<PAGE>
 
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q
  (Mark One)

    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
             For the quarterly period ended September 30, 1998

                                       OR

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

           For the transition period from___________to________________
           Commission File number 1-8158


                           VARCO INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

       California                                    95-0472620
  (State or other jurisdiction of       (I.R.S. Employer Identification No.)
  incorporation or organization)

                   743 North Eckhoff Street, Orange, Ca 92868
                    (Address of principal executive offices)
                                   (Zip code)

                                 (714) 978-1900
              (Registrant's telephone number, including area code)

                                 Not Applicable
  (Former name, former address and former fiscal year, if changed since last 
                                    report)


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
                                       ----    ----

                                   64,636,094

      (Number of shares of Common Stock outstanding at October 31, 1998)
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                          PART I-FINANCIAL INFORMATION


Item 1.  Financial Statements.

          Pursuant to General Instruction D to Form 10-Q, the Condensed
Consolidated Statements of Cash Flows, Condensed Consolidated Balance Sheets and
Condensed Consolidated Statements of Income of Varco International, Inc., (the
"Company") and its subsidiaries included in the registrant's Third Quarter
Report to Shareholders for the three months ended September 30, 1998, filed as
Exhibit 19 hereto are incorporated herein by reference. Such financial
statements should be read in light of the following:

          Adjustments. The financial statements contained in Exhibit 19 hereto
include all adjustments which in the opinion of management are of a normal
recurring nature, considered necessary to present fairly the results of
operations for the interim periods presented.

          Basic net income per share is based upon an average of 64,475,227 and
63,772,226 shares outstanding for the three months ended September 30, 1998, and
1997 respectively. Diluted net income per share is based upon an average of
65,484,416 and 65,294,778 shares outstanding for the three months ended
September 30, 1998, and 1997 respectively.

          Basic net income per share is based upon an average of 64,387,168 and
63,502,903 shares outstanding for the nine months ended September 30, 1998, and
1997 respectively. Diluted net income per share is based upon an average of
65,396,357 and 65,025,455 shares outstanding for the nine months ended September
30, 1998, and 1997 respectively.

          Inventories. The Company estimates the components of inventory at
September 30, 1998, and December 31, 1997, to be as follows:

<TABLE>
<CAPTION>
 
                             September 30, 1998    December 31, 1997
<S>                          <C>                   <C>
 
   Raw Materials              $  6,891,000         $  6,118,000
   Work in Process              50,441,000           43,495,000
   Finished Goods              127,463,000           95,063,000
   LIFO Reserves               (13,038,000)         (12,705,000)
                              ------------         ------------
                              $171,757,000         $131,971,000
                              ============         ============
</TABLE>

          Fixed Assets. Fixed assets are stated net of accumulated depreciation
of $73,637,000 at September 30, 1998, and $62,469,000 at December 31, 1997.

          Common Stock and Additional Paid-In-Capital. On September 30, 1998,
the Company Common Stock account was $54,845,000 and Additional Paid-In-Capital
accounts were $99,814,000.
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.

          Pursuant to General Instruction D to Form 10-Q, Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the registrant's Third Quarter Report to Shareholders for the three
months ended September 30, 1998, filed as Exhibit 19 hereto, is incorporated
herein by reference.

                           PART II-OTHER INFORMATION

Item 2.  Changes in Securities

In July 1992 the Company sold $50.0 million aggregate principal amount of its
8.95% Senior Notes Due June 30, 1999 (the "Senior Notes") to a group of ten
institutional investors pursuant to a Note Agreement dated as of July 1, 1992
(as amended, the "Note Agreement"). The remaining $10.0 million principal
balance of the Senior Notes is payable on June 30, 1999.

The Note Agreement prohibits any "Restricted Payment" subsequent to July 17,
1992 unless after giving effect thereto, (i) the aggregate amount of all
Restricted Payments subsequent to such date would not exceed $5,000,000 plus the
cumulative sum of 50% of the Company's consolidated net income (or minus 100% in
the case of a deficit) subsequent to March 31, 1992 and (ii) the Company could
incur at least $1.00 of additional indebtedness under the Note Agreement
covenant limiting indebtedness. The term "Restricted Payment" includes (a) any
dividend (other than dividends payable in shares of capital stock) or other
distributions on any shares of capital stock of the Company; (b) any purchase,
redemption or other acquisition of any shares of the capital stock of the
Company or any rights or options to purchase or acquire such shares; and (c) any
"Restricted Investment", which is generally defined as any investment other than
an investment in a subsidiary of the Company or an investment in certain
designated government or rated securities. In addition, the Company may
purchase, redeem or otherwise acquire shares of its capital stock or make
Restricted Investments from the net cash proceeds of the substantially
concurrent sales of shares of capital stock or from the sale of securities
convertible into such shares upon conversion.

On June 27, 1997 the Company entered into a seven-year unsecured revolving
credit agreement with three banks (the "Credit Agreement"). The Credit Agreement
provides for a credit facility of $65.0 million, inclusive of a $20.0 million
letter of credit sub-facility. The maximum available under the Credit Agreement
is reduced in equal quarterly amounts over the last four years of the Credit
Agreement.

The Credit Agreement prohibits any "Restricted Junior Payment" unless (1) at the
time thereof no default exists under the Credit Agreement or will be caused
thereby and (2) the cumulative amount of all Restricted Junior Payments
subsequent to June 27, 1997, would not exceed the sum of $5,000,000 plus 25% of
the Company's consolidated net income arising after June 30, 1997. "Restricted
Junior Payment" is generally defined as (1) any dividend or other distribution
on any class of the Company's capital stock, except a dividend payable solely in
shares of that class; (2) any redemption, purchase or other acquisition for
value of any shares of any class of the capital stock of the Company; (3) any
payment made to retire or obtain the surrender of any outstanding
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warrants, options or similar rights to acquire any shares of any class of the
capital stock of the Company; and (4) any payment on the Senior Notes other than
regularly scheduled payments of principal and interest thereon.


Item 6.  Exhibits and Reports on Form 8-K

      (a) Exhibits

      11  Statement re computation of per share earnings for the three months
 and nine months ended September 30, 1998 and 1997.

      19  Varco International, Inc. Third Quarter Report to Shareholders, Three
 Months  Ended September 30, 1998.

      27  Financial Data Schedule

      (b) Reports on Form 8-K.

          No reports on Form 8-K were filed during the quarter for which this
 report is filed.
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                                   SIGNATURES



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



                                                 VARCO INTERNATIONAL, INC.



Date: November 11, 1998                          By: /s/ Richard A. Kertson
                                                     ---------------------------
                                                     Vice President-Finance
                                                     and Chief Financial Officer
 



Date: November 11, 1998                          By: /s/ Donald L. Stichler
                                                     ---------------------------
                                                     Vice President,
                                                     Controller-Treasurer
                                                     and Secretary
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                                 EXHIBIT INDEX



11  Statement re computation of per share earnings for the three months and nine
    months ended September 30, 1998 and 1997.

19  Varco International, Inc. Third Quarter Report to Shareholders, Three Months
    Ended September 30, 1998.

27  Financial Data Schedule