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

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                for the Quarterly Period Ended September 30, 1999

                        Commission File Number 001-13593

                          IRI INTERNATIONAL CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

                DELAWARE                                75-2044681
    (State or Other Jurisdiction of        (I.R.S. Employer Identification No.)
     Incorporation or Organization)

                1000 LOUISIANA, SUITE 5900, HOUSTON, TEXAS 77002
               (Address of Principal Executive Offices)(Zip Code)

                                 (713) 651-8002
              (Registrant's Telephone Number, Including Area Code)

                                      NONE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)

         Indicate by check X 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
                                              ---      ---

Number of shares outstanding of each class of common stock, $0.01 par value per
share, at November 12, 1999:

                            39,900,000 Common Shares

<PAGE>   2
                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                       September 30,            December 31,
                                                           1999                     1998
                                                       -------------            ------------
                                                        (unaudited)
<S>                                                  <C>                      <C>
                          ASSETS

Current assets:
  Cash and cash equivalents.........................   $   39,791                   37,475
  Marketable securities, at fair value (cost of
    $-0- at September 30, 1999 and $3,743 at
    December 31, 1998)..............................           --                    3,000
  Accounts receivable, less allowance for doubtful
    accounts of $2,172 at September 30, 1999 and
    $960 at December 31, 1998.......................       20,920                   29,147
  Inventories.......................................      107,601                  109,151
  Costs and estimated earnings in excess of
    billings on uncompleted contracts...............        2,187                    4,429
  Other current assets..............................        1,888                    2,381
                                                       ----------               ----------
       Total current assets.........................      172,387                  185,583
Property, plant and equipment, net..................       46,859                   49,192
Other assets........................................        3,403                    4,391
                                                       ----------               ----------
       Total liabilities............................   $  222,649                  239,166
                                                       ==========               ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities..........   $   13,259                 $ 14,128
  Customer advances.................................        1,896                    3,303
  Other liabilities.................................        1,981                    3,906
                                                       ----------                 --------
      Total current liabilities.....................       17,136                   21,337

Negative goodwill, less accumulated amortization....           --                    4,026

Accrued postretirement benefits.....................        3,054                    3,148

Other long-term liabilities.........................          116                      396
                                                       ----------                 --------
      Total liabilities.............................       20,306                   28,907

Commitments and contingencies

Shareholders' equity
  Preferred stock, $1.00 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........................      168,842                  168,514
  Retained earnings.................................       34,562                   43,308
  Accumulated other comprehensive loss..............       (1,460)                  (1,962)

      Total Shareholders' equity....................      202,343                  210,259
                                                       ----------                 --------
                                                       $  222,649                 $239,166
                                                       ==========                 ========




</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>   3
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                 ----------------------------    ----------------------------
                                                                 SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                                                     1999            1998            1999            1998
                                                                 -------------   -------------   -------------   -------------
<S>                                                              <C>             <C>             <C>             <C>
Revenues......................................................        $26,102          40,650          68,522         139,281
Cost of goods sold............................................         18,882          29,586          58,715          99,900
                                                                 -------------   -------------   -------------   -------------
          Gross profit........................................          7,220          11,064           9,807          39,381
Selling and administrative expense............................          6,173           6,991          21,132          21,170
Restructuring charge..........................................            321             429           1,779             429
                                                                 -------------   -------------   -------------   -------------
          Operating income (loss).............................            726           3,644         (13,104)         17,782
Other income (expense)
     Interest income..........................................            343             455             982           1,766
     Interest expense.........................................            (12)            (24)           (346)           (253)
     Other, net...............................................          2,551            (836)           (988)         (3,813)
                                                                 -------------   -------------   -------------   -------------
                                                                        2,882            (405)           (352)         (2,300)
                                                                 -------------   -------------   -------------   -------------
          Income (loss) before income taxes...................          3,608           3,239         (13,456)         15,482
Income taxes (benefit)........................................          1,262             440          (4,710)          2,786
                                                                 -------------   -------------   -------------   -------------
          Net income (loss)...................................        $ 2,346           2,799          (8,746)         12,696
                                                                 =============   =============   =============   =============
Basic and diluted net income (loss) per common share..........           0.06            0.07           (0.22)           0.32
                                                                 =============   =============   =============   =============
Weighted average shares outstanding...........................         39,900          39,900          39,900          39,900
                                                                 =============   =============   =============   =============
</TABLE>





See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   4
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

         CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
                               COMPREHENSIVE LOSS
                                 (IN THOUSANDS)

                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                            Accumulated shareholders'
                                                                                 -----------------------------------------------
                                                                Additional                           Other           Equity and
                                                    Common       paid-in          Retained        Comprehensive    Comprehensive
                                                    stock        capital          earnings        income (loss)    income (loss)
                                                    ------      ----------        --------        -------------    -------------
<S>                                               <C>         <C>               <C>             <C>               <C>

Balances at December 31, 1998..................     $ 399        168,514           43,308             (1,962)          210,259
Other..........................................        --            328               --                 --               328
Comprehensive loss
     Net loss..................................        --             --           (8,746)                --            (8,746)
     Foreign currency translation adjustment...        --             --               --                502               502
                                                    -----        -------           ------             ------           -------
          Total comprehensive loss.............        --             --           (8,746)               502            (8,244)
                                                    -----        -------           ------             ------           -------
Balances at September 30, 1999.................     $ 399        168,842           34,562             (1,460)          202,343
                                                    =====        =======           ======             ======           =======
</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>
<CAPTION>
                                                                                          Nine months ended
                                                                                  -------------------------------
                                                                                  September 30,     September 30,
                                                                                      1999              1998
                                                                                  -------------     -------------
<S>                                                                                  <C>               <C>
Cash flows from operating activities
   Net income (loss) ..........................................................      $(8,746)           12,696
   Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operations
         Depreciation and amortization ........................................        3,733             3,218
         Amortization of goodwill .............................................          940               941
         Amortization of negative goodwill ....................................       (4,026)           (4,026)
         Gain on sale of assets ...............................................          (93)               --
         Change in employee benefit accounts ..................................          (94)             (228)
         Changes in assets and liabilities, net of effects of acquisitions
            Marketable securities .............................................        3,000             8,184
            Accounts receivable ...............................................        8,227             4,435
            Inventories .......................................................        1,550           (17,813)
            Other current assets ..............................................        2,735             1,443
            Other noncurrent assets ...........................................           48               185
            Accounts payable and accrued liabilities, customer
               advances and other liabilities .................................       (3,770)           (9,926)
                                                                                     -------           -------
                  Net cash provided by (used in) operations ...................        3,504              (891)
                                                                                     -------           -------
Cash flows from investing activities
   Capital expenditures .......................................................       (1,417)          (10,558)
   Proceeds from sale of assets ...............................................          110                --
                                                                                     -------           -------
                  Net cash used in investing activities .......................       (1,307)          (10,558)
                                                                                     -------           --------
Cash flows from financing activities
   Payments on capital lease obligation .......................................         (209)             (158)
   Payments on notes payable ..................................................           --               (72)
   Other ......................................................................          328               (24)
                                                                                     -------           -------
                  Net cash provided by (used in) financing activities .........          119              (254)
                                                                                     -------           -------
Increase (decrease) in cash and cash equivalents ..............................        2,316           (11,703)

Cash and cash equivalents at beginning of period ..............................       37,475            49,473
                                                                                     -------           -------
Cash and cash equivalents at end of period ....................................      $39,791            37,770
                                                                                     =======           =======
Supplemental cash flow information
   Interest paid ..............................................................      $   346               253
                                                                                     =======           =======
   Income taxes paid ..........................................................      $   277             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, 1999 and for the three and nine months ended September 30, 1999 and
       1998 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, 1998.

(2)    INVENTORIES

       Inventories consist of the following at September 30, 1999 and December
       31, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                   1999                 1998
                                                                   ----                 ----
<S>                                                              <C>                 <C>
                              Raw materials                      $  40,854             46,743
                              Work-in-process                       19,764             21,241
                              Finished goods                        46,983             41,167
                                                                 ---------            -------


                                         Total                   $ 107,601            109,151
                                                                 =========            =======

</TABLE>

       Concurrent with the implementation and testing of a new integrated
       manufacturing software system (the Baan system), the Company has
       instituted measures to reduce manufacturing cost of goods through
       lowering of purchasing cost, reduced workforce and higher productivity
       combined with an increase in the price of its goods and services
       initiated since December 1998. In line with these measures, the Company
       is also conducting a physical inventory and is reviewing and updating its
       standard cost of products. Any adjustments, if necessary, will be
       recorded in the fourth quarter of 1999.

(3)    COMMITMENTS AND CONTINGENCIES

       The Company has contract commitments with customers aggregating $25.8
       million at September 30, 1999. At September 30, 1999, the Company was
       contingently liable for approximately $4.7 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.



                                       6
<PAGE>   7
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

(4)    NET INCOME (LOSS) PER COMMON SHARE

       Stock options outstanding at September 30, 1999 of 2,388,500 shares were
       not considered in the computation of net income per common share for the
       quarter then ended because the exercise price exceeded the average market
       price for the quarter. For the nine months ended September 30, 1999,
       there was a loss, and inclusion of option shares would be antidilutive.
       Stock options outstanding at September 30, 1998 of 3,886,000 shares were
       not considered in the computation of net income per common share for the
       quarter and nine months then ended because the exercise price exceeded
       the average market price for the respective period.

(5)    SPECIAL CHARGES AND OTHER ADJUSTMENTS

       In the third quarter of 1999, the Company continued its restructuring
       program in which the workforce was reduced by 20 employees in addition to
       the reduction of 417 employees in the first and second quarter of 1999.
       Expenses related to employee severance incurred in connection with the
       restructuring program have been reported as a restructuring charge of
       $321,000 for the three months ended September 30, 1999 and $1,779,000 for
       the nine months ended September 30, 1999.

       Included in the results of operations for the nine months ended September
       30, 1999 are also second quarter 1999 charges to write off $2.1 million
       of pre-contract engineering and design costs incurred for a contract that
       did not materialize, a $2.2 million charge for contract adjustments, a
       $2.0 million increase in inventory excess and obsolescence reserves, an
       increase in trade accounts receivable reserves of $.9 million and
       software implementation and other charges of $.9 million.

(6)    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 adopted SOP
       98-5 in the first quarter of 1999 which did not have a material impact on
       its financial statements or accounting policies.

       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. SFAS No. 137 deferred
       the effective date of SFAS No. 133 such that the statement is effective
       for financial statements for fiscal years beginning after June 15, 2000.
       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 2001.



                                        7
<PAGE>   8
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


(7)      KEY SEGMENT FINANCIAL INFORMATION

       The Company operates through three business segments consisting of
       Oilfield Equipment, Downhole Tools and Specialty Steel. Financial
       information by segments for the three and nine months ended September 30,
       1999 and 1998 is summarized below (in thousands):

<TABLE>
<CAPTION>
                                            OILFIELD          DOWNHOLE        SPECIALTY       CORPORATE
                                            EQUIPMENT         PRODUCTS          STEEL         AND OTHER        TOTAL
                                            ---------         --------          -----         ---------        -----
Quarter ended September 30, 1999:
<S>                                         <C>                 <C>                <C>          <C>             <C>
    Sales to unaffiliated customers         14,326              12,084             917          (1,225)         26,102
    Segment operating income (loss)          1,699               2,737            (103)         (3,607)            726
    Depreciation and amortization              130                  94              11             926           1,161
    Amortization of negative
      goodwill                                   -                   -               -           1,341           1,341

Quarter ended September 30, 1998:
    Sales to unaffiliated customers         19,677              17,568           3,427             (22)         40,650
    Segment operating income (loss)          3,008               3,062           1,092          (3,518)          3,644
    Depreciation and amortization              113                 118              10             805           1,046
    Amortization of negative
      goodwill                                   -                   -               -           1,341           1,341

Nine months ended September 30, 1999:
    Sales to unaffiliated customers         33,773              33,222           3,422          (1,895)         68,522
    Segment operating income (loss)         (3,791)              4,042              65         (13,420)        (13,104)
    Depreciation and amortization              387               2,273              32           1,041           3,733
    Amortization of negative
      goodwill                                   -                   -               -           4,025           4,025

Nine months ended September 30, 1998:
    Sales to unaffiliated customers         69,857              60,744           9,027            (347)        139,281
    Segment operating income (loss)         12,821              11,855           2,347          (9,241)         17,782
    Depreciation and amortization              300               1,984              25             909           3,218
    Amortization of negative
      goodwill                                   -                   -               -           4,025           4,025
</TABLE>


                                        8
<PAGE>   9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

         General

         We manufacture land-based drilling and well-servicing rigs and rig
component parts for use in the domestic and international markets. 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 have a substantial impact on our revenues.
Exploration, development and production activity is largely dependent on the
prevailing view of future oil and natural gas prices, which have been
significantly volatile for the last 20 years. Oil and natural gas prices are
influenced by 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 our products in certain emerging market
countries may be greatly influenced by their need for internal development,
energy self-sufficiency or hard currency earnings rather than the conventional
factors relating to the price of oil and natural gas.

         During the latter half of 1998 and the first quarter of 1999, declining
oil prices coupled with the deteriorating economic conditions in Russia and
other emerging markets resulted in a sharp drop in customer spending and a
dramatically lower rig utilization rate worldwide. Our revenues, operating
income and backlog have been adversely affected by these events and the value of
our receivables and inventory may be further affected by these events. As a
result of recent increases in oil prices during the second and third quarters of
1999, consumer spending and rig utilization rates have begun to increase.
Although results of operations for the third quarter of 1999 reflect this
increase in consumer spending, results of operations for the third quarter of
1999 and for the first nine months of 1999 are still substantially reduced from
the results for comparable periods in 1998 and still reflect the adverse market
conditions prevalent during the first six months of 1999. In addition, our gross
margins for the first nine months of 1999 were also adversely affected by
restructuring costs and other special charges of $5.6 million (after-tax) in the
second quarter of 1999.

         During the first nine months of this year, we have implemented a
variety of measures to consolidate our manufacturing operations in Pampa and
Houston, Texas and other cost reduction programs. These actions reduced our
workforce during the first nine months of 1999 by a total of 744 employees. On
an ongoing basis, we will continue to consider the possibility of further
consolidation and cost reduction measures but we cannot give any assurance that
these or any other measures will be sufficient to offset the negative impact of
the existing industry conditions.

         Foreign Exchange Transactions

         We have attempted to limit our exposure to foreign currency
fluctuations. Sales denominated in foreign currencies are made only by the down
hole tools segment. With the exception of our Canadian subsidiary, we maintain
our cash, cash equivalents and investments in U.S. dollar denominated accounts
(except to the extent needed for local operating expenses). We have not engaged
in and do not currently intend to engage in any significant hedging or currency
trading transactions to compensate for adverse currency fluctuations among
foreign currencies.


                                        9

<PAGE>   10
RESULTS OF OPERATIONS

         Sales of new rigs manufactured by us can produce large fluctuations in
revenues depending on the size and the timing of the construction of 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 in the size and timing of orders, may
affect our quarterly revenues and operating income.

Results of Segment Operations

         The following discussion of the results of operations of our oil field
equipment, down hole tools and specialty steel segments does not reflect the
allocation of corporate overhead and unallocated administrative expenses and
amortization of goodwill and negative goodwill on an individual segment basis.
Certain information that reconciles the discussion of the results of operations
of the individual segments to our condensed consolidated financial statements is
as follows:

<TABLE>
<CAPTION>

                                                          -------------------------------------------------------
                                                                THREE MONTHS                       NINE MONTHS
                                                                    ENDED                              ENDED
                                                                  SEPTEMBER 30,                    SEPTEMBER 30,
                                                                  -------------                    -------------
                                                             1999            1998           1999             1998
                                                             ----            ----           ----             ----
Revenues                                                                       (IN THOUSANDS)
<S>                                                      <C>             <C>             <C>             <C>
  Oilfield equipment ..............................      $  14,326       $  19,677       $  33,773       $  69,857
  Downhole tools ..................................         12,084          17,568          33,222          60,744
  Specialty steel .................................            917           3,427           3,422           9,027
  Eliminations ....................................         (1,225)            (22)         (1,895)           (347)
                                                         ---------       ---------       ---------       ---------
    Total .........................................      $  26,102       $  40,650       $  68,522       $ 139,281
                                                         =========       =========       =========       =========
Segment operating income (loss)
  Oilfield equipment ..............................      $   1,699       $   3,008       $  (3,791)      $  12,821
  Downhole tools ..................................          2,737           3,062           4,042          11,855
  Specialty steel .................................           (103)          1,092              65           2,347
                                                         ---------       ---------       ---------       ---------
    Total .........................................          4,333           7,162             316          27,023

  Corporate overhead and unallocated administrative
    expenses ......................................         (4,315)         (4,117)        (14,726)        (11,886)
  Amortization of negative goodwill ...............          1,341           1,341           4,025           4,025
  Amortization of  goodwill .......................           (312)           (313)           (940)           (951)
  Restructuring costs .............................           (321)           (429)         (1,779)           (429)
                                                         ---------       ---------       ---------       ---------
  Operating income (loss) .........................      $     726       $   3,644       $ (13,104)      $  17,782
                                                         =========       =========       =========       =========
</TABLE>

         Oil Field Equipment

         The economic and financial turmoil in Russia and the Asia-Pacific
region together with the downward turn in oil prices during the first quarter of
1999 led to a sharp decrease in the demand for our products. Decreased sales of
rig packages resulted in decreases in revenues and operating income for the
third quarter of 1999 and on a year-to-date basis. Our gross margin was also
lower: 15.8% for the third quarter of 1999 as compared to 19.9% for the third
quarter of 1998, and (4.7%) for the first nine months of 1999, as compared to
22.6% for the first nine months of 1998. Our gross margin for the first nine
months of 1999 was negatively affected by: a $2.1 million write-off for
pre-contract engineering and design costs incurred for a contract that did not
materialize; and a $2.2 million charge for contract adjustments, each of which
occurred during the second quarter of 1999.




                                       10
<PAGE>   11
         Down Hole Tools

         The downward trends in the oil industries prevailing during the first
quarter of 1999 had a significant negative impact on our customers' demand for
fishing tools and power equipment, particularly in international markets, and,
accordingly, on our revenues and operating income. As a result of decreased
sales volume, our gross margin was significantly lower for the first nine months
of 1999: 24.5% as compared to 29.8% for the first nine months of 1998. Our gross
margin for the first nine months was also adversely affected by an increase in
inventory obsolescence reserves of $2.0 million during the second quarter of
1999. However, our gross margin for the third quarter of 1999 rebounded to 33.0%
as compared to 28.4% for the third quarter of 1998 as a result of decreases in
indirect manufacturing costs, generated by cost-cutting initiatives.

         At the same time as the Company implemented its new integrated
manufacturing software system (the Baan system), management took steps to reduce
manufacturing cost of goods by reducing purchasing costs, lowering overhead
through consolidations, reducing manpower and improving productivity. Together
with price increases initiated by the Company as of late last year in connection
with its globally recognized brand name products, these measures were aimed at
improving profit margins even as revenues declined. In conjunction with these
measures, the Company is also conducting a physical inventory and is reviewing
and updating its standard cost of products. Any adjustments, if necessary, will
be recorded in the fourth quarter of 1999.

Specialty Steel

         Reduced demand from a major customer and a general recession in
industry-wide demand due to market conditions significantly impacted our
revenues and operating income. Because of the loss of the business that we
transacted with this major customer and the overall reduction in our sales
volume, our gross margin was significantly lower: (7.7)% for the third quarter
of 1999 as compared to 33.0% for the third quarter of 1998 and 4.7% for the
first nine months of 1999 as compared to 27.3% for the first nine months of
1998.

         Corporate and Administrative Expenses

         The $2.8 million increase for the first nine months of 1999, as
compared to the first nine months of 1998, resulted from: a net increase in the
non-employee stock option accrual of $0.7 million, increased franchise taxes of
$0.3 million, second quarter increases in trade account receivable reserves of
$0.9 million, and incurred software implementation costs and other charges of
$0.9 million. The $0.2 million increase for the third quarter of 1999 as
compared to the third quarter of 1998, resulted primarily from amortization of
non-employee director stock options and new system software amortization,
partially offset by decreased administrative costs.

         Other Income (Loss)

         The increase in other income for the third quarter of 1999 as compared
to the third quarter of 1998 was primarily the result of increased gains with
respect to marketable securities in 1999 and decreased other expense. Gains on
investments in marketable securities netted $2.7 million during the third
quarter of 1999, as compared to losses of $0.4 million during the third quarter
of 1998. Other expense decreased to $153,000 for the third quarter of 1999, as
compared to $436,000 for the third quarter of 1998.

         With respect to the first nine months of 1999, as compared to the first
nine months of 1998, the decrease in other losses was primarily the result of
decreased losses with respect to marketable securities in 1999 and decreased
other expense. Losses on investments in marketable securities netted $551,000
during the first nine months of 1999, as compared to losses of $2.4 million
during the first nine months of 1998. Other expense decreased to $437,000 for
the first nine months of 1999, as compared to $807,000 for the first nine months
of 1998. Also, the Company incurred a special charge of $0.6 million in the
second quarter of 1998 relating to expenses in connection with the Company's
proposed acquisition of Hitec ASA, which terminated on April 28, 1998. There was
no such charge in 1999.

         Interest income decreased by $112,000 in the third quarter of 1999 as
compared to the third quarter of 1998 and by $784,000 in the first nine months
of 1999 as compared to the first nine months of 1998, resulting from lower cash
balances during the 1999 periods.

         Income Taxes

         We recorded a deferred tax asset of $0.8 million for the first nine
months of 1999, which we believe is more likely than not to be realized by
future taxable income.


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<PAGE>   12
ACCOUNTING POLICIES

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS No. 137 deferred the effective date for SFAS 133 to all quarters of
fiscal years beginning after June 15, 2000. This statement requires that all
derivatives be recognized on the balance sheet, measured at fair value. Adoption
of this statement is not expected to have a material impact on our consolidated
financial position, results of operations or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 1999, we had cash and cash equivalents and marketable
securities of $39.8 million, compared to $40.5 million at December 31, 1998. Our
working capital was $155.3 million compared to $164.2 million at December 31,
1998. This decrease in working capital at September 30, 1999 resulted from a
decrease in marketable securities, accounts receivable, inventories, other
current assets and liabilities, partially offset by an increase in cash and cash
equivalents. At September 30, 1999, the ratio of our current assets to current
liabilities was approximately 10.06:1.

         At September 30, 1999, approximately $5.0 million was available for
letters of credit under our credit facility. At this time, we have no
outstanding indebtedness other than contingent liabilities in the form of
stand-by letters of credit.

         We believe that our balance sheet, significant liquidity and cash flow
from operations will be sufficient to meet our short term and long term
liquidity needs. We believe that any credit facilities that we may need in the
future will be available on commercially acceptable terms, though there can be
no assurances in this regard.

         Credit Facility

         We have a credit facility that matures on June 30, 2000 and that is
available only for the issuance of letters of credit. After the initial public
offering of our common stock, we reduced the commitment under our credit
facility to $9.7 million.

         Our obligations under our credit facility are secured by first priority
security interests in substantially all of our assets, including all personal
property and material real property, the pledge by us of all of the outstanding
capital stock of Cardwell and the pledge by us or Cardwell, as the case may be,
of 66% of the outstanding capital stock of each of our direct and indirect
foreign subsidiaries. These obligations are also guaranteed by Cardwell. Our
credit facility contains certain representations and warranties, covenants and
events of default customary for facilities of this type.

         Because of the decrease in our revenues and operating income over the
past three quarters, we failed to comply with certain financial covenants in our
credit facility. We have obtained waivers for the first and second quarters, as
well as the third quarter of 1999, with respect to such financial covenants.

YEAR 2000

Our State of Readiness

         This quarter, we completed testing and remediation of our information
technology systems, including our network servers, LANS, WANS, personal
computers, and the domestic Enterprise Resource Planning System ("ERP") for both
the Downhole Tool and Oil Field Equipment divisions. In addition, we performed
requisite testing at two of IRI's international locations. Although no
significant issues were discovered at these international locations, those
systems are being upgraded in the ordinary course of business. These upgrades
will be completed in November.

         In addition, we also completed testing and remediation of our key
non-information technology systems, including manufacturing machinery that
potentially contains embedded numerical technology, phones, security systems,
and office equipment.

         The testing of these systems occurred from July through October, 1999.
Employees and outside consultants conducted this testing. Although most of our
systems and machinery were already designed, or upgraded in the ordinary course
of business, to be Year 2000 compliant, we performed a series of "date testing"
procedures to determine


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<PAGE>   13
compliance. We executed business transactions while simulating the change in the
millennium, and examined the results thereof. These tests were conducted with
regard to: accounting (financial statements, accounts payable, accounts
receivable, payroll), logistics (Materials Requirements Planning, manufacturing,
distribution, invoicing), and technical (operating systems, files systems,
downloads) functions. Employees verified the results of testing by (a) using the
systems to see if they performed accurately, and/or (b) employing manufacturers'
testing tools and test procedures.

         Although we have tested these systems, we cannot completely assure that
all of our systems are Year 2000 Compliant.

Analysis of Third Party Relationships

         This quarter, we also completed an inventory of our key customers and
suppliers, including utility companies, telecom suppliers and financial
institutions, and an analysis of how their respective Year 2000 compliance could
impact our operations. We contacted these customers and suppliers to inquire:
(a) the level of their technology risk; (b) the way in which technology affects
their ability to buy/deliver goods that relate to our business; (c) their
current system platforms and program status; (d) and whether they currently are
performing due diligence testing. Based on the responses we received from such
customers and suppliers, we believe that our key customers and suppliers do not
pose a substantial risk to our operations, although we can give no assurances in
this regard.

Costs to Address Year 2000 Issues

         To date, we have incurred expenses of approximately $350,000 that are
directly related to our Year 2000 compliance program. We estimate our expenses
relating to year 2000 issues will be no more than $400,000. This low figure can
be attributed to the fact that: (a) many of our systems were already designed to
be Year 2000 compliant or were upgraded to be Year 2000 compliant in the
ordinary course of business; and (b) maintenance agreements with the vendors of
our ERP systems included the cost of software upgrades required for those
systems. We believe that the costs to complete our Year 2000 compliance program
will not have a material effect on our financial position, results of operations
or cash flows, although we cannot give any assurances in this regard.

Risks Associated with Year 2000 Issues

         We do not believe that we face significant Year 2000 risks because a
large portion of our manufacturing equipment does not rely on embedded
technology. Nonetheless, we are presently unable to determine what effect Year
2000 failures could have on us. A significant failure, however, may force us to
curtail production and could prevent us from meeting customer orders on a timely
basis.

Contingency Plans for Year 2000

         The Company is in the process of finalizing contingency plans.
Preliminary plans have been developed around the most reasonably likely worst
case scenario. We believe that we will have access to suppliers and
manufacturing outsourcing services that will help overcome disruption of our
services. In addition, we plan to gather data in a non-electronic format at the
close of this year to ensure that data such as customer orders, machinery
specifications, etc., will be available to us regardless of any potential Year
2000 problems.

CAPITAL EXPENDITURES

         Capital expenditures for nine months ended September 30, 1999 totaled
approximately $1.4 million, essentially all of which was spent for the
implementation of new software at the down hole tools division. We are funding
capital expenditures with available cash and cash flow from operations.

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 our control. These factors more specifically
include:


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<PAGE>   14
-      dependence on the oil and gas industry;
-      competition from various entities;
-      the impact of government regulations;
-      the instability of certain foreign economies (including Russia and
       countries of the Asia-Pacific region);
-      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.

INFLATION

         Inflation has not had a material impact on our operating and occupancy
costs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         This discussion of our exposure to market risks and our risk-management
activities includes forward looking statements. These forward looking statements
involve risks and uncertainties, including economic and competitive factors
outside our control.

         Our primary risk exposures come from interest rate risks, foreign
exchange rate risks, and equity price risks. Our exposure to interest rate risks
are minimal with respect to indebtedness. We repaid substantially all our
outstanding indebtedness in November 1997. However, at September 30, 1999, we
had approximately $39.8 million of cash in interest bearing accounts. The rate
of return on these accounts will vary with the prevailing interest rates. We do
not engage in any significant interest rate swaps or other derivative activities
designed to limit our exposure to changes in interest rates.

         Our direct exposure to foreign exchange risks is minimal. Except as
discussed above in the "Management Discussion and Analysis of Financial
Condition and Results of Operations" with respect to our down hole tools
division, all of our sales are denominated in U.S. dollars. However, foreign
exchange rate fluctuations may affect our revenues indirectly to the extent that
a stronger U.S. dollar affects our ability to compete on the basis of price. We
do not engage in any significant hedging or currency trading activities to limit
our sensitivity to changes in foreign exchange rates and/or interest rates.

            At September 30, 1999, we had no marketable securities. From time to
time, we purchase equitable securities for trading purposes. Fluctuations in
interest rates and equity prices may adversely affect the value of our
marketable securities.

         We do not believe there has been any material change in the market
risks faced by us since the end of 1998.

                                     PART II

                                OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORT 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.


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<PAGE>   15
                                   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 hereunto duly authorized.

Date: November 15, 1999                   IRI INTERNATIONAL CORPORATION

                                          By: /s/  ROBERT L. HARGRAVE
                                                --------------------------------
                                               Robert L. Hargrave
                                          Chief Financial and Accounting Officer




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<PAGE>   16
                                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

10.3C          Waiver dated as of September 7, 1999 to Credit Agreement dated as
               of March 31, 1997 among the Company, the several banks and other
               financial institutions or entities from time to time parties
               thereto, and Credit Lyonnais New York Branch as Administrative
               Agent

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


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



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