<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q



[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 001-13593


                          IRI INTERNATIONAL CORPORATION

             (Exact name of registrant as specified in its charter)


                   Delaware                               75-2044681
      -----------------------------------        ----------------------------
         (State or other jurisdiction                  (I.R.S. Employer 
       of incorporation or organization)              Identification No.)


                1000 Louisiana, 
                  Suite 5900, 
                 Houston, Texas                             77002
         -------------------------------------   ----------------------------
             (Address of principal                        (Zip code)
               executive offices)      


Registrant's telephone number, including area code       (713) 651-8002
                                                     ----------------------

         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 shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]

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


                Class                    Outstanding at November 12, 1998
    ----------------------------        -----------------------------------
            Common stock,                            39,900,000
     $0.01 par value per share                                             


<PAGE>   2


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

               (In thousands, except share and per share amounts)



<TABLE>
<S>                                                                                 <C>              <C>
                                                                                    September 30,     December 31,
                                      Assets                                             1998             1997
                                      ------                                        -------------     ------------
                                                                                     (Unaudited)
Current assets:
     Cash and cash equivalents                                                        $  37,770        $  49,473
     Marketable securities, at fair value (cost of $409 at September 30, 1998
       and $7,448 at December 31, 1997)                                                      34            8,218
     Accounts receivable, less allowance for doubtful accounts of $412 at
       September 30, 1998 and $455 at December 31, 1997                                  28,695           33,130
     Inventories                                                                        118,714          100,901
     Costs and estimated earnings in excess of billings on uncompleted contracts          6,985            8,853
     Other current assets                                                                 1,869            1,444
                                                                                      ---------        ---------
                  Total current assets                                                  194,067          202,019

Property, plant and equipment, net                                                       50,569           43,219

Other assets                                                                              4,700            5,836
                                                                                      ---------        ---------
                                                                                      $ 249,336        $ 251,074
                                                                                      =========        =========
                       Liabilities and Shareholders' Equity
                       ------------------------------------

Current liabilities:
     Accounts payable and accrued liabilities                                         $  18,194        $  27,797
     Customer advances                                                                    8,236            7,546
     Other liabilities                                                                    3,808            4,786
                                                                                      ---------        ---------
                  Total current liabilities                                              30,238           40,129

Negative goodwill, less accumulated amortization                                          5,368            9,393
Accrued postretirement benefits                                                           2,192            2,420
Other long-term liabilities                                                                 458              726
                                                                                      ---------        ---------
                  Total liabilities                                                      38,256           52,668

Shareholders' equity:
     Preferred stock, $1 par value, 25,000,000 shares authorized, none issued                 -                -
     Common stock, $0.01 par value, 100,000,000 shares authorized,
       39,900,000 shares issued and outstanding                                             399              399
     Additional paid-in capital                                                         168,514          168,538
     Retained earnings                                                                   43,622           30,926
     Accumulated other comprehensive loss                                                (1,455)          (1,457)
                                                                                      ---------        ---------
                  Total shareholders' equity                                            211,080          198,406

Commitments and contingencies                                                                           
                                                                                      ---------        ---------
                                                                                      $ 249,336        $ 251,074
                                                                                      =========        =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>   3

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                    (In thousands, except per share amounts)

                                   (Unaudited)

<TABLE>


                                                                        Three Months Ended               Nine Months Ended
                                                                           September 30,                    September 30,
                                                                  ---------------------------       ---------------------------
                                                                     1998              1997             1998            1997
                                                                  ----------        ---------       -----------      ----------
<S>                                                               <C>               <C>             <C>              <C>   
Revenues                                                          $ 40,650          $  54,345       $  139,281       $ 112,130
Cost of goods sold                                                  29,586             41,690           99,900          86,816
                                                                  --------          ---------       ----------       ---------
         Gross profit                                               11,064             12,655           39,381          25,314

Administrative and selling expense                                   6,991              6,943           21,170          15,871
Restructuring charge                                                   429                 -               429              _
                                                                  --------          ---------       ----------       ---------
         Operating income                                            3,644              5,712           17,782           9,443
                                                                  --------          ---------       ----------       ---------

Other income (expense):
     Interest income                                                   455                 49            1,766             128
     Interest expense                                                  (24)            (3,393)            (253)         (6,540)
     Losses on trading securities                                     (399)                -            (2,375)             _
     Special charge                                                     -                  -              (631)             _
     Other, net                                                       (437)               333             (807)            259
                                                                  --------          ---------       ----------       ---------
                                                                      (405)            (3,011)          (2,300)         (6,153)
                                                                  --------          ---------       ----------       ---------

         Income before income taxes                                  3,239              2,701           15,482           3,290

Income taxes                                                           440                171            2,786             339
                                                                  --------          ---------       ----------       ---------
         Net income                                               $  2,799          $   2,530       $   12,696         $ 2,951
                                                                  ========          =========       ==========       =========

Basic and diluted net income per common share                     $   0.07          $    0.08       $     0.32       $    0.10
                                                                  ========          =========       ==========       =========

Weighted average shares outstanding                                 39,900             30,000           39,900          30,000
                                                                  ========          =========       ==========       =========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>   4
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                 (In thousands)

                                   (Unaudited)


<TABLE>

                                                                                            Accumulated
                                                          Additional                           other               Total
                                              Common        paid-in        Retained        comprehensive       shareholders'
                                              stock         capital        earnings            loss                equity
                                             --------    ------------     ----------      ---------------     ---------------     
<S>                                          <C>         <C>              <C>             <C>                 <C>
Balances at
   December 31, 1997                          $ 399       $ 168,538       $  30,926         $  (1,457)           $ 198,406

Net income (unaudited)                           -               -           12,696                -                12,696

Other (unaudited)                                -              (24)             -                 -                   (24)

Translation adjustment (unaudited)               -               -               -                  2                    2
                                              -----       ---------       ---------         ---------            ---------

Balances at September 30, 1998
   (unaudited)                                $ 399       $ 168,514       $  43,622         $  (1,455)           $ 211,080
                                              =====       =========       =========         =========            =========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>   5

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

<TABLE>
                                                                                          Nine Months Ended
                                                                                            September 30,
                                                                                      --------------------------
                                                                                        1998              1997
                                                                                      --------         ---------
<S>                                                                                   <C>              <C>
Cash flows from operating activities:
   Net income                                                                         $ 12,696          $  2,951
   Adjustments to reconcile net income to net cash
     provided by operations:
       Depreciation and amortization                                                     4,159             2,115
       Gain on sale of assets                                                               -               (371)
       Amortization of negative goodwill                                                (4,026)           (4,026)
       Change in employee benefit accounts                                                (228)             (273)
       Changes in assets and liabilities, exclusion of effects of acquisitions:
         Marketable securities                                                           8,184                -
         Accounts receivable                                                             4,435            (3,508)
         Inventories                                                                   (17,813)          (16,464)
         Other current assets                                                            1,443            (5,076)
         Other non current assets                                                          185                -
         Accounts payable and accrued liabilities,
             Customer advances and other liabilities                                    (9,928)           10,464
         Change in cumulative translation adjustment                                         2                -
                                                                                      --------          --------
                  Net cash flows used in operations                                       (891)          (14,188)
                                                                                      --------          --------
Cash flows from investing activities:
   Capital expenditures                                                                (10,558)           (2,368)
   Acquisition of Bowen assets, net of liabilities assumed                                  -            (77,264)
   Acquisition costs of Cardwell, net of liabilities assumed                                -            (12,574)
                                                                                      --------          --------
                  Net cash flows used in investing activities                          (10,558)          (92,206)
                                                                                      --------          --------
Cash flows from financing activities:
   Proceeds from sale of assets                                                             -                523
   Proceeds from notes payable                                                              -            113,482
   Payments on notes payable                                                               (72)           (6,653)
   Debt issuance costs                                                                      -             (3,852)
   Payments on capital lease obligation                                                   (158)             (157)
   Other                                                                                   (24)               -
                                                                                      --------          --------
                  Net cash flows provided by (used in) financing activities               (254)          103,343
                                                                                      --------          --------
Decrease in cash and cash equivalents                                                  (11,703)           (3,051)
Cash and cash equivalents at beginning of period                                        49,473             8,635
                                                                                      --------          --------
Cash and cash equivalents at end of period                                            $ 37,770          $  5,584
                                                                                      ========          ========

Supplemental cash flow information:
   Interest paid                                                                      $    253          $  5,846
                                                                                      ========          ========
   Income taxes paid                                                                  $  5,219          $     -
                                                                                      ========          ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>   6

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

(1)    General

       The accompanying condensed consolidated financial statements of IRI
       International Corporation and subsidiaries (the "Company") as of
       September 30, 1998 and for the three and nine months ended September 30,
       1998 and 1997 have been prepared pursuant to the rules and regulations of
       the Securities and Exchange Commission and are unaudited; however, they
       include all adjustments (consisting only of normal recurring adjustments)
       which, in the opinion of management, are necessary for a fair
       presentation for such periods. Accounting measurements at interim dates
       inherently involve greater reliance on estimates than at year-end. The
       results of operations for the interim periods presented are not
       necessarily indicative of the results to be expected for the entire year.

       Certain footnote disclosures normally included in annual consolidated
       financial statements prepared in accordance with generally accepted
       accounting principles have been omitted herein. The interim information
       should be read in conjunction with the Company's Annual Report on Form
       10-K for the year ended December 31, 1997.

       Effective January 1, 1998, the Company adopted Statement of Financial
       Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
       SFAS No. 130 establishes standards for reporting and display of
       comprehensive income in a full set of general-purpose financial
       statements. Comprehensive income includes net income and other
       comprehensive income which is generally comprised of changes in the fair
       value of available-for-sale marketable securities, foreign currency
       translation adjustments and adjustments to recognize additional minimum
       pension liabilities. The Company had accumulated other comprehensive loss
       at December 31, 1997 of $1,457,000 consisting entirely of an adjustment
       to recognize additional minimum pension liability. The Company had other
       comprehensive income for the three and nine months ended September 30,
       1998 of $201,000 and $2,000, respectively, consisting of foreign currency
       translation adjustments.

(2)    Inventories

       Inventories consist of the following at September 30, 1998 and 
       December 31, 1997 (in thousands):

                                               1998                     1997
                                               ----                     ----

             Raw materials                  $46,178              $    39,087
             Work-in-process                 32,619                   28,771
             Finished goods                  39,917                   33,043
                                           --------                ---------
                               Total       $118,714                $ 100,901
                                           ========                =========


                                       6

<PAGE>   7

(3)    Commitments and Contingencies

       The Company has contract commitments aggregating $32.3 million at
       September 30, 1998 for the manufacture and delivery of drilling rigs
       during the remainder of fiscal 1998. At September 30, 1998, the Company
       was contingently liable for approximately $4.6 million in letters of
       credit which guarantee the Company's performance for payment to third
       parties in accordance with specified contractual terms and conditions.
       These letters of credit are primarily secured by the Company's cash,
       accounts receivable and inventory. Management does not expect any
       material losses to result from these off-balance-sheet instruments as it
       anticipates full performance on the related contracts.

(4)    Net Income per Common Share

       Stock options outstanding at September 30, 1998 of 3,866,000 million
       shares were not considered in the computation of net income per common
       share because the exercise price exceeded the average market price for
       the period and are therefore antidilutive.

(5)    Acquisitions

       On March 31, 1997, the Company acquired certain assets and assumed
       certain liabilities of Bowen Tools, Inc. ("Bowen"), a wholly-owned
       subsidiary of the French chemical concern L'Air Liquide, for a total cash
       consideration of $75.1 million. On April 17, 1997, the Company also
       acquired the stock of Cardwell International Ltd. ("Cardwell"), a
       privately owned company, as well as certain assets held by affiliates of
       Cardwell for approximately $12 million in cash at closing and partial
       payment ($3 million) of a note payable to bank. In addition, the Company
       incurred approximately $3.2 million ($2.6 million for Bowen and $.6
       million for Cardwell) of transaction costs in connection with the
       acquisitions.

       The following sets forth selected consolidated financial information for
       the Company on a pro forma basis for the nine months ended September 30,
       1997, assuming the Bowen and Cardwell acquisitions had occurred on
       January 1, 1997 (in thousands, except per share amounts):

             Revenues                                $   134,450
                                                      ==========
             Gross profit                            $    34,603
                                                      ==========
             Operating income                        $    10,440
                                                      ==========
             Net income                              $     1,228
                                                      ==========
             Net income per common share             $      0.04
                                                      ==========

       Pro forma adjustments primarily relate to additional interest expense
       resulting from debt to finance the acquisitions, additional depreciation
       and amortization expenses as a result of the purchase price allocations
       to property, plant and equipment and excess of cost over net tangible
       assets purchased and the related tax effects of these adjustments.

       The pro forma information is not necessarily indicative of the results
       that actually would have been achieved had such transactions been
       consummated as of January 1, 1997, or that may be achieved in the future.

                                       7

<PAGE>   8

(6)    Special Charges

       On April 28, 1998, the Company terminated a proposed merger with Hitec
       ASA, a Norwegian Corporation. External expenses incurred in connection
       with the merger have been reported as a special charge of $631,000 in the
       quarter ended June 30, 1998.

       On October 8, 1998, the Company announced a restructuring program in
       which the workforce would be reduced by up to 315 employees. Expenses
       incurred in connection with the restructuring program have been reported
       as a restructuring charge of $429,000 for the three and nine months ended
       September 30, 1998.

(7)    New Accounting Pronouncements

       In April 1998, the American Institute of Certified Public Accountants
       issued Statement of Position 98-5 ("SOP 98-5"), Reporting of the Costs of
       Start-up Activities, which is effective for financial statements issued
       for periods beginning after December 15, 1998. The Company believes SOP
       98-5 will not have a material impact on its financial statements or
       accounting policies. The Company will adopt the provisions of SOP 98-5 in
       the first quarter of 1999.

       The Company is assessing the reporting and disclosure requirements of
       SFAS No. 131, Disclosures about Segments of an Enterprise and Related
       Information. This statement requires a public business enterprise to
       report financial and descriptive information about its reportable
       operating segments. The statement is effective for financial statements
       for periods beginning after December 15, 1997, but is not required for
       interim financial statements in the initial year of its application. The
       Company will adopt the provisions of SFAS No. 131 in its December 31,
       1998 consolidated financial statements.

       The Company is also assessing the reporting and disclosure requirements
       of SFAS No. 132, Employers' Disclosures about Pension and Other
       Postretirement Benefits. This statement standardizes the disclosure
       requirements for pensions and other postretirement benefits. It does not
       address measurement or recognition. The statement is effective for fiscal
       years beginning after December 31, 1997. The Company has not determined
       the effect of adoption of this statement on its financial statements.

       The Company is also assessing the reporting and disclosure requirements
       of SFAS No. 133, Accounting for Derivative Instruments and Hedging
       Activities. This statement establishes accounting and reporting standards
       for derivative instruments and hedging activities. The statement is
       effective for financial statements for fiscal years beginning after June
       15, 1999. The Company believes SFAS No. 133 will not have a material
       impact on its financial statements or accounting policies. The Company
       will adopt the provisions of SFAS No. 133 in the first quarter of 2000.

                                       8
<PAGE>   9


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

         The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto.

OVERVIEW

         The Company manufactures land-based drilling and well-servicing rigs,
rig component parts, and downhole tools and related equipment for use in the
domestic and international markets. The Company's revenues are substantially
dependent upon the condition of the oil and gas industry and worldwide levels of
exploration, development and production activity, including 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 workover activity. Exploration,
development and production activity is largely dependent on the prevailing view
of future oil and natural gas prices, which have been characterized by
significant volatility over the last 20 years. Oil and natural gas prices are
influenced by numerous factors affecting the supply of and demand for oil and
gas, including the level of drilling activity, worldwide economic activity,
interest rates and the cost of capital, environmental regulation, tax policies,
political requirements of national governments, coordination by OPEC and the
cost of producing oil and gas. Demand for the Company's products in certain
emerging market countries may depend somewhat less on the prevailing view of
future oil and natural gas prices, as such countries may generally place greater
emphasis on their need for internal development, energy self-sufficiency or hard
currency earnings.

         Steadily declining oil prices, the financial crisis in Russia and
unsettled economic conditions in emerging markets have resulted in a consequent
decline in the worldwide level of exploration, development and production
activity in the oil and gas industry. This has materially adversely affected the
Company's revenues and operating income in the current quarter, as described
below, as well as the level of its dependable backlog. Management believes these
industry conditions will continue and may worsen, further affecting adversely
the Company's financial results of operations. Accordingly, management has
assessed and begun to implement a variety of measures to minimize the adverse
effects of industry conditions on the Company's business and financial
performance, including its announced restructuring program that will reduce its
workforce by up to 315 employees. The Company is considering other cost
reduction measures, including plant closings, in response to these conditions.
No assurance can be given, however, that this or any measure will be sufficient
to offset the negative effects of prevailing industry conditions on the
Company's business and financial performance.

RESULTS OF OPERATIONS

         Sales of new rigs manufactured by the Company can produce large
fluctuations in revenues depending on the size and the timing of the
construction of rig orders. Individual orders of rig packages range from $1
million to $25 million and cycle times for the design, engineering and
manufacturing of rig packages range from six to nine months. These fluctuations
may affect the Company's quarterly revenues and operating income.

Results of Segment Operations

         The following discussion of the results of operations of the Company's
oilfield equipment, downhole products and specialty steel segments does not
reflect the allocation of corporate and unallocated administrative expenses,
amortization of negative goodwill and amortization of goodwill on an individual
segment basis. Certain information that reconciles the discussion of the results
of operations of the individual segments to the Company's Condensed Consolidated
Financial Statements is as follows:

                                       9

<PAGE>   10

<TABLE>


                                                     Three Months                            Nine Months
                                                        Ended                                   Ended
                                                     September 30,                           September 30,
                                                -----------------------                ---------------------
                                                  1998           1997                    1998        1997
                                                -------        --------                --------   ----------
<S>                                             <C>             <C>                    <C>         <C>
Revenues
   Oilfield equipment                           $19,677         $29,310                 $69,857      $60,640
   Downhole products                             17,568          22,339                  60,744       42,015
   Specialty steel                                3,427           3,024                   9,027        9,803
   Eliminations                                     (22)           (328)                   (347)        (328)
                                                -------         -------                --------     --------
       Total                                    $40,650         $54,345                $139,281     $112,130
                                                =======         =======                ========     ========

Segment operating income
   Oilfield equipment                           $ 3,008         $ 3,190                $ 12,821     $  5,834
   Downhole products                              3,062           4,040                  11,855        6,022
   Specialty steel                                1,092           1,114                   2,347        2,880
                                                -------         -------                --------     --------
       Total                                      7,162           8,344                  27,023       14,736

   Corporate overhead and unallocated
       administrative expenses                   (4,117)         (3,675)                (11,886)      (8,766)
   Amortization of negative goodwill              1,341           1,342                   4,025        4,026
   Amortization of goodwill                        (313)           (299)                   (951)        (553)
   Restructuring charge                            (429)              -                    (429)           -
                                                -------         -------                --------     --------
   Operating income                             $ 3,644         $ 5,712                $ 17,782     $  9,443
                                                =======         =======                ========     ========

</TABLE>

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS 
ENDED SEPTEMBER 30, 1997

Oilfield Equipment

         Revenues and operating income for the oilfield equipment unit were
$19.7 million and $3.0 million, respectively, for the three months ended
September 30, 1998, as compared to $29.3 million and $3.2 million, respectively,
for the three months ended September 30, 1997. The decrease in revenues was due
primarily to the effects of lower oil prices and the destabilization of the
Russian economy. The decrease in operating income was due to reduced revenues,
partially offset by a reduction in the cost structure. Gross margin for the
three months ended September 30, 1998 was 19.9%, as compared to 14.1% for the
three months period ended September 30, 1997. The increase in gross margin was
due primarily to increased productivity and a favorable mix between manufactured
equipment and buyouts.

Downhole Products

         Revenues and operating income for the downhole products unit were $17.6
million and $3.1 million, respectively, for the three months ended September 30,
1998, as compared to $22.3 million and $4.0 million, respectively, for the three
months ended September 30, 1997. Revenues decreased primarily due to lower rig
activity, resulting in decreased demand for fishing tools and wireline
equipment, and a reduction in rental revenues. Gross margin for the three months
ended September 30, 1998 was 28.4%, flat compared to 28.5% for the three months
ended September 30, 1997.

                                       10
<PAGE>   11

Specialty Steel

         Revenues and operating income for the specialty steel unit were $3.4
million and $1.1 million, respectively, for the three months ended September 30,
1998, as compared to $3.0 and $1.1 million, respectively, for the three months
ended September 30, 1997. The increase in revenues was due primarily to
increased military sales, partially offset by reduced demand from a major
customer. Gross margin for the three months ended September 30, 1998 was 33.0%,
as compared to 38.1% for the three months ended September 30, 1997. The decrease
in gross margin was primarily due to an unfavorable mix as lower margin military
sales increased and higher margin commercial sales decreased.

Corporate and Administrative Expenses

         Corporate and administrative expenses were $4.1 million for the three
months ended September 30, 1998, as compared to $3.7 million for the three
months ended September 30, 1997.

Restructuring Charge

         The Company incurred a restructuring charge of $429,000 in the third 
quarter of 1998 in connection with a restructuring program which will result in
the reduction of 315 employees.

Other Income (Expense)

         Interest income increased $406,000 for the three months ended 
September 30, 1998 over the comparable period in 1997 due to higher average cash
balances in the current year. Interest expense decreased $3.4 million for the
three months ended September 30, 1998, as compared to the prior year quarter, as
a result of the repayment of debt in November 1997 with the proceeds from the
Company's initial public offering. 

Income Taxes

         The Company's effective income tax rate for financial reporting
purposes for the three months ended September 30, 1998 of approximately 14
percent was significantly lower than the U.S. federal statutory rate of 35
percent. The lower effective rate was primarily the result of the tax benefits
from the use by the Company of its Foreign Sales Corporation subsidiary,
non-taxable income arising from the amortization of negative goodwill, and a
reduction in the valuation allowance of approximately $0.9 million against
deferred tax assets which are more likely than not of being realized.


NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED 
SEPTEMBER 30, 1997

Oilfield Equipment

         Revenues and operating income for the oilfield equipment unit were
$69.9 million and $12.8 million, respectively, for the nine months ended
September 30, 1998, as compared to $60.6 million and $5.8 million, respectively,
for the nine months ended September 30, 1997. The increase in revenues resulted
from increased sales of rig packages by the IRI Division, an increase in spare
parts and refurbishment activity, and the inclusion of the operating results of
the Company's subsidiary, Cardwell International, Ltd., for the full nine months
period in 1998, compared to six months in 1997. Increased operating income
resulted from increased sales volume and a favorable mix between manufactured
equipment and buyouts in the period. Gross margin for the nine months ended
September 30, 1998 was 22.7%, as compared to 14.0% for the nine months period
ended September 30, 1997. The increase in gross margin was due primarily to
improved pricing, increased productivity and a favorable mix between
manufactured equipment and buyouts.

                                       11
<PAGE>   12

Downhole Products

         Revenues and operating income for the downhole products unit were $60.7
million and $11.9 million, respectively, for the nine months ended September 30,
1998, as compared to $42.0 million and $6.0 million, respectively, for the nine
months ended September 30, 1997. Increased revenues and operating income for the
downhole products unit were primarily attributable to improved pricing and the
inclusion of the operating results of the Bowen Tools Division for the full nine
months period in 1998, compared to six months in 1997. Gross margin for the nine
months ended September 30, 1998 was 29.8%, as compared to 24.8% for the nine
months ended September 30, 1997. The increase in gross margin was primarily due
to improved pricing.

Specialty Steel

         Revenues and operating income for the specialty steel unit were $9.0
million and $2.3 million, respectively, for the nine months ended September 30,
1998, as compared to $9.8 and $2.9 million, respectively, for the nine months
ended September 30, 1997. The decrease in revenues was primarily the result of
reduced demand from a major customer. Gross margin for the nine months ended
September 30, 1998 was 27.3%, as compared to 30.6% for the nine months ended
September 30, 1997. The decrease in gross margin was primarily due to the
reduction of high margin business from a major customer.

Corporate and Administrative Expenses

         Corporate and administrative expenses were $11.9 million for the nine
months ended September 30, 1998, as compared to $8.8 million for the nine months
ended September 30, 1997. The increase was due primarily to the inclusion of
Bowen and Cardwell for the full nine months period in 1998, compared to six
months in 1997.

Other Income (Expense)

         Interest income increased $1.6 million for the nine months ended
September 30, 1998 over the comparable period in 1997 due to higher average cash
balances in the current year. Interest expense decreased $6.3 million for the
nine months ended September 30, 1998 as compared to the prior year period, as a
result of the repayment of debt in November 1997. The Company incurred a special
charge of $631,000 in the first six months of 1998 relating to expenses incurred
in connection with the Company's proposed acquisition of Hitec ASA, which was
terminated on April 28, 1998.

Income Taxes

         The Company's effective income tax rate for financial reporting
purposes for the nine months ended September 30, 1998 of approximately 18
percent was significantly lower than the U.S. federal statutory rate of 35
percent. The lower effective rate was primarily the result of result of the tax
benefits from the use by the Company of its Foreign Sales Corporation
subsidiary, non-taxable income arising from the amortization of negative
goodwill, and a reduction in the valuation allowance of approximately $2.1
million against deferred tax assets which are more likely than not of being
realized.

                                       12

<PAGE>   13

LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 1998, the Company had cash, cash equivalents and
marketable securities of $37.8 million, compared to $57.7 million at 
December 31, 1997. At September 30, 1998, the Company's working capital was
$163.8 million, compared to $161.9 million at December 31, 1997.

         Net cash flows used in operations of $891,000 for the nine months ended
September 30, 1998 was primarily attributable to a temporary build-up in
inventory resulting from increased sales and problems associated with the
introduction of a new management information system. Capital expenditures of
$10.6 million consist primarily of expenditures for rental tools and equipment
and new machinery at the Company's downhole products unit.

         Management believes that current working capital, in conjunction with
borrowings under its current credit facility, will be sufficient to meet the
Company's short-term (i.e., less than one year) and long-term liquidity needs.

YEAR 2000

         The Company has initiated a three-phase Year 2000 compliance program: 
(1) During the first phase, the Company will identify all non-Year 2000 
compliant hardware and software systems and other technology, and contact all 
key suppliers and customers; (2) during the second phase, the Company will 
ascertain the extent to which its systems and technologies and those of its key 
suppliers and customers are non-Year 2000 compliant and will prioritize its 
Year 2000 response accordingly; and (3) during the third phase, the Company 
will replace or remediate its non-Year 2000 compliant systems and technologies 
and develop a contingency plan with respect to systems and other technology 
that cannot be replaced or remediated in time and with respect to key 
suppliers and customers that have not become Year 2000 compliant.

         The Company expects to complete the first phase of its Year 2000 
compliance program by the end of the first quarter of 1999. The Company has 
begun to contact its key suppliers, but has not yet begun to assess the extent 
and content of any responses received. The Company has not yet begun to assess 
the Year 2000 compliance of its "non-IT" systems such as embedded technology. 
The Company expects that it will complete its entire Year 2000 compliance 
program well in advance of the year 2000.

         To date, the costs incurred by the Company's Year 2000 compliance 
program have been minimal. The replacement and upgrade of several of the 
Company's software and hardware systems in the ordinary course of business have 
had the added benefit of resolving Year 2000 issues with respect to those 
systems. Management believes that the costs to complete the Company's Year 2000 
compliance program will not have a material effect on its financial position, 
results of operations or cash flows, though there can be no assurance in this 
regard.


                                       13
<PAGE>   14
NEW ACCOUNTING PRONOUNCEMENTS

         In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting of the Costs of
Start-up Activities, which is effective for financial statements issued for
periods beginning after December 15, 1998. The Company believes SOP 98-5 will
not have a material impact on its financial statements or accounting policies.
The Company will adopt the provisions of SOP 98-5 in the first quarter of 1999.

         The Company is assessing the reporting and disclosure requirements of
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement requires a public business enterprise to report
financial and descriptive information about its reportable operating segments.
The statement is effective for financial statements for periods beginning after
December 15, 1997, but is not required for interim financial statements in the
initial year of its application. The Company will adopt the provisions of SFAS
No. 131 in its December 31, 1998 consolidated financial statements.

         The Company is also assessing the reporting and disclosure requirements
of SFAS No. 132, Employers' Disclosures about Pension and Other Postretirement
Benefits. This statement standardizes the disclosure requirements for pensions
and other postretirement benefits. It does not address measurement or
recognition. The statement is effective for fiscal years beginning after
December 31, 1997. The Company has not determined the effect of adoption of this
statement on its financial statements.

         The Company is also assessing the reporting and disclosure requirements
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement is effective for financial
statements for fiscal years beginning after June 15, 1999. The Company believes
SFAS No. 133 will not have a material impact on its financial statements or
accounting policies. The Company will adopt the provisions of SFAS No. 133 in
the first quarter of 2000.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

         With the exception of the historical information contained in this
report, the matters described herein contain forward-looking statements that
involve risk and uncertainties including, but not limited to, economic and
competitive factors outside of the control of the Company. These factors more
specifically include: dependence on the oil and gas industry, competition from
various entities, the impact of government regulations, the instability of
certain foreign economies, currency fluctuations, risks of expropriation and
changes in law affecting international trade and investment. Forward-looking
statements are typically identified by the words "believe," "expect,"
"anticipate," "intend," "estimate," and similar expressions. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.


                                       14
<PAGE>   15

                           PART II - OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

         The Securities and Exchange Commission (the "SEC") recently amended
         Rules 14a-4 and 14a-5 of the Securities Exchange Act of 1934, as
         amended. As so amended, Rule 14a-5 requires that if the date of the
         annual meeting will change more than 30 days from the prior year, then
         the Company must give notice to shareholders as to the dates after
         which shareholder proposals are considered untimely. As the Company
         expects to have its 1999 Annual Meeting of Stockholders at least 30
         days earlier than the 1998 Annual Meeting (which was held on June 25,
         1998), for purposes of the Company's 1999 Annual Meeting of
         Stockholders, management may exclude any shareholder proposals received
         after December 26, 1998 and management may use its discretionary voting
         authority to vote on any proposal with respect to which the Company
         receives notice after March 1, 1999, even if such proposal is not
         discussed in the proxy statement for the 1999 Annual Meeting of
         Stockholders.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

            (a)     Exhibits

                    The exhibits listed on the Exhibit Index following the
                    signature page hereof are filed herewith in response to
                    this item.

            (b)     Reports on Form 8-K

                    None.

                                       15

<PAGE>   16

                                   SIGNATURES


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


Date: November 13, 1998

                                           IRI INTERNATIONAL CORPORATION

                                           /s/ JEFFREY M. JOHANSON
                                           -----------------------------
                                               Jeffrey M. Johanson
                                               Executive Vice President and
                                               Chief Financial Officer



                                       16


<PAGE>   17
                                INDEX TO EXHIBITS


Exhibit No.                               Description
-----------                               -----------
*  3.1       --  Form of Restated Certificate of Incorporation of IRI 
                 International Corporation

*  3.2       --  Amended and Restated Bylaws of the Company

  27.1       --  Financial Data Schedule (submitted as an exhibit only in 
                 the electronic format of this Quarterly Report on Form  
                 10-Q submitted to the Securities and Exchange 
                 Commission).

-----------

*  Exhibit incorporated herein by reference to the Registrant's registration  
   statement on Form S-1 (Registration No. 333-31157) dated September 8, 1997, 
   as amended.


                                       17