<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 March 31, 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 May 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)


                                     ASSETS
<TABLE>
<CAPTION>
                                                                                          ---------------------------
                                                                                          March 31,        December
                                                                                            1999             1998
                                                                                          ---------        ---------
<S>                                                                                      <C>                 <C>
Current assets:
    Cash and cash equivalents                                                            $  26,921           $  37,475
    Marketable securities, at fair value (cost of $22,844 at
       March 31, 1999 and $3,743 at December 31, 1998)                                      19,334               3,000
    Accounts receivable, less allowance for doubtful accounts of $1,202 at
       March 31, 1999 and $960 at December 31, 1998                                         21,547              29,147
    Inventories                                                                            104,861             109,151
    Costs and estimated earnings in excess of billings on uncompleted contracts              1,674               4,429
    Other current assets                                                                     2,354               2,381
                                                                                         ---------           ---------
                Total current assets                                                       176,691             185,583

    Property, plant and equipment, net                                                      48,331              49,192
    Other assets                                                                             4,082               4,391
                                                                                         ---------           ---------
                                                                                         $ 229,104           $ 239,166
                                                                                         =========           =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued liabilities                                             $   8,847           $  14,128
    Customer advances                                                                        1,047               3,303
    Other liabilities                                                                        4,096               3,906
                                                                                         ---------           ---------
                Total current liabilities                                                   13,990              21,337

Negative goodwill, less accumulated amortization                                             2,684               4,026
Accrued postretirement benefits                                                              3,094               3,148
Other long term liabilities                                                                    320                 396
                                                                                         ---------           ---------
                Total liabilities                                                           20,088              28,907

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                                                             168,732             168,514
    Retained earnings                                                                       41,806              43,308
    Accumulated other comprehensive income                                                  (1,921)             (1,962)
                                                                                         ---------           ---------
                Total shareholders' equity                                                 209,016             210,259
                Commitments and contingencies
                                                                                         ---------           ---------
                                                                                         $ 229,104           $ 239,166
                                                                                         =========           =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>   3
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                    (In thousands, except per share amounts)

                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                                1999              1998
                                                                ----              ----
<S>                                                           <C>                <C>
Revenues                                                      $ 22,543           $ 47,232
Cost of goods sold                                              15,828             34,383
                                                              --------           --------
          Gross profit                                           6,715             12,849

Administrative and selling expense                               6,065              7,359

Restructuring charge                                               805                 -  
                                                              --------           --------
          Operating income (loss)                                 (155)             5,490
                                                              --------           --------

Other income (expense):
    Interest income                                                322                712
    Interest expense                                              (129)               (97)
    Other, net                                                  (1,866)               389
                                                              --------           --------
                                                                (1,673)             1,004
                                                              --------           --------
          Income (loss) before income taxes                     (1,828)             6,494

Income taxes                                                      (326)             2,122
                                                              --------           --------
          Net income (loss)                                     (1,502)             4,372
                                                              ========           ========

Basic and diluted net income (loss) per common share          $ (0.038)          $  0.110
                                                              ========           ========
Weighted average shares outstanding                             39,900             39,900
                                                              ========           ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>   4
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                 (In thousands)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                    ACCUMULATED
                                                                  ADDITIONAL                           OTHER             TOTAL
                                                   COMMON          PAID-IN          RETAINED       COMPREHENSIVE      SHAREHOLDERS'
                                                   STOCK           CAPITAL          EARNINGS           INCOME             EQUITY
                                                   -----           -------          --------           ------             ------
<S>                                              <C>              <C>               <C>            <C>                <C>
Balances at December 31, 1998                    $     399        $ 168,514         $  43,308         $  (1,962)        $ 210,259
Non employee stock options                              --              218                --                --               218
Comprehensive income:
        Net loss                                        --               --            (1,502)               --            (1,502)
        Foreign currency translation
          adjustment                                    --               --                --                41                41

          Total Comprehensive income                                                                                    ---------
                                                                                                                            1,461
                                                 ---------        ---------         ---------         ---------         ---------
Balances at March 31, 1999                       $     399        $ 168,732         $  41,806         $  (1,921)        $ 209,016
                                                 =========        =========         =========         =========         =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>   5
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                                                              MARCH 31,
                                                                                       1999               1998
                                                                                       ----               ----
<S>                                                                                  <C>                <C>
Cash flows from operating activities:
    Net income                                                                       $ (1,502)          $  4,372
    Adjustments to reconcile net income to net cash provided by operations:
       Depreciation and amortization                                                    1,276                844
       Amortization of goodwill                                                           313                307
       Amortization of negative goodwill                                               (1,342)            (1,342)
       Change in employee benefit accounts                                                (54)               (58)
       Stock option compensation                                                          218                 --
       Changes in assets and liabilities
          Marketable securities                                                       (16,334)             6,247
          Accounts receivable                                                           7,600             (2,802)
          Inventories                                                                   4,290              5,742
          Other current assets                                                          2,782              4,261
          Other non current assets                                                         (4)               280
          Accounts payable and accrued liabilities, customer advances                      --
             and other liabilities                                                     (7,314)            (6,599)
                                                                                     --------           --------
             Net cash provided by (used in) operations                                  (10,071)            11,252
                                                                                     --------           --------

Cash flows from investing activities:
    Capital expenditures                                                                 (415)            (3,299)
                                                                                     --------           --------
             Net cash used in investing activities                                         (415)            (3,299)

Cash flows from financing activities:
    Proceeds from notes payable                                                            --                 17
    Payments on notes payable                                                                                (28)
    Payments on capital lease obligation                                                  (68)               (59)
                                                                                     --------           --------
             Net cash flows used in financing activities                                  (68)               (70)
                                                                                     --------           --------
Increase in cash and cash equivalents                                                 (10,554)             7,883
Cash and cash equivalents at beginning of year                                         37,475             49,473
                                                                                     --------           --------
Cash and cash equivalents at end of year                                             $ 26,921           $ 57,356
                                                                                     ========           ========
Supplemental cash flow information:
    Interest paid                                                                    $    129           $     97
                                                                                     ========           ========
    Income taxes paid                                                                $    300           $  1,240
                                                                                     ========           ========
</TABLE>

                                       5
<PAGE>   6
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) GENERAL

The accompanying condensed consolidated financial statements of IRI
International Corporation and subsidiaries (the "Company") as of March 31, 1999
and for the three months ended March 31, 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 March 31,1999 and December 31,
1998 (in thousands):

<TABLE>
<CAPTION>
                                                       1999               1998  
                                                       ----               ----  
<S>                                                  <C>                <C>
                   Raw materials and supplies        $ 43,155           $46,743
                   Work in process                     20,083            21,241
                   Finished goods                      41,623            41,167
                                                     --------           ------- 
                         Total                       $104,861          $109,151
                                                     ========           =======
</TABLE>

                                       6
<PAGE>   7
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

     NOTES TO CONDESNSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(3) COMMITMENTS AND CONTINGENCIES

The Company has contract commitments aggregating $13.3 million at March 31, 1999
for the manufacture and delivery of drilling rigs during the remainder of fiscal
1999. At March 31, 1999,the Company was contingently liable for approximately
$3.9 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 March 31, 1999 of 2,388,500 shares were not
considered in the computation of net income per common share because there was a
loss for the period and inclusion of option shares is anti-dilutitive.

(5) SPECIAL CHARGES

In the first quarter of 1999, the Company continued its restructuring program in
which the workforce was reduced 375 employees. Expenses related to employee
severance incurred in connection with the restructuring program have been
reported as a restructuring charge of $805,000 for the three months ended March
31, 1999.

(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. 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.

                                       7
<PAGE>   8
                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(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 3 months ended March 31, 1999 and 1998 is summarized below (in
thousands):

<TABLE>
<CAPTION>
                                             OILFIELD      DOWNHOLE     SPECIALTY   CORPORATE
                                             EQUIPMENT     PRODUCTS       STEEL     AND OTHER           TOTAL
<S>                                          <C>           <C>          <C>         <C>                 <C>
QTR ENDED MARCH 31, 1999
       Sales to unaffiliated customers         10,967       11,326        1,170         (920)              22,543
       Operating income (loss)                    605        2,023          738       (3,521)                (155)
       Depreciation and amortization              129        1,078           11           58                1,276
       Amortization of negative goodwill                                               1,342                1,342
                                                                                                             
QTR ENDED MARCH 31, 1998                                                                                     
       Sales to unaffiliated customers         25,062       19,576        2,906         (312)              47,232
       Operating income (loss)                  5,041        3,138          518       (3,207)               5,490
       Depreciation and amortization               47          751            7           39                  844
       Amortization of negative goodwill                                               1,342                1,342

</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 the Consolidated
Financial Statements and 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.

      As the oil prices continued to decline and the economic conditions in
Russia and other emerging markets deteriorated, the oil and gas industry
dramatically reduced its capital expenditures for exploration, development and
production activities. 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 if industry conditions do not improve.

      In response to the prevailing industry conditions we implemented a variety
of measures to minimize its adverse impact on our business and financial
performance. We consolidated our manufacturing operations in Pampa and Houston,
Texas and implemented other cost reduction programs. These actions reduced our
workforce by a total of 740 employees through April 1999. 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 downhole tools
segment. With the exception of our Canadian subsidiary, we maintain our cash and
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 or rig packages range from
six to nine months. These fluctuations 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 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 our Condensed Consolidated Financial
Statements is as follows:


<TABLE>
<CAPTION>
                                                             THE COMPANY
                                                             THREE MONTHS
                                                                 ENDED
                                                               MARCH 31,
                                                         ----------------------
                                                           1999          1998
                                                         --------      --------
<S>                                                      <C>           <C>
Revenues
  Oil field equipment ..............................     $ 10,967      $ 25,062
  Down hole tools ..................................       11,326        19,576
  Specialty steel ..................................        1,170         2,906
  Eliminations .....................................         (920)         (312)
                                                         --------      --------
    Total ..........................................     $ 22,543      $ 47,232
                                                         ========      ========
Segment operating income (loss)
  Oil field equipment ..............................     $    605      $  5,041
  Down hole tools ..................................        2,023         3,138
  Specialty steel ..................................          738           518
                                                         --------      --------
    Total ..........................................        3,366         8,697
  Corporate overhead and unallocated administrative
   expenses ........................................       (3,744)       (4,242)
  Amortization of negative goodwill ................        1,342         1,342
  Amortization of  goodwill ........................         (314)         (307)
  Restructuring Costs ..............................         (805)           --
                                                         --------      --------
  Operating income (loss) ..........................     $   (155)     $  5,490
                                                         ========      ========
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE  MONTHS ENDED MARCH 31, 1998

      Oil Field Equipment

      Revenues and operating income for the oil field equipment segment
decreased to $11.0 million and $0.6 million, respectively, for the three months
ended March 31, 1999, as compared to $25.1 million and $5.0 million,
respectively, for the three months ended March 31, 1998. Decreased operating
income resulted from the economic and financial turmoil in Russia and the
Asia-Pacific region and the downward turn in oil prices, both of which resulted
in a decreased demand for our products. As a result of low margin contracts,
gross margin for the three months ended March 31, 1999 was 12.2%, as compared to
24.1% for the three months ended March 31, 1998.

      Down Hole Tools

      Revenues and operating income for the down hole tools segment were $11.3
million and $2.0 million, respectively, for the three months ended March 31,
1999, as compared to $19.6 million and $3.1 million, respectively, for the three
months ended March 31, 1998. Decreased revenues were primarily attributable to
the downward trends in the oil industries. Gross margin for the three months
ended March 31, 1999 was 31.6%, as compared to 26.7% for the three months ended
March 31, 1998. The increase in gross margin was primarily due


                                       10
<PAGE>   11
to the full impact of price increases in the last two quarters of 1998,
an increase in the amount of manufacturing overhead absorbed into inventory
starting in the fourth quarter of 1998 and management's cost-cutting
initiatives.

      Specialty Steel

      Revenues and operating income for the specialty steel segment were $1.2
million and $0.7 million, respectively, for the three months ended March 31,
1999, as compared to $2.9 million and $0.5 million, respectively, for the three
months ended March 31, 1998. The decrease in revenues was primarily the result
of reduced demand from a major customer. Because of the loss of the high margin
business that we transacted with this major customer, our gross margins also
decreased from 19.1% for the three months ended March 31, 1998 to 16.6% for the
three months year ended March 31, 1999.

      Corporate Administrative and Interest Expenses

      Corporate administrative expenses were $3.7 million for the three months
ended March 31, 1999, as compared to $4.2 million for the three months ended
March 31, 1998. This decrease was due primarily to the cost cutting initiatives
brought on by the restructuring plan.

      Other Income (Expense)

      Other expenses increased to $1.9 million for the three months ended March
31, 1999, as compared to income of $0.4 million for the three months ended March
31, 1998. Losses on investments in marketable securities in 1999 netted $1.7
million while during the first quarter of 1998 we enjoyed a $0.4 million gain on
such investments.


ACCOUNTING POLICIES

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is effective for all quarters of fiscal years beginning after June
15, 1999. 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 March 31, 1999, we had cash, cash equivalents and marketable securities
of $46.3 million, compared to $40.5 million at December 31, 1998. Our working
capital was $162.7 million, compared to $164.2 million at December 31, 1998.
This decrease in working capital at March 31, 1999 resulted from an increase in
cash, cash equivalents and marketable securities and a decrease in accounts
receivables, inventories and other current assets and liabilities. At March 31,
1999, the ratio of our current assets to current liabilities was approximately
12.6:1.

      At March 31, 1999, approximately $5.8 million was available for additional
borrowings under the Revolving Credit Facility.

      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.

      The Revolving Credit Facility

      We have a Revolving Credit Facility which matures on March 31, 2000, and
under its terms we may reborrow all amounts repaid prior to its maturity. After
the initial public offering of our common stock, we reduced the commitment under
the Revolving Credit Facility to $9.7 million.


                                       11
<PAGE>   12
      Our obligations under the Revolving 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. The Revolving Credit Facility contains certain representations and
warranties, covenants and events of default customary for facilities of this
type.

YEAR 2000

      Our Year 2000 Compliance Program

      We have retained outside consultants to perform a Year 2000 risk analysis
and assist with the development of our comprehensive project plan for Year 2000
compliance. As a result of this report, which was completed in early May, we
have substantially revised our Year 2000 compliance program. Our revised Year
2000 compliance program consists of following key tasks and expected completion
dates:

                     Key Task                           Expected Completion Date
                     --------                           ------------------------

-     Final analysis of our relationships with key            End of July
      customers and suppliers

-     Inventory of non-Year 2000 compliant hardware           End of June
      and software systems and other technology

-     Business impact assessment of non-Year 2000             End of June
      compliant systems and technologies and non-Year 
      2000 compliant key customers and suppliers

-     Replacement or remediation of non-Year 2000             End of August
      compliant systems and technologies

-     Development of contingency plans with respect           End of November 
      to systems and technologies that cannot be 
      replace or remediated in time and with respect 
      to key suppliers and customers that have not 
      become Year 2000 compliant


      To execute our Year 2000 compliance program, we created a Year 2000
compliance program management office staffed by key business and information
technology personnel.

                                       12
<PAGE>   13

      Our State of Readiness

      Inventory of Information Technology Systems and Other Technology. We are
currently inventorying our hardware and software systems and other technology to
determine the state of our Year 2000 readiness. Of the inventory taken thus far,
we have identified issues with some of our information technology systems that
support our most significant business operations. The Enterprise Resource
Planning ("ERP") system that supports the down hole tools unit requires a
software upgrade that is planned for installation by the end of the second
quarter of 1999. The ERP system that supports the oil field equipment and
specialty steel segment also requires a software upgrade that is planned for
installation in the third quarter of 1999. The installation of these software
upgrades will require the allocation of significant internal resources to test
the upgraded ERP systems prior to their implementation. Other significant
information technology systems that may not be compliant are:

-     the accounting software system currently used in the Canadian operations;

-     our payroll system; and

-     the design engineering software system.

We will have a better understanding of these systems and their respective Year
2000 compliance once we have completed our inventory.

      We have inventoried some of the more critical non-information technology
systems of the down hole tools unit. Approximately 85% of our production
machines for the down hole tools unit are manual or "numerical control"
equipment not affected by Year 2000 issues. The balance of our production
machines are "computer numerical control" machines; these machines produce about
30% to 40% of our production output. Although we have been notified by the
manufacturer of these machines that the controls on these machines are Year 2000
compliant, we have not yet verified whether or not these machines are indeed
Year 2000 compliant. We have not completed our inventory of the production
machines for our other units or other non-information technology systems.

      Analysis of Key Suppliers and Customers. We have also initiated the
inventorying of key third party relationships for Year 2000 compliance. Although
we have begun to contact the suppliers and customers of the down hole tools
unit, we have not yet assessed the extent and content of the responses received
from those suppliers and customers. We have not begun to inventory the
suppliers and customers for the oil field equipment unit and the specialty steel
segment, but we believe that the loss of any of our suppliers would not have a
material adverse effect on our operations. In order to increase our
understanding of any unforeseen risk exposures, we plan to do a more extensive
analysis of those suppliers and customers that are key to our operations. We
plan to complete the analysis of our key third party relationships by the end of
July 1999.

      Costs to Address Year 2000 Issues

      To date, we have incurred expenses of approximately $150,000 that are
directly related to our Year 2000 compliance program. We estimate our expenses
relating to Year 2000 issues will be approximately $1.3 million but they could
be as high as $2.0 million. We also expect to allocate significant internal
resources to the inventorying, testing and remediation of Year 2000 issues,
though we have not quantified the costs of allocating these internal resources.
The replacement and upgrade of several of our 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. In addition, our maintenance
agreements with the vendors of our ERP systems for the down hole tools and oil
field equipment units already include the cost of the 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, though we cannot give any assurances in
this regard.

                                       13
<PAGE>   14

      Risks Associated with Year 2000 Issues

      We believe that much of the risk associated with Year 2000 will be
mitigated by the installation of the software upgrades on our ERP systems. We
are, however, presently unable to determine fully the risk to our business
presented by any other non-Year 2000 compliant software, hardware, or other
technologies of our systems and third party relationships. We will have a better
understanding of these risks once the inventory has been completed. We are
presently unable to determine what effect the failure of us, our suppliers or
our customers to become Year 2000 compliant will have on our business, but
significant failures could have a material adverse effect on our results of
operations and financial condition. At the very least, a significant failure may
force us to curtail our production, prevent us from meeting customer orders on a
timely basis, and/or impede our ability to monitor customer orders and
inventory.

      Contingency Plans for Year 2000

      We have not yet been able to determine the extent to which we need
contingency plans because our Year 2000 inventory is not yet complete. It is our
intention to develop contingency plans by the end of November 1999.

CAPITAL EXPENDITURES

      Capital expenditures for three months ended March 31, 1999 totaled
approximately $0.4 million, of which $0.1 million, was spent for computers and
equipment at the downhole tools segment , $0.2 million was spent for the
purchase of a building for our downhole tools segment, and $0.08 million was
expended for roof repairs at our down hole tools segment. For 1999, we have
budgeted capital expenditures of a total of $5.8 million, including $1.0 million
for maintenance capital expenditures, $2.0 million for rental tools, $1.5
million for software upgrades and related expenditures and $1.3 million for Year
2000 compliance. We are funding capital expenditures with available cash, cash
flow from operations and borrowings under the Revolving Credit Facility.

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:

-     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.


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<PAGE>   15

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 about 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 March 31, 1999, we had
approximately $26.9 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 Bowen 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 March 31, 1999, we had approximately $19.3 million of marketable
securities, consisting primarily of corporate equity securities. These
securities were acquired principally for trading purposes and are bought and
held by us for the purposes of selling them in the near term. 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


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                                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.



                                   SIGNATURES

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


Date: May 17, 1999                      IRI INTERNATIONAL CORPORATION


                                        By: /s/ MUNAWAR H. HIDYATALLAH
                                            ----------------------------------
                                            Munawar H. Hidayatallah
                                            Executive Vice President and
                                            Chief Financial Officer, Director


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                                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)

----------
*     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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