<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-K
 
    [X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
 
                                       OR
 
    [ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
 
                         COMMISSION FILE NUMBER 1-10718
 
                            CAMCO INTERNATIONAL INC.
             (Exact name of Registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      13-3517570
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
         7030 ARDMORE, HOUSTON, TEXAS                              77054
   (Address of principal executive offices)                      (Zip Code)
</TABLE>
 
       Registrant's telephone number, including area code: (713) 747-4000
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                                   NAME OF EACH
              TITLE OF EACH CLASS                          EXCHANGE ON WHICH REGISTERED
              -------------------                          ----------------------------
<S>                                                        <C>
         Common Stock, $.01 Par Value                      New York Stock Exchange, Inc.
Rights to Purchase Common Stock, $.01 Par Value            New York Stock Exchange, Inc.
</TABLE>
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
 
     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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
     Aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the price at which the stock was sold as of February 27,
1998: $2,170,883,968.
 
     Number of shares of common stock outstanding as of February 27, 1998:
37,680,539.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     The information called for by Part III Items 10, 11, 12 and 13 will be
included in a proxy statement to be filed pursuant to Regulation 14A, and is
incorporated herein by reference.
 
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<PAGE>   2
 
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL
 
     Camco International Inc. and subsidiaries (collectively, "Camco" or the
"Company") is one of the world's leading providers of oilfield equipment and
services for numerous specialty applications in key phases of oil and gas
drilling, completion and production. Many of the Company's products and services
have recognized names in the industry and are associated with technological
innovation and quality. Camco operates on a worldwide basis with its equipment
and services being sold or used in approximately 50 countries. Approximately 66%
of the Company's revenues in 1997 were derived from equipment or services sold
or provided outside the United States.
 
     Camco is the leading world producer of gas lift systems. Camco also
operates one of the largest fleets of coiled tubing units in the United States,
is one of the world's two leading providers of subsurface safety valve systems,
synthetic diamond drill bits and electric submersible pump systems and is the
world's third leading provider of roller cone drill bits. On June 13, 1997,
Camco acquired Production Operators Corp.("Production Operators"), the market
leader in total responsibility gas compression services. The business
combination has been accounted for using the pooling-of-interests method of
accounting. Accordingly, the financial information reflected in this document
has been prepared as if Camco and Production Operators were combined as of the
beginning of the earliest period presented. Information regarding world markets
excludes the former Soviet Union (the "FSU") and China, for which reliable
market information is unavailable.
 
     Camco's business consists of an Oilfield Equipment Segment and an Oilfield
Services Segment.
 
     Oilfield Equipment Segment. Camco's Oilfield Equipment Segment provides a
wide range of manufactured oilfield products, principally under the names Reda
Pump ("Reda"), Lasalle Engineering ("Lasalle"), Lawrence Technology, Hycalog,
Reed Tool ("Reed"), Camco Products and Site Oil Tools ("Site"). Reda
manufactures electric submersible pumps ("ESPs") used to lift high volumes of
fluids from producing wells. Lasalle, acquired in September 1996, provides oil
well production services, project management and ancillary equipment for ESP
systems. Lawrence Technology manufactures electric cables and wire used with
ESPs. Hycalog manufactures synthetic diamond drill bits, and Reed manufactures
roller cone drill bits. Synthetic diamond drill bits have a faster rate of
penetration, drill more footage, generally have a higher unit sales price and
are used primarily in high cost drilling locations where their relatively higher
price can be justified by their corresponding reduction in total drilling time
and, therefore, costs. Roller cone drill bits generally have lower unit prices,
are less application sensitive and are used in a wider variety of drilling
applications. Camco Products manufactures gas lift systems used to increase the
volume of production from oil wells, subsurface safety valves used as fail-safe
devices to shut-in production in oil and gas wells in emergencies, and packers
and other items used in the completion and production phases of oil and gas
development. In December 1996, Camco Products expanded its gas lift business by
acquiring the artificial lift business line of Halliburton Company. Site Oil
Tools, which was acquired by the Company in March 1995, manufactures a full line
of packers, accessory equipment and services for the completion of oil and gas
wells. The Oilfield Equipment Segment accounted for approximately 76% of Camco's
total revenues in 1997.
 
     Oilfield Services Segment. Camco's Oilfield Services Segment provides a
wide range of oilfield services, principally under the names Production
Operators, Camco Coiled Tubing Services ("Camco Coiled Tubing"), Camco Wireline
and Drilling & Services. Production Operators provides total responsibility gas
compression services including project management and operation for clients
engaged in gas gathering, injection, treating and processing. Camco Coiled
Tubing provides coiled tubing services and nitrogen services and performs other
downhole operations used in the initial completion of wells and in well
maintenance and treatment during the productive life of a well. Camco Wireline
provides mechanical wireline services used to install or retrieve downhole flow
control devices and to obtain reservoir data using specialized instruments.
Drilling & Services provides steerable rotary drilling system services used in
directional and horizontal drilling applications. The Oilfield Services Segment
accounted for approximately 24% of Camco's total revenues in 1997.
 
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<PAGE>   3
 
     Selected financial data related to Camco's business segments, foreign and
domestic operations, and export sales is set forth in Note 10 of the Notes to
the Consolidated Financial Statements included elsewhere herein.
 
     The Company, which was incorporated in Delaware in 1988, is the successor
to Camco, Incorporated, which was incorporated in Texas in 1946. The Company's
headquarters are located at 7030 Ardmore, Houston, Texas 77054.
 
BUSINESS OPERATIONS
 
OILFIELD EQUIPMENT SEGMENT
 
     Electric Submersible Pumps. Reda was founded in 1930 and manufactures
downhole ESPs. An ESP system consists of an electric motor, which provides
direct drive to a pump immediately above the motor, and surface control systems.
The motor and pump are positioned above the perforation of the production zone
at the bottom of the production tubing string in an oil well. ESPs are often the
most economical means of lifting high volumes of reservoir fluids (600 to 20,000
barrels per day) to the surface from oil wells which either do not flow
naturally or have low natural flow rates. In many cases, use of an ESP makes a
well economical to produce where it otherwise would be abandoned. Many ESPs are
used in wells where large quantities of water are produced with the oil. As high
flow rate wells mature, they will, in most cases, begin to produce large
quantities of water. Water also may be present as a consequence of secondary
recovery techniques involving the injection of steam or water into the
oil-bearing formation to increase oil production. ESPs are also used in deep or
deviated wells where other artificial lift systems cannot function reliably.
 
     Although the actual life of an ESP system is influenced by variable well
characteristics such as corrosive and abrasive content in the fluid and by
downhole temperatures, the average life of a typical ESP system is approximately
18 months. Upon failure, the ESP system is pulled and either repaired with new
components or replaced entirely depending on wear and condition. Reda's network
of sales and service centers and responsiveness to replacement demands have been
important in developing new markets. Demand for Reda's products is primarily
driven by oil prices, replacement of other artificial lift systems and the
replacement market for ESPs worldwide.
 
     Lawrence Technology manufactures cable for submersible pump installations.
This specialized cable, capable of withstanding corrosive fluids and the high
temperatures encountered downhole, carries the electric current from the surface
to the motor located at the production zone. Demand for Lawrence Technology's
products is driven primarily by demand for ESPs and by the replacement market
for ESP cable worldwide.
 
     Lasalle specializes in providing oil well production services, project
management and ancillary equipment for ESPs. Lasalle has led the development of
offshore ESP systems and was project manager in Brazil for the first subsea ESP
installation in the world.
 
     Electric submersible pumps, ESP cable and related services and equipment
accounted for revenues of $284.1 million, $234.6 million and $204.8 million in
1997, 1996 and 1995, respectively.
 
     Drill Bits. Hycalog manufactures synthetic diamond drill bits. It was
founded in 1946 and manufactured its first natural diamond drill bits in 1953.
The bits manufactured by Hycalog are polycrystalline diamond compact ("PDC")
bits which utilize synthetic diamonds as the primary cutting element. PDC bits
allow faster rates of drilling penetration and can drill complete well sections
without the need for bit replacement. As a result, they are used in high cost
drilling locations (such as offshore or in remote locations) where their
technical advantages reduce drilling time sufficient to justify the high unit
sales prices. Hycalog manufactures both steel body bits and matrix bits. Steel
body bits are favored for large cutter PDCs used to drill in softer formations
at fast rates of penetration. Matrix bits have a tungsten carbide body which
makes them better suited for soft to medium formations and better able to resist
abrasive drilling fluids. Several different types of diamond bits may need to be
used in one well (diamond bits can also be used in conjunction with roller cone
bits) as different formations are encountered in drilling a well. As a result,
diamond drill bit designs are often custom engineered for specific formation
characteristics expected to be encountered. A single PDC bit may drill from
several hundred feet to over 20,000 feet depending on the hardness and
abrasiveness of the
 
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<PAGE>   4
 
formation. Hycalog's patented "hybrid bit" technology, which combines synthetic
and natural diamonds on a single bit, has longer wear life in harder formations
than other PDC bits that do not include natural diamonds. PDC bits are often
used with a downhole motor.
 
     Reed manufactures roller cone drill bits and has been an established bit
manufacturer since 1916. Reed produces roller cone drill bits for a wide variety
of oil and gas well drilling applications, primarily for use in the
high-performance markets. Roller cone bits consist of a steel body and three
rotating cones which have cutting teeth. Reed manufactures bits with milled
teeth and with tungsten carbide insert teeth, which have a longer life in harder
formations. A number of different sizes of bits are used during the drilling of
the well, and the bits are generally dulled during the drilling process.
Drilling an average well in the United States to a depth of 6,000 feet typically
might consume four to six roller cone bits. The bits are manufactured for
inventory in a variety of standard sizes. Reed has proprietary nozzle designs
(Mudpick and Mudpick II trademarks) used in its drill bits. Mudpick allows the
drilling fluid to clean the bit more effectively while drilling, which increases
rates of drilling penetration by up to 25%. By providing a sweeping effect
across the interface of the teeth and rock, Mudpick II hydraulics improve the
removal of the cuttings (in addition to cleaning the bit) and further improve
the rate of drilling penetration. Reed also holds a patent for a threaded ring
bearing design that significantly reduces the likelihood of losing a cone from
the drill bit in the well when it becomes worn and, as a result, reduces the
likelihood of costly retrieval operations. The combination of Mudpick II
hydraulics and the threaded ring bearing was introduced as enhanced hydraulic
performance ("EHP") bits in 1992. Demand for Camco's drill bit products is
primarily driven by levels of drilling activity worldwide.
 
     Drill bits accounted for revenues of $231.7 million, $193.4 million and
$180.6 million in 1997, 1996 and 1995, respectively.
 
     Completion Equipment. Camco Products manufactures gas lift systems,
downhole safety valves used in oil and gas well completions, packers and
accessory equipment. Camco began distributing gas lift systems in 1946 and
started manufacturing its own equipment in 1951. Gas lift systems consist
principally of mandrels containing gas lift valves which are placed in the
production tubing string of an oil well. Gas is compressed and injected from the
surface down the annulus between the production tubing and casing, enters the
tubing through the gas lift valves and lifts the oil in the production tubing to
the surface. The gas is then separated from the oil at the surface and
compressed and reinjected downhole, forming a closed-loop system. Gas lift is
usually the most economical method of lifting fluid when natural gas is produced
with the oil or is available from other wells for injection.
 
     Safety valve systems are typically installed several hundred feet below the
well head in an oil or gas well and connected to surface control equipment. If
loss of control pressure at the surface occurs, the valve automatically closes,
thereby preventing a potential blowout and environmental harm. Safety valves,
made by certified manufacturers, are required by regulation in offshore wells
and other environmentally sensitive areas of the United States and many foreign
locations.
 
     Camco Products' other completion equipment includes packers, expansion
joints and sliding sleeves, as well as equipment to facilitate wireline
operations in a well. Demand for equipment manufactured by Camco Products is
principally driven by the level of offshore well completions worldwide.
 
OILFIELD SERVICES SEGMENT
 
     Contract Gas Compression Services. Production Operators provides contract
gas compression services. Contract gas compression services consist principally
of contract gas compression, which is the boosting of natural gas pressure by
mechanical means using custom-designed and engineered high-performance
reciprocating compression equipment. Production Operators provides total
responsibility compression operating service to oil and gas producers, pipeline
operators and gas processors. This service focuses on the custom engineering,
fabrication, turn key construction, installation, operation and maintenance of
the equipment necessary to handle any gas compression on a full responsibility,
guaranteed mechanical availability, value-added basis rather than on the lease
or sale of equipment. Gas compression services have been expanded in recent
years to include contract operation of client owned equipment and contract gas
processing and
 
                                        4
<PAGE>   5
 
treating. Demand for Camco's gas compression services is driven by decisions by
petroleum and pipeline companies to outsource their gas compression and other
production requirements.
 
     Production Operators, founded in 1961 and acquired by Camco in June 1997,
currently provides contract gas compression services primarily in the United
States, Venezuela and Argentina. The Company believes that there are significant
opportunities for Production Operators to leverage off of Camco's existing
marketing and operational infrastructure to expand its business into other
geographic regions.
 
     Contract gas compression services accounted for revenues of $114.6 million,
$91.8 million and $72.8 million in 1997, 1996 and 1995, respectively.
 
     Coiled Tubing Services. Camco Coiled Tubing provides coiled tubing and
nitrogen services in the United States, Nigeria and Venezuela. Camco Coiled
Tubing operates a fleet of approximately 55 coiled tubing units and 105 nitrogen
pumping units. Nitrogen pumping has various oilfield applications including
pipeline purging. Coiled tubing is flexible steel tubing with a diameter of up
to 3 1/2 inches manufactured in lengths of thousands of feet and wound or coiled
around a large reel mounted on a truck or a skid unit. Coiled tubing is inserted
into wells to perform various well-servicing operations, including the injection
of nitrogen to clean out debris from the well and the injection of chemicals for
well treatment. Because the coiled tubing can be inserted through the wellhead
into the production tubing, it can be used to perform workovers without using a
larger, more costly workover rig. The other principal advantages of employing
coiled tubing in a workover include (i) not having to "kill" the well during
such operations, thereby reducing the risk of formation damage to the well, (ii)
the ability to reel continuous coiled tubing in and out of a well significantly
faster than conventional pipe, which must be jointed and unjointed, (iii) the
ability to direct fluids into a wellbore with more precision, allowing for
localized stimulation treatments and providing a source of energy to manipulate
downhole tools and (iv) enhanced access to remote or offshore fields due to the
smaller size and mobility of a coiled tubing unit.
 
     Camco Coiled Tubing principally operates in the United States, Nigeria and
Venezuela and demand for its services are primarily driven by the level of oil
and gas well service and workover activity in those areas. Well service and
workover activity is driven by energy prices. The Company believes the demand
for coiled tubing services will grow due to continued technological improvements
that have increased the dependability and durability of tubing, and the range
and types of services available.
 
     Wireline Services. Camco Wireline provides mechanical wireline (or
slickline) services. Mechanical wireline services are distinct from electric
wireline services used for geologic data collection and interpretation. A
wireline is a piano-wire sized smooth cable with which special tools can be
lowered into the well bore to place or retrieve equipment, such as a gas lift
valve or a downhole safety valve, or to measure and record bottom hole data to
determine the condition of producing wells. These services are performed under
full well pressure without the need to "kill" the well. Camco Wireline provides
services in the United States and worldwide to offshore markets where the
majority of gas lift systems and safety valves are used. Demand for Camco
Wireline's services is primarily driven by the level of completions and
workovers worldwide.
 
     Extended Reach Drilling Services. The Company's newly formed Drilling &
Services division is developing a steerable rotary drilling system to be used in
extended reach drilling which is expected to solve some of the technical
limitations of current technology in directional and horizontal drilling
applications.
 
SALES, SERVICE AND DISTRIBUTION
 
     The Company markets its various products and services primarily through its
own sales organization, providing technical assistance to customers on the
application of various products. In certain international locations, products
are distributed through independent sales agents who have access to technical
support from the Company. Camco maintains finished goods and repair parts
inventories at various stocking points and service centers around the world.
Inventories are replenished from the production of the Company's manufacturing
facilities based on expected business levels and customer requirements.
 
     In recent years, a number of major oil and gas producers along with many
leading oilfield equipment and service providers, including Camco, have entered
into business alliances in an attempt to reduce or better
 
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control the overall cost to find, drill, complete and produce oil and gas. These
alliances involve relatively long-term supply and service arrangements. The
Company's management believes that as alliances become more prevalent, most of
its key customers will select alliance partners primarily on a
product-by-product basis, particularly for the higher technology, value-added
equipment and services which constitute most of Camco's business. Camco has
successfully entered into alliances in various regions around the world and with
respect to many of its key products.
 
CUSTOMERS
 
     Camco's customers are primarily major and independent oil and gas companies
and foreign national oil companies. No single customer accounted for more than
10% of Camco's total revenues in 1997, but the loss of a major oil or gas
company or certain foreign national oil companies as a customer would be
significant.
 
INTERNATIONAL OPERATIONS
 
     Camco's equipment and services are used in approximately 50 countries by
U.S. customers operating abroad and by foreign customers. Sales of equipment and
services outside of the United States accounted for 66%, 65% and 64% of total
revenues in 1997, 1996 and 1995, respectively. Certain of Camco's international
operations are subject to special risks inherent in doing business outside the
United States such as risks of war, boycotts, civil disturbances and
governmental activities, including currency restrictions and arbitrary
imposition of taxes. See Note 10 to the Consolidated Financial Statements
included elsewhere herein for additional financial data related to Camco's
revenues by geographic region.
 
     The Company wholly owns all of its foreign subsidiaries engaged in
manufacturing outside of the United States and wholly owns most of its sales and
service operations outside of the United States. Government-owned petroleum
companies located in some of the countries in which Camco operates have adopted
policies (or are subject to governmental policies) giving preference to the
purchase of goods and services from companies that are majority owned by local
nationals. As a result of such policies, Camco relies on joint ventures, license
arrangements and other business combinations with local nationals in these
countries. Camco is a participant in joint ventures or a shareholder in
corporations in Abu Dhabi, Dubai and Ras Al Khaimah in the United Arab Emirates,
Egypt, Colombia, Malaysia, Brunei, Indonesia, Norway, Venezuela and the FSU.
 
     The Company has significant operations in areas which have experienced
political instability, high inflation and significant currency fluctuations in
recent years, including Nigeria, Venezuela and the FSU. Given the dynamic
political and economic environment in each of these areas, business activity is
expected to remain somewhat volatile from year to year. Exposure to these risks
is actively monitored by management and action is taken when appropriate under
the circumstances to limit such exposures. Despite these actions, there can be
no assurance that volatility in these markets will not adversely impact the
Company's operations.
 
     Camco operates in various foreign countries and is, therefore, subject to
currency fluctuations in these countries. Changes in the value of the U.S.
dollar against these currencies will affect the Company's results of operations
and financial position. Camco conducts a portion of its business in highly
inflationary environments such as South America and Nigeria. The effect of
currency rate changes in highly inflationary countries is reflected in the
results of operations in accordance with Statement of Financial Accounting
Standards No. 52.
 
     In 1997, 1996 and 1995, the Company recorded translation losses of $1.8
million, $4.8 million and $5.7 million, respectively, primarily due to the
devaluation of the bolivar in Venezuela and the naira in Nigeria. Additionally,
during 1997, 1996 and 1995, the cumulative translation account, a component of
stockholders' equity, reflected a $3.8 million loss, a $7.2 million gain and a
$.5 million gain, respectively, primarily due to movements in the U.K. pound
sterling versus the U.S. dollar. The Company actively monitors foreign
subsidiaries' net asset positions denominated in foreign currencies and takes
actions when appropriate under the circumstances to limit its risk to currency
fluctuation and devaluation.
 
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MANUFACTURING AND RAW MATERIALS
 
     Most of Camco's oilfield equipment products are made from steel and steel
alloys which are machined to some degree of close tolerance in the manufacturing
process. Machined pieces are inspected against product specifications and
assembled. Some products are performance tested after assembly. Some parts are
purchased in finished form from qualified suppliers when it is not economical
for Camco to perform the machining, or when the material, such as elastomers, is
other than steel. Camco has more than one source for every material it requires
in the manufacture of its products.
 
RESEARCH AND PRODUCT DEVELOPMENT
 
     Camco's business strategy is to be an industry leader in technically
demanding oilfield equipment and services markets. Camco attempts to keep each
of its key products at the forefront of engineering and technical advances, and
each business unit has ongoing programs to advance this goal. In 1997, 1996 and
1995, total research and development expenditures were $33.2 million, $26.3
million and $24.3 million, respectively.
 
PATENTS AND TECHNOLOGY
 
     At December 31, 1997, Camco had approximately 248 U.S. patents and 290
foreign patents in effect with approximately 89 U.S. patent applications and
approximately 134 foreign patents pending. Camco has been diligent in obtaining
patents to protect its technological developments. There is, however, no patent
or group of related patents which would enable any Camco group to dominate its
industry and no single patent or group of related patents that is material to
Camco's business.
 
SEASONALITY
 
     Demand for Camco's equipment and services is subject to some seasonality
factors. Higher activity generally is experienced in the fall and winter. Demand
generally increases in the second half of the year as a result of industry
spending patterns as well as economic factors that affect the Company's
customers, such as increased cash flow from winter demand for natural gas. In
addition, in cold weather climates activity generally slows in the spring due to
both difficulty in moving equipment and government restrictions on moving heavy
equipment on affected roadways during the spring thaws. Weather conditions in
the North Sea and Arctic areas (during the winter) and in the Gulf of Mexico
(during the summer and early fall) can cause temporary disruptions to activity
in areas in which Camco operates.
 
ORDER BACKLOG
 
     At December 31, 1997, the Company's backlog of firm orders for products and
equipment was approximately $99.2 million compared to approximately $76.5
million at December 31, 1996. Substantially all of such orders are expected to
be filled in 1998.
 
INDUSTRY CONDITIONS
 
     Demand for and pricing of Camco's equipment and services depends primarily
upon the number of oil and gas wells being drilled, the depth and drilling
conditions of such wells, the number of well completions and the level of well
service and workover activity worldwide. Drilling, completion and workover
activity in turn is largely dependent on the level and volatility of oil and
natural gas prices. Given the substantially longer lead times required and
higher levels of capital investments necessary, drilling, completion and
workover activity has historically been less volatile in international markets,
from which the Company derived 56% of its revenues in 1997, than in North
America.
 
     Pricing for crude oil and natural gas declined during 1997 reversing a
three-year upward trend. West Texas Intermediate ("WTI") crude prices averaged
$20.58 per barrel in 1997, or $1.59 per barrel lower than in 1996. U.S. natural
gas prices averaged $2.47 per MCF in 1997, down slightly from the previous year.
Worldwide drilling activity increased for the third consecutive year in 1997 as
the long-term outlook remained
 
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favorable for the pricing of oil and natural gas. Average rig count activity for
the previous three years is summarized in the table below:
 
<TABLE>
<CAPTION>
                         RIG COUNT                            1997     1996     1995
                         ---------                            -----    -----    -----
<S>                                                           <C>      <C>      <C>
United States...............................................    943      779      723
Canada......................................................    374      270      231
                                                              -----    -----    -----
          North America.....................................  1,317    1,049      954
International...............................................    808      792      759
                                                              -----    -----    -----
          Worldwide.........................................  2,125    1,841    1,713
                                                              =====    =====    =====
</TABLE>
 
     The Company believes that the long-term outlook for drilling, completion
and production activity remains positive as supply and demand are almost in
equilibrium and worldwide demand for crude oil is forecasted to increase through
the turn of the century. Growth in the demand for and production of natural gas
is expected to exceed that of oil.
 
     While the Company's long-term outlook for drilling, completion and
production activity is optimistic, short-term uncertainty exists with respect to
the outlook for the industry in North America given the recent significant
declines in the price of crude oil. The price of WTI crude oil averaged $16.40
per barrel during the first two months of 1998, and declined to below $14.50 per
barrel in March 1998. The decline in U.S. natural gas prices from 1997 levels
has not been as significant. The Company believes that if WTI crude oil prices
remain depressed for a prolonged period, drilling, completion and production
activity in North America, particularly in land-based markets, could decline
significantly below 1997 levels.
 
     The international average rig count increased for the third consecutive
year, to an average rig count of 808. The Company expects international
drilling, completion and production activities to remain relatively stable as
most international projects do not fluctuate based on short-term changes in
commodity prices.
 
     While facing economic and currency instability, developing countries with
oil reserves in South America, Eastern Europe and the Far East often increase
exploration and production activities to provide additional hard currency
inflows to their economies. The Company believes that there continues to be
significant opportunities to provide oilfield equipment and services to increase
production in these and other areas of the world.
 
     Demand for the Company's contract gas compression services is driven by
decisions by petroleum and pipeline companies to outsource gas compression and
other production requirements. The Company believes that demand for contract gas
compression services will increase and that significant opportunities exist to
expand high-end compression services in many markets outside the United States.
 
     Industry conditions will continue to be influenced by numerous factors over
which Camco has no control, including the level and volatility of world oil and
gas prices, production levels of the Organization of Petroleum Exporting
Countries ("OPEC") and general activity levels of oil and gas producers
worldwide. Although it is impossible to predict the impact of such factors on
the Company, management believes these risks are acceptable. However, there can
be no assurance that any one of these factors would not have a material adverse
effect on its operations.
 
BUSINESS STRATEGY
 
     Camco's business strategy is to be an industry leader in technically
demanding oilfield equipment and services markets where the Company's technology
and high quality products and services make it possible for customers to produce
oil and gas in increasingly remote and technically demanding environments. The
Company provides customers with technical innovations in its products and
services which lower their costs to find and produce oil and gas. The Company
seeks to minimize the effect of volatility of oil and gas prices and to maximize
profitability under varying market conditions by managing its cost structure in
response to changes in its markets.
 
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<PAGE>   9
 
     Consistent with the Company's business strategy, Camco's equipment and
services are focused on serving difficult drilling and production environments,
providing value-added applications and developing innovative solutions to
customer problems. Camco seeks to maintain a reputation for offering advanced
technology through an ongoing research and development program. This commitment
is evidenced by numerous drilling records set over the past three years by both
Reed Tool and Hycalog. In addition, Camco's Products and Services business unit
was awarded the A.S.M.E. Best Mechanical Engineering Achievement Award for its
patented system for "Drilling with Coiled Tubing" at the 1995 Offshore
Technology Conference ("OTC"). Field tests of this technology are ongoing and
based on recent results, drilling with coiled tubing continues to show promise
as a means to economically produce smaller infield oil reserves. Reed was also a
runner-up at the 1995 OTC for its new "PMC" drill bit design using a patented
manufacturing process.
 
COMPETITION
 
     Camco's equipment and services are sold in highly competitive markets and
its sales and earnings can be affected by competitive actions such as price
changes, new product developments, or improved availability and delivery. Camco
competes with a large number of companies, some of which are larger than the
Company, have greater financial resources and offer substantially broader
product and service lines. The Company believes that competition for sales of
its products and services is based on numerous factors, including quality,
performance and reliability, availability, technological advances and price.
 
     Camco is responding to this highly competitive environment through efforts
both to reduce the actual cost of its products and to increase their economic
value to the customer. Camco's design engineers and manufacturing engineers have
worked toward reducing the cost of manufacturing products to permit lower
selling prices while maintaining the technical qualities that the various
markets require. In addition, Camco's research and development efforts are
focused on improving a product's economic value to the customer by improving its
performance, thereby allowing Camco to compete on technology rather than on
price alone.
 
     The principal competitors in ESPs are Centrilift (a division of Baker
Hughes) and ESP Inc. (a division of Wood Group).
 
     Camco's principal competition in drill bits comes from Hughes Christensen
(a division of Baker Hughes), Smith International and Security DBS (a division
of Dresser Industries).
 
     The principal competitors for contract gas compression are Hanover
Compressor Co., Dresser Rand (a division of Dresser Industries) and Global
Compression Services Inc.
 
     Competition for gas lift equipment comes primarily from a division of
Weatherford Enterra. Baker Hughes and Halliburton are the principal competitors
in safety valves.
 
     The primary competitors for coiled tubing and nitrogen services are
Halliburton, Dowell (a division of Schlumberger) and BJ Services. Competition
for mechanical wireline services comes primarily from Halliburton and numerous
small regional companies.
 
OPERATING RISKS AND INSURANCE
 
     Camco's operations are subject to hazards inherent in the oil and gas
industry, such as fire, explosion, blowouts and oil spills that can cause
personal injury or loss of life, damage to property, equipment, the environment
and marine life, and suspension of operations. In addition, claims for loss of
oil and gas production and damages to formations can occur in the completion and
workover business. Litigation arising from a catastrophic occurrence at a
location where Camco's products are used may in the future result in the Company
being named as a defendant in lawsuits asserting potentially large claims. The
Company maintains insurance coverage that it believes to be customary in the
industry against these hazards. The Company maintains general liability and
property damage insurance, as well as product liability, business interruption
and other insurance, and self-insures against workers' compensation claims.
However, insurance may not provide complete protection against casualty losses.
Further, no assurance can be given that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable.
 
                                        9
<PAGE>   10
 
     Although the Company believes it will be able to obtain insurance coverage
adequate for its current operations, a successful liability claim for which the
Company is underinsured or uninsured could have a material adverse effect on the
Company.
 
     Camco has safety and environmental compliance programs staffed by full-time
professional employees. In addition, Camco involves all levels of executive and
operating management in a continuous effort to improve its safety and
environmental record.
 
EMPLOYEES
 
     At December 31, 1997, the Company had approximately 5,500 employees
worldwide, including approximately 2,400 who were employed in international
locations. Approximately 720 employees at December 31, 1997, are represented
under collective bargaining agreements in two of its manufacturing facilities in
the United States and one international plant in Belfast. The Company believes
that its relations with its employees are satisfactory.
 
ENVIRONMENTAL MATTERS AND REGULATIONS
 
     Camco's business is affected both directly and indirectly by governmental
regulations relating to the oil and gas industry in general, as well as
environmental and safety regulations that apply specifically to Camco's
business. Various federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of public health and the environment, may affect Camco's operations,
expenses and costs. Environmental regulations have increasingly limited and
restricted activities that may have an impact on the environment, such as
emissions of air and water pollutants, generation and disposal of wastes, and
use and handling of hazardous substances. These limitations and restrictions
have increased operating costs for Camco and other similar businesses. In
addition, it is reasonable to expect that the costs of compliance will continue
to increase in the foreseeable future.
 
     The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "superfund" law, imposes liability, regardless of
fault or the legality of the original conduct, on certain classes of persons
that contributed to the release of a "hazardous substance" into the environment.
These persons include the current or previous owner and operator of a facility
and companies that disposed or arranged for the disposal of the hazardous
substance found at a facility. CERCLA also authorizes the Environmental
Protection Agency (the "EPA") and, in some cases, private parties to take
actions in response to threats to the public health or the environment and to
seek recovery from such responsible classes of persons of the costs of such
actions. In the course of its operations, Camco has generated and will generate
wastes that may fall within CERCLA's definition of "hazardous substances." In
addition, prior owners or operators at current or past Camco sites may have
disposed of hazardous substances on these properties. Camco may be responsible
under CERCLA for all or part of the costs to clean up facilities at which such
substances have been disposed.
 
     Camco's operations may generate wastes that are subject to the Federal
Resource Conservation and Recovery Act ("RCRA") and comparable state statutes.
The EPA has limited disposal options for certain hazardous wastes and may adopt
more stringent disposal standards for nonhazardous wastes. In addition, RCRA
includes a statutory exemption that allows oil and gas exploration and
production wastes to be classified as nonhazardous wastes. A similar exemption
is contained in many of the state counterparts to RCRA. If oil and gas
exploration and production wastes were required to be managed and disposed of as
hazardous wastes, either as a result of changes in RCRA or the imposition of
more stringent state regulations, domestic oil and gas producers, including many
of the Company's customers, could be required to incur substantial obligations
with respect to such wastes. Because of the potential impact on the Company's
customers, any regulatory changes that impose additional restrictions or
requirements on the disposal of oil and gas wastes could adversely affect demand
for the Company's services and products.
 
     Camco is also subject to laws and regulations concerning occupational
health and safety. These laws, such as the Federal Occupational Safety and
Health Act ("OSHA") and comparable state statutes, establish standards that
apply generally to businesses in the manufacturing sector, including Camco's
businesses.
 
                                       10
<PAGE>   11
 
     Camco is also subject to laws and regulations concerning transportation and
pipeline operations. These laws, under the Department of Transportation,
establish standards that apply generally to businesses in the oilfield sector,
including Camco's businesses.
 
     The Company believes that it is currently in compliance in all material
respects with the requirements of transportation, environmental and occupational
health and safety laws and regulations. Because such laws and regulations are
frequently changed, the Company is unable to predict the impact that such laws
and regulations may have on the Company's business.
 
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
 
     This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things,
the Company's prospects, developments and business strategies for its
operations, all of which are subject to certain risks, uncertainties and
assumptions. These forward-looking statements are identified by their use of
terms and phrases such as "expect," "estimate," "project," "believe," and
similar terms and phrases. These risks include changes in market conditions in
the oil and gas industry, declines in prices of oil and gas, political
instability in foreign countries in which the Company operates, currency
fluctuations and contracts, in particular those in Nigeria, South America and
Southeast Asia, increased competition in the Company's markets, governmental
restrictions affecting oil and gas exploration, the ability of the Company to
integrate and realize anticipated synergies for its acquisitions, including that
of Production Operators, the ability of the Company to achieve and execute
internal business plans, and the impact of any economic downturns and inflation
and other market factors affecting the demand and supply of oil and gas and the
products and services relating thereto. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those expected, estimated or projected.
 
ITEM 2. PROPERTIES
 
     Camco's principal facilities are as shown in the table below:
 
<TABLE>
<CAPTION>
                                                                   APPROXIMATE
                                                                    BUILDING
                                                         LAND         SPACE
          LOCATION                  OWNED/LEASED        (ACRES)   (SQUARE FEET)           DESCRIPTION
          --------                  ------------        -------   -------------           -----------
<S>                           <C>                       <C>       <C>             <C>
UNITED STATES
Reda
  Bartlesville, OK..........  9 acres owned/12 acres       21        410,000      Manufacturing facility and
                              leased(a)                                           offices
  Bartlesville, OK..........  Owned                       0.5        175,000      Offices
Reed
  Houston, TX...............  Owned                        36        535,000      Manufacturing facility and
                                                                                  offices
Lawrence Technology
  Lawrence, KS..............  Owned                        41        330,000      Manufacturing facility and
                                                                                  offices
Camco Products
  Houston, TX...............  Owned                        37        400,000      Manufacturing facility and
                                                                                  offices
  Garland, TX...............  Leased(b)                     8         84,000      Manufacturing facility and
                                                                                  offices
  North Slope, Alaska.......  Building owned/Land           9         45,000      Warehouses, repair facility
                              leased(c)                                           and offices
Hycalog
  Houston, TX...............  Leased(d)                   0.5         40,000      Manufacturing facility and
                                                                                  offices
Production Operators
  Houston, TX...............  Owned                        27        124,000      Manufacturing facility and
                                                                                  offices
</TABLE>
 
                                       11
<PAGE>   12
 
<TABLE>
<CAPTION>
                                                                   APPROXIMATE
                                                                    BUILDING
                                                         LAND         SPACE
          LOCATION                  OWNED/LEASED        (ACRES)   (SQUARE FEET)           DESCRIPTION
          --------                  ------------        -------   -------------           -----------
<S>                           <C>                       <C>       <C>             <C>
ARGENTINA
Camco Products
  Buenos Aires..............  Owned                         1         75,000      Manufacturing facility and
                                                                                  offices
CANADA
Site Oil Tools
  Calgary, Alberta..........  Owned                         6         85,000      Manufacturing facility and
                                                                                  offices
SINGAPORE
Reda
  Jurong....................  Building owned/Land          11        220,000      Manufacturing facility and
                              leased(e)                                           offices
Reed
  Jurong....................  Building owned/Land           6         95,000      Manufacturing facility and
                              leased(f)                                           offices
UNITED KINGDOM
Camco Products
  Belfast, Northern           Building owned/Land          16        150,000      Manufacturing facility and
    Ireland.................  leased(g)                                           offices
Hycalog
  Stonehouse, England.......  Owned                         4         75,000      Manufacturing facility and
                                                                                  offices
Lasalle
  Inverurie, Scotland.......  Owned                         3         41,000      Manufacturing facility and
                                                                                  offices
VENEZUELA
Camco Products
  Las Morochas..............  Owned                        13         75,000      Manufacturing facility,
                                                                                  warehouses and offices
  Maracaibo.................  Leased(h)                   2.5         42,000      Manufacturing facility and
                                                                                  offices
</TABLE>
 
---------------
 
(a) Lease expires May 25, 2037.
 
(b) Lease expires December 10, 1999.
 
(c) Lease expires July 8, 2019.
 
(d) Lease expires March 31, 1999.
 
(e) Lease expires October 1, 2009.
 
(f) Lease expires May 16, 2011.
 
(g) Lease expires November 7, 2987.
 
(h) Lease expires December 31, 1998.
 
     In addition, as of December 31, 1997, Camco operates in approximately 45
sales, service and other facilities in the United States, most of which are
leased, and operates approximately 65 sales, service and other facilities in
foreign countries, almost all of which are leased.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management, uninsured losses, if
any, resulting from the ultimate resolution of these matters will not have a
material adverse effect on the financial position or results of operations of
the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                       12
<PAGE>   13
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
     The Company's Common Stock, $.01 par value, trades on the New York Stock
Exchange under the symbol "CAM". The following table sets forth, for the periods
indicated, the high and low sales prices of the Company's Common Stock as
reported on the NYSE Composite Tape and dividends per share.
 
<TABLE>
<CAPTION>
                                                              PRICE RANGE
                                                              ------------
                                                              HIGH    LOW    DIVIDENDS
                                                              ----    ----   ---------
<S>                                                           <C>     <C>    <C>
1997
  First quarter.............................................  $51 1/4 $ 38     $.05
  Second quarter............................................  55 1/2  41 3/8    .05
  Third quarter.............................................  74 1/4  53 7/8    .05
  Fourth quarter............................................  82 1/2  53 1/2    .05
1996
  First quarter.............................................  $32 3/8 $25 1/4   $.05
  Second quarter............................................    37    30 1/2    .05
  Third quarter.............................................  37 1/2  32 1/4    .05
  Fourth quarter............................................  47 1/4  36 3/4    .05
</TABLE>
 
     As of February 27, 1998, there were 505 record holders of the Common Stock.
This number does not include the number of security holders for whom shares are
held in a "nominee" or "street" name.
 
     The Company has paid quarterly dividends of $.05 per share since its
initial public offering in December 1993. Subject to market conditions and other
factors, the Company intends to continue paying regular quarterly dividends on
its Common Stock. In addition, as long as any amount is outstanding under the
Company's term loan facility, the Company is restricted by a covenant limiting
the cumulative payment of dividends if the payment of such dividends results in
the Company's net worth falling below acceptable minimum levels. This
restriction has not had any impact on the Company's ability to pay its regular
quarterly dividends to stockholders. Because the Company operates some of its
business, particularly its international operations, through subsidiaries, its
ability to pay dividends is partly dependent upon its ability to receive
dividends and other payments from its subsidiaries.
 
                                       13
<PAGE>   14
 
ITEM 6. SELECTED FINANCIAL INFORMATION
 
     The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the notes thereto, included elsewhere herein.
 
<TABLE>
<CAPTION>
                                                 AS OF AND FOR THE YEAR ENDED DECEMBER 31(A)
                                            ------------------------------------------------------
                                               1997        1996       1995       1994       1993
                                            ----------   --------   --------   --------   --------
                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>          <C>        <C>        <C>        <C>
OPERATING RESULTS:
  Revenues................................  $  913,841   $764,535   $667,932   $651,514   $640,099
  Cost of sales and services..............     526,474    459,106    406,364    418,850    416,700
                                            ----------   --------   --------   --------   --------
     Gross margin.........................     387,367    305,429    261,568    232,664    223,399
  Selling, general and administrative
     expenses.............................     219,510    191,706    177,491    165,799    163,845
  Merger expenses(a)......................      12,500         --         --         --         --
  Amortization of intangible assets.......       8,604      6,460      6,022      6,036      6,664
                                            ----------   --------   --------   --------   --------
     Operating income.....................     146,753    107,263     78,055     60,829     52,890
  Interest expense, net...................       5,671      4,539      5,134      3,926     12,480
                                            ----------   --------   --------   --------   --------
  Income before provision for income
     taxes................................     141,082    102,724     72,921     56,903     40,410
  Provision for income taxes..............      49,321     34,720     22,626     17,438     11,862
                                            ----------   --------   --------   --------   --------
  Income from continuing operations.......      91,761     68,004     50,295     39,465     28,548
  Income (loss) from discontinued
     operations(b)........................          --         --     (7,151)     1,005      2,796
  Cumulative effect of changes in
     accounting principles, net of income
     taxes(c).............................      (2,909)        --         --        200    (10,660)
                                            ----------   --------   --------   --------   --------
  Net income..............................  $   88,852   $ 68,004   $ 43,144   $ 40,670   $ 20,684
                                            ==========   ========   ========   ========   ========
Diluted Earnings Per Share(d):
  Income from continuing operations.......  $     2.39   $   1.78   $   1.33   $   1.03   $    .75
  Income (loss) from discontinued
     operations...........................          --         --       (.19)       .03        .07
  Cumulative effect of changes in
     accounting principles................        (.08)        --         --         --       (.28)
                                            ----------   --------   --------   --------   --------
  Net income..............................  $     2.31   $   1.78   $   1.14   $   1.06   $    .54
                                            ==========   ========   ========   ========   ========
BALANCE SHEET DATA:
  Working capital.........................  $  257,699   $216,719   $219,052   $199,982   $199,828
  Total assets............................   1,117,840    971,705    881,499    802,639    811,114
  Long-term debt..........................     110,300     93,551    118,003     92,122    106,875
  Stockholders' equity....................     686,245    594,873    536,468    497,499    479,103
OTHER:
  Depreciation and amortization...........      62,464     55,384     46,092     46,474     45,011
  Capital expenditures....................      95,754     61,848     89,155     65,703     35,963
  Research and development................      33,160     26,267     24,293     23,804     19,793
  Dividends per share(e)..................         .21        .22        .22        .21         --
</TABLE>
 
---------------
 
(a)  On June 13, 1997, Camco International Inc. acquired Production Operators in
     a business combination accounted for using the pooling-of-interests method
     of accounting. Accordingly, the financial information reflected herein has
     been prepared as if Camco and Production Operators were combined as of the
     beginning of the earliest period presented. All costs of the merger, which
     were $12.5 million, or $8.6 million net of tax benefits ($.22 per share),
     were expensed during the second quarter of 1997. Excluding merger costs,
     income from operations in 1997 was $2.61 per share on a diluted basis. See
     Note 1 to the Consolidated Financial Statements included elsewhere herein
     for further discussion of this transaction.
 
                                       14
<PAGE>   15
 
(b)  Production Operators discontinued its oil and gas production activities in
     1995, as described in Note 11 to the Consolidated Financial Statements
     included elsewhere herein.
 
(c)  The Company changed its method of accounting for reengineering costs, to
     expense all such costs incurred in connection with systems development
     projects, as required by an Emerging Issues Task Force pronouncement issued
     November 20, 1997. In 1994, Production Operators changed its method of
     accounting for income taxes. Camco changed to the accrual method of
     accounting for post retirement benefits other than pensions effective
     January 1, 1993.
 
(d)  Earnings per share for 1993 has been calculated based on the average common
     equivalent shares outstanding subsequent to the Company's initial public
     offering on December 10, 1993, plus the number of shares of Camco common
     stock issued to the holders of Production Operators common stock.
 
(e)  The Company has paid quarterly dividends on its common stock of $.05 per
     share, or $.20 per share annually, since its initial Camco public offering
     in December 1993. The amounts presented include the effect of dividends
     paid by Production Operators prior to the merger with Camco.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion should be read in conjunction with "Selected
Financial Information" and the Consolidated Financial Statements and related
notes thereto, included elsewhere herein. As further described in Note 1 to the
Consolidated Financial Statements included elsewhere herein, Camco merged with
Production Operators in a business combination accounted for using the
pooling-of-interests method of accounting. Accordingly, the financial
information presented herein has been prepared as if Camco and Production
Operators were combined as of the beginning of the earliest period discussed.
 
GENERAL
 
     Demand for and pricing of Camco's equipment and services depends primarily
upon the number of oil and gas wells being drilled, the depth and drilling
conditions of such wells, the number of well completions and the level of well
service and workover activity worldwide. Drilling, completion and workover
activity in turn is largely dependent on the level and volatility of oil and
natural gas prices. Given the substantially longer lead times required and
higher levels of capital investments necessary, drilling, completion and
workover activity has historically been less volatile in international markets,
from which the Company derived 56% of its revenues in 1997, than in North
America.
 
     Pricing for crude oil and natural gas declined during 1997 reversing a
three-year upward trend. West Texas Intermediate ("WTI") crude prices averaged
$20.58 per barrel in 1997, or $1.59 per barrel lower than in 1996. U.S. natural
gas prices averaged $2.47 per MCF in 1997, down slightly from the previous year.
Worldwide drilling activity increased for the third consecutive year in 1997 as
the long-term outlook remained favorable for the pricing of oil and natural gas.
Average rig count activity for the previous three years is summarized in the
table below:
 
<TABLE>
<CAPTION>
                         RIG COUNT                            1997    1996    1995
                         ---------                            -----   -----   -----
<S>                                                           <C>     <C>     <C>
United States...............................................    943     779     723
Canada......................................................    374     270     231
                                                              -----   -----   -----
          North America.....................................  1,317   1,049     954
International...............................................    808     792     759
                                                              -----   -----   -----
          Worldwide.........................................  2,125   1,841   1,713
                                                              =====   =====   =====
</TABLE>
 
     The Company believes that the long-term outlook for drilling, completion
and production activity remains positive as supply and demand are almost in
equilibrium and worldwide demand for crude oil is forecasted to increase through
the turn of the century. Growth in the demand for and production of natural gas
is expected to exceed that of oil.
 
                                       15
<PAGE>   16
 
     While the Company's long-term outlook for drilling, completion and
production activity is optimistic, short-term uncertainty exists with respect to
the outlook for the industry in North America given the recent significant
declines in the price of crude oil. The price of WTI crude oil averaged $16.40
per barrel during the first two months of 1998, and declined to below $14.50 per
barrel in March 1998. The decline in U.S. natural gas prices from 1997 levels
has not been as significant. The Company believes that if WTI crude oil prices
remain depressed for a prolonged period, drilling, completion and production
activity in North America, particularly in land-based markets, could decline
significantly below 1997 levels.
 
     The international average rig count increased for the third consecutive
year, to an average rig count of 808. The Company expects international
drilling, completion and production activities to remain relatively stable as
most international projects do not fluctuate based on short-term changes in
commodity prices.
 
     While facing economic and currency instability, developing countries with
oil reserves in South America, Eastern Europe and the Far East often increase
exploration and production activities to provide additional hard currency
inflows to their economies. The Company believes that there continues to be
significant opportunities to provide oilfield equipment and services to increase
production in these and other areas of the world.
 
     Demand for the Company's contract gas compression services is driven by
decisions by petroleum and pipeline companies to outsource gas compression and
other production requirements. The Company believes that demand for contract gas
handling services will increase and that significant opportunities exist to
expand high-end compression services in many markets outside the United States.
 
     Industry conditions will continue to be influenced by numerous factors over
which Camco has no control, including the level and volatility of world oil and
gas prices, production levels of the Organization of Petroleum Exporting
Countries ("OPEC") and general activity levels of oil and gas producers
worldwide. Although it is impossible to predict the impact of such factors on
the Company, management believes these risks are acceptable. However, there can
be no assurance that any one of these factors would not have a material adverse
effect on its operations.
 
     Camco operates in various foreign countries and is, therefore, subject to
currency fluctuations in these countries. Changes in the value of the U.S.
dollar against these currencies will affect the Company's results of operations
and financial position. Camco conducts a portion of its business in highly
inflationary environments such as South America and Nigeria. The effect of
currency rate changes in highly inflationary countries is reflected in the
results of operations in accordance with Statement of Financial Accounting
Standards No. 52. A number of countries in Southeast Asia began experiencing
economic and currency instability in late 1997 and such instability has
continued into 1998. While the Company has significant operations in this
region, it has not to date been adversely affected by these events as a
significant portion of its sales transactions are denominated in U.S. dollars
and such countries need to continue exploration and production activities to
ultimately obtain additional cash inflows.
 
     In 1997, 1996 and 1995, the Company recorded translation losses of $1.8
million, $4.8 million and $5.7 million, respectively, primarily due to the
devaluation of the bolivar in Venezuela and the naira in Nigeria. Additionally,
during 1997, 1996 and 1995, the cumulative translation account, a component of
stockholders' equity, reflected a $3.8 million loss, a $7.2 million gain and a
$.5 million gain, respectively, primarily due to movements in the U.K. pound
sterling versus the U.S. dollar. The Company actively monitors foreign
subsidiaries' net asset positions denominated in foreign currencies and takes
actions when appropriate under the circumstances to limit its risk to currency
fluctuation and devaluation.
 
                                       16
<PAGE>   17
 
     The distribution of Camco's revenues by geographic region is shown below,
based upon the region in which equipment or services were sold or provided to
the customer:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                                              ------------------------
                                                               1997     1996     1995
                                                              ------   ------   ------
                                                                   (IN MILLIONS)
<S>                                                           <C>      <C>      <C>
United States and Canada....................................  $403.1   $340.1   $298.1
Mexico and Central and South America........................   153.0    127.1    127.6
Europe (including FSU)......................................   145.7    122.4     86.8
Middle East and Africa......................................   131.9    116.9     89.8
Far East....................................................    80.1     58.0     65.6
                                                              ------   ------   ------
                                                              $913.8   $764.5   $667.9
                                                              ======   ======   ======
</TABLE>
 
     See Note 10 to the Consolidated Financial Statements contained elsewhere in
this report for further information related to Camco's business segments and
revenues by geographic region. The information in Note 10 to the Consolidated
Financial Information is based on the source from which the equipment and
services originated.
 
                             RESULTS OF OPERATIONS
 
1997 COMPARED TO 1996
 
     Consolidated revenues for 1997 increased $149.3 million, or 19.5%, from
1996 to $913.8 million. This increase reflects the continued increase in
worldwide drilling and completion activity and the effect of increased revenues
attributable to business acquisitions by the Company over the past two years.
Oilfield Equipment Segment revenues climbed 22.6% to $697.0 million in 1997,
primarily due to higher sales of drill bits in North America, increased
completion product sales worldwide, and higher ESP sales in North America,
Europe, the Middle East and Southeast Asia. Oilfield Services Segment revenues
were up 10.5% to $216.8 million in 1997, primarily reflecting increased contract
gas compression revenues in the United States and South America. This increase
corresponds directly to the increase in revenue generating horsepower from
469,000 horsepower as of December 31, 1996, to 556,000 horsepower as of December
31, 1997.
 
     Revenues in the United States and Canada increased $63.0 million, or 18.5%,
from $340.1 million in 1996 to $403.1 million in 1997. The year over year
increase is principally due to significant increases in sales of drill bits,
ESPs, completion equipment and contract gas compression revenues. These
increases were partially offset by a decrease in 1997 in well service revenues.
On the strength of higher sales of completion products and services and
increased contract gas compression revenues, Mexico and Central and South
American revenues for 1997 were $153.0 million, or 20.3% higher than in 1996.
Revenues were up 19.1% in Europe to $145.7 million in 1997, principally due to
the addition of Lasalle and improved sales of completion products, partially
offset by decreased sales of ESPs in the FSU. Revenues in the Middle East and
Africa improved by 12.8% over 1996 levels to $131.9 million, due to higher sales
of completion products and increased ESP sales and services. Far East revenues
improved to $80.1 million in 1997, 38.2% higher than in 1996, reflecting
significantly higher sales of completion products and ESPs.
 
     Gross margins increased $81.9 million to $387.4 million, or 42.4% of
revenues in 1997, from $305.4 million, or 39.9% of revenues in 1996. This margin
increase in 1997 reflects higher volume, selective price increases in certain
markets and lower manufacturing costs due to higher production levels. The
majority of the margin increase is attributable to completion products, drill
bits and ESPs.
 
     Selling, general and administrative expenses ("SG&A") increased $27.8
million to $219.5 million in 1997, in conjunction with the revenue increase.
SG&A as a percentage of revenues declined to 24.0% in 1997 from 25.1% in 1996 as
a portion of these expenses are not directly variable with revenues. In
addition, translation losses which are included in SG&A declined to $1.8 million
in 1997 from $4.8 million in 1996.
 
                                       17
<PAGE>   18
 
     Operating income, as a result of the significant increase in revenues
combined with improved gross margins, increased $39.5 million, or 36.8% in 1997
to $146.8 million. Excluding $12.5 million in transaction costs resulting from
the merger with Production Operators, operating income increased 48.4% to $159.3
million, or 17.4% of revenues, in 1997, from $107.3 million, or 14.0% of
revenues in 1996. Oilfield Equipment Segment operating income increased 43.2% to
$125.9 million in 1997 on revenue growth of 22.6% as a result of improved gross
margin percentages without corresponding increases in SG&A. The Oilfield
Services Segment operating income increased 20.6% to $48.4 million in 1997,
primarily reflecting the year over year growth in revenues.
 
     Net interest expense increased $1.1 million from $4.5 million in 1996 to
$5.7 million for 1997 reflecting higher average debt balances outstanding during
1997.
 
1996 COMPARED TO 1995
 
     Consolidated revenues for 1996 increased $96.6 million, or 14.5%, from 1995
to $764.5 million. This increase reflects the increase in worldwide drilling and
completion activity and includes the effect of increased revenues attributable
to business acquisitions by the Company in 1996 and 1995. Oilfield Equipment
Segment revenues were up 15.2% to $568.3 million in 1996, due to significantly
higher sales of completion products in the United States and Canada, the Middle
East and Africa and Europe, increased sales of ESPs in the United States, Middle
East and Africa and Europe and to a lesser extent increased drill bit sales in
most regions of the world. Oilfield Services Segment revenues were up 12.4% to
$196.2 million reflecting increased contract gas compression revenues in the
United States and South America, increased coiled tubing revenues in Nigeria,
and wireline revenues in the North Sea offset by slightly lower coiled tubing
revenues in the United States.
 
     Revenues in the United States and Canada increased $42.0 million, or 14.1%,
from $298.1 million in 1995 to $340.1 million in 1996. Increased Canadian
completion product sales by Site, increased contract gas compression revenues in
the United States and an increase in United States equipment sales, reflecting
overall activity increases, accounts for the majority of the increased revenue.
Revenues in Mexico and Central and South America declined slightly with modest
declines in equipment revenues offsetting improvements in contract gas
compression revenues. European revenues totaled $122.4 million in 1996, up 41.0%
compared to 1995, and included a $12 million increase in ESP sales into the FSU
after two consecutive years of decline. Increased completion products and
services revenues, record PDC bit revenues and the acquisition of Lasalle in the
third quarter of 1996, in the North Sea region also contribute to the
improvement in European revenues. Revenues increased by 30.1% to $116.9 million
in 1996 in the Middle East and Africa, reflecting higher sales of completion
products and ESPs into that region. Far East revenues declined $7.5 million in
1996 to $58.0 million, primarily due to a reduction in ESP and completion
products sales.
 
     Gross margins increased $43.9 million to $305.4 million, or 39.9% of
revenues in 1996, from $261.6 million, or 39.1% of revenues in 1995. The
majority of the margin increase is attributable to higher revenues and improved
margins on oilfield services resulting from cost reduction programs begun in
previous years.
 
     Selling, general and administrative expenses increased $14.2 million to
$191.7 million in 1996, but as a percentage of revenues declined to 25.1% in
1996 from 26.6% in 1995 as a portion of these expenses are not directly variable
with revenues. Translation losses declined to $4.8 million in 1996, from $5.7
million in 1995, favorably affecting SG&A.
 
     Operating income increased $29.2 million, or 37.4% in 1996 to $107.3
million. Oilfield Equipment Segment operating income increased 41.3% to $87.9
million in 1996 on revenue growth of 15.2%. Oilfield Services Segment operating
income increased 36.8% to $40.1 million in 1996 on revenue growth of 12.4%.
These improvements were partially offset by a $7.3 million increase in corporate
expenses in 1996. Operating income from completion products increased
substantially, primarily due to the volume increase described above, improved
pricing in selected markets and lower manufacturing costs as a result of higher
throughput in its plants. Oilfield Equipment Segment operating income was also
higher due to increased drill bit sales into the premium international markets.
The increase in Oilfield Services Segment operating income is primarily a result
of increased revenues and profitability attributable to contract gas compression
services and higher wireline activity in the North Sea and U.S. Gulf of Mexico.
In addition, losses incurred by the Company's
                                       18
<PAGE>   19
 
coiled tubing joint venture in the FSU were $1.5 million less than the previous
year, as sales of condensate were sufficient to cover operating expenses in the
last half of 1996.
 
     Net interest expense decreased $600 thousand from 1995 to $4.5 million for
the year reflecting a reduction in borrowings of high interest rate bolivar debt
in Venezuela.
 
FINANCIAL CONDITION
 
  Capital Resources and Liquidity
 
     Net cash flows from operating activities were $156.7 million, $147.7
million, and $65.8 million in 1997, 1996 and 1995, respectively. Increases in
net cash flows from operating activities in each period reflect the substantial
increases in net income and depreciation and amortization offset by an increase
in working capital in 1997 and 1995, and benefited by a decrease in working
capital in 1996. Cash flow from operating activities exceeded capital
expenditure requirements in 1997 and 1996 and is anticipated to be sufficient to
fund future capital expenditure requirements.
 
     Net cash outflows from investing activities were $143.1 million, $95.7
million and $85.7 million in 1997, 1996 and 1995, respectively. Capital
expenditures increased to $95.8 million in 1997 from $61.9 million in 1996 and
$89.2 million in 1995. The reduced level of capital spending in 1996 is
attributable to lower additions of gas compression units in 1996 than in 1995 or
1997. Proceeds from the sale of assets totaled $.4 million, $14.9 million and
$14.3 million in 1997, 1996 and 1995, respectively. The Company used $14.5
million of cash in 1997 to acquire gas lift valve businesses in the United
States and Argentina and the remaining interest in a contract compression
subsidiary in Argentina. The Company purchased Lasalle Engineering and a gas
lift business in 1996 for $46.4 million in cash. In 1997, the Company invested
$21.7 million in its 33 1/3%-owned Venezuelan joint venture to fund progress
payments on the construction of contract gas compression, transmission and
injection equipment and facilities in connection with a twenty-year contract
jointly awarded to Production Operators and Williams International Company, the
Company's venture partner. This contract is the largest outsourced natural gas
injection project in Venezuela.
 
     Financing activities provided $1.4 million and $16.5 million in cash in
1997 and 1995, respectively, and used cash of $44.2 million in 1996. In October
1997, the Company refinanced substantially all of its previously outstanding
debt under a new $220 million unsecured revolving credit facility. Borrowings
under the revolving credit facility are due in October 2002. Interest rates on
borrowings are LIBOR based. Total debt outstanding under the revolving credit
facility was $110.0 million as of December 31, 1997. Borrowing availability
under the revolving credit facility was $110.0 million as of December 31, 1997.
Borrowings under the revolving credit facility are expected to fluctuate with
seasonal changes and changes in the Company's financing needs.
 
     In addition to customary representations, warranties, borrowing conditions,
affirmative covenants and events of default, the credit facility includes
financial covenants, with which Camco is in compliance, relating to maintenance
of a minimum level of net worth, maintenance of a minimum interest coverage
ratio, a maximum ratio of funded debt to total capital and limitations on
payment of dividends, sales of assets, pledges of assets, subsidiary
indebtedness, mergers, consolidations and transactions with affiliates.
 
     The Company believes that the combination of its working capital, the
unused portion of the revolving credit facility and its cash flow from
operations should provide it with sufficient capital resources and liquidity to
meet its debt service requirements under the credit facility and manage its
business needs.
 
  Requirements for Capital
 
     Capital expenditures, excluding acquisitions, were $95.8 million, $61.9
million and $89.2 million in 1997, 1996 and 1995, respectively. New contracts
for gas compression services often require the addition of gas compression units
and related equipment. Capital expenditures for gas compression units and
related equipment totaled $52.2 million, $28.3 million and $63.3 million in
1997, 1996 and 1995, respectively. The Company's manufacturing operations and
other service businesses require an ongoing level of spending to maintain the
Company's productive assets, and new service contracts may require upgraded
equipment to meet job specifications and new safety requirements. In this
regard, increased demand for leased equipment,
 
                                       19
<PAGE>   20
 
primarily ESPs, substantial refurbishment and upgrade of machine tools in the
international completion product plants, purchase of larger diameter capability
coiled tubing units and the continued refurbishment of the rock bit plant in
Singapore has resulted in increases in spending over the three-year period.
Capital expenditures in 1998 are anticipated to increase to approximately $100
million, primarily due to anticipated increases in spending for additional
service equipment required for contracts and compression business opportunities.
In addition, the Company is committed to provide up to $40.0 million in
additional funding to its Venezuelan joint venture for construction of gas
compression, transmission and injection equipment and facilities. The venture
expects to obtain project financing upon completion of construction and to repay
all advances.
 
  Year 2000
 
     The Company is currently evaluating its information technology
infrastructure for the Year 2000 compliance and does not expect that the cost of
required modifications will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
 
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
 
     This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things,
the Company's prospects, developments and business strategies for its
operations, all of which are subject to certain risks, uncertainties and
assumptions. These forward-looking statements are identified by their use of
terms and phrases such as "expect," "estimate," "project," "believe," and
similar terms and phrases. These risks include changes in market conditions in
the oil and gas industry, declines in prices of oil and gas, political
instability in foreign countries in which the Company operates, currency
fluctuations and contracts, in particular those in Nigeria, South America and
Southeast Asia, increased competition in the Company's markets, governmental
restrictions affecting oil and gas exploration, the ability of the Company to
integrate and realize anticipated synergies for its acquisitions, including that
of Production Operators, the ability of the Company to achieve and execute
internal business plans, and the impact of any economic downturns and inflation
and other market factors affecting the demand and supply of oil and gas and the
products and services relating thereto. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those expected, estimated or projected.
 
                                       20
<PAGE>   21
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Camco International Inc.:
 
     We have audited the consolidated balance sheets of Camco International Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Camco
International Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
 
     As explained in Note 1 to the financial statements, effective November 20,
1997, the Company changed its method of accounting for costs of business process
reengineering activities associated with systems development projects.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
February 10, 1998
 
                                       21
<PAGE>   22
 
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                              ------------------------------
                                                                1997       1996       1995
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
REVENUES:
  Sales.....................................................  $609,725   $503,235   $459,733
  Services..................................................   304,116    261,300    208,199
                                                              --------   --------   --------
                                                               913,841    764,535    667,932
                                                              --------   --------   --------
COST AND EXPENSES:
  Cost of sales.............................................   313,551    270,712    253,268
  Cost of services..........................................   212,923    188,394    153,096
                                                              --------   --------   --------
                                                               526,474    459,106    406,364
                                                              --------   --------   --------
     Gross margin...........................................   387,367    305,429    261,568
  Selling, general and administrative expenses..............   219,510    191,706    177,491
  Merger expenses...........................................    12,500         --         --
  Amortization of intangible assets.........................     8,604      6,460      6,022
                                                              --------   --------   --------
     Operating income.......................................   146,753    107,263     78,055
  Interest expense..........................................     8,473      7,842      8,888
  Interest income...........................................    (2,802)    (3,303)    (3,754)
                                                              --------   --------   --------
  Income before provision for income taxes..................   141,082    102,724     72,921
  Provision for income taxes................................    49,321     34,720     22,626
                                                              --------   --------   --------
  Income from continuing operations.........................    91,761     68,004     50,295
  Loss from discontinued operation..........................        --         --     (7,151)
  Cumulative effect of change in accounting principle, net
     of benefit for income taxes............................    (2,909)        --         --
                                                              --------   --------   --------
          Net income........................................  $ 88,852   $ 68,004   $ 43,144
                                                              ========   ========   ========
Earnings per share:
  Basic --
     Income from continuing operations......................  $   2.45   $   1.81   $   1.35
     Loss from discontinued operation.......................        --         --       (.19)
     Cumulative effect of change in accounting principle....      (.08)        --         --
                                                              --------   --------   --------
          Net income........................................  $   2.37   $   1.81   $   1.16
                                                              ========   ========   ========
     Average common shares outstanding......................    37,386     37,506     37,257
                                                              ========   ========   ========
  Diluted --
     Income from continuing operations......................  $   2.39   $   1.78   $   1.33
     Loss from discontinued operation.......................        --         --       (.19)
     Cumulative effect of change in accounting principle....      (.08)        --         --
                                                              --------   --------   --------
          Net income........................................  $   2.31   $   1.78   $   1.14
                                                              ========   ========   ========
     Average common and common equivalent shares
       outstanding..........................................    38,481     38,230     37,780
                                                              ========   ========   ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       22
<PAGE>   23
 
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                              ----------------------
                                                                 1997         1996
                                                              ----------    --------
<S>                                                           <C>           <C>
CURRENT ASSETS
  Cash and cash equivalents.................................  $   57,255    $ 42,645
  Accounts receivable, net of allowances of $16,283 and
     $14,210................................................     177,112     169,989
  Inventories...............................................     206,471     169,007
  Deferred income taxes.....................................      44,088      27,031
  Prepaid expenses and other................................      21,575      19,320
                                                              ----------    --------
          Total current assets..............................     506,501     427,992
                                                              ----------    --------
PROPERTY, PLANT AND EQUIPMENT, net of depreciation..........     353,312     308,762
INTANGIBLE ASSETS, net of amortization of $66,448 and
  $57,844...................................................     212,749     214,826
OTHER.......................................................      45,278      20,125
                                                              ----------    --------
          Total assets......................................  $1,117,840    $971,705
                                                              ==========    ========
 
                        LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES
  Current maturities of long-term debt......................  $      120    $ 10,345
  Accounts payable..........................................      57,765      47,595
  Accrued liabilities.......................................     159,085     134,583
  Income taxes payable......................................      31,832      18,750
                                                              ----------    --------
          Total current liabilities.........................     248,802     211,273
                                                              ----------    --------
LONG-TERM DEBT..............................................     110,300      93,551
DEFERRED INCOME TAXES.......................................      28,690      24,742
OTHER LONG-TERM LIABILITIES.................................      43,803      47,266
                                                              ----------    --------
          Total liabilities.................................     431,595     376,832
                                                              ----------    --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 100,000,000 shares
     authorized,
     38,583,393 and 38,465,998 shares issued................         386         385
  Additional paid-in capital................................     525,662     518,856
  Retained earnings.........................................     203,911     117,364
  Cumulative translation adjustment.........................     (15,194)    (11,405)
  Treasury stock, 1,046,372 and 1,264,528 shares, at cost...     (28,520)    (30,327)
                                                              ----------    --------
          Total stockholders' equity........................     686,245     594,873
                                                              ----------    --------
          Total liabilities and stockholders' equity........  $1,117,840    $971,705
                                                              ==========    ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       23
<PAGE>   24
 
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    ADDITIONAL              CUMULATIVE
                                           COMMON    PAID-IN     RETAINED   TRANSLATION   TREASURY
                                           STOCK     CAPITAL     EARNINGS   ADJUSTMENT     STOCK
                                           ------   ----------   --------   -----------   --------
<S>                                        <C>      <C>          <C>        <C>           <C>
BALANCE, December 31, 1994, as previously
  reported...............................   $251     $436,892    $(35,871)   $(19,049)    $(18,430)
  Adjustments for pooling-of-interest....    133       76,211      57,362          --           --
                                            ----     --------    --------    --------     --------
BALANCE, December 31, 1994...............    384      513,103      21,491     (19,049)     (18,430)
  Net income.............................     --           --      43,144          --           --
  Dividends to stockholders ($.22 per
     share)..............................     --           --      (7,449)         --           --
  Common stock issued pursuant to
     employee stock plans................      1        2,673          --          --           --
  Deferred compensation related to
     ESOP................................     --           87          40          --           --
  Currency translation adjustment........     --           --          --         473           --
                                            ----     --------    --------    --------     --------
BALANCE, December 31, 1995...............    385      515,863      57,226     (18,576)     (18,430)
  Net income.............................     --           --      68,004          --           --
  Purchase of treasury stock.............     --           --          --          --      (13,413)
  Dividends to stockholders ($.22 per
     share)..............................     --           --      (7,698)         --           --
  Common stock issued pursuant to
     employee stock plans................     --        2,131        (211)         --        1,516
  Deferred compensation related to
     ESOP................................     --          862          43          --           --
  Currency translation adjustment........     --           --          --       7,171           --
                                            ----     --------    --------    --------     --------
BALANCE, December 31, 1996...............    385      518,856     117,364     (11,405)     (30,327)
  Net income.............................     --           --      88,852          --           --
  Change in subsidiary year end..........     --          612       4,560          --           --
  Dividends to stockholders ($.21 per
     share)..............................     --           --      (6,865)         --           --
  Common stock issued pursuant to
     employee stock plans................      1        5,008          --          --        1,807
  Deferred compensation related to
     ESOP................................     --        1,186          --          --           --
  Currency translation adjustment........     --           --          --      (3,789)          --
                                            ----     --------    --------    --------     --------
BALANCE, December 31, 1997...............   $386     $525,662    $203,911    $(15,194)    $(28,520)
                                            ====     ========    ========    ========     ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       24
<PAGE>   25
 
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                              -------------------------------
                                                                1997        1996       1995
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................  $  88,852   $ 68,004   $ 43,144
  Adjustments to reconcile net income to net cash provided
     by operating activities --
  Loss on discontinued operations...........................         --         --      6,702
  Cumulative effect of change in accounting principle.......      2,909         --         --
  Depreciation and amortization.............................     62,464     55,384     46,092
  Gain from sale of assets..................................       (234)    (4,678)    (3,456)
  Provision (benefit) for deferred and other taxes..........    (14,389)    (4,984)    (5,757)
  Increase in accounts receivable...........................     (4,698)    (2,532)   (20,158)
  Increase in inventories...................................    (36,425)    (6,566)    (3,810)
  Increase (decrease) in accounts payable...................     11,405       (803)      (529)
  Increase in accrued liabilities...........................     31,807     27,614      8,662
  Increase (decrease) in income taxes payable...............     14,065      5,341     (2,932)
  (Increase) decrease in other, net.........................        929     10,885     (2,195)
                                                              ---------   --------   --------
          Net cash provided by operating activities.........    156,685    147,665     65,763
                                                              ---------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures......................................    (95,754)   (61,848)   (89,155)
  Proceeds from sale of assets..............................        386     14,934     14,343
  Business acquisitions.....................................    (14,503)   (46,373)    (5,750)
  Investment in joint venture...............................    (21,700)        --         --
  Change in subsidiary year-end.............................     (6,496)        --         --
  Other.....................................................     (5,061)    (2,390)    (5,180)
                                                              ---------   --------   --------
          Net cash used in investing activities.............   (143,128)   (95,677)   (85,742)
                                                              ---------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in borrowings under revolving credit facility....    110,000         --         --
  Decrease in borrowings under term loan....................    (50,000)   (10,000)   (10,000)
  Increase (decrease) in borrowings under revolving loan
     facility...............................................    (30,000)    10,000     (5,000)
  Increase (decrease) in other debt.........................    (30,277)   (26,284)    37,213
  Dividends paid to stockholders............................     (6,865)    (7,698)    (7,449)
  Proceeds from exercise of stock options...................      2,404      2,361      1,629
  Purchase of treasury stock................................         --    (13,413)        --
  Change in subsidiary year-end and other...................      6,158        803         68
                                                              ---------   --------   --------
          Net cash provided by (used in) financing
            activities......................................      1,420    (44,231)    16,461
                                                              ---------   --------   --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
  EQUIVALENTS...............................................       (367)     1,613       (215)
                                                              ---------   --------   --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........     14,610      9,370     (3,733)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............     42,645     33,275     37,008
                                                              ---------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $  57,255   $ 42,645   $ 33,275
                                                              =========   ========   ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid for interest....................................  $   5,886   $  4,519   $  5,654
  Cash paid for income taxes................................  $  51,580   $ 34,002   $ 31,389
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       25
<PAGE>   26
 
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of Presentation
 
     Camco International Inc. and subsidiaries ("Camco" or the "Company")
manufactures products and provides services to customers in the oil and gas
drilling, completion and production sectors of the oilfield services industry.
The consolidated financial statements include the accounts of the Company and
all of its wholly owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in 20%
to 50% owned joint ventures where the Company exercises significant influence
over operating and financial policies are accounted for by the equity method.
All other investments are carried at cost, which does not exceed the estimated
net realizable value of such investments.
 
     On June 13, 1997, Camco, acquired Production Operators Corp. ("Production
Operators") through a merger (the "Merger") of a wholly owned subsidiary of the
Company with and into Production Operators. The Merger was effected pursuant to
an Agreement and Plan of Merger dated February 27, 1997, by and among the
Company, a wholly owned subsidiary of the Company, and Production Operators. A
total of 13,300,404 shares of the Company's common stock was issued to the
stockholders of Production Operators as consideration for the acquisition. The
principle followed in fixing the exchange ratio in the Merger was based on
negotiations between the parties. The business combination has been accounted
for using the pooling-of-interests method of accounting. Accordingly, the
financial statements have been prepared as if Camco and Production Operators
were combined as of the beginning of the earliest period presented. All costs of
the Merger, which were $12.5 million, or $8.6 million net of tax benefits ($.22
per share), were expensed during the second quarter of 1997.
 
     As a result of the differing year-ends of Camco and Production Operators,
financial information for different period-ends have been combined. Camco's
financial position, results of operations and cash flows as of and for the years
ended December 31, 1996 and 1995, have been combined with Production Operators'
financial position, results of operations and cash flows as of and for the years
ended September 30, 1996 and 1995, respectively. Effective January 1, 1997,
Production Operators' fiscal year-end was changed to conform to Camco's December
31 year-end. Financial information as of and for the year ended December 31,
1997, combines both Camco's and Production Operators' results of operations for
comparable periods. Production Operators' unaudited revenues, net income and
dividends on its common stock for the three-month period ended December 31,
1996, were $26.7 million, $5.3 million and $.7 million, respectively.
Accordingly, adjustments are included in the consolidated statements of
operations, stockholders' equity and cash flows for the activity attributed to
the three-month period.
 
  Use of Estimates
 
     The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenue and expenses. Actual results could differ from these estimates.
 
  Cash and Cash Equivalents
 
     The Company considers all highly liquid financial instruments purchased
with original maturities of three months or less to be cash equivalents. The
reported amounts of such investments approximate fair value.
 
  Inventories
 
     Inventories, net of allowances, are valued at the lower of cost (first-in,
first-out or last-in, first-out) or market. Inventory costs consist of
materials, labor and plant overhead.
 
                                       26
<PAGE>   27
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Property, Plant and Equipment
 
     Property, plant and equipment is recorded at cost and generally depreciated
on a straight-line basis over the estimated useful lives of the assets. The
estimated useful lives used in computing depreciation range from 10 to 30 years
for buildings and 3 to 12 years for machinery and equipment, including service
equipment. Expenditures for major additions and improvements are capitalized
while minor replacements, maintenance and repairs are charged to expense as
incurred. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any resulting
gain or loss is included in the consolidated statements of operations.
 
  Intangible Assets
 
     Intangible assets is comprised primarily of goodwill which is amortized
over 20 to 40 years using the straight-line method. Camco's management
periodically evaluates goodwill, net of accumulated amortization, for impairment
based on the undiscounted cash flows associated with the asset compared to the
carrying amount of that asset. Management believes that there have been no
events or circumstances which warrant revision to the remaining useful life or
affect the recoverability of goodwill in any of its business units.
 
  Income Taxes
 
     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
This standard requires an asset and liability approach for financial accounting
and income tax reporting based on enacted tax rates and laws in effect in the
years in which differences are expected to reverse.
 
  Revenue Recognition
 
     The Company's revenues are composed of product sales and rental, service
and other revenues. The Company records product sales when the goods are sold to
a customer. Rental, service and other revenues are recorded as the services are
performed.
 
  Foreign Currency Translation
 
     The Company's financial statements of foreign subsidiaries are reported in
U.S. dollars based on the functional currency.
 
     Foreign subsidiaries using the U.S. dollar as their functional currency
translate as follows: current assets (except inventories) and all liabilities
(except minority interests) at the rates of exchange in effect at year-end,
long-term assets and inventories at historical rates and minority interest at
the rates in effect at the dates provided. Revenue and expense accounts are
translated at the average rates of exchange in effect during the year, except
for depreciation and cost of manufactured products sold, which are translated at
historical rates. Translation adjustments are charged or credited directly to
operations.
 
     Foreign subsidiaries using the local currency as their functional currency
translate into U.S. dollars using the current rate method. Assets and
liabilities are translated at the rates of exchange in effect at year-end,
common stock and paid-in capital are translated using historical rates and
revenue and expense accounts are translated at the average rates of exchange in
effect during the year. Translation adjustments are recorded as a separate
component of stockholders' equity rather than directly to operations.
 
  Concentration of Credit Risk
 
     The Company extends credit to various companies in the oil and gas industry
which may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit
 
                                       27
<PAGE>   28
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
risk through credit approvals and limits and, where appropriate, to be secured
by collateral, and to provide an allowance for doubtful accounts for potential
losses. Management does not believe the Company is exposed to concentrations of
credit risk that are likely to have a material impact on the Company's financial
position or results of operations.
 
  Environmental Expenditures
 
     Liabilities for environmental expenditures are recorded when it is probable
that obligations have been incurred and the costs can be reasonably estimated.
Estimates are based on currently available facts and technology, presently
enacted laws and regulations and the Company's prior experience in remediation
of contaminated sites.
 
  Change in Accounting Principle
 
     The FASB Emerging Issues Task Force Issue No. 97-13, "Accounting for Costs
Incurred in Connection with a Consulting Contract or an Internal Project That
Combines Business Process Reengineering and Information Technology
Transformation," issued November 20, 1997, required the Company to expense
certain costs that were previously capitalizable prior to this pronouncement.
The cumulative effect of this accounting change decreased income by $4.5 million
($2.9 million, net of tax) for the year ended December 31, 1997.
 
  Earnings Per Share
 
     SFAS No. 128, "Earnings Per Share," was adopted by the Company in the
fourth quarter of 1997 and all earnings per share previously reported have been
restated. Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding. Diluted earnings per share is
computed by dividing net income by the weighted average number of common and
common equivalent shares outstanding. The computation of diluted earnings per
share includes the dilutive effects of options to purchase common stock and
restricted stock grants which aggregated 1,095,000, 724,000 and 523,000 in 1997,
1996 and 1995, respectively.
 
  Pending Accounting Pronouncements
 
     SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997.
The Company will adopt SFAS No. 130 in the first quarter of 1998. Had SFAS No.
130 been adopted in 1997, net income, as reported, would have been adjusted for
changes in the cumulative translation for foreign currency.
 
2. ACQUISITIONS AND DIVESTITURES
 
     During 1997, the Company acquired gas lift valve businesses in the United
States and Argentina for a total of $11.8 million in cash.
 
     In September 1996, the Company acquired Lasalle Engineering Limited for
$29.5 million in a cash transaction. In December 1996, the Company acquired the
gas lift business of Halliburton, including their Venezuelan subsidiary, for
$16.9 million in a cash transaction.
 
     In March 1995, the Company acquired Site Oil Tools, a Canadian manufacturer
of completion equipment, for $5.8 million in a cash transaction. The Company
sold the assets of its safety service business in March 1995. The Company
recognized net income of $1.5 million, or 6 cents per share, on the disposal.
 
     The acquisitions described above were accounted for using the purchase
method of accounting.
 
                                       28
<PAGE>   29
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The acquisition of Production Operators in June 1997, which was accounted
for using the pooling-of-interests method of accounting, is described in Note 1.
Revenues and net income for the periods preceding the Merger were as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                              REVENUES    NET INCOME
                                                              --------    ----------
<S>                                                           <C>         <C>
Six months ended June 30, 1997 --
  Camco, as previously reported.............................  $366,092     $29,391
  Production Operators......................................    56,537      14,791
  Merger expenses...........................................        --      (8,600)
                                                              --------     -------
                                                              $422,629     $35,582
                                                              ========     =======
Year ended December 31, 1996 --
  Camco, as previously reported.............................  $672,732     $50,508
  Production Operators......................................    91,803      17,496
                                                              --------     -------
                                                              $764,535     $68,004
                                                              ========     =======
Year ended December 31, 1995 --
  Camco, as previously reported.............................  $595,131     $36,318
  Production Operators......................................    72,801       6,826
                                                              --------     -------
                                                              $667,932     $43,144
                                                              ========     =======
</TABLE>
 
3. INVENTORIES
 
     Inventories, net of allowances, are summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Raw materials...............................................  $ 19,916    $ 18,405
Parts and components........................................    69,656      54,786
Work-in-process.............................................    24,079      27,180
Finished goods..............................................    92,820      68,636
                                                              --------    --------
                                                              $206,471    $169,007
                                                              ========    ========
Inventories determined using the --
  LIFO basis................................................  $ 43,661    $ 38,107
  FIFO basis................................................   162,810     130,900
                                                              --------    --------
                                                              $206,471    $169,007
                                                              ========    ========
</TABLE>
 
     Work-in-process and finished goods inventories include the cost of
materials, labor and plant overhead. The excess of current costs, determined
using the FIFO basis, over the carrying values of LIFO inventories was
approximately $10.0 million and $11.9 million at December 31, 1997 and 1996,
respectively.
 
                                       29
<PAGE>   30
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4. PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Land........................................................  $  5,120    $  4,327
Buildings...................................................    77,279      71,856
Machinery and equipment.....................................   266,137     234,803
Service equipment...........................................   366,732     313,997
                                                              --------    --------
                                                               715,268     624,983
Accumulated depreciation....................................  (361,956)   (316,221)
                                                              --------    --------
                                                              $353,312    $308,762
                                                              ========    ========
</TABLE>
 
5. ACCRUED LIABILITIES
 
     Accrued liabilities consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Salaries, wages and related benefits........................  $ 45,626    $ 42,979
Accrued insurance...........................................    12,978      13,451
Accrued taxes other than income.............................     9,814      11,117
Other.......................................................    90,667      67,036
                                                              --------    --------
                                                              $159,085    $134,583
                                                              ========    ========
</TABLE>
 
6. DEBT
 
     Long-term debt consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Revolving credit facility...................................  $110,000    $     --
Term loan...................................................        --      50,000
Revolving loan facility.....................................        --      30,000
Other.......................................................       420      23,896
                                                              --------    --------
                                                               110,420     103,896
Less -- Current portion of long-term debt...................       120      10,345
                                                              --------    --------
                                                              $110,300    $ 93,551
                                                              ========    ========
</TABLE>
 
     In October 1997, the Company refinanced its previously outstanding debt
under a new $220 million unsecured revolving credit facility. Borrowings
outstanding under the revolving credit facility are due October 2002 and
interest rates on borrowings are LIBOR based. The weighted average interest rate
for borrowings outstanding under the revolving credit facility was 6.2% for
1997. The maximum and average borrowings were $120.0 million and $107.0 million,
respectively. The Company had $110.0 million of unused borrowing availability as
of December 31, 1997.
 
     In addition to customary representations, warranties, borrowing conditions,
affirmative covenants and events of default, the revolving credit facility
includes financial covenants, with which Camco is in compliance,
 
                                       30
<PAGE>   31
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
relating to maintenance of a minimum level of net worth, maintenance of a
minimum interest coverage ratio, a maximum ratio of funded debt to total capital
and limitations on payment of dividends, sales of assets, pledges of assets,
subsidiary indebtedness, mergers, consolidations and transactions with
affiliates.
 
     Maturities of the Company's long-term debt at December 31, 1997, are as
follows (in thousands):
 
<TABLE>
<S>                                                         <C>
1998......................................................  $    120
1999......................................................       140
2000......................................................       160
2002......................................................   110,000
                                                            --------
                                                            $110,420
                                                            ========
</TABLE>
 
     The weighted average interest rate for the Company's previously outstanding
loans was 6.4% during 1997, 6.2% during 1996 and 6.5% during 1995.
 
7. INCOME TAXES
 
     Income before provision for income taxes and provision (benefit) for income
taxes is composed of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                        1997        1996       1995
                                                      --------    --------    -------
<S>                                                   <C>         <C>         <C>
Income before provision for income taxes
  United States.....................................  $ 37,519    $ 24,815    $30,504
  Non-United States.................................   103,563      77,909     42,417
                                                      --------    --------    -------
                                                      $141,082    $102,724    $72,921
                                                      ========    ========    =======
Provision for income taxes
  Current
     United States..................................  $ 27,400    $ 18,604    $18,497
     Non-United States..............................    36,310      19,065     11,873
                                                      --------    --------    -------
                                                        63,710      37,669     30,370
                                                      --------    --------    -------
  Deferred
     United States..................................   (14,276)     (5,400)    (9,268)
     Non-United States..............................      (113)      2,451      1,524
                                                      --------    --------    -------
                                                       (14,389)     (2,949)    (7,744)
                                                      --------    --------    -------
                                                      $ 49,321    $ 34,720    $22,626
                                                      ========    ========    =======
</TABLE>
 
     The table above excludes a tax benefit of $1.6 million recorded in 1997 in
connection with the accounting change described in Note 1.
 
                                       31
<PAGE>   32
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Deferred income taxes in 1997 and 1996 reflect the impact of temporary
differences between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations. The
components of the net deferred tax asset (liability) are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Deferred tax assets:
  Accruals and reserves.....................................  $ 31,487    $ 24,813
  Compensation and benefits.................................    11,619      11,873
  Other.....................................................    12,366      10,005
                                                              --------    --------
                                                                55,472      46,691
  Valuation allowance.......................................   (11,384)    (19,660)
                                                              --------    --------
                                                                44,088      27,031
                                                              --------    --------
Deferred tax liabilities:
  Excess of tax over book depreciation......................   (28,649)    (24,619)
  Other.....................................................       (41)       (123)
                                                              --------    --------
                                                               (28,690)    (24,742)
                                                              --------    --------
          Net deferred tax asset............................  $ 15,398    $  2,289
                                                              ========    ========
</TABLE>
 
     The consolidated provision for income taxes differs from the provision
computed at the statutory U.S. Federal income tax rate for the following reasons
(in thousands):
 
<TABLE>
<CAPTION>
                                                         1997       1996       1995
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Expected tax provision at U.S. statutory rate.........  $49,379    $35,953    $25,522
Non-U.S. income, taxed at less than U.S. statutory
  rate................................................   (3,190)    (1,233)    (3,030)
Change in valuation allowance.........................   (8,276)        --         --
Expenses for which no tax benefit was received........   11,408         --        134
                                                        -------    -------    -------
                                                        $49,321    $34,720    $22,626
                                                        =======    =======    =======
</TABLE>
 
     SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized. During 1997, the net decrease in the valuation
allowance was $8.3 million in connection with the disallowance of a portion of
the previously reserved deferred tax assets.
 
     Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $177.8 million at December 31, 1997. It is the
Company's policy that these earnings, which reflect full provision for non-U.S.
income taxes, have no additional provision for U.S. taxes on foreign
subsidiaries earnings which are expected to be reinvested indefinitely. However,
additional income taxes have been provided on planned repatriations of foreign
earnings after taking into account tax-exempt earnings and applicable foreign
tax credits.
 
8. RETIREMENT AND EMPLOYEE BENEFIT PLANS
 
  Retirement Plans
 
     The Company and its subsidiaries have defined benefit retirement plans
covering substantially all employees. The total cost of all plans for 1997, 1996
and 1995 was $6.0 million, $5.4 million and $5.2 million, respectively.
 
                                       32
<PAGE>   33
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Annual cost is determined using the projected unit credit actuarial method.
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits. An
assumption is made for modified career average plans such that the average
earnings base period will be updated to the years prior to retirement.
 
     It is the Company's practice to fund amounts for pensions sufficient to
meet the minimum requirements set forth in applicable employee benefit and tax
laws and such additional amounts as the Company may determine to be appropriate
from time to time. The assets of the various plans include corporate equities,
government securities and corporate debt securities.
 
     The funded status at December 31 was as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                  U.S. PLANS          NON-U.S. PLANS
                                             --------------------    -----------------
                                               1997        1996       1997       1996
                                             --------    --------    -------    ------
<S>                                          <C>         <C>         <C>        <C>
Actuarial present value of benefit
  obligations
  Vested benefit obligation................  $ 64,446    $ 58,839    $ 9,754    $5,550
                                             ========    ========    =======    ======
  Accumulated benefit obligation...........  $ 67,118    $ 61,285    $10,332    $5,804
                                             ========    ========    =======    ======
  Projected benefit obligation.............  $ 82,121    $ 75,626    $13,126    $7,642
Plan assets at fair value..................    65,024      63,936     11,670     8,182
                                             --------    --------    -------    ------
Projected benefit obligation in excess of
  plan assets..............................   (17,097)    (11,690)    (1,456)      540
Unrecognized net loss......................     4,054       2,284      2,774        51
Unrecognized prior service cost............     3,951       2,871         --        --
Additional liability.......................    (3,032)     (2,400)        --        --
                                             --------    --------    -------    ------
(Accrued) prepaid pension cost recognized
  in the consolidated balance sheets.......  $(12,124)   $ (8,935)   $ 1,318    $  591
                                             ========    ========    =======    ======
</TABLE>
 
     Net periodic pension cost for the years ended December 31 included the
following components (in thousands):
 
<TABLE>
<CAPTION>
                                               U.S. PLANS               NON-U.S. PLANS
                                       ---------------------------   ---------------------
                                        1997      1996      1995     1997    1996    1995
                                       -------   -------   -------   -----   -----   -----
<S>                                    <C>       <C>       <C>       <C>     <C>     <C>
Service cost, benefits earned during
  the period.........................  $ 3,742   $ 3,695   $ 3,573   $ 976   $ 793   $ 677
Interest cost on the projected
  benefit obligation.................    5,916     5,341     4,747     657     525     361
Actual return on plan assets.........   (5,509)   (5,272)   (4,578)   (788)   (544)   (407)
Net amortization.....................    1,034       890       871      --       2      --
                                       -------   -------   -------   -----   -----   -----
Net periodic pension cost............  $ 5,183   $ 4,654   $ 4,613   $ 845   $ 776   $ 631
                                       =======   =======   =======   =====   =====   =====
</TABLE>
 
     All defined benefit pension plans sponsored by the Company are funded to
the extent required by Federal regulation in each of the years ended December
31, 1997, 1996 and 1995. The assumed long-term rate of return on plan assets was
9.0%, the discount rate used in estimating benefit obligations was 8.0% and the
rate of compensation increase assumed for salary-related plans was 6.5%.
 
     Included in the above tables is the funded status and net periodic pension
cost of Camco's deferred compensation plan (the "DC Plan"). Under the DC Plan,
certain officers and selected key management personnel of the Company may
receive an amount upon retirement at age 65 equal to (x) an award level for such
individual as determined by the Board (up to a maximum of 60%) multiplied by the
average of the
 
                                       33
<PAGE>   34
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
individual's highest five consecutive years earnings (including bonuses up to a
maximum of 20% of base pay each year) out of the last ten consecutive years
before retirement minus (y) the sum of the individual's benefits under the
pension plan and other tax-qualified plans sponsored by the individual's former
employers. An individual's benefits under the DC Plan vest on the earliest of
the date the individual completes ten years of service, the individual's death
or age 65. Benefits are subject to adjustment for early retirement (before age
65).
 
  Thrift Plans
 
     All U.S. employees are eligible to participate in the Company-sponsored
thrift plans. The plan allows eligible employees to contribute a percentage of
compensation, subject to IRS and plan limitations. The plans provide for
matching contributions which amounted to annual expense recognized by the
Company of $2.6 million, $2.3 million and $1.9 million in 1997, 1996 and 1995,
respectively.
 
  Nonpension Postretirement Benefits
 
     The Company offers a postretirement medical plan to substantially all
employees in the United States over age 60 who qualify for retirement and, on
the last day of active employment, are enrolled as participants in Company
medical plans for active employees. Participants under age 65 are required to
pay the full average actual cost of providing benefits to active and retired
employees. Participants age 65 and older contribute approximately 30% of the
actual cost of providing benefits to active and retired employees. Total
benefits provided over the lifetime of participants after they reach age 65 are
limited to $100,000 per participant.
 
     The expected cost of providing nonpension postretirement benefits is
accrued during the years employees render service. The discount rate used in
determining costs and future obligations was 8.0% in 1997, 1996 and 1995. The
assumed health care cost trend rate was 10.0% in 1995, 9.0% in 1996 and 8.0% in
1997, scaling to 6.0% over six years. A one percent increase in the trend rate
for health care costs would increase the accumulated postretirement benefit
obligation by approximately 6.5% and the service and interest cost by
approximately 7.0%. The Company is not required to fund its future obligation
under the plan and does not intend to, unless favorable tax treatment becomes
available.
 
     Accumulated postretirement benefit obligations in excess of plan assets is
classified in the accompanying balance sheets as other long-term liabilities and
consists of the following as of December 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31
                                                              ------------------
                                                               1997       1996
                                                              -------    -------
<S>                                                           <C>        <C>
Retirees and beneficiaries..................................  $ 4,669    $ 6,421
Fully eligible participants.................................    1,172      2,542
Other active participants...................................    2,421      3,339
Unrecognized net gain.......................................    9,611      6,158
                                                              -------    -------
          Total.............................................  $17,873    $18,460
                                                              =======    =======
</TABLE>
 
     Net periodic postretirement cost for the years ended December 31, are as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                             -----------------------
                                                             1997     1996     1995
                                                             -----    ----    ------
<S>                                                          <C>      <C>     <C>
Service cost...............................................  $ 214    $314    $  375
Interest cost..............................................    619     919     1,337
Amortization of unrecognized gain..........................   (811)   (451)       --
                                                             -----    ----    ------
          Total............................................  $  22    $782    $1,712
                                                             =====    ====    ======
</TABLE>
 
                                       34
<PAGE>   35
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Management Incentive Programs
 
     The Company has an incentive bonus plan in which selected key employees,
including executive officers, are eligible to receive cash bonus payments based
on measures of profitability and cash flow of the Company and various units of
the Company which are established and approved by the Board of Directors for
each participant in the program at the beginning of each year. A minimum
performance level must be achieved by the Company or a particular unit of the
Company before any bonus may be earned.
 
  Stock Plans
 
     The Company has two plans currently in effect under which future stock
option grants may be issued: the 1997 Long-Term Incentive Plan (the "1997
Incentive Plan") and the Non-Employee Directors Stock Option Plan (the
"Directors' Plan").
 
     The 1997 Incentive Plan provides for the granting of options to officers
and key employees at an option price greater than or equal to the fair market
value of a Company share on the date of grant. The term of each option is ten
years and the options are generally exercisable in either three or four equal
annual installments beginning one year after the date of grant. Initially,
1,500,000 shares of the Company's common stock were reserved for issuance under
the 1997 Incentive Plan.
 
     The Directors' Plan provides for the granting of options to non-employee
directors at an option price greater than or equal to the fair market value of a
Company share on the date of grant. The term of each option is ten years and the
options are generally exercisable in three equal annual installments beginning
one year after the date of grant. Two hundred and fifty thousand shares of the
Company's common stock were reserved for issuance under the Directors' Plan.
 
     Information regarding the Company's stock option plans, including
predecessor plans, is summarized below:
 
<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                              SHARES UNDER       AVERAGE           OPTION
                                                 OPTION       EXERCISE PRICE    PRICE RANGE
                                              ------------    --------------    ------------
<S>                                           <C>             <C>               <C>
Balance at December 31, 1994................   1,359,468          $14.86        $3.37-$19.75
  Granted...................................     141,218           19.31         18.37-23.94
  Exercised.................................    (200,041)          11.41          3.37-15.00
  Canceled..................................     (58,000)          16.09         15.00-22.75
                                               ---------          ------        ------------
Balance at December 31, 1995................   1,242,645           15.86          3.37-23.94
  Granted...................................     552,918           28.88         24.14-36.94
  Exercised.................................    (177,105)          14.49          4.81-22.63
  Canceled..................................      (4,875)          17.45         18.00-22.63
                                               ---------          ------        ------------
Balance at December 31, 1996................   1,613,583           20.47          3.37-36.94
  Granted...................................     563,372           49.20         27.89-60.81
  Exercised.................................    (382,256)          18.52          3.37-28.63
  Canceled..................................     (30,273)          29.05         15.00-49.06
                                               ---------          ------        ------------
Balance at December 31, 1997................   1,764,426          $29.67        $3.37-$60.81
                                               =========          ======        ============
Available for grant at December 31, 1997....   1,288,070
                                               =========
Shares exercisable at December 31, 1997.....     733,045
                                               =========
</TABLE>
 
     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value
 
                                       35
<PAGE>   36
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
at the grant date for awards in 1997, 1996 and 1995 consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
 
<TABLE>
<CAPTION>
                                                         1997       1996       1995
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Net income -- as reported...........................    $88,852    $68,004    $43,144
Net income -- pro forma.............................     83,999     65,925     42,843
Diluted earnings per share -- as reported...........    $  2.31    $  1.78    $  1.14
Diluted earnings per share -- pro forma.............       2.17       1.72       1.13
</TABLE>
 
     The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected dividend yield of
0.4% to 0.8%; expected stock price volatility range of 27.6% to 35.9%; risk-free
interest rate range of 6.1% to 7.2%; and expected life of 10 years.
 
     The ranges of option fair values granted during 1997, 1996 and 1995 are
from $19.59 to $32.21 and from $12.61 to $18.39 and $10.01 to $11.54,
respectively. The weighted average of these fair values are $25.77, $14.30 and
$10.29, respectively.
 
     Information with respect to stock options outstanding and stock options
exercisable as of December 31, 1997, is as follows:
 
<TABLE>
<CAPTION>
                                               OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                                       ------------------------------------    -----------------------
                                                                   WEIGHTED                   WEIGHTED
                                                      REMAINING    AVERAGE                    AVERAGE
                                         OPTIONS        LIFE       EXERCISE      OPTIONS      EXERCISE
       RANGE OF EXERCISE PRICE         OUTSTANDING     (YEARS)      PRICE      EXERCISABLE     PRICE
       -----------------------         -----------    ---------    --------    -----------    --------
<S>                                    <C>            <C>          <C>         <C>            <C>
$3.37-$19.75.........................     703,846       5.78        $15.58       500,774       $15.20
$21.54-$36.94........................     557,080       8.19         29.22       232,271        29.64
$49.06-$60.81........................     503,499       9.39         49.89            --           --
                                        ---------       ----        ------       -------       ------
                                        1,764,426       7.57        $29.67       733,045       $19.77
                                        =========       ====        ======       =======       ======
</TABLE>
 
     The Company's 1997 Incentive Plan also authorizes the granting of
restricted stock awards. Under this and previous plans, 158,750 shares of
restricted stock were awarded to Company executive officers and other key
employees that will vest over periods ranging from three to five years based
upon the completion of specified periods of future service with the Company. In
addition, 135,000 restricted shares of Common Stock were awarded to executive
officers and other key employees and approximately 119,000 shares have been
earned based upon the attainment of specified performance objectives.
Compensation is charged to income over the vesting period for these awards which
resulted in expense recognition of $4.5 million, $2.3 million and $1.7 million
in 1997, 1996 and 1995, respectively.
 
     The Company's ESOP covers all full-time domestic employees of Production
Operators. ESOP contributions are made at the discretion of the Company's Board
of Directors. Contributions to the ESOP by the Company for the years ended
December 31, 1997, 1996 and 1995, were $925,000, $891,000 and $818,000,
respectively. Dividends received by the ESOP Trust and applied to reduction of
the ESOP term loan were $65,000, $126,000 and $119,000 in 1997, 1996 and 1995,
respectively.
 
                                       36
<PAGE>   37
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9. COMMITMENTS AND CONTINGENCIES
 
  Operating Leases
 
     Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year as of December 31, 1997, are as follows
(in thousands):
 
<TABLE>
<S>                                                          <C>
1998.......................................................  $ 6,375
1999.......................................................    4,066
2000.......................................................    2,784
2001.......................................................    2,141
2002.......................................................    1,516
Thereafter.................................................   12,834
                                                             -------
                                                             $29,716
                                                             =======
</TABLE>
 
     The Company incurred total rental expense of approximately $10.4 million,
$10.0 million and $9.3 million in 1997, 1996 and 1995, respectively.
 
  Construction Commitment
 
     The Company is committed to provide up to $40.0 million in additional
funding to its Venezuelan joint venture to fund progress payments on the
construction of contract gas compression equipment and facilities. The venture
expects to obtain project financing upon completion of construction and repay
all advances.
 
  Legal Proceedings
 
     The Company is involved in certain lawsuits and claims, including claims by
federal and local authorities under various environmental protection laws,
arising in the normal course of business. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
 
  Foreign Exchange Contracts
 
     Camco enters into a variety of foreign exchange contracts to manage its
exposure to fluctuations in foreign currency exchange rates. These contracts
generally involve the exchange of one currency for another at a future date. The
carrying value of these contracts at December 31, 1997 and 1996, approximated
fair value based on exchange rates and quoted market prices at December 31, 1997
and 1996, for comparable contracts and was not significant.
 
  Standby Letters of Credit
 
     As of December 31, 1997, the Company has $16.1 million of standby letters
of credit outstanding under various unsecured credit arrangements.
 
  Stockholder Rights Agreement
 
     The Company has a Stockholder Rights Agreement to protect against coercive
or unfair takeover tactics. Under the terms of the agreement, the Company
distributed to its stockholders one right for each share of Common Stock held.
 
     Each right, as amended, entitles the holder to purchase one share of Common
Stock for $250 per share, subject to adjustment or, under certain circumstances,
to purchase stock of the Company or of the acquiring entity for one half of the
market value. The rights are exercisable only if a person or group acquires 15%
or
 
                                       37
<PAGE>   38
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
more of the Company's Common Stock or makes a tender offer for 15 percent or
more of the Common Stock. The rights expire on December 15, 2004.
 
  Stock Repurchase Plan
 
     In 1996, the Board of Directors authorized a stock repurchase program for
up to $20 million of the Company's Common Stock. Shares of the Company's Common
Stock purchased pursuant to the program are reserved and used exclusively for
employee benefit plans. During 1996, the Company purchased 342,600 shares of the
Company's stock for an aggregate amount of $13.4 million.
 
10. SEGMENT INFORMATION
 
     The Company is a diversified international energy service and manufacturing
company that provides a variety of services and equipment to the oil and gas
industry.
 
     Revenues by industry segment and geographic area include both revenues from
unaffiliated customers and intercompany revenues from related companies. The
price at which intercompany sales are made is generally based on the selling
price to unaffiliated customers, less a discount, or the direct product cost
plus a markup.
 
     Export sales from the United States to other geographic areas, including
intercompany sales to foreign subsidiaries, are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                       1997        1996        1995
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Europe (including Former Soviet Union).............  $ 52,137    $ 43,218    $ 33,519
Mexico and Central and South America...............    56,149      79,978      86,857
Far East...........................................    32,827      28,610      30,002
Middle East and Africa.............................    25,474      25,610      17,670
Canada.............................................    21,598      19,557      16,120
                                                     --------    --------    --------
                                                     $188,185    $196,973    $184,168
                                                     ========    ========    ========
</TABLE>
 
                                       38
<PAGE>   39
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following financial information by geographic region for the years
ended December 31, 1997, 1996 and 1995, is based on the source from which the
equipment and services originate (in thousands):
 
<TABLE>
<CAPTION>
                                                               ADDITIONAL
                                                   OUTSIDE    INTERCOMPANY   OPERATING   IDENTIFIABLE
                                                   REVENUES     REVENUES      INCOME        ASSETS
                                                   --------   ------------   ---------   ------------
<S>                                                <C>        <C>            <C>         <C>
1997
  USA and Canada.................................  $506,725    $ 157,881     $ 71,853     $  641,407
  Europe (including Former Soviet Union).........   106,876       34,055       36,285        152,494
  Middle East and Africa.........................    22,104           --          884         11,852
  Mexico and Central and South America...........   110,502          730       13,656        101,516
  Far East.......................................   167,634       75,004       38,800        210,571
  Eliminations...................................        --     (267,670)     (14,725)            --
                                                   --------    ---------     --------     ----------
          Consolidated...........................  $913,841    $      --     $146,753     $1,117,840
                                                   ========    =========     ========     ==========
1996
  USA and Canada.................................  $432,923    $ 114,950     $ 47,757     $  517,645
  Europe (including Former Soviet Union).........   136,851       27,182       21,148        134,036
  Middle East and Africa.........................    14,541           --        3,705         18,092
  Mexico and Central and South America...........    79,406          207       11,961         94,576
  Far East.......................................   100,814       53,300       32,761        207,356
  Eliminations...................................        --     (195,639)     (10,069)            --
                                                   --------    ---------     --------     ----------
          Consolidated...........................  $764,535    $      --     $107,263     $  971,705
                                                   ========    =========     ========     ==========
1995
  USA and Canada.................................  $377,709    $ 110,397     $ 46,241     $  488,424
  Europe (including Former Soviet Union).........   103,361       17,002        6,988         84,478
  Middle East and Africa.........................    10,833           --        1,667         14,807
  Mexico and Central and South America...........    75,063           --        3,777         75,896
  Far East.......................................   100,966       37,070       22,552        217,894
  Eliminations...................................        --     (164,469)      (3,170)            --
                                                   --------    ---------     --------     ----------
          Consolidated...........................  $667,932    $      --     $ 78,055     $  881,499
                                                   ========    =========     ========     ==========
</TABLE>
 
                                       39
<PAGE>   40
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Information for industry segments is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                             DEPRECIATION
                                     OUTSIDE    OPERATING     IDENTIFIABLE       AND          CAPITAL
                                     REVENUES    INCOME          ASSETS      AMORTIZATION   EXPENDITURES
                                     --------   ---------     ------------   ------------   ------------
<S>                                  <C>        <C>           <C>            <C>            <C>
1997
  Oilfield equipment...............  $697,015   $125,904       $  696,494      $34,927        $37,303
  Oilfield services................   216,826     48,404          318,835       26,620         57,943
  Corporate........................        --    (27,555)(a)      102,511          917            508
                                     --------   --------       ----------      -------        -------
          Consolidated.............  $913,841   $146,753       $1,117,840      $62,464        $95,754
                                     ========   ========       ==========      =======        =======
1996
  Oilfield equipment...............  $568,314   $ 87,893       $  616,404      $31,473        $28,001
  Oilfield services................   196,221     40,121          270,816       23,003         33,685
  Corporate........................        --    (20,751)          84,485          908            162
                                     --------   --------       ----------      -------        -------
          Consolidated.............  $764,535   $107,263       $  971,705      $55,384        $61,848
                                     ========   ========       ==========      =======        =======
1995
  Oilfield equipment...............  $493,397   $ 62,209       $  532,981      $23,574        $20,766
  Oilfield services................   174,535     29,321          272,189       21,906         68,074
  Corporate........................        --    (13,475)          76,329          612            315
                                     --------   --------       ----------      -------        -------
          Consolidated.............  $667,932   $ 78,055       $  881,499      $46,092        $89,155
                                     ========   ========       ==========      =======        =======
</TABLE>
 
---------------
 
(a)  Includes merger expenses of $12.5 million incurred in connection with the
     merger between Camco and Production Operators.
 
11. DISCONTINUED OPERATIONS
 
     The oil and gas production activities of Production Operators were
discontinued in 1995 with a $6.7 million provision, net of tax, recorded related
to the disposal of assets and $.5 million loss, net of tax, recorded related to
operations. The discontinued operation's revenues, operating loss, tax benefit
and loss after tax in 1995 were $9.2 million, $.7 million, $.2 million and $.5
million, respectively.
 
                                       40
<PAGE>   41
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
12. UNAUDITED QUARTERLY FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                             FIRST      SECOND     THIRD      FOURTH
                                            QUARTER    QUARTER    QUARTER    QUARTER     TOTAL
                                            --------   --------   --------   --------   --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>        <C>
1997
  Revenues................................  $195,484   $227,145   $239,058   $252,154   $913,841
  Gross margin............................    82,246     96,113     99,649    109,359    387,367
  Income before provision for income
     taxes................................    30,189     24,453     41,579     44,861    141,082
  Income before cumulative effect of
     change in accounting principle.......    19,810     15,772     27,023     29,156     91,761
  Net income..............................    19,810     15,772     27,023     26,247     88,852
  Earnings per share:
     Basic --
       Income before cumulative effect of
          change in accounting
          principle.......................  $    .53   $    .42   $    .72   $    .78   $   2.45
                                            ========   ========   ========   ========   ========
       Net income.........................  $    .53   $    .42   $    .72   $    .70   $   2.37
                                            ========   ========   ========   ========   ========
     Diluted --
       Income before cumulative effect of
          change in accounting
          principle.......................  $    .52   $    .41   $    .70   $    .76   $   2.39
                                            ========   ========   ========   ========   ========
       Net income.........................  $    .52   $    .41   $    .70   $    .68   $   2.31
                                            ========   ========   ========   ========   ========
1996
  Revenues................................  $167,648   $185,283   $190,171   $221,433   $764,535
  Gross margin............................    67,763     74,507     75,508     87,651    305,429
  Income before provision for income
     taxes................................    21,280     23,495     26,538     31,411    102,724
  Net income..............................    14,288     15,593     17,452     20,671     68,004
  Earnings per share:
     Basic --
       Net income.........................  $    .38   $    .42   $    .47   $    .55   $   1.81
                                            ========   ========   ========   ========   ========
     Diluted --
       Net income.........................  $    .37  $     .41   $    .46   $    .54   $   1.78
                                            ========   ========   ========   ========   ========
</TABLE>
 
                                       41
<PAGE>   42
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Camco International Inc.:
 
     We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Camco International Inc. (a Delaware
Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1997, included in this
Form 10-K and have issued our report thereon dated February 10, 1998. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Financial statement Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This financial statement schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
February 10, 1998
 
                                       42
<PAGE>   43
 
                   CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
 
         SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                ADDITIONS
                                                  BALANCE AT    CHARGED TO                  BALANCE AT
                                                  BEGINNING      COST AND                     END OF
                 CLASSIFICATION                    OF YEAR       EXPENSE      DEDUCTIONS       YEAR
                 --------------                   ----------    ----------    ----------    ----------
<S>                                               <C>           <C>           <C>           <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS DEDUCTED FROM
  ACCOUNTS RECEIVABLE IN THE BALANCE SHEETS:
  Year ended December 31, 1997..................   $14,210        $3,864       $(1,791)      $16,283
  Year ended December 31, 1996..................    14,296         2,761        (2,847)       14,210
  Year ended December 31, 1995..................    14,559         3,561        (3,824)       14,296
</TABLE>
 
                                       43
<PAGE>   44
 
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE MATTERS.
 
     None.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     For certain information concerning directors and executive officers of the
Company, reference is made to the information included under the captions
"Proposal 1: Election of Three Directors", "Executive Officers" and "Compliance
with Section 16(a) of the Securities Exchange Act" included in the definitive
Proxy Statement, which relates to the Annual Meeting of Stockholders of the
Company to be held on May 19, 1998 (the "Proxy Statement"), to be filed within
120 days after the close of the fiscal year, which information is incorporated
herein by such reference.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
     For information concerning this Item, reference is made to the captions
"Compensation of Directors", "Executive Compensation Committee Report",
"Executive Compensation", "Retirement Plans", "Nicholson Employment Agreement",
"Executive Severance Agreements", "Performance Presentation", and "Compensation
Committee Interlocks, Insider Participation and Certain Transactions" in the
Proxy Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     For information concerning this Item, reference is made to the captions
"Principal Stockholders", "Security Ownership of Management" and "Change of
Control" in the Proxy Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     For information concerning this Item, reference is made to the
"Compensation Committee Interlocks, Insider Participation and Certain
Transactions" in the Proxy Statement.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) Exhibits, Financial Statements and Financial Statement Schedules.
 
     (1) and (2) Financial Statements and Financial Statement Schedules.
 
     Consolidated Financial Statements and related Schedule II of the Company
are included in Item 8 (Consolidated Financial Statements and Supplementary
Data). All other schedules for the Company have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements or the notes thereto.
 
     (3) Exhibits
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
          2.1            -- Reorganization Agreement (incorporated by reference to
                            Exhibit No. 2.1 to the Company's Registration Statement
                            on Form S-1 (Reg. No. 33-70036)).
          2.2            -- Agreement and Plan of Merger dated as of February 27,
                            1997, by and among Camco International Inc., Plane
                            Acquisition Corp. and Production Operators Corp.
                            (incorporated by reference to Exhibit 2.1 to the
                            Company's Current Report on Form 8-K filed on March 7,
                            1997).
</TABLE>
 
                                       44
<PAGE>   45
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
          3.1            -- Restated Certificate of Incorporation (incorporated by
                            reference to Exhibit No. 3.1 to the Company's Annual
                            Report on Form 10-K for the year ended December 31,
                            1993).
          3.2            -- By-laws (incorporated by reference to Exhibit No. 3.4 to
                            the Company's Registration Statement on Form S-1 (Reg.
                            No. 33-70036)).
          4.1            -- See Exhibits 3.1 and 3.2 for provisions of the Restated
                            Certificate of Incorporation and By-laws of the Company
                            defining the rights of holders of Common Stock.
          4.2            -- Form of Common Stock Certificate (incorporated by
                            reference to Exhibit No. 4.2 to the Company's
                            Registration Statement on Form S-1 (Reg. No. 33-70036)).
          4.3            -- Rights Agreement dated as of December 15, 1994, between
                            Camco International Inc. and First Chicago Trust Company
                            of New York, as Rights Agent, which includes as exhibits,
                            the form of Right Certificate and the Summary of Rights
                            to Purchase Common Shares (incorporated by reference to
                            Exhibit No. 1 to the Company's Registration Statement on
                            Form 8-A dated December 19, 1994).
          4.4            -- First Amendment to Rights Agreement dated as of October
                            21, 1997, between the Company and First Chicago Trust
                            Company of New York, as Rights Agent (incorporated by
                            reference to Exhibit No. 4.2 to the Company's Current
                            Report on Form 8-K dated November 21, 1997)
         10.1*           -- Amended and Restated Stock Option Plan for Nonemployee
                            Directors (incorporated by reference to Exhibit No. 10.1
                            to the Company's Quarterly Report on Form 10-Q for the
                            quarter ended June 30, 1996).
         10.2*           -- Supplemental Executive Retirement Plan (incorporated by
                            reference to Exhibit No. 10.2 to the Company's
                            Registration Statement on Form S-1 (Reg. No. 33-83562)).
         10.3*           -- Long-Term Incentive Plan of Camco International Inc.
                            (incorporated by reference to Exhibit 10.3 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1993).
         10.4*           -- 1997 Long-Term Incentive Plan of Camco International Inc.
                            (incorporated by reference to Exhibit No. 4.6 to the
                            Company's Registration Statement on Form S-8 (Reg. No.
                            333-29065)).
         10.5*           -- Description of Management Bonus Program (incorporated by
                            reference to Exhibit No. 10.4 to the Company's
                            Registration Statement on Form S-1 (Reg. No. 33-83562)).
         10.6*           -- Letter Agreement between the Company and Gary Nicholson
                            (incorporated by reference to Exhibit No. 10.5 to the
                            Company's Registration Statement on Form S-1 (Reg. No.
                            33-70036)).
         10.7*           -- Form of Executive Severance Agreement (incorporated by
                            reference to Exhibit No. 10.6 to the Company's
                            Registration Statement on Form S-1 (Reg. No. 33-70036)).
         10.8*           -- Form of First Amendment to Executive Severance Agreement
                            (incorporated by reference to Exhibit No. 10.7 to the
                            Company's Registration Statement on Form S-1 (Reg. No.
                            33-83562)).
         10.9            -- Form of Indemnification Agreement (incorporated by
                            reference to Exhibit No. 10.7 to the Company's
                            Registration Statement on Form S-1 (Reg. No. 33-70036)).
         10.10           -- Reed Hourly Thrift Plan, as amended (incorporated by
                            reference to Exhibit No. 4.6 to the Company's
                            Registration Statement on Form S-8 (Reg. No. 333-18129)).
         10.11           -- Tax Allocation Agreement (incorporated by reference to
                            Exhibit No. 10.9 to the Company's Registration Statement
                            on Form S-1 (Reg. No. 33-70036)).
</TABLE>
 
                                       45
<PAGE>   46
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
         10.12           -- U.S. Tax Transition Agreement (incorporated by reference
                            to Exhibit No. 10.10 to the Company's Registration
                            Statement on Form S-1 (Reg. No. 33-70036)).
         10.13           -- U.K. Tax Transition Agreement (incorporated by reference
                            to Exhibit No. 10.11 to the Company's Registration
                            Statement on Form S-1 (Reg. No. 33-70036)).
         10.14           -- Credit Agreement by and among Camco International Inc.,
                            the Lenders party thereto, Bank of America National Trust
                            and Savings Association, Toronto Dominion (Texas), Inc.,
                            and Wachovia Bank, N.A., as co-agents and the Bank of New
                            York as Administrative Agent, including forms of notes
                            (dated October 22, 1997
         10.15           -- Amended, Restated and Consolidated Lease Agreement dated
                            as of May 7, 1990, between the City of Bartlesville,
                            Oklahoma, and Reda, a division of Camco International
                            Inc. (incorporated by reference to Exhibit No. 10.13 to
                            the Company's Registration Statement on Form S-1 (Reg.
                            No. 33-70036)).
         10.16           -- Lease dated September 12, 1994, between Jurong Town
                            Corporation and Reda Pump Company (Singapore) Private
                            Limited (incorporated by reference to Exhibit No. 10.14
                            to the Company's Registration Statement on Form S-1 (Reg.
                            No. 33-70036)).
         10.17           -- Building Agreement dated May 12, 1983, between Jurong
                            Town Corporation and Reed Rock Bit Company International,
                            Ltd. (incorporated by reference to Exhibit No. 10.15 to
                            the Company's Registration Statement on Form S-1 (Reg.
                            No. 33-70036)).
         10.18           -- 999 Year Lease dated November 7, 1988, between The
                            Department of Economic Development and Camco Limited
                            (incorporated by reference to Exhibit No. 10.16 to the
                            Company's Registration Statement on Form S-1 (Reg. No.
                            33-70036)).
         10.19           -- Amended and Restated Joint Venture Agreement dated July
                            7, 1993, between Reda Industries Ltd. and P.T. Imeco
                            Inter Sarana (incorporated by reference to Exhibit No.
                            10.17 to the Company's Registration Statement on Form S-1
                            (Reg. No. 33-70036)).
         10.20           -- Joint Venture Agreement dated June 23, 1990, between
                            Camco Soviet Services Limited, and Urengoigasprom
                            (incorporated by reference to Exhibit No. 10.18 to the
                            Company's Registration Statement on Form S-1 (Reg. No.
                            33-70036)).
         10.21           -- Agreement for Technology Transfer, Grant For License, and
                            the Sale of Manufacturing Know-How and Technical
                            Assistance dated December 5, 1991, between the Reda
                            Division of Camco International Inc., Reda Pump Company
                            (Singapore) Private Ltd., the Lawrence Technology
                            Division of Camco International Inc. and Zavody Tazkeho
                            Strojarstva, Dubnica Vahom (incorporated by reference to
                            Exhibit No. 10.19 to the Company's Registration Statement
                            on Form S-1 (Reg. No. 33-70036)).
         10.22*          -- Forms of Restricted Share Agreements (incorporated by
                            reference to Exhibit No. 10.22 to the Company's
                            Registration Statement on Form S-1 (Reg. No. 33-83562)).
         10.23           -- Service contract between Logoven S.A. and William
                            International Company and Production Operators, Inc.
                            Dated February 4, 1997.
         10.24*          -- Camco International Inc. Deferred Income Plan
                            (incorporated by reference to Exhibit No. 4.6 to the
                            Company's Registration Statement on Form S-8 (Reg. No.
                            333-23739)).
         10.25*          -- Camco International Inc. Deferred Income Plan Trust
                            (incorporated by reference to Exhibit 4.7 to the
                            Company's Registration Statement on Form S-8 (Reg. No.
                            333-23739)).
</TABLE>
 
                                       46
<PAGE>   47
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
         10.26*          -- Camco Thrift Plan, as amended (incorporated by reference
                            to Exhibit No. 4.6 to the Company's Registration
                            Statement on Form S-8 (Reg. No. 333-09299)).
         10.27           -- Lease Agreement dated July 9, 1979, between the State of
                            Alaska Department of Natural Resources, Division of
                            Forest, Land and Water Management and Camco Wireline,
                            Inc. (incorporated by reference to Exhibit No. 10.23 to
                            the Company's Registration Statement on Form S-1 (Reg.
                            No. 33-83562)).
         10.28*          -- Production Operators, Inc. Supplemental Benefit Plan
                            (incorporated by reference to Exhibit 28.2 to Production
                            Operator Corp's Current Report on Form 8-K, filed
                            February 24, 1992).
         21.1            -- Subsidiaries of the Registrant.
         23.1            -- Consent of Arthur Andersen LLP.
         27.1            -- Financial Data Schedule.
</TABLE>
 
---------------
 
* Management Contract or Incentive Program.
 
     As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Annual Report certain instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
 
        (b) On November 21, 1997, The Company filed a Current Report on Form 8-K
reporting an amendment to the Company's Rights Agreement.
 
                                       47
<PAGE>   48
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) 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, on March 13, 1998.
 
                                            CAMCO INTERNATIONAL INC.
 
                                            By:    /s/ GARY D. NICHOLSON
                                              ----------------------------------
                                                      Gary D. Nicholson
                                               Chairman of the Board, President
                                                  and Chief Executive Officer
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
to the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                     SIGNATURES                                    TITLE                   DATE
                     ----------                                    -----                   ----
<C>                                                    <S>                            <C>
                /s/ GARY D. NICHOLSON                  Chairman of the Board,         March 13, 1998
-----------------------------------------------------    President, and Chief
                  Gary D. Nicholson                      Executive Officer
                                                         (Principal Executive
                                                         Officer)
 
                /s/ HERBERT S. YATES                   Senior Vice                    March 13, 1998
-----------------------------------------------------    President -- Finance and
                  Herbert S. Yates                       Chief Financial Officer
                                                         (Principal Financial
                                                         Officer)
 
              /s/ BRUCE F. LONGAKER JR.                Vice President -- Finance and
-----------------------------------------------------    Corporate Controller
                Bruce F. Longaker Jr.                    (Principal Accounting
                                                         Officer)
 
                /s/ ROBERT L. HOWARD                   Director                       March 13, 1998
-----------------------------------------------------
                  Robert L. Howard
 
               /s/ WILLIAM J. JOHNSON                  Director                       March 13, 1998
-----------------------------------------------------
                 William J. Johnson
 
                /s/ WILLIAM A. KRAUSE                  Director                       March 13, 1998
-----------------------------------------------------
                  William A. Krause
 
              /s/ CHARLES P. SIESS, JR.                Director                       March 13, 1998
-----------------------------------------------------
                Charles P. Siess, Jr.
 
                  /s/ T. DON STACY                     Director                       March 13, 1998
-----------------------------------------------------
                    T. Don Stacy
 
                /s/ GILBERT H. TAUSCH                  Director                       March 13, 1998
-----------------------------------------------------
                  Gilbert H. Tausch
 
               /s/ W. LESTER VARN, JR.                 Director                       March 13, 1998
-----------------------------------------------------
                 W. Lester Varn, Jr.
</TABLE>
 
                                       48
<PAGE>   49
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                       DESCRIPTION OF EXHIBIT
  -------                       ----------------------
<C>          <S>                                                          <C>
    2.1      -- Reorganization Agreement (incorporated by reference to
                Exhibit No. 2.1 to the Company's Registration Statement
                on Form S-1 (Reg. No. 33-70036)).
    2.2      -- Agreement and Plan of Merger dated as of February 27,
                1997, by and among Camco International Inc., Plane
                Acquisition Corp. and Production Operators Corp.
                (incorporated by reference to Exhibit 2.1 to the
                Company's Current Report on Form 8-K filed on March 7,
                1997).
    3.1      -- Restated Certificate of Incorporation (incorporated by
                reference to Exhibit No. 3.1 to the Company's Annual
                Report on Form 10-K for the year ended December 31,
                1993).
    3.2      -- By-laws (incorporated by reference to Exhibit No. 3.4 to
                the Company's Registration Statement on Form S-1 (Reg.
                No. 33-70036)).
    4.1      -- See Exhibits 3.1 and 3.2 for provisions of the Restated
                Certificate of Incorporation and By-laws of the Company
                defining the rights of holders of Common Stock.
    4.2      -- Form of Common Stock Certificate (incorporated by
                reference to Exhibit No. 4.2 to the Company's
                Registration Statement on Form S-1 (Reg. No. 33-70036)).
    4.3      -- Rights Agreement dated as of December 15, 1994, between
                Camco International Inc. and First Chicago Trust Company
                of New York, as Rights Agent, which includes as exhibits,
                the form of Right Certificate and the Summary of Rights
                to Purchase Common Shares (incorporated by reference to
                Exhibit No. 1 to the Company's Registration Statement on
                Form 8-A dated December 19, 1994).
    4.4      -- First Amendment to Rights Agreement dated as of October
                21, 1997, between the Company and First Chicago Trust
                Company of New York, as Rights Agent (incorporated by
                reference to Exhibit No. 4.2 to the Company's Current
                Report on Form 8-K dated November 21, 1997)
   10.1*     -- Amended and Restated Stock Option Plan for Nonemployee
                Directors (incorporated by reference to Exhibit No. 10.1
                to the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 30, 1996).
   10.2*     -- Supplemental Executive Retirement Plan (incorporated by
                reference to Exhibit No. 10.2 to the Company's
                Registration Statement on Form S-1 (Reg. No. 33-83562)).
   10.3*     -- Long-Term Incentive Plan of Camco International Inc.
                (incorporated by reference to Exhibit 10.3 to the
                Company's Annual Report on Form 10-K for the year ended
                December 31, 1993).
   10.4*     -- 1997 Long-Term Incentive Plan of Camco International Inc.
                (incorporated by reference to Exhibit No. 4.6 to the
                Company's Registration Statement on Form S-8 (Reg. No.
                333-29065)).
   10.5*     -- Description of Management Bonus Program (incorporated by
                reference to Exhibit No. 10.4 to the Company's
                Registration Statement on Form S-1 (Reg. No. 33-83562)).
   10.6*     -- Letter Agreement between the Company and Gary Nicholson
                (incorporated by reference to Exhibit No. 10.5 to the
                Company's Registration Statement on Form S-1 (Reg. No.
                33-70036)).
   10.7*     -- Form of Executive Severance Agreement (incorporated by
                reference to Exhibit No. 10.6 to the Company's
                Registration Statement on Form S-1 (Reg. No. 33-70036)).
</TABLE>
<PAGE>   50
 
<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                       DESCRIPTION OF EXHIBIT
  -------                       ----------------------
<C>          <S>                                                          <C>
   10.8*     -- Form of First Amendment to Executive Severance Agreement
                (incorporated by reference to Exhibit No. 10.7 to the
                Company's Registration Statement on Form S-1 (Reg. No.
                33-83562)).
   10.9      -- Form of Indemnification Agreement (incorporated by
                reference to Exhibit No. 10.7 to the Company's
                Registration Statement on Form S-1 (Reg. No. 33-70036)).
   10.10     -- Reed Hourly Thrift Plan, as amended (incorporated by
                reference to Exhibit No. 4.6 to the Company's
                Registration Statement on Form S-8 (Reg. No. 333-18129)).
   10.11     -- Tax Allocation Agreement (incorporated by reference to
                Exhibit No. 10.9 to the Company's Registration Statement
                on Form S-1 (Reg. No. 33-70036)).
   10.12     -- U.S. Tax Transition Agreement (incorporated by reference
                to Exhibit No. 10.10 to the Company's Registration
                Statement on Form S-1 (Reg. No. 33-70036)).
   10.13     -- U.K. Tax Transition Agreement (incorporated by reference
                to Exhibit No. 10.11 to the Company's Registration
                Statement on Form S-1 (Reg. No. 33-70036)).
   10.14     -- Credit Agreement by and among Camco International Inc.,
                the Lenders party thereto, Bank of America National Trust
                and Savings Association, Toronto Dominion (Texas), Inc.,
                and Wachovia Bank, N.A., as co-agents and the Bank of New
                York as Administrative Agent, including forms of notes
                (dated October 22, 1997
   10.15     -- Amended, Restated and Consolidated Lease Agreement dated
                as of May 7, 1990, between the City of Bartlesville,
                Oklahoma, and Reda, a division of Camco International
                Inc. (incorporated by reference to Exhibit No. 10.13 to
                the Company's Registration Statement on Form S-1 (Reg.
                No. 33-70036)).
   10.16     -- Lease dated September 12, 1994, between Jurong Town
                Corporation and Reda Pump Company (Singapore) Private
                Limited (incorporated by reference to Exhibit No. 10.14
                to the Company's Registration Statement on Form S-1 (Reg.
                No. 33-70036)).
   10.17     -- Building Agreement dated May 12, 1983, between Jurong
                Town Corporation and Reed Rock Bit Company International,
                Ltd. (incorporated by reference to Exhibit No. 10.15 to
                the Company's Registration Statement on Form S-1 (Reg.
                No. 33-70036)).
   10.18     -- 999 Year Lease dated November 7, 1988, between The
                Department of Economic Development and Camco Limited
                (incorporated by reference to Exhibit No. 10.16 to the
                Company's Registration Statement on Form S-1 (Reg. No.
                33-70036)).
   10.19     -- Amended and Restated Joint Venture Agreement dated July
                7, 1993, between Reda Industries Ltd. and P.T. Imeco
                Inter Sarana (incorporated by reference to Exhibit No.
                10.17 to the Company's Registration Statement on Form S-1
                (Reg. No. 33-70036)).
   10.20     -- Joint Venture Agreement dated June 23, 1990, between
                Camco Soviet Services Limited, and Urengoigasprom
                (incorporated by reference to Exhibit No. 10.18 to the
                Company's Registration Statement on Form S-1 (Reg. No.
                33-70036)).
   10.21     -- Agreement for Technology Transfer, Grant For License, and
                the Sale of Manufacturing Know-How and Technical
                Assistance dated December 5, 1991, between the Reda
                Division of Camco International Inc., Reda Pump Company
                (Singapore) Private Ltd., the Lawrence Technology
                Division of Camco International Inc. and Zavody Tazkeho
                Strojarstva, Dubnica Vahom (incorporated by reference to
                Exhibit No. 10.19 to the Company's Registration Statement
                on Form S-1 (Reg. No. 33-70036)).
</TABLE>
<PAGE>   51
 
<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                       DESCRIPTION OF EXHIBIT
  -------                       ----------------------
<C>          <S>                                                          <C>
   10.22*    -- Forms of Restricted Share Agreements (incorporated by
                reference to Exhibit No. 10.22 to the Company's
                Registration Statement on Form S-1 (Reg. No. 33-83562)).
   10.23     -- Service contract between Logoven S.A. and William
                International Company and Production Operators, Inc.
                Dated February 4, 1997.
   10.24*    -- Camco International Inc. Deferred Income Plan
                (incorporated by reference to Exhibit No. 4.6 to the
                Company's Registration Statement on Form S-8 (Reg. No.
                333-23739)).
   10.25*    -- Camco International Inc. Deferred Income Plan Trust
                (incorporated by reference to Exhibit 4.7 to the
                Company's Registration Statement on Form S-8 (Reg. No.
                333-23739)).
   10.26*    -- Camco Thrift Plan, as amended (incorporated by reference
                to Exhibit No. 4.6 to the Company's Registration
                Statement on Form S-8 (Reg. No. 333-09299)).
   10.27     -- Lease Agreement dated July 9, 1979, between the State of
                Alaska Department of Natural Resources, Division of
                Forest, Land and Water Management and Camco Wireline,
                Inc. (incorporated by reference to Exhibit No. 10.23 to
                the Company's Registration Statement on Form S-1 (Reg.
                No. 33-83562)).
   10.28*    -- Production Operators, Inc. Supplemental Benefit Plan
                (incorporated by reference to Exhibit 28.2 to Production
                Operator Corp's Current Report on Form 8-K, filed
                February 24, 1992).
   21.1      -- Subsidiaries of the Registrant.
   23.1      -- Consent of Arthur Andersen LLP.
   27.1      -- Financial Data Schedule.
</TABLE>
 
---------------
 
* Management Contract or Incentive Program.