the aggregate amount of operating lease expense
allowed during a fiscal year and permitted an increase in borrowings under the
export sales credit facility, without further consent, up to a maximum of $20.0
million. These modifications resulted in higher commitment fee percentages and
interest rates than in the original loan agreements, based on the Funded Debt to
EBITDA ratio, as defined in the underlying agreement as amended.

    In July 2003, our lenders approved an amendment of the existing term loan
and revolving credit facility, effective April 1, 2003, and as of June 30, 2003,
we were in compliance with all restrictive debt covenants, as amended. The
amendment modified several restrictive covenant terms, including the Fixed
Charge Coverage Ratio and Funded Debt to EBITDA Ratio, each as defined in the
agreement. Had the amendment not been obtained, we would have been non-compliant
with such restrictive covenants. We expect that we will be in compliance with
the financial covenants under our term loan and revolving credit facility, as
amended, for the next twelve months.

     Borrowings outstanding under the term loan facility totaled $34.3 million
at June 30, 2003, and bear interest at 3.74% per annum. Amounts borrowed under
the revolving facilities bear interest at a rate based upon the ratio of Funded
Debt to EBITDA and ranging from, at our election, (1) a high of LIBOR plus 3.00%
to a low of LIBOR plus 1.75% or, (2) a high of a base rate plus 1.50% to a low
of a base rate plus 0.25%.

     As of June 30, 2003, the weighted average interest rate of our borrowings
under the revolving credit facilities was 4.26%.

     We are required to pay commitment fees of 0.30% to 0.625% per year,
depending upon the ratio of Funded Debt to EBITDA, on the undrawn portion of the
facility. As of June 30, 2003, our commitment fees were calculated at a rate of
0.625%.

     The revolving credit facility is guaranteed by all of our domestic
subsidiaries and is secured by a first priority lien on substantially 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.

    We had letters of credit outstanding under the revolving credit facilities
of $17.9 million at June 30, 2003. Fees related to these letters of credit at
June 30, 2003, ranged from approximately 1% to 3.25% of the outstanding balance.
These letters of credit support contract performance and warranties and expire
at various dates through April 2007.

    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 $1.9 million were outstanding as of June 30, 2003.
Letters of credit outstanding under this facility at June 30, 2003 totaled
$50,000. Fees related to these letters of credit at June 30, 2003, were
approximately 1% of the outstanding balance. 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
June 30, 2003 of $1.6 million.

     Our sales backlog at June 30, 2003 was $78.7 million, compared to $103.7
million at June 30, 2002. Backlog decreased primarily in Engineered Systems, due
to several large project bookings in 2002, which were substantially completed
prior to June 30, 2003.

     On March 25, 2003, we issued 15,000 shares of our Series B Convertible
Preferred Stock ("Series B Preferred Shares"), and warrants to purchase 248,800
shares of our common stock, to Lime Rock Partners II, L.P., a private investment
fund, for an aggregate purchase price of $15.0 million. Of the aggregate
purchase price, approximately $99,000 was allocated to the warrants. Proceeds
from the issuance of these securities, net of related estimated issuance costs
of approximately $800,000, were used to reduce our


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<PAGE>

outstanding revolving debt balances and for other general corporate purposes.

    Each of the Series B Preferred Shares has a face value of $1,000 and pays a
cumulative dividend of 10% per annum of face value, which is payable
semi-annually on June 15 and December 15 of each year, except the initial
dividend payment which was payable on July 1, 2003. Each of the Series B
Preferred Shares is convertible, at the option of the holder thereof, into (i) a
number of shares of common stock equal to the face value of such Series B
Preferred Share divided by the conversion price, which was $7.805 (or an
aggregate of 1,921,845 shares at June 30, 2003), and (ii) a cash payment equal
to the amount of dividends on such share that have accrued since the prior
semi-annual dividend payment date. As of June 30, 2003, we had accrued dividends
payable of $399,000 related to the Series B Preferred Shares, which were paid on
July 1, 2003.

    In the event of a change in control, as defined in the certificate of
designations for the preferred shares, each holder of the Series B Preferred
Shares has the right to convert the Series B Preferred Shares into common stock
or to cause the Company to redeem for cash some or all of the Series B Preferred
Shares at an aggregate redemption price equal to the sum of (i) $1,000 (adjusted
for stock splits, stock dividends, etc.) multiplied by the number of shares to
be redeemed, plus (ii) an amount (not less than zero) equal to the product of
$500 (adjusted for stock splits, stock dividends, etc.) multiplied by the
aggregate number of Series B Preferred Shares to be redeemed less the sum of the
aggregate amount of dividends paid in cash since the issuance date, plus any
gain on the related stock warrants. If the holder of the Series B Preferred
Shares converts upon a change in control occurring on or before March 25, 2006,
the holder would also be entitled to receive cash in an amount equal to the
dividends that would have accrued through March 25, 2006 less the sum of the
aggregate amount of dividends paid in cash through the date of conversion, and
the aggregate amount of dividends accrued in prior periods but not yet paid.

    We have the right to redeem the Series B Preferred Shares for cash on or
after March 25, 2008, at a redemption price per share equal to the face value of
the Series B Preferred Shares plus the amount of dividends that have been
accrued but not paid since the most recent semi-annual dividend payment date.

    Due to the cash redemption features upon a change in control as described
above, the Series B Preferred Shares do not qualify for permanent equity
treatment in accordance with the Emerging Issues Task Force Topic D-98:
"Classification and Measurement of Redeemable Securities," which specifically
requires that permanent equity treatment be precluded for any security with
redemption features that are not solely within the control of the issuer.
Therefore, we have accounted for the Series B Preferred Shares as temporary
equity in the accompanying balance sheet. No value has been assigned to our
right to redeem the Series B Preferred Shares on or after March 25, 2008.

    If the Series B Preferred Shares are redeemed under contingent redemption
features, any redemption amount greater than carrying value would be recorded as
a reduction of income available to common shareholders when the event becomes
probable.

    If we fail to pay dividends for two consecutive periods or any redemption
price due with respect to the Series B Preferred Shares for a period of sixty
days following the payment date, we will be in default under the terms of such
shares. During a default period, (1) the dividend rate on the Series B Preferred
Shares would increase to 10.25%, (2) the holders of the Series B Preferred
Shares would have the right to elect or appoint a second director to the Board
of Directors and (3) we would be restricted from paying dividends on, or
redeeming or acquiring our common or other outstanding stock, with limited
exceptions. If we fail to set aside or make payments in cash of any redemption
price due with respect to the Series B Preferred Shares, and the holders elect,
our right to redeem the shares may be terminated.

    The warrants issued to Lime Rock Partners II, L.P. have an exercise price of
$10.00 per share of common stock and expire on March 25, 2006. We can force the
exercise of the warrants if our common stock trades above $13.50 per share for
30 consecutive days. The warrants contain a provision whereby the holder could
require us to make a net-cash settlement for the warrants in the case of a
change in control. The warrants were deemed to be derivative instruments and,
therefore, the warrants were recorded at fair value as of the issuance date.
Fair value, as agreed with the counter-party to the agreement, was calculated by
applying a pricing model that included subjective assumptions for stock
volatility, expected term that the warrants would be outstanding, a dividend
rate of zero and an overall liquidity factor. The resulting liability,
originally recorded at $99,000, was increased to $131,000 as of June 30, 2003,
as a result of the change in fair value of the warrants. Similarly, changes in
fair value in future periods will be recorded as charges to net income during
the period of the change.

      At June 30, 2003, available borrowing capacity under the term loan and
revolving credit agreement and the export sales credit agreement were $21.3
million and $5.1 million, respectively. We were in compliance with all
restrictive debt covenants in our loan agreements, as amended, as of June 30,
2003. Although no assurances can be given, we believe that our operating cash
flow, supported by our borrowing capacity, will be adequate to fund operations
for at least the next twelve months. Should we decide to pursue acquisition
opportunities, the determination of our ability to finance these acquisitions
will be a critical element of the analysis


                                       24

<PAGE>

of the opportunities.


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 UK. In Canada, most contracts are
denominated in Canadian dollars, and most of the costs incurred are in Canadian
dollars, which mitigates risks associated with currency fluctuations. In the UK,
many of our sales contracts and material purchases are denominated in a currency
other than British pounds sterling, primarily US dollars and euros, whereas our
engineering and overhead costs are principally denominated in British pounds
sterling. Consequently, we have currency risk in our UK operations. No forward
contracts or other currency-related derivative hedge arrangements existed at
June 30, 2003, and we do not currently intend to enter into such contracts or
arrangements as part of our currency risk management strategy.

    The warrants issued to the holders of our Series B Preferred Shares provide
for a net-cash settlement in the event of a change in control, as defined in the
warrants. Consequently, we use derivative accounting to record the warrant
transaction. The liability representing the fair value of this derivative
arrangement was recorded at $99,000 as of March 31, 2003, and was adjusted to
$131,000 as of June 30, 2003, to reflect the projected change in fair value of
the warrants during the period, resulting in a $32,000 revaluation loss for the
quarter. Fair value, as agreed with the counter-party to the agreement, was
based on a pricing model that included subjective assumptions concerning the
volatility of our common stock, the expected term that the warrants would be
outstanding, an expected dividend rate of zero and an overall liquidity factor.
At each reporting date, the liability will be adjusted to current fair value
with any changes in fair value reported in earnings during the period of change.
As such, we may be exposed to certain income fluctuations based upon changes in
the fair market value of this liability due to changes in the price of our
common stock, as well as other factors.

    Our financial instruments are subject to changes in interest rates,
including our revolving credit and term loan facilities and our working capital
facility for export sales. At June 30, 2003, we had borrowings of $34.3 million
outstanding under the term loan portion of the revolving credit and term loan
facilities, at an interest rate of 3.74%. Borrowings, which bear interest at
floating rates, outstanding under the revolving credit agreement at June 30,
2003, totaled $10.3 million. As of June 30, 2003, the weighted average interest
rate of our borrowings under revolving credit facilities was 4.26%. Borrowings
under the working capital facility for export sales at June 30, 2003 totaled
$1.9 million and accrued interest at 4.00%, while borrowings under the long-term
arrangement secured by our Magnolia manufacturing facility totaled $1.3 million
and accrued interest at 4.65%.

    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 less than $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.


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<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES

    Members of our management team, including our Chief Executive Officer and
our Chief Financial Officer, have reviewed our disclosure controls and
procedures, as defined by the Securities and Exchange Commission in Rule
13a-15(e) of the Securities Exchange Act of 1934, as of June 30, 2003, in an
effort to evaluate the effectiveness of the design and operation of these
controls. Based upon this review, our management has determined that, as of the
end of the period covered by this Quarterly Report on Form 10-Q, our disclosure
controls and procedures operate such that important information is collected in
a timely manner, provided to management and made known to our Chief Executive
Officer and Chief Financial Officer to allow timely decisions regarding
disclosure in our public filings.

    Furthermore, no significant changes have been made to our internal controls
and procedures during the three months ended June 30, 2003, or prior to filing
this Quarterly Report on Form 10-Q, and no corrective actions are anticipated,
as we noted no significant deficiencies or material weaknesses in our internal
control structure.


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<PAGE>

PART II

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

    The annual meeting of stockholders of NATCO Group Inc. was held on May 22,
2003 in Houston, Texas. At the annual meeting, the holders of 16,784,951 shares
out of 17,775,912 shares entitled to vote as of the record date were represented
in person or by proxy, constituting a quorum. Proposals submitted to a vote of
security holders included the following:

(1)      Election of three Class II members of the Board of  Directors, each to
         hold office for a  three-year  term  expiring at the annual meeting of
         stockholders in 2006.
                                              Number of Shares
                                ---------------------------------------------
                                    For         Withheld      Broker Non-Vote
                                    ---         --------       --------------

        Keith K. Allan          16,668,940       116,011            --
        George K. Hickox, Jr.   16,669,090       115,861            --


    Mr. Howard I. Bull, a Class II director who had been nominated for election,
passed away in May 2003, prior to the meeting. The Board is entitled to fill
this vacancy or to reduce the number of directors to seven, but has not done so
at this time.


(2)      Ratification of KPMG LLP as our independent public accountants for the
         fiscal year beginning January 1, 2003.

                                              Number of Shares
                                ---------------------------------------------
                                    For         Against      Abstained
                                    ---         -------      ---------
                                16,777,470         7,332           149


    Mr. Nathaniel A. Gregory and Mr. Herbert S. Winokur,  Jr., will continue to
serve as our Class III directors, each with a term expiring at the annual
meeting of stockholders in 2004. Mr. John U. Clarke and Mr. Patrick M. McCarthy
will continue to serve as our Class I directors, each with a term expiring at
the annual meeting of stockholders in 2005. Mr. Thomas R. Bates, Jr. was elected
by the holders of our Series B Convertible Preferred Stock to serve as our
director, and will continue in office until a successor has been elected by the
holders of the Series B Convertible Preferred Stock or until less than 50% of
such series remains outstanding.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Reports on Form 8-K.
        o Report on Form 8-K filed May 7, 2003, to report First Quarter 2003
          Results.
        o Report on Form 8-K filed May 28, 2003 to announce the hiring of a new
          chief financial officer.
o Report on Form 8-K filed August 5, 2003 to report Second Quarter 2003 Results.

Index of Exhibits


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


  10.33      --     Third Amendment to 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 July 31, 2003,
                    but effective April 1, 2003 among NATCO Group Inc., NATCO
                    Canada, Ltd., Axsia Group Limited, JPMorgan Chase Bank
                    (successor in interest to The Chase Manhattan Bank), acting
                    as agent for the U.S. Lenders, Royal Bank of Canada, acting
                    as agent for the Canadian Lenders, and J.P. Morgan Europe
                    Limited, acting as agent for the U.K. Lenders.

  10.34       --    Amendment of Directors Compensation Plan

   31.1       --    Certification of Chief Executive Officer of NATCO Group Inc.
                    pursuant to 15 U.S.C.ss.7241, as adopted pursuant to Section
                    302 of the Sarbanes- Oxley Act of 2002


                                       27

<PAGE>

   31.2       --    Certification of Chief Financial Officer of NATCO Group Inc.
                    pursuant to 15 U.S.C.ss.7241, as adopted pursuant to Section
                    302 of the Sarbanes- Oxley Act of 2002

   32.1       --    Certification of Chief Executive Officer and Chief Financial
                    Officer of NATCO Group Inc. pursuant to 18 U.S.C.ss.1350, as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002


                                       28

<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.

                                              By:  /s/ NATHANIEL A. GREGORY
                                                  -----------------------------
                                              Name: Nathaniel A. Gregory
                                                    Chairman of the Board and
                                                    Chief Executive Officer

Date: August 14, 2003
                                              By:  /s/ RICHARD W. FITZGERALD
                                                  -----------------------------
                                              Name: Richard W. FitzGerald
                                              Senior Vice President and
                                              Chief Financial Officer

Date: August 14, 2003


                                       29