<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

                         COMMISSION FILE NUMBER 1-13593
                         ------------------------------

                         IRI INTERNATIONAL CORPORATION
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                           <C>
              DELAWARE                               75-2044681
    -------------------------------           ----------------------
    (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)            IDENTIFICATION NUMBER)
</TABLE>

<TABLE>
<S>                                                      <C>
            1000 LOUISIANA, SUITE 5900
                   HOUSTON, TEXAS                           77002
        ---------------------------------------             ----------
        (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 651-8002

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S>                                 <C>
         TITLE OF EACH CLASS         NAME OF EACH EXCHANGE ON WHICH REGISTERED
     ----------------------------    -----------------------------------------
     COMMON STOCK, $.01 PAR VALUE             NEW YORK STOCK EXCHANGE
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.

         YES X  NO __

         INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.[ ]

             APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.

         YES __   NO __

         AS OF MARCH 24, 2000, THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS $125,001,772 BASED ON THE LAST
REPORTED SALE PRICE OF THE REGISTRANT'S COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE.

39,900,000 SHARES OF COMMON STOCK WERE OUTSTANDING ON MARCH 24, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------
                                      NONE


<PAGE>   2


ITEM 1.  BUSINESS

         IRI International Corporation (the "Company" or "we" or "us") is one
of the world's largest manufacturers of land-based drilling, well-servicing
rigs and rig component parts for use in the global oil and gas industry. We are
principally engaged in the design, manufacture, service, sale and rental of
on-shore and off-shore oil field equipment for the domestic and international
markets. Our Oilfield Equipment Division designs and produces rigs to meet the
special requirements of our global clientele for service in remote areas and
harsh climatic conditions. Our Downhole Products Division is a major
manufacturer of down hole fishing and drilling tools. It offers a complete line
of oil field power equipment, including top drives, power swivels, wireline
pressure control equipment and coiled tubing systems, which complement our
drilling and well-servicing rigs. We also manufacture and maintain a
significant inventory of replacement parts for rigs produced by us and others,
enabling us to meet the needs of our customers on a timely basis. Our Specialty
Steel Division produces premium alloy steel for commercial and military use and
for use in manufacturing oil field equipment products.

         We market our oil field equipment primarily through our own sales
force and through designated agents and distributors in every major oil and gas
producing region in the world. We maintain 25 domestic and 7 international
sales, parts and service centers in areas of significant drilling and
production operations. Our network of service centers in the United States
provides our customers with refurbishment or repair services as well as ready
access to replacement parts for equipment in the field. Our worldwide sales and
marketing activities are closely coordinated with and supported by a staff of
engineers and design technicians. This network allows us to provide our
customers with products meeting their customized design specifications.

         Our predecessor was founded in 1985 through the combination of
Ingersoll-Rand Oilfield Products Company and the Ideco Division of Dresser
Industries, Inc., and was later acquired by Energy Services International Ltd.
in 1994 ("ESI"). We acquired the business and operations of the Bowen Tools
Division (the "Bowen Acquisition") on March 31, 1997 and Cardwell
International, Ltd. (the "Cardwell Acquisition") on April 17, 1997 (together,
the "Acquisitions"). In October 1997, we merged with ESI, and ESI, as the
surviving entity, changed its name to IRI International Corporation. In
November 1997, we consummated the initial public offering of 13,800,000 shares
(which included 3,900,000 shares sold by certain stockholders) of our Common
Stock.

         On March 16, 2000, we announced the signing of a definitive merger
agreement with National-Oilwell, Inc., (the "NOI Merger") a worldwide leader in
the design, manufacture and sale of comprehensive systems and components used
in oil and gas drilling and production, as well as in the provision of supply
chain integration services to the upstream oil and gas industry.

         The merger agreement, unanimously approved by each company's board of
directors, calls for our stockholders to receive .3385 share of National Oilwell
common stock for each common share of the Company. National-Oilwell will issue
approximately 14.4 million shares of its common stock for all common shares of
the Company issued and outstanding and all options to purchase common shares of
the Company, which options will become fully vested at closing. This transaction
is expected to be accounted for as a pooling of interests and be tax-free to
both companies and our stockholders.

         Holders of the majority of our outstanding shares as well as
National-Oilwell's largest stockholder and its CEO have entered into voting
agreements in support of the transaction. The voting agreements do not prohibit
any of the shareholders from selling shares in accordance with applicable law,
including SEC Rule 144, unless such sale would affect adversely the accounting
and regulatory treatment of the NOI Merger as a "pooling of interests." Subject
to shareholder approval, the closing of the transaction is expected to occur
during the second quarter of this year.

DRILLING AND WELL-SERVICING RIGS

         Products

         We design, construct and sell a total of 48 standard models of
drilling and well-servicing rigs under the IDECO(R), FRANKS(R), CARDWELL(TM)
and IRI(TM) brand names. Our products include:

         -    land-based skid mounted rigs;
         -    off-shore drilling and well-servicing rigs;

                                       2

<PAGE>   3

         -        self-propelled drilling and well-servicing rigs;
         -        slant hole drilling rigs; and
         -        heli-rigs.

In addition to our standard models, we manufacture customized drilling and
well-servicing rigs to customer specifications to accommodate, among other
things, extreme weather conditions, moving systems or hook load capacities. We
also design, manufacture and sell component products used in the original
construction, modernization or repair of land and off-shore rigs, including
masts, derricks, substructures and other components used in hoisting, power
transmission, pumping and mud systems. The sale of drilling and well-servicing
rigs and component parts accounted for $27.3 million (or 29.6%), $55.8 million
(or 31.8%) and $74.2 million (or 40.0%) of our revenues for 1999, 1998 and 1997,
respectively.

         Competition

         Our competitors in our diverse areas of manufacturing are
National-Oilwell, Inc., Tulsa Industries, Inc., Hydralift A.S.A., Maritime
Hydraulics U.S., Inc., Bentec GMBH, and Crown Industries Inc. We compete on the
basis of price, quality, the ability to introduce new and improved products and
the ability to supply and deliver products in a timely and cost effective
manner.

         Backlog

         Sales of our drilling and well-servicing rigs are made almost
exclusively on the basis of written purchase orders or contracts. We include in
our rig backlog those orders or purchase commitments that we are reasonably
certain will be consummated based on industry practice, the historical
relationship between us and the customer or the financial terms of the sale,
including cash advances, letters of credit or similar credit support
arrangements. The total value of our rig backlog as of December 31, 1999 and
1998 was $41.0 million and $21.3 million, respectively. We cannot assure that
the contracts included in our backlog will ultimately generate anticipated
revenues in the period expected or otherwise.

         We attempt to mitigate the financial risks in sales to our
international customers by requiring, where commercially feasible, cash
advances, irrevocable letters of credit or similar credit support arrangements.
As of December 31, 1999, we had received approximately $1.9 million in cash down
payments and approximately $40.8 million in letters of credit or assignments of
letters of credit to support customer orders.

         Customers

         Sales of drilling and well-servicing rigs are made to various
customers, which change from year to year depending on the size and timing of
rig purchase orders. During 1999, our largest revenue customer accounted for
33.5% of the revenues of our oil field equipment segment and our second largest
revenue customer accounted for 11.5 % of the revenues of our oil field equipment
segment. In 1999, we received a significant order from Surgutneftgaz, a customer
based in the former Soviet Union, the majority of which order we expect to
fulfill in 2000.

FISHING AND DRILLING TOOLS

         Our Downhole Products Division designs, manufactures, sells and rents
fishing and drilling tools under the BOWEN(R) brand name. These include:

         -        external and internal catch fishing tools;
         -        junk catch fishing tools;
         -        milling and cutting tools;
         -        accessory tools such as jars, jar intensifiers and bumper
                  subs; and
         -        repair and remedial tools.

                                       3

<PAGE>   4

Fishing and drilling tool sales and rentals accounted for $36.3 million (or
39.4%), $56.7 million (or 32.4%) and $47.8 (or 25.8%) of our revenues for 1999,
1998 and 1997, respectively.

         Competition

         In the fishing and drilling tool business, like the rig manufacturing
business, we compete on the basis of price, quality, the ability to introduce
new and improved products and the ability to supply and deliver products in a
timely and cost effective manner. Our primary competitors are Smith
International, Inc. and Spring Engineers, Inc. in the manufacture of fishing
tools, and Weatherford International, Inc., National-Oilwell, Inc., and Smith
International, Inc. in the manufacture of drilling tools. We are the leading
provider of fishing tools. We are a minor player in the drilling tool market,
but we have plans to expand this part of our business.

POWER AND WIRELINE/PRESSURE CONTROL EQUIPMENT

         Power Equipment

         In addition to fishing and drilling tools, our Downhole Products
Division also manufactures products for the power equipment market, including:

         -        power-swivel systems used in well-servicing and drilling
                  applications;
         -        top drives;
         -        power subs;
         -        bucking units;
         -        power tongs; and
         -        coiled tubing systems.

         The market for power equipment is very competitive. Our competitive
position varies by product. We compete on the basis of product design, quality,
ability to meet delivery requirements and price. Our competitors in this segment
are Tesco Corporation, Canadian Rig Ltd., Maritime Hydraulics US, Inc., Varco
International, Inc., King Oil Tools Inc., Stewart & Stevenson Services, Inc.,
and Hydra Rig.

         Wireline/Pressure Control Equipment

         We also manufacture wire line and pressure control equipment under the
BOWEN(R) brand name. These products include:

         -        small blowout preventers;
         -        unions;
         -        tool traps;
         -        tool catchers;
         -        lubricator risers;
         -        control heads;
         -        stuffing boxes; and
         -        wellhead adapters.

         Like the market for power equipment, the market for pressure control
equipment is very competitive. Similarly, our competitive position varies by
product. We compete on the basis of product design, quality, ability to meet
delivery requirements and price. Our competitors in the market include Elmar
Services Ltd. and Tuboscope Inc.

         Sales and rentals of power and wireline/pressure control equipment
products accounted for $6.6 million (or 7.2%), $19.5 million (or 11.1%) and
$17.5 million (or 9.4%) of our revenues for 1999, 1998 and 1997, respectively.

                                       4

<PAGE>   5

SPECIALTY STEEL PRODUCTS

         Our Specialty Steel Division manufactures premium specialty steel
forgings for commercial and military use and for use in manufacturing oil field
equipment products. Specialty steel products accounted for $4.9 million (or 5.4
%), $10.4 million (or 5.9%) and $13.5 million (or 7.3%) of our revenues for
1999, 1998 and 1997, respectively.

         We manufacture over 100 different alloys to form forged products in
round, square and rectangular solid, trepanned, counter bored and stepped forms
to meet customer specifications. We sell our specialty steel products primarily
to customers in the heavy equipment, aircraft, petroleum and power generation
industries in North America and to the United States military. We also sell our
specialty steel products as feedstock directly to forgers and extruders.

         Competition

         The U.S. specialty steel market is highly competitive due primarily to
the high cost of freight associated with moving small amounts of high tonnage
finished goods. Competitive factors include price, delivery, quality and
service. Steel ingots and billets are commodities and are extremely price
competitive. Our major competitors in the specialty steel market are National
Forge Company, Ellwood Group, Inc., Scot Forge Co., Erie Forge and Steel,
Inc. and FirstMiss Steel Inc.

         Customers

         The Specialty Steel Division sold 31.3% of its production for 1999 to
the governmental and military sectors. Besides the governmental and military
sectors, its two largest customers accounted for 20.0% and 10.3%, respectively,
of its revenues for 1999. The loss of any of these customer may materially
adversely affect the revenues and operating results of the Specialty Steel
Division, though it will not materially adversely affect our revenues and
operating results taken as a whole.

REPLACEMENT PARTS AND REFURBISHMENT

         We manufacture and maintain a significant inventory of replacement
parts and replacement components. We also refurbish older rigs for our
customers. We believe that these businesses will grow over the next several
years because of increased worldwide rig utilization and the age of the
international rig fleet, most of which were constructed prior to 1982. We
believe we are well positioned to provide replacement parts and refurbishment
services as a result of the large number of operating rigs manufactured under
our brand names and the preference of equipment owners to obtain replacement
parts and refurbishment services from the original manufacturer. Replacement
parts and refurbishment services accounted for $17.0 million (or 18.5 %), $32.6
million (or 18.6%) and $32.3 million (or 17.4%) of our revenues for 1999, 1998
and 1997, respectively.

ENGINEERING AND PRODUCT DEVELOPMENT

         We maintain a staff of engineers and design technicians to:

         -        design and test new products, components and systems for use
                  in manufacturing and drilling applications;

         -        enhance the capabilities of existing products; and

         -        assist our sales organization and customers with special
                  requirements and products.

We intend to continue our research, engineering and product development programs
to develop safer and more environmentally-friendly and efficient products that
are complementary to our existing products and equipment. Our total engineering
and product development expenses for 1999, 1998 and 1997 were $2.7 million, $3.4
million and $4.3 million, respectively. We have budgeted $3.4 million for
engineering and product development expenses for 2000.

                                       5

<PAGE>   6

MARKETING, SALES AND DISTRIBUTION

         We market our oil field products primarily through our own sales force
and through designated agents and distributors in every major oil and gas
producing region in the world. Our customers include international and domestic
drilling contractors and international and domestic oil and gas exploration and
production companies, including foreign state-owned oil and gas enterprises. We
maintain 25 domestic and 7 international sales, parts and service centers in
areas of significant drilling and production operations.

         See Note 14 to the Consolidated Financial Statements for financial
information related to our revenues by geographic region.

RAW MATERIALS

         We purchase our components, parts and raw materials from several
commercial sources. These materials are readily available from suppliers and
based on past experience, we anticipate that such materials will continue to be
available, although we can give no assurances in this regard. We believe that
the loss of any of our suppliers would not have a material adverse effect on our
operations.

WORKING CAPITAL ITEMS

         Consistent with industry practice, we maintain significant amounts of
inventory, which enables us to readily meet the demands of our customers.

INTELLECTUAL PROPERTY

         We own or have licenses to use a number of U.S. and foreign patents
covering a variety of products. Although on the whole the patents are important
to us, no single patent is essential to our business. In general, we depend upon
product name recognition, manufacturing quality control and application of our
expertise rather than patented technology in the conduct of our business. We
enjoy product brand name recognition, principally through our BOWEN(R),
IDECO(R), FRANKS(R), CARDWELL(TM), and IRI(TM) trademarks, and consider such
trademarks to be important to our business.

EMPLOYEES

         Generally, we consider our relations with our employees to be good. As
of December 31, 1999, we employed a total of 775 persons, of whom 27 were
employed outside the United States. Approximately 35% of these employees were
salaried and the balance were compensated on an hourly basis.

         Approximately 33% of our employees are represented by a union or are
parties to a collective bargaining agreement. The collective bargaining
agreement between us and our employees is effective for the period from July
1997 until July 2000, covers approximately 250 employees and contains customary
provisions with respect to wages, hours and working conditions for certain
production and maintenance employees in the Downhole Products Division. The
collective bargaining agreement required a 4.5% wage increase in its first year,
and 3% increases in its second and third years.

         Unless one of the parties to the collective bargaining agreement
notifies the other party in writing, not less than 60 days prior to the
expiration of the term of the agreement, of an intention to modify or terminate
the agreement, the current collective bargaining agreement will be renewed in
July 2000.

RISKS AND INSURANCE

         Our operations are subject to the usual hazards inherent in
manufacturing products and providing services for the oil and gas industry.
These hazards include:

         -        personal injury and loss of life;

                                       6

<PAGE>   7

         -        business interruptions;
         -        property and equipment damage; and
         -        pollution or environmental damage.

We maintain comprehensive insurance covering our assets and insuring against
risks at levels that we believe are appropriate and in accordance with industry
practice. We cannot assure, however, that our insurance coverage will be
adequate in all circumstances or against all hazards or risks, or that we will
be able to maintain adequate insurance coverage in the future at commercially
reasonable rates or on acceptable terms.

         Our services and products are used in drilling, production and
well-servicing operations. These types of operations are subject to inherent
risks, including:

         -        property damage;
         -        personal injury;
         -        suspension of operations; and
         -        loss of production.

We maintain product liability and worker's compensation insurance. Although the
limits of our insurance coverage against an accident are generally in accordance
with industry practice, such insurance may not be adequate to protect us against
liability or losses accruing from the consequences of such an incident.

ENVIRONMENTAL MATTERS

         Our manufacturing operations are subject to a broad range of federal,
state and local environmental laws, both in the United States and in foreign
jurisdictions, including those governing:

         -        discharges into the air and water;
         -        handling and disposal of solid and hazardous wastes; and
         -        remediation of contaminated soil and groundwater.

Our policy is to eliminate and minimize generation of wastes at our facilities
through plant operations, process design and maintenance. We continually strive
to reduce wastes by sending these materials off-site for recycling and/or
re-use.

         The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") imposes liability without regard to fault, on certain classes of
persons for the release of a hazardous substance into the environment. These
persons include the owner and operator of the disposal site or sites where the
release occurred and companies that sent hazardous substances to such sites.
Persons who are responsible for releases of hazardous substances under CERCLA
may be subject to joint and several liability for the costs of cleaning up
hazardous substances that have been released into the environment.

         We currently own or lease, and have in the past owned or leased,
numerous properties that have been used for the manufacture and storage of
products and equipment containing or requiring oil and/or other hazardous
substances. Although we have used standard operating and disposal practices,
hazardous substances may have been disposed of or released on or under the
properties owned or leased by us or on or under other locations where such
wastes have been taken for disposal. In addition, many of these properties have
been operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes was not under our control. These properties and the
wastes disposed thereon may be subject to CERCLA, the Resource Conservation and
Recovery Act and analogous state laws. Under such laws, we could be required to
remediate any hazardous substances or wastes discovered on or under these
properties.

         Various federal, state and local laws, regulations and ordinances
govern the removal, encapsulation or disturbance of asbestos containing
materials ("ACM"). These laws and regulations may impose liability for the
release of ACM. We are aware of the presence of ACM at our facilities, but we
believe that such material is in

                                       7

<PAGE>   8

acceptable condition at this time. Although we cannot give any assurances, we
believe that any future costs related to remediation of ACM at these sites will
not be material, either on an annual basis or in the aggregate.

         We have tried to reduce the impact of costs related to actual or
potential environmental conditions at the Downhole Products Division facilities
through our contractual arrangements with Air Liquide America Corporation ("Air
Liquide"). Air Liquide and Bowen agreed to indemnify us for costs relating to
environmental conditions existing at these facilities prior to our purchase of
the Bowen Tools Division. We cannot assure that Air Liquide or Bowen will meet
its obligations under the indemnification arrangements or that there will not be
future contamination for which we might be fully liable and that may require us
to incur significant costs that could have a material adverse effect on our
financial condition and results of operations.

         Although we believe we are currently in substantial compliance with
environmental laws and regulations, as is the case with most industrial
manufacturers, we could incur significant costs related to environmental
compliance in the future. Future environmental compliance may involve
remediating existing conditions at our facilities or modifying our operations.
These potential costs may have a material adverse effect on our financial
condition and results of operations. Moreover, other developments, such as
stricter environmental laws, regulations and enforcement policies thereunder,
could result in additional, presently unquantifiable, costs or liabilities to
us.

ITEM 2. PROPERTIES

         The principal offices and facilities owned or leased by us and their
current uses are described in the following table:

<TABLE>
<CAPTION>
                  FACILITY SIZE     PROPERTY SIZE
LOCATION           (SQ. FT.)         (ACRES)            TENANCY            USE
<S>               <C>               <C>                <C>                <C>
Pampa, TX          1,000,000         499                Owned              Rig and specialty
                                                                           steel manufacturing,
                                                                           administration and
                                                                           warehousing
Houston, TX          539,700          19                Owned              Drilling tool
                                                                           manufacturing,
                                                                           administration and
                                                                           warehousing
Beaumont, TX(1)      350,000          10                Owned              Rig parts sales and
                                                                           warehousing
El Dorado, KS(2)     139,912          23                Owned              Rig parts sales and
                                                                           warehousing
Houston, TX           16,249         N/A                Leased             Executive Offices
Houston, TX           50,154           2                Owned              Administration
</TABLE>
-------------
(1)      Rig manufacturing was ceased at this facility in early 1999.
(2)      Rig manufacturing was ceased at this facility in December 1998.

         We also own or lease facilities at 32 domestic and international
locations, substantially all of which are sales, service or warehouse locations.

ITEM 3. LEGAL PROCEEDINGS

         There are pending or threatened against us various claims, lawsuits and
administrative proceedings all arising from the ordinary course of business with
respect to commercial product liability and employee matters. Although no
assurance can be given with respect to the outcome of these or any other pending
legal and administrative proceedings and the effects such outcomes may have on
us, we believe that any ultimate liability resulting from the outcome of such
proceedings to the extent not otherwise provided for will not have a material
adverse effect on our consolidated financial statements.

         We maintain comprehensive liability insurance. We believe such coverage
to be of a nature and amount sufficient to ensure that we are adequately
protected from any material financial loss as a result of such claims. We
currently are not the subject of any legal actions for which we are neither
insured nor indemnified and which we

                                       8

<PAGE>   9

believe will individually or in the aggregate have a material adverse effect on
our financial condition, results of operations or liquidity, nor to our
knowledge is any such litigation threatened.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock, par value $0.01 per share (the "Common Stock") became
listed on the New York Stock Exchange on November 14, 1997 under the symbol
"IIR". Prior to that time there was no public market for our common stock. Our
common stock closed at $9 1/16 on March 24, 2000. The following table sets forth
(as reported by New York Stock Exchange) for the periods indicated the prices of
the Common Stock.


FISCAL 2000                                            HIGH           LOW
-----------                                            ----           ---

1st Quarter (through March 24, 2000)                  9 7/16         3 3/8

FISCAL 1999                                            HIGH           LOW
-----------                                            ----           ---

1st Quarter                                            4 3/8          2 7/8
2nd Quarter                                            6 3/16         3 5/8
3rd Quarter                                            5 5/8          4 1/4
4th Quarter                                            4 7/8          2 15/16

FISCAL 1998                                            HIGH           LOW
-----------                                            ----           ---

1st Quarter                                            14 1/2         10
2nd Quarter                                            14 15/16       10 3/4
3rd Quarter                                            12 1/4         4  3/8
4th Quarter                                            6  3/4         2  1/2


         The number of record holders of the Common Stock as of March 24, 2000
was 90. Pursuant to our Incentive Plan, 2,586,000 shares of Common Stock are
subject to outstanding options at March 24, 2000.

         We have never declared or paid cash dividends on our capital stock. We
currently expect to retain future earnings to provide for the continual growth
and development of our business.

         During 1999, we made no sales of equity securities not registered under
the Securities Act of 1933.

                                       9

<PAGE>   10
ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected historical financial
information for the Company. The information presented for the years ended
December 31, 1999, 1998 and 1997, and the year ended March 31, 1996, as well as
the nine month period ended December 31, 1996, is derived from our audited
consolidated financial statements. The information for the nine month period
ended December 31, 1995 is derived from our unaudited consolidated financial
statements. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company, including
the notes thereto, included elsewhere in this annual report.

<TABLE>
<CAPTION>
                                                                          NINE MONTHS
                                           TWELVE MONTHS                     ENDED             YEAR ENDED
                                        ENDED DECEMBER 31,                DECEMBER 31,          MARCH 31,
                                ---------------------------------    ----------------------  ----------------
                                                                                (UNAUDITED)
                                   1999        1998       1997(1)       1996        1995           1996
                                ---------   ---------   ---------    ---------   ----------  ----------------

                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                            <C>          <C>         <C>         <C>          <C>          <C>
OPERATING DATA:
Revenue                         $  92,190   $ 175,045   $ 185,366    $  62,298   $  39,141    $  52,506
Cost of goods sold (2)             83,156     126,626     139,204       44,968      28,815       36,877
                                ---------   ---------   ---------    ---------   ---------    ---------
Gross profit                        9,034      48,419      46,162       17,330      10,326       15,629
Selling, general and
   administrative expense          27,831      30,526      23,543        8,220       5,400        7,990
Restructuring charge                1,779         590          --           --          --           --
                                ---------   ---------   ---------     --------   ---------    ---------
Operating income (loss)           (20,576)     17,303      22,619        9,110       4,926        7,639
Interest expense                     (363)       (360)     (8,762)        (615)         --          (47)
Other income (expense) - net        1,562      (1,278)      1,464          (20)        210          371
Income taxes                        8,472      (3,283)     (2,786)         (98)         --           --
                                ---------   ---------   ---------    ---------   ---------    ---------
Income (loss) before
   extraordinary item             (10,905)     12,382      12,535        8,377       5,136        7,963
Extraordinary charge on early
   extinguishment of debt,
   net of tax benefit                  --          --      (1,512)          --          --           --
                                ---------   ---------   ---------    ---------   ---------    ---------
Net income (loss)                 (10,905)     12,382      11,023        8,377       5,136        7,963
Weighted average shares
   outstanding                     39,900      39,900      31,275       30,000      30,000       30,000
                                ---------   ---------   ---------    ---------   ---------    ---------
Income (loss) per common share  $   (0.27)  $    0.31   $    0.35    $    0.28   $    0.17    $    0.27
                                =========   =========   =========    =========   =========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                   DECEMBER 31,                   MARCH 31,
                                -----------------------------------------------  ----------
                                   1999        1998        1997         1996        1996
                                -----------------------------------------------  ----------
<S>                            <C>         <C>          <C>         <C>          <C>
BALANCE SHEET DATA:
Working capital                 $ 149,849   $ 164,246   $ 161,890   $  38,658    $  35,461
Total assets                      217,093     239,166     251,074      58,671       46,631
Long-term debt and obligation
under capital lease less
current installments                   --         319         586         522           --
Shareholder's equity              201,300     210,259     198,406      24,903       16,526
</TABLE>

(1)      The Company acquired the business and operations of the Downhole
         Products Division on March 31, 1997 and Cardwell International, Ltd. on
         April 17, 1997.

(2)      Amortization of negative goodwill decreased cost of goods sold in all
         periods. Negative goodwill was fully amortized as of September 30,
         1999. See Notes to our Consolidated Financial Statements and
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations - Overview"

ITEM 7. 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 "Selected Consolidated
Financial Information," the Consolidated Financial Statements and Notes thereto
and the other information included elsewhere in this Annual Report on Form 10-K.

         Our fiscal year was changed from the twelve-month period ending March
31 to the calendar year, effective December 31, 1996.

                                       10

<PAGE>   11

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, third and fourth
quarters of 1999, consumer spending and rig utilization rates have begun to
increase. Although results of operations for the latter half of 1999 reflect
this increase in consumer spending, results of operations for 1999 are still
substantially reduced from the results for 1998 and still reflect the adverse
market conditions prevalent during the first six months of 1999. In addition,
our gross margins for 1999 were also adversely affected by restructuring costs
and other special charges of $5.6 million (after-tax) in the second quarter of
1999, and an inventory valuation adjustment of $5.9 million in the fourth
quarter of 1999.

         During 1999, 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 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
Downhole Products 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.

         Negative Goodwill

         On September 20, 1994, all of our outstanding capital stock was
acquired by an affiliate of certain of our stockholders for $5.0 million in cash
(the "Company Acquisition"). The Company Acquisition was recorded using the
purchase method of accounting and the purchase price allocated to the assets
acquired and liabilities assumed based upon their estimated fair values at the
date of the Company Acquisition. The excess of the fair value of net assets
acquired over the consideration paid was applied against non-monetary assets
(property, plant and equipment), reducing the balances of these assets at the
date of the Company Acquisition to zero, and the remaining excess of the fair
value of net assets acquired over consideration paid was recorded as negative
goodwill. The purchase price has been allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of the acquisition
as follows (in thousands):

                                       11

<PAGE>   12

<TABLE>
<S>                                                                                     <C>
           Inventories..............................................................     $   33,287
           Other current assets.....................................................          7,743
           Current liabilities......................................................         (7,372)
           Accrued retirement benefits..............................................         (1,821)
           Negative goodwill........................................................        (26,837)
                                                                                         ----------
                                                                                            $ 5,000
                                                                                         ==========
</TABLE>

         Negative goodwill was being amortized using the straight-line method
over five years ended September 19, 1999. See Note 1 to the Consolidated
Financial Statements. Amortization of negative goodwill decreased cost of goods
sold by $4.0 million in fiscal year ended December 31, 1999 and by $5.4 million
in each of the fiscal years ended December 31, 1998 and 1997 and the year ended
March 31, 1996.

RESULTS OF OPERATIONS

         In June 1997, we changed our fiscal year from a March 31 year-end to a
December 31 year-end, effective with the period ended December 31, 1996, in
order to harmonize the fiscal years of IRI, Cardwell and Bowen. The following
discussion of the results of operations of our business units does not reflect
allocation of corporate overhead expense, unallocated administrative expense or
amortization of goodwill and negative goodwill. See Note 14 to our Consolidated
Financial Statements for a presentation of segment information.

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

                                       12

<PAGE>   13

<TABLE>
<CAPTION>
                               THE COMPANY
-----------------------------------------------------------------------------------
                              TWELVE MONTHS
                                  ENDED
                              DECEMBER 31,
-----------------------------------------------------------------------------------
                                      1999                 1998              1997
                                  --------              --------          ---------
<S>                              <C>                   <C>               <C>
Revenues
  Oil field equipment...........  $ 44,365              $ 88,395          $106,529
  Downhole Products.............    42,892                76,249            65,336
  Specialty steel...............     4,933                10,401            13,501
                                  --------              --------          --------
    Total.......................  $ 92,190              $175,045          $185,366
                                  ========              ========          ========
Segment operating income (loss)
   Oil field
   equipment....................  $ (5,850)             $ 13,533          $ 15,617
   Downhole Products............     2,543                17,186            11,869
   Specialty steel..............       722                 1,668             4,503
                                  --------              --------          --------
     Total......................    (2,585)               32,387            31,989
Corporate overhead
   and unallocated
   administrative
   expenses.....................   (18,982)              (18,606)          (13,862)
Restructuring Charge............    (1,779)                 (590)               --
   Amortization of negative
     goodwill...................     4,026                 5,367             5,370
   Amortization of goodwill.....    (1,254)               (1,255)              878
                                  ---------             ---------         --------
   Operating income (loss)......  $(20,576)             $ 17,303          $ 22,619
                                  =========             ========          ========
</TABLE>

FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998

         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 latter half of
1998 and the beginning 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 1999. As a result of decreased revenue, our gross margin
was: (6.1)% for 1999 as compared to 19.5% for 1998. In addition, our gross
margin for 1999 was negatively affected by: a $3.0 million write-off for
pre-contract engineering and design costs and a $1.3 million charge for contract
adjustments, each of which occurred during the second quarter of 1999.

         Downhole Products

         As a result of decreased sales volume, our gross margin was
significantly lower for 1999: 18.0% as compared to 33.0% for 1998. In addition,
our gross margin for 1999 was adversely affected by an inventory valuation
adjustment of $2.0 million during the second quarter of 1999 and $5.9 million in
the fourth quarter of 1999.

         Specialty Steel

         Reduced demand caused by an industry-wide recession significantly
impacted our revenues and operating income. However, our gross margins remained
almost unchanged at 17.4% for 1999 versus 17.5% for 1998.

         Corporate and Administrative Expenses

         The $0.4 million increase in corporate and administrative expenses for
1999, as compared to 1998, occurred as a result of a $3.5 million increase in
corporate costs offset by a $3.1 million decrease in administrative expenses.
Corporate expenses increased in 1999 in the areas of professional services,
promotion, and employee-related costs. The Oilfield Equipment Division
experienced a net decrease in administrative expenses of $2.6 million as a
result of a reduction of salaries and related expenses of $1.8 million and the
reduction of other costs by $0.8 million. The Downhole Products Division
decreased its expenses by $1.7 million, which resulted primarily from a
reduction of its administrative staff. This decrease was offset by a $1.2
million provision for doubtful accounts recorded  in the second quarter of 1999.


         Restructuring Charge

         The Company incurred a restructuring charge of $1.8 million in 1999,
and $0.6 million in 1998 in connection with its restructuring program.
Accordingly, the Company consolidated manufacturing operations, closing two
plants in 1999, and reduced its workforce.



                                       13

<PAGE>   14



         Other Income (Expense)

         Other income for 1999 reflected a gain of $1.6 million compared to a
loss of $1.3 million in 1998, which reflected a $0.7 million gain on
investments in marketable securities in 1999, compared to a loss of $2.7 million
in 1998.




         Income Taxes

         The change in the effective income tax rate to (43.7)% for 1999 from
21.0% for 1998 is attributable primarily to the 1999 net operating loss and the
recognition of a deferred tax benefit of $5.3 million in 1999.

FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997

         Oil Field Equipment

         The economic and financial turmoil in Russia and the Asia-Pacific
region together with the downward turn in oil prices resulted in a decreased
demand for our products. Gross margin for the fiscal year ended December 31,
1998 was 19.5%, as compared to 17.8% for the fiscal year ended December 31,
1997. This increase resulted principally from an extensive cost restructuring
program and a favorable mix between manufactured equipment and buy-outs.

         Downhole Products

         The downward trend in the oil industry prevailing in the latter half of
1998 had a negative impact on our customers' demands for fishing tools and power
equipment. Accordingly, our revenues for 1998 decreased compared to 1997. Gross
margin for the fiscal year ended December 31, 1998 was 33.0%, as compared to
26.5% for the fiscal year ended December 31, 1997. The increase in monthly
operating income and gross margin was primarily due to the full impact of price
increases in the last two quarters of 1997, an increase in the amount of
manufacturing overhead absorbed into inventory and management's cost-cutting
initiatives.

         Specialty Steel

         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 34.6%
for the fiscal year ended December 31, 1997 to 17.5% for the fiscal year ended
December 31, 1998.

                                       14

<PAGE>   15

         Corporate Administrative and Interest Expenses

         The increase in corporate administrative expenses was due primarily to
the inclusion of corporate administrative expenses for our Downhole Products
Division and Cardwell operations for the full year in 1998 as compared to only
nine months for 1997. In addition, corporate administrative expenses increased
as a result of the higher professional fees associated with being a public
company and the implementation of new software systems. Interest expense
decreased mainly because we repaid our debt with the proceeds from the initial
public offering of our Common Stock.

         Restucturing Charge

         The Company incurred a restructuring charge of  $0.6 million in 1998 in
connection with its restructuring program.

         Other Income (Expense)

         Other expense for 1998 includes:

         -        $2.2 million of interest income (due to higher cash balances
                  in 1998);

         -        $2.7 million of losses on trading securities (as compared to a
                  gain of $0.8 million for 1997);

         -        $0.6 million of special charges (relating to expenses incurred
                  in connection with the proposed acquisition of Hitec ASA,
                  which was terminated on April 28, 1998); and

         -        $0.2 million of miscellaneous other expenses.

         Income Taxes

         The increase in the effective income tax rate to 21.0% for 1998 from
18.2% for 1997 is attributable primarily to an increase in non-deductible
goodwill amortization and the change in the valuation allowance for deferred tax
assets.

RECENT ACCOUNTING PRONOUNCEMENTS

         Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued by the Financial
Accounting Standards Board in June 1998. SFAS 133 standardizes the accounting
for derivative instruments, including derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If specified conditions
are met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness, as well as the
ineffective portion of the gain or loss, is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.

         The Company will adopt SFAS 133 beginning January 1, 2001. The Company
has not yet determined the impact that SFAS 133 will have on consolidated
financial statements. Management believes that the determination will not be
meaningful until closer to the date of initial adoption.

                                       15

<PAGE>   16

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1999, we had cash and cash equivalents and marketable
securities of $50.4 million, compared to $40.5 million at December 31, 1998. Our
working capital was $149.8 million compared to $164.2 million at December 31,
1998. This decrease in working capital resulted from a decrease in accounts
receivable, inventories, and other current assets, partially offset by an
increase in cash and cash equivalents and marketable securities and income taxes
receivable and a decrease in current liabilities.

         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

         The Company had a $9.7 million revolving credit facility with a
maturity date of March 31, 2000. Amounts outstanding under the revolving credit
facility were secured by substantially all of the assets of the Company and
accrued interest at a rate per annum equal to the one, two, three or six-month
LIBOR plus 2-3/4%. The revolving credit facility agreement contained provisions
that restricted incurrence of indebtedness, guarantees, acquisitions, and
distributions to shareholders, and required the Company to meet specified
financial maintenance tests.

         On December 29, 1999, the revolving credit facility was replaced with a
new $10.0 million revolving credit facility, which matures on December 28, 2000
and provides exclusively for bank guarantees and commercial and standby letters
of credit. The new revolving credit facility agreement contains provisions that
limit liens on accounts receivables, inventory and related general intangibles
and that require the Company to meet specified financial maintenance tests. At
December 31, 1999, approximately $5.9 million was available for bank guarantees
and letters of credit under the new revolving credit facility. The Company had
no outstanding indebtedness at December 31, 1999.

YEAR 2000

         We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues may occur with billing, payroll, or financial closings at month,
quarterly, or year end. We believe that any such problems are likely to be minor
and correctable. In addition, we could still be negatively affected if our
customers or suppliers are adversely affected by the Year 2000 or similar
issues. We currently are not aware of any significant Year 2000 or similar
problems that have arisen for our customers or suppliers.

         We expended approximately $0.5 million on Year 2000 readiness efforts
from 1997 to 1999. These efforts included replacing some outdated, noncompliant
hardware and noncompliant software as well as identifying and remediating Year
2000 problems. These efforts did not include, however, certain ERP systems
upgrades, which were done in the ordinary course of business during 1998 and
1999 and which had the added benefit of resolving Year 2000 issues with respect
to those systems.

CAPITAL EXPENDITURES

         Capital expenditures for 1999 totaled approximately $2.2 million,
essentially all of which was spent on additions to our rental tool fleet and
implementation of new software at the Downhole Products Division.

         For 2000, we have budgeted capital expenditures of $3.5 million,
including amounts primarily to be used for the purchase of rental tools for the
Downhole Products Division and manufacturing equipment for the Oilfield

                                       16

<PAGE>   17

Equipment Division. Capital expenditures are expected to be funded 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:

         -        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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         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 December 31, 1999, we had
approximately $35.7 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 Downhole Products
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 December 31, 1999, we had marketable securities of $14.7 million.
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 1999.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Index to Consolidated Financial Statements and Exhibits, which
appears on Page F-1 hereof.

                                       17

<PAGE>   18

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.

                                   PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The directors and executive officers of the Company, and their ages and
positions with the Company as of March 30, 2000, are as follows:

<TABLE>
<CAPTION>
NAME                                       AGE                              POSITION
----                                       ---                              --------
<S>                                       <C>            <C>
Hushang Ansary                              72            Chairman of the Board and Chief Executive Officer
Daniel G. Moriarty                          65            Director
Abdallah A. Andrawos                        44            Director and Secretary
Nina Ansary                                 33            Director
Frank C. Carlucci                           69            Director
Dr. Philip David                            68            Director
Robert L. Hargrave                          58            Director, Vice-Chairman of the Board of Directors, Chief
                                                          Accounting and Financial Officer
Richard D. Higginbotham                     62            Director
John D. Macomber                            72            Director
Edward L. Palmer                            82            Director
Stephen J. Solarz                           59            Director
Gary W. Stratulate                          43            Director, President and Chief Operating Officer
Alexander B. Trowbridge                     70            Director
J. Robinson West                            53            Director
</TABLE>

     All executive officers of the Company serve at the pleasure of the Board of
Directors (the "IRI Board"). Directors are elected at the Company's annual
meeting of stockholders and serve for a one-year term or until their successors
are elected and qualified or until their earlier resignation or removal in
accordance with the Company's Restated Certificate of Incorporation and the
Company's Amended and Restated Bylaws (the "Company Bylaws").

     HUSHANG ANSARY has served as Chairman of the Board of the Company since
September 1994 and was elected to the additional position of Chief Executive
Officer of the Company in March 1997. He has served as Chairman of SunResorts,
Ltd. N.V., a resort company, since 1986 and of Parman Capital Investments Ltd.,
a private investment company, since 1982.

     DANIEL G. MORIARTY has been a director of the Company since 1994 and served
as President and Chief Executive Officer of the Company from 1994 to April 1997,
when he was elected Vice-Chairman of the Board of Directors. He resigned his
position as Vice-Chairman of the Board in July 1999. He served as President of
Cooper Manufacturing, a rig manufacturing division of Allied Production Corp.
from 1992 to 1994 and of Smith Energy Services, an oil field services division
of Allied Production Corp., from 1987 to 1992. From 1982 to 1987, Mr. Moriarty
served as the President and Chief Executive Officer of Leamco Services, Inc.
From 1960 to 1982, Mr. Moriarty held various positions with Halliburton Company,
rising from engineer to Vice President of the Central Region.

     ABDALLAH A. ANDRAWOS has been Secretary of the Company since 1994 and a
director of the Company since April 1997. Since 1989 Mr. Andrawos has served as
Secretary and Chief Financial Officer of SunResorts, Ltd. N.V.

     NINA ANSARY has served as a director of the Company since April 1997. Ms.
Ansary has been a Vice President of Parman Capital Investments Ltd., a private
investment company, since 1994.  Prior to 1994, Ms. Ansary

                                       18

<PAGE>   19

was a student.  Ms. Ansary is the daughter of Hushang Ansary and holds a masters
degree in political science from Columbia University.

     FRANK C. CARLUCCI has been a director of the Company since 1994. Since
1993, Mr. Carlucci has served as Chairman and partner of The Carlyle Group, a
Washington, D.C. based merchant bank, and from 1989 to 1993 served as
Vice-Chairman and partner.  Mr. Carlucci serves on the following corporate
boards: BDM International, Mass Mutual Life Insurance Company, Kaman
Corporation, Neurogen Corporation, Nortel Networks Corporation, Northern Telecom
Ltd., Quaker Oats Company, SunResorts, Ltd. N.V., Texas Biotechnology
Corporation, Pharmacia & Upjohn Inc. and Ashland Inc. He is also a Trustee of
the Rand Corporation.

     DR. PHILIP DAVID has been a director of the Company since 1994. Dr. David
is a self-employed investor.  He was a consultant to Fairchild Corporation from
January 1988 to June 1993 and was a Professor of Urban Studies and Planning at
the Massachusetts Institute of Technology from 1971 until June 1987. Dr. David
is a director of Fairchild Corporation.

     ROBERT L. HARGRAVE has been a director, Vice-Chairman of the Board of
Directors and Chief Accounting and Financial Officer of the Company since July
1999. From 1995 until he came to the Company, Mr. Hargrave served as Chief
Executive Officer of Stewart & Stevenson Services, Inc., a company specializing
in the manufacture of engine driven power systems. He also served as its Chief
Financial Officer from 1980 to 1995.

     RICHARD D. HIGGINBOTHAM has been a director of the Company since April
1997.  He served as Executive Vice President --President of the Downhole
Products Group from April 1997 to September 1998.  From 1988 until its
acquisition by Company, Mr. Higginbotham served as President of Bowen Tools,
Inc.

     JOHN D. MACOMBER has been a director of the Company since 1994. Mr.
Macomber has been a principal of JDM Investment Group, a private investment
company, since 1992. From 1988 to 1992, he was Chairman and President of the
Export-Import Bank of the United States, from 1973 to 1986 he was Chairman of
the Board and Chief Executive Officer of Celanese Corp. and from 1954 to 1973 he
was a managing partner of McKinsey & Co. He is also a director of The Brown
Group, Lehman Brothers Holdings Inc., Pilkington Ltd., and Textron Inc. He is
also a director and Vice-Chairman of The Atlantic Council of the United States
and a director of the French American Foundation and the National Executive
Services Corp. Mr. Macomber is a trustee of The Folger Library and a member of
the Council on Foreign Relations and the Bretton Woods Committee. Mr. Macomber
is Chairman of the Council for Excellence in Government and a trustee of the
Carnegie Institute of Washington.

     EDWARD L. PALMER has been a director of the Company since June 1997. Mr.
Palmer has been President of the Mill Neck Group Inc., a management consulting
firm, since 1982, and prior thereto he served as Chairman of the Executive
Committee and a director of Citicorp and Citibank, N.A. He is also a director of
Commodore Applied Technologies, Inc. and SunResorts, Ltd. N.V.

     STEPHEN J. SOLARZ has been a director of the Company since 1994. Mr. Solarz
has been President of Solarz Associates, an international consulting firm, since
1993. From 1975 to 1993, he was a member of the U.S. House of Representatives,
where he served on the Foreign Affairs, the Merchant Marine and Fisheries, the
Intelligence and the Joint Economic Committees. He is also a director of
Samsonite Corp., Santa Fe International Company and First Philippine Fund Inc.

     GARY W. STRATULATE has been a director of the Company since April 1997. He
has served as President and Chief Operating Officer since July 1999. From
September 1998 to July 1999, he served as Executive Vice President--President of
the Downhole Products Group, from April 1997 to September 1998, as the President
of the Oilfield Equipment Group and from December 1994 to April 1997 as
Executive Vice President of the International Division of the Company. From June
1991 to May 1994, Mr. Stratulate was the Chief Operating Officer of Dreco Energy
Services Ltd., a manufacturer of oil field equipment.

     ALEXANDER B. TROWBRIDGE has been a director of the Company since 1994.
Since 1990, Mr. Trowbridge has been the President of Trowbridge Partners, Inc.,
a management consulting firm. He was President of the National Association of
Manufacturers from 1980 through 1989. He is also a director of The Gillette
Company, New England Life Insurance Company, E.M. Warburg-Pincus Counsellors
Fund, Rouse Company, Sun

                                       19

<PAGE>   20

Company, Harris Corporation, ICOS Corporation Sunoco, Inc. and SunResorts, Ltd.
N.V. He is a charter trustee of Phillips Academy, Andover.

     J. ROBINSON WEST has been a director of the Company since 1994. Mr. West is
Chairman of The Petroleum Finance Company, Ltd., a petroleum industry consulting
firm, and served as its President from 1984 to 1996.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3 under the Exchange Act during
its most recent fiscal year and Form 5 and amendments thereto furnished to the
Company with respect to its most recent fiscal year, the Company believes that
the following forms were not filed in a timely manner under Section 16(a):

     -   With respect to Munawar Hidayatallah, a former director and officer of
the company, a Form 4 listing two transactions that occurred in July, 1999 was
filed late. In addition, a Form 4 listing one transaction that occurred in
August, 1999 was filed late.

     -   With respect to Robert Hargrave, a Form 3 listing a single transaction
was filed late.

     -   With respect to Hushang Ansary, a Form 5 listing four transactions was
filed late.

Other than as noted above, the Company believes that during such fiscal year no
other forms for any director, officer, beneficial owner of more than ten percent
of any class of equity securities of the Company required to be filed by Section
16(a) of the Exchange Act were filed late.

ITEM 11.   EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following table sets forth certain information regarding the
compensation paid by the Company to the Chairman and Chief Executive Officer and
each of the five other most highly compensated executive officers of the Company
for the 12 months ended December 31, 1999 (collectively, the "Named Executive
Officers"):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                             SUMMARY COMPENSATION TABLE
                                                 ANNUAL COMPENSATION
----------------------------------------------------------------------------------------------------------------------
                                                                                   OTHER ANNUAL          ALL OTHER
NAME AND PRINCIPAL POSITION                    YEAR      SALARY      BONUS       COMPENSATION (1)      COMPENSATION
---------------------------                    ----      ------      -----       ----------------      ------------
<S>                                           <C>       <C>         <C>         <C>                   <C>
Hushang Ansary,
  Chairman and Chief Executive Officer         1999     $913,500     $875,000(2)       ---              $ 12,166(3)
                                               1998     $900,000       ---             ---                 ---
                                               1997       ---          ---           $17,000               ---
----------------------------------------------------------------------------------------------------------------------
Daniel G. Moriarty,
  Vice-Chairman of the Board(4)                1999      $132,113      ---           $14,500            $ 11,408(3)
                                               1998      $204,346    $100,000          ---              $ 13,800(3)
                                               1997      $202,516     $25,000        $17,000            $ 13,908(3)
----------------------------------------------------------------------------------------------------------------------
Munawar H. Hidayatallah,
  Executive Vice President and Chief
  Financial Officer(5)                         1999      $206,533    $313,300          ---              $113,056(3)(6)

                                               1998      $318,450    $200,000          ---              $ 13,800(3)
                                               1997      $316,088    $100,000         $7,000            $ 14,164(3)
----------------------------------------------------------------------------------------------------------------------
Robert L. Hargrave, Vice Chairman of the
Board and Chief Accounting and Financial
Officer (7)                                    1999      $138,904     ---              ---              $    444(8)
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       20

<PAGE>   21

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                             SUMMARY COMPENSATION TABLE
                                                 ANNUAL COMPENSATION
----------------------------------------------------------------------------------------------------------------------
                                                                                   OTHER ANNUAL          ALL OTHER
NAME AND PRINCIPAL POSITION                    YEAR      SALARY      BONUS       COMPENSATION (1)      COMPENSATION
---------------------------                    ----      ------      -----       ----------------      ------------
<S>                                           <C>       <C>         <C>         <C>                   <C>
Gary W. Stratulate,
  President and Chief Operating Officer        1999      $252,169     ---              ---              $ 13,500(3)
                                               1998      $248,442    $200,000          ---              $ 13,800(3)
                                               1997      $246,087    $125,000         $8,500            $ 14,104(3)





----------------------------------------------------------------------------------------------------------------------
Arthur C. Teichgraeber,
  Executive Vice President -- President
  of Oilfield Equipment Group(9)               1999      $150,525     ---              ---              $ 12,213(3)
                                               1998      $272,759    $100,000       $45,750(10)         $  9,074(3)
                                               1997      $207,564     $50,000        $8,500             $498,110(11)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------
 (1)     Unless otherwise noted, consists of directors' and participation fees
         received by the Named Executive Officers prior to the Company's initial
         offering in November 1997 and, in the case of Mr. Moriarty's other
         annual compensation for 1999, directors' fees received since July 1999.

 (2)     Includes $200,000, which was paid pursuant to the incentive plan
         approved by the Compensation Committee of the Board of Directors on
         July 15, 1999 and is subject to adjustment. See "-- Other Compensation
         Plans or Programs."

 (3)     Includes premiums paid for life insurance and contributions
         under the Company's 401K Plan.

 (4)     Mr. Moriarty resigned from his position in July 1999.

 (5)     Mr. Hidayatallah resigned from his position in July 1999.

 (6)     Includes consulting fees paid to Mr. Hidayatallah after he left the
         Company.

 (7)     Mr. Hargrave was appointed Chief Accounting and Financial Officer and
         Vice-Chairman of the Board on July 15, 1999 and his annual salary for 1
         reflects compensation for the period from July 15, 1999 to December 31,

 (8)     Consists of premiums paid for life insurance.

 (9)     Mr. Teichgraeber left the Company in July 1999.

 (10)    Consists of educational assistance in the amount of $18,750 and housing
         reimbursement in the amount of $27,500.

 (11)    Consists of license fees paid by Cardwell (prior to our acquisition of
         Cardwell) to Mr. Teichgraeber and to certain entities directly or
         indirectly owned by Mr. Teichgraeber.

         Shown below is further information with respect to grants of stock
options pursuant to our Equity Incentive Plan during 1999 to the Named Executive
Officers:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                               OPTION GRANTS IN 1999
--------------------------------------------------------------------------------------------------------------------
                              NUMBER OF    % OF TOTAL
                             SECURITIES     OPTIONS                                   POTENTIAL REALIZABLE VALUE AT
                             UNDERLYING    GRANTED TO   EXERCISE                         ASSUMED ANNUAL RATES OF
                               OPTIONS     EMPLOYEES    PRICE OR                      STOCK PRICE APPRECIATION FOR
           NAME              GRANTED(1)    IN 1999(2)   BASE PRICE       EXPIRATION            OPTION TERM
-----------------------      ----------    ----------   ----------    --------------  ------------------------------
                                                                                           5% ($)          10% ($)
-----------------------      ----------    ----------   ----------    --------------  -----------        -----------
<S>                         <C>           <C>          <C>           <C>              <C>                <C>
Hushang Ansary                     ---           ---         ---                 ---          ---              ---
Daniel G. Moriarty              45,000         5.10%      $3.875      March 15, 2009     $109,664         $277,909
</TABLE>

                                       21

<PAGE>   22

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                               OPTION GRANTS IN 1999
--------------------------------------------------------------------------------------------------------------------
                              NUMBER OF    % OF TOTAL
                             SECURITIES     OPTIONS                                   POTENTIAL REALIZABLE VALUE AT
                             UNDERLYING    GRANTED TO   EXERCISE                         ASSUMED ANNUAL RATES OF
                               OPTIONS     EMPLOYEES    PRICE OR                      STOCK PRICE APPRECIATION FOR
           NAME              GRANTED(1)    IN 1999(2)   BASE PRICE       EXPIRATION            OPTION TERM
-----------------------      ----------    ----------   ----------    --------------  ------------------------------
                                                                                           5% ($)          10% ($)
-----------------------      ----------    ----------   ----------    --------------  -----------        -----------
<S>                         <C>           <C>          <C>           <C>              <C>                <C>
Munawar H. Hidayatallah        126,000        14.29%      $3.875      March 15, 2009     $307,058         $778,145
Robert L. Hargrave              50,000         5.67%      $5.000       July 15, 2009     $157,224         $398,436
Gary W. Stratulate              45,000         5.10%      $3.875      March 15, 2009     $109,664         $277,909
Arthur C. Teichgraeber             ---           ---         ---                 ---          ---              ---
</TABLE>

                              --------------------

(1)      The options of Messrs. Moriarty, Stratulate and Hidayatallah are
         immediately exercisable. The options of Mr. Hargrave become exercisable
         in three equal annual installments beginning on July 15, 1999 for so
         long as Mr. Hargrave remains in continuous employment with the Company.
         In addition, Mr. Hargrave's options become immediately exercisable upon
         his death or disability. All options granted in 1999 expire ten years
         from the date of grant and are subject to early expiration upon
         termination of employment by the optionee or upon termination of
         employment by the Company for cause.

(2)      Calculated on the basis of an aggregate grant of 901,000 options to
         purchase shares of Common Stock to Named Executive Officers and
         employees of the Company. All options granted pursuant to our Equity
         Incentive Plan will vest upon certain changes in control, including the
         NOI Merger.

  The following table sets forth information regarding the value of the stock
options granted on December 14, 1998, March 15, 1999 and July 15, 1999 to the
Named Executive Officers (no stock options were exercised by any of the Named
Executive Officers in 1999):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                        OPTION VALUES AT DECEMBER 31, 1999
--------------------------------------------------------------------------------------------------------------------
                      NAME                                                               VALUE OF UNEXERCISED
                      ----                        NUMBER OF SECURITIES UNDERLYING            IN-THE-MONEY
                                                       UNEXERCISED OPTIONS AT                 OPTIONS AT
                                                         DECEMBER 31, 1999               DECEMBER 31, 1999(1)
                                                    (EXERCISABLE/UNEXERCISABLE)       (EXERCISABLE/UNEXERCISABLE)
                                                  --------------------------------    ---------------------------
<S>                                               <C>                                 <C>

Hushang Ansary                                                     816,667/408,333              $357,292/$178,646
Daniel G. Moriarty(2)                                                85,000/20,000                 $23,125/$8,750
Munawar H. Hidayatallah(2)                                          159,333/16,667                 $30,333/$7,292
Robert L. Hargrave                                                   16,667/33,333                            ---
Gary W. Stratulate                                                   75,000/15,000                 $18,750/$6,563
Arthur C. Teichgraeber(3)                                                      ---                            ---
</TABLE>

---------------
(1)      Market price has been determined based on the NYSE closing price of the
         Common Stock on December 31, 1999.

(2)      The forfeiture provisions of Messrs. Hidayatallah's and Moriarty's
         options were retroactively waived by the Board of Directors as of
         January 4, 2000.

                                       22

<PAGE>   23
(3)      Mr. Teichgraeber's options were allowed to expire under an agreement
         with the Company after he resigned July 15, 1999.

OTHER COMPENSATION PLANS OR PROGRAMS

         The Company has a cash bonus plan pursuant to which the Company will
pay to Mr. Ansary a cash bonus equal to 4% of the Company's pretax income at the
end of each fiscal year and will reserve an additional 4% of the Company's
pretax income at the end of each fiscal year for cash bonuses to be paid to
employees of the Company upon the recommendation of the Chairman of the Board
and approval thereof by the Compensation Committee of the Board of Directors.

         In addition, on July 15, 1999, the Compensation Committee of the Board
of Directors approved an incentive plan for Mr. Ansary on the basis of the
annualized returns on the Company's investments of its excess cash in marketable
securities.


         The Company does not maintain any other compensation plans or programs
that apply to the Named Executive Officers, other than 401(k) plans and the
Incentive Plan described above.

DIRECTOR COMPENSATION

         Directors who are not also officers or employees of the Company are
paid annual fees equal to $30,000 plus $1,000 for each Board of Directors
meeting (but not committee meeting) attended.

EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE-IN-CONTROL AGREEMENTS

         No Named Executive Officer has an employment agreement, severance
agreement or change-in-control agreement with the Company or any affiliate.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         None.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 24, 2000 by (i) each person
that owns beneficially more than 5% of the Common Stock, (ii) each director and
Named Executive Officer (as defined) and (iii) all directors and executive
officers of the Company as a group. For purposes of the table, a person or group
of persons is deemed to have "beneficial ownership" of any shares as of a given
date on which such person has the right to acquire such shares within 60 days
after such given date.

<TABLE>
<CAPTION>
                                          ADDRESS OF BENEFICIAL OWNER OF        NUMBER OF         PERCENTAGE OF
DIRECTORS AND EXECUTIVE OFFICERS          GREATER THAN 5%                      SHARES OWNED      SHARES OWNED (1)
--------------------------------          ---------------                      ------------      ----------------
<S>                                      <C>                                  <C>               <C>
Hushang Ansary                            IRI International Corporation       22,664,667(2)           54.41%
                                          1000 Louisiana, Suite 5900
                                          Houston, Texas 77002

Daniel G. Moriarty                                                              98,700(3)               *

Abdallah A. Andrawos                                                            51,666(4)               *

Nina Ansary                               IRI International Corporation        3,016,667(5)           7.24%
                                          1000 Louisiana, Suite 5900
                                          Houston, Texas 77002

Frank C. Carlucci                                                              1,060,667(5)           2.55%
</TABLE>

                                       23

<PAGE>   24

<TABLE>
<CAPTION>
                                          ADDRESS OF BENEFICIAL OWNER OF        NUMBER OF         PERCENTAGE OF
DIRECTORS AND EXECUTIVE OFFICERS          GREATER THAN 5%                      SHARES OWNED      SHARES OWNED (1)
--------------------------------          ---------------                      ------------      ----------------
<S>                                      <C>                              <C>                       <C>
Dr. Philip David                                                             1,821,667(3)(6)          4.37%

Robert L. Hargrave                                                              38,333(7)               *

Munawar H. Hidayatallah                                                       159,333(4)(8)             *

Richard D. Higginbotham                                                         15,333(9)               *

John D. Macomber                                                                16,667(4)               *

Edward L. Palmer                                                                16,667(4)               *

Stephen J. Solarz                                                               16,667(4)               *

Gary W. Stratulate                                                             113,000(10)              *

Alexander B. Trowbridge                                                         16,667(4)               *

Arthur C. Teichgraeber                                                             0(8)                 *

J. Robinson West                                                                16,667(4)               *

All directors and executive officers as
a group (16 persons)                                                        26,106,701(2)(11)         62.68%

CERTAIN OTHER HOLDERS
---------------------
Nader Ansary                              IRI International Corporation        3,000,000(2)           7.20%
                                          1000 Louisiana, Suite 5900
                                          Houston, Texas 77002

State of Wisconsin Investment Board       P.O. Box 7842                         2,306,100             5.54%
                                          121 E. Wilson Street
                                          Madison, WI 53707
</TABLE>

*Less than 1%.

(1)      Assumes exercise of vested options.

(2)      Mr. Ansary, The Ansary Family Trust, a trust controlled by Mr. Ansary
         for the benefit, inter alia, of members of his immediate family, and a
         private charitable foundation controlled by Mr. Ansary directly own in
         the aggregate 15,848,000 shares of Common Stock, and options to
         purchase 800,000 additional shares. This total number also includes
         3,000,000 shares of Common Stock owned by Nina Ansary, as well as
         options to purchase an additional 16,667 shares, and 3,000,000 shares
         owned by Nader Ansary. Mr. Ansary disclaims beneficial ownership of the
         shares held by his son, his daughter, the Ansary Family Trust and the
         Ansary Foundation.

(3)      This total number includes options to purchase 85,000 shares.  Mr.
         Moriarty jointly owns 13,700 shares with his spouse.

(4)      This total amount represents options to purchase shares.

(5)      This total number includes options to purchase 16,667 shares.

(6)      This total number includes 500,000 shares of Common Stock owned by Dr.
         David's spouse, of which he disclaims beneficial ownership. It also
         includes options to purchase 16,667 shares.

(7)      This total number includes options to purchase 33,333 shares.  Mr.
         Hargrave jointly owns 5,000 shares with his spouse.

(8)      This individual is no longer employed by the Company.

(9)      This total number includes options to purchase 13,333 shares.

                                       24

<PAGE>   25

(10)     This total number includes options to purchase 95,000 shares.

(11)     This number includes options to purchase 1,370,993 shares of Common
         Stock granted pursuant to the Incentive Plan (as defined).

CHANGE IN CONTROL

See the discussion under Item 1 relating to the NOI Merger. The consummation of
the NOI Merger will trigger a change in control at a future date, though no
assurances can be given that the NOI Merger will be consummated.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr. Carlucci, an outside director of the Company, has an oral agreement
with Mr. Ansary regarding a potential contract between the Company and a
Ukrainian company.  If Mr. Carlucci successfully assists the Company in
obtaining this contract, he will receive approximately 0.5% of the contract
amount.

         Prior to the closing of the NOI Merger, Mr. Ansary has the right to
assume the lease of our executive offices located at Suite 5900, 1000 Louisiana
Houston, Texas. In addition, he has the right to purchase certain fixed assets,
fixtures, furniture and other items located at such offices for their aggregate
book value, and assume the retail automobile lease contracts for three
automobiles, for a total amount of approximately $570,000.

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K

(a)      Consolidated Financial Statements

         See Index to Consolidated Financial Statements and Schedules which
         appears on page F-1 hereof.

(b)      Reports on Form 8-K

         None.

(c)      Exhibits

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

                                       25

<PAGE>   26

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                          IRI INTERNATIONAL CORPORATION

                          By: /s/ Robert L. Hargrave
                              ----------------------
                              Robert L. Hargrave, Chief Accounting and Financial
                              Officer and Vice Chairman of the Board of
                              Directors

                              Date: March 30, 2000

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

                                   SIGNATURES

<TABLE>
<S>                                                                      <C>
                           *
-----------------------------------------------------
Hushang Ansary, Chairman of the Board and                                   Date:    March 30, 2000
   Chief Executive Officer

                           *
-----------------------------------------------------
Daniel G. Moriarty, Director                                                Date:    March 30, 2000

/s/ Robert L. Hargrave
-----------------------------------------------------
Robert L. Hargrave, Vice Chairman of the Board,                             Date:    March 30, 2000
and Chief Accounting and Financial Officer

                           *
-----------------------------------------------------
Abdallah Andrawos, Secretary and Director                                   Date:    March 30, 2000

                           *
-----------------------------------------------------
Gary W. Stratulate, President, Chief Operating                              Date:    March 30, 2000
   Officer and Director

                           *
-----------------------------------------------------
Richard D. Higginbotham, Director                                           Date:    March 30, 2000
</TABLE>

                                       26

<PAGE>   27


<TABLE>
<S>                                                                      <C>
                           *
-----------------------------------------------------
Nina Ansary, Director                                                       Date:    March 30, 2000

                           *
-----------------------------------------------------
Frank C. Carlucci, Director                                                 Date:    March 30, 2000

                           *
-----------------------------------------------------
Dr. Philip David, Director                                                  Date:    March 30, 2000

                           *
-----------------------------------------------------
John D. Macomber, Director                                                  Date:    March 30, 2000

                           *
-----------------------------------------------------
Edward L. Palmer, Director                                                  Date:    March 30, 2000

                           *
-----------------------------------------------------
Stephen J. Solarz, Director                                                 Date:    March 30, 2000

                           *
-----------------------------------------------------
Alexander B. Trowbridge, Director                                           Date:    March 30, 2000

                           *
-----------------------------------------------------
J. Robinson West, Director                                                  Date:    March 30, 2000
</TABLE>

                                       27

<PAGE>   28





                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.               DESCRIPTION
--------------------------------------------------------------------------------------------------------
<S>               <C>
*3.1              Form of Restated Certificate of Incorporation of IRI International Corporation.

*3.2              Certificate of Ownership and Merger of ESI with the Company filed on October 14, 1997.

*3.3              Amended and Restated By-Laws of the Company.

*4.2              Form of Registration Rights Agreement between the Company and its current stockholders.

*10.1             Form of Indemnification Agreement among the Company and its officers and directors.

*10.2             Employment Agreement, dated as of April 17, 1997, between Cardwell and A.C. Teichgraeber and
                  joined by the Company.

10.3              Credit Agreement, dated as of December 29, 1999, among the Company and Bank One, Texas, N.A.

*10.5             Asset Purchase Agreement, dated as of January 20, 1997, by and among Bowen Tools,
                  Inc.-Delaware, Bowen, Air Liquide and the Company.

*10.6             Acquisition Agreement, dated as of March 20, 1997, by and among A.C. Teichgraeber,
                  Teichgraeber Family Limited Partnership, L.P., Arthur C. Teichgraeber Charitable Remainder
                  Trust, Greenwood Pipe and Threading Company, EDCO Drilling Company Inc. and the Company.

*10.7             Equity Incentive Plan of the Company.

*10.8             Form of Nonqualified Stock Option Agreement.

*10.9             Collective Bargaining Agreement dated as of July 8, 1997 between Bowen and General Drivers,
                  Warehousemen, Helpers, Production Maintenance and Service Employees, Local Union No. 968.

*21               List of Subsidiaries of the Company.

23.1              Consent of KPMG LLP.

24                Excerpts from Minutes of Board Meeting held on March 14, 2000 relating to Power of Attorney
                  for Robert L. Hargrave.

27.1              Financial Data Schedule of the Company.

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

                                       28

<PAGE>   29


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>                                                                                                          <C>
Independent Auditors' Report...................................................................................F-2

Consolidated Balance Sheets -- December 31, 1999 and 1998......................................................F-3

Consolidated Statements of Operations -- Years ended December 31, 1999, 1998 and 1997..........................F-4

Consolidated Statements of Shareholders' Equity and Comprehensive Income -- Years ended December 31, 1999,
1998, and 1997.................................................................................................F-5

Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997..........................F-6

Notes to Consolidated Financial Statements.....................................................................F-7
</TABLE>

         All schedules are omitted as the required information is applicable or
presented in the consolidated financial statements or related notes.

                                      F-1

<PAGE>   30

                          INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
     of IRI International Corporation:

We have audited the accompanying consolidated balance sheets of IRI
International Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IRI International
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

KPMG LLP

Houston, Texas
March 8, 2000

                                      F-2

<PAGE>   31

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                  ASSETS                                                   December 31,
                                                                                -------------------------------
                                                                                   1999                  1998
                                                                                ----------            ---------
<S>                                                                             <C>                  <C>
Current assets:
 Cash and cash equivalents                                                      $  35,688             $  37,475
 Marketable securities, at fair value (cost of $13,437 at
  December 31, 1999 and $3,743 at December 31, 1998)                               14,686                 3,000
 Accounts receivable, less allowance for doubtful accounts of $1,740 at
  December 31, 1999 and $960 at December 31, 1998                                  14,476                29,147
 Income tax receivable                                                              2,717                     -
 Inventories                                                                       92,572               109,151
 Costs and estimated earnings in excess of billings on uncompleted
  contracts                                                                         1,400                 4,429
 Deferred income tax assets                                                         1,388                     -
 Other current assets                                                               1,242                 2,381
                                                                                 ---------             --------
     Total current assets                                                         164,169               185,583

 Property, plant and equipment, net                                                45,697                49,192
 Deferred income tax assets                                                         3,945                     -
 Other assets                                                                       3,282                 4,391
                                                                                 ---------             --------
                                                                                $ 217,093             $ 239,166
                                                                                 =========             ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
 Notes payable                                                                  $       1             $      16
 Accounts payable                                                                   5,256                 8,094
 Accrued liabilities                                                                4,332                 6,018
 Customer advances                                                                  1,938                 3,303
 Foreign income tax payable                                                           996                     -
 Other liabilities                                                                  1,498                 3,644
 Current installments of obligation under capital lease                               299                   262
                                                                                 ---------             --------
     Total current liabilities                                                     14,320                21,337

Negative goodwill, less accumulated amortization                                        -                 4,026
Obligation under capital lease, less current installments                               -                   319
Accrued postretirement benefits other than pensions                                 1,427                 1,562
Pension liability                                                                       -                 1,586
Other long-term liabilities                                                            46                    77
                                                                                 ---------             --------
     Total liabilities                                                             15,793                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 in 1999 and 1998                                      399                   399
 Additional paid-in capital                                                       168,884               168,514
 Retained earnings                                                                 32,403                43,308
 Accumulated other comprehensive loss                                                (386)               (1,962)
                                                                                 ---------             --------
     Total shareholders' equity                                                   201,300               210,259

     Commitments and contingencies
                                                                                 ---------             --------
                                                                                $ 217,093             $ 239,166
                                                                                 =========             ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>   32

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                           Years ended December 31,
                                                      -----------------------------------------------------------
                                                         1999                     1998                     1997
                                                      ---------               -----------              -----------
<S>                                                  <C>                      <C>                      <C>
Revenues                                              $ 92,190                 $ 175,045                $ 185,366
Cost of goods sold                                      83,156                   126,626                  139,204
                                                      ---------               -----------              -----------
   Gross profit                                          9,034                    48,419                   46,162

Selling and administrative expense                      27,831                    30,526                   23,543
Restructuring charge                                     1,779                       590                        -
                                                      ---------               -----------              -----------
   Operating income (loss)                             (20,576)                   17,303                   22,619
                                                      ---------               -----------              -----------
Other income (expense):
 Interest income                                         1,539                     2,213                      746
 Interest expense                                         (363)                     (360)                  (8,762)
 Other, net                                                 23                    (3,491)                     718
                                                      ---------               -----------              -----------
                                                         1,199                    (1,638)                  (7,298)
                                                      ---------               -----------              -----------
   Income (loss) before income taxes
      and extraordinary item                           (19,377)                   15,665                   15,321

Income tax (expense) benefit                             8,472                    (3,283)                  (2,786)
                                                      ---------               -----------              -----------
   Income (loss) before extraordinary item             (10,905)                   12,382                   12,535

Extraordinary item - extinguishment of debt
 (net of tax benefit of $841)                                -                         -                   (1,512)
                                                      ---------               -----------              -----------
   Net income (loss)                                  $(10,905)                $  12,382                $  11,023
                                                      =========               ===========              ===========
Income (loss) per common share - basic
 and diluted:
  Income (loss) before extraordinary item                (0.27)                $    0.31                $    0.40
  Extraordinary item                                         -                         -                    (0.05)
                                                      ---------               -----------              -----------
   Net income (loss) per common share -
       basic and diluted                              $  (0.27)                $    0.31                $    0.35
                                                      =========               ===========              ===========
Weighted-average shares outstanding -
 basic and diluted                                      39,900                    39,900                   31,275
                                                      =========               ===========              ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>   33


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                 Common                               Accumulated
                                                                  stock      Additional                  other           Total
                                           Preferred   Common   $0.01 par     paid-in     Retained   comprehensive   shareholders'
                                             shares    shares     value       capital     earnings   income (loss)      equity
                                           ---------   ------   ---------   -----------  ---------   -------------   -------------
<S>                                        <C>         <C>      <C>         <C>          <C>         <C>             <C>
Balances at December 31, 1996                      -   30,000      $ 300    $   4,700    $  19,903       $      -      $  24,903
 Initial public offering, net of costs             -    9,900         99      163,838            -              -        163,937
 Comprehensive income:
  Net income                                       -        -          -            -       11,023              -         11,023
  Change in minimum pension liability
   adjustment                                      -        -          -            -            -         (1,457)        (1,457)
                                           ---------   ------   ---------   -----------  ---------   -------------   -------------
 Total comprehensive income                                                                                                9,566
                                           ---------   ------   ---------   ----------   ---------   -------------   ------------
Balances at December 31, 1997                      -   39,900        399      168,538       30,926         (1,457)       198,406
 Other                                             -        -          -          (24)           -              -            (24)
 Comprehensive income:
  Net income                                       -        -          -            -       12,382              -         12,382
  Change in minimum pension liability
   adjustment                                      -        -          -            -            -           (531)          (531)
  Foreign currency translation adjustment          -        -          -            -            -             26             26
                                           ---------   ------   ---------   -----------  ---------   -------------   -------------
 Total comprehensive income                                                                                               11,877
                                           ---------   ------   ---------   ----------   ---------   -------------   ------------
Balance at December 31, 1998                       -   39,900        399      168,514       43,308         (1,962)       210,259
 Other                                             -        -          -          370            -              -            370
 Comprehensive loss:
  Net loss                                         -        -          -            -      (10,905)             -        (10,905)
  Change in minimum pension liability
   adjustment                                      -        -          -            -            -          1,988          1,988
  Foreign currency translation adjustment          -        -          -            -            -           (412)          (412)
                                           ---------   ------   ---------   -----------  ---------   -------------   -------------
 Total comprehensive loss                                                                                                 (9,329)
                                           ---------   ------   ---------   ----------   ---------   -------------   ------------
Balance at December 31, 1999                       -   39,900      $ 399    $ 168,884    $  32,403       $   (386)     $ 201,300
                                           =========   ======   =========   ==========   =========   =============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>   34


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                   Years ended December 31,
                                                                            ----------------------------------------
                                                                               1999             1998          1997
                                                                            -----------      ---------     ---------
<S>                                                                         <C>              <C>           <C>
Cash flows from operating activities:
 Net income (loss)                                                          $  (10,905)      $ 12,382      $ 11,023
 Adjustments to reconcile net income to net cash
   provided by operations:
   Extraordinary item - extinguishment of debt                                       -             -          1,512
   Depreciation and amortization                                                 5,069          4,032         4,871
   Amortization of goodwill                                                      1,254          1,255           880
   Amortization of negative goodwill                                            (4,026)        (5,367)       (5,367)
   Change in employee benefit accounts                                          (1,942)           728           129
   Stock option compensation expense                                               370            499            -
   Deferred income tax                                                          (5,333)            -             -
   Gain on sale of assets                                                           (2)            -          (372)
   Changes in assets and liabilities, net of effects of acquisitions:
          Marketable securities                                                (11,686)         5,218        (8,218)
          Accounts receivable                                                   14,671          3,983       (14,772)
          Income tax receivable                                                 (2,717)            -             -
          Inventories                                                           16,579         (8,250)      (21,058)
          Other current assets                                                   4,168          3,487        (6,918)
          Other noncurrent assets                                                   76            190          (113)
          Accounts payable and accrued liabilities                              (4,524)       (13,685)       17,682
          Foreign income tax payable                                               996             -             -
          Customer advances and other liabilities                               (1,981)        (5,631)          593
                                                                            -----------      ---------     ---------
          Net cash flows provided by (used in) operations                           67         (1,159)      (20,128)
                                                                            -----------      ---------     ---------
Cash flows from investing activities:
 Capital expenditures                                                           (2,178)       (10,005)       (5,755)
 Proceeds from sale of assets                                                      606              -           523
 Acquisition of Bowen net assets, net of cash acquired                               -              -       (77,693)
 Acquisition of Cardwell net assets, net of cash acquired                            -              -       (12,574)
                                                                            -----------      ---------     ---------
         Net cash flows provided by (used in) investing activities               (1,572)       (10,005)      (95,499)
                                                                            -----------      ---------     ---------
Cash flows from financing activities:
 Payments on capital lease obligation                                              (282)          (226)         (312)
 Proceeds from notes payable                                                         -              -        113,482
 Debt issuance costs                                                                 -              -         (3,971)
 Payments on notes payable                                                           -             (85)      116,671)
 Issuance of common stock                                                            -              -        163,937
 Other                                                                               -            (523)           -
                                                                            -----------      ---------     ---------
         Net cash flows provided by (used in) financing activities                 (282)          (834)      156,465
                                                                            -----------      ---------     ---------
Increase (decrease) in cash and cash equivalents                                 (1,787)       (11,998)       40,838

Cash and cash equivalents at beginning of year                                   37,475         49,473         8,635
                                                                            -----------      ---------     ---------
         Cash and cash equivalents at end of year                           $    35,688      $  37,475     $  49,473
                                                                            -----------      ---------     ---------
Supplemental cash flow information:
 Interest paid                                                              $       363      $     360     $   8,762
                                                                            ===========      =========     =========
 Income tax paid (refunded)                                                 $   (1,656)      $   5,219     $     158
                                                                            ===========      =========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>   35

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)      GENERAL

         IRI International Corporation (IRI or Company), a Delaware corporation,
         was formed on July 30, 1985, through the combination of Ingersol-Rand
         Oilfield Products Company, a wholly-owned subsidiary of Ingersoll-Rand
         Company, established August 1, 1980, and the Ideco Division of Dresser
         Industries, Inc. On November 19, 1997, the Company sold 9.9 million
         shares of its common stock through an initial public offering (IPO).
         Net proceeds totaled approximately $163.9 million and were used
         partially to repay debt incurred in connection with the acquisitions
         (see notes 3 and 6).

         The Company manufactures and sells a full line of oil and gas mobile
         well servicing and drilling rigs, deep oil and gas skid-mounted
         drilling rigs, associated drilling equipment (Oilfield Equipment), and
         specialty steel products (Specialty Steel). The Company also
         manufactures and markets fishing and drilling tools, power and
         wireline/pressure control equipment used in the drilling and completion
         of oil and gas wells. Raw materials are readily available and the
         Company is not dependent upon a single or a few suppliers.

         On September 20, 1994, all of the outstanding common and preferred
         stock of IRI was acquired by Energy Services International (ESI) for
         cash of $5 million. The acquisition has been recorded using the
         purchase method of accounting and the purchase price has been allocated
         to the assets acquired and liabilities assumed based upon their
         estimated fair values at the date of the acquisition. The excess of the
         fair value of net assets acquired over consideration paid was applied
         against nonmonentary assets (property, plant and equipment) reducing
         the balances at the acquisition date to zero. The remaining excess of
         the fair value of net assets acquired over consideration paid of $26.8
         million was recorded as negative goodwill and was being amortized using
         the straight-line method over 5 years. Negative goodwill amortization
         of $4.0 million for the year ended December 31, 1999 and $5.4 million
         for each of the years ended December 31, 1998 and 1997, is included in
         cost of goods sold in the accompanying consolidated statements of
         operations.

         IRI was subsequently merged into ESI in October 1997. ESI was the
         surviving corporation and changed its name to IRI International
         Corporation.

(2)      SIGNIFICANT ACCOUNTING POLICIES

         (a)      PRINCIPLES OF CONSOLIDATION

                  The consolidated financial statements include the accounts of
                  the Company and its subsidiaries. All significant intercompany
                  balances and transactions have been eliminated in
                  consolidation.

         (b)      STATEMENTS OF CASH FLOWS

                  Cash equivalents of $35,700,000 and $37,500,000 at December
                  31, 1999 and 1998, respectively, consisted of interest-bearing
                  cash deposits. For purposes of the statement of cash flows,
                  the Company considers all cash and short-term highly liquid
                  debt instruments with original maturities of three months or
                  less to be cash equivalents.

                  During the years ended December 31, 1999, 1998 and 1997, the
                  Company entered into capital lease obligations of $-0-, $-0-
                  and $309,000, respectively.

                                      F-7

<PAGE>   36

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         (c)      MARKETABLE SECURITIES

                  Marketable securities at December 31, 1999 and 1998 consist of
                  corporate equity securities. The Company classifies its equity
                  securities as trading securities. Trading securities are
                  bought and held principally for the purpose of selling them in
                  the near term and are recorded at fair value. Unrealized
                  holding gains (losses) of $1,249,000 and $(743,000) are
                  included in other income for the years ended December 31, 1999
                  and 1998, respectively.

         (d)      INVENTORIES

                  Inventories are stated at the lower of cost or market. Cost is
                  determined using standard costs which approximate actual cost
                  on a first-in, first-out basis for all inventories excluding
                  oilfield equipment work-in-process, parts and raw materials,
                  which are recorded at actual cost on a first-in, first-out
                  basis. Work-in-process inventories related to fixed price
                  contracts are stated at the accumulated cost of material,
                  labor and manufacturing overhead, less the estimated costs of
                  units delivered.

         (e)      PROPERTY, PLANT AND EQUIPMENT

                  Depreciation of property, plant and equipment is provided over
                  the estimated service lives of assets principally using the
                  straight-line method. Maintenance, repairs and minor
                  replacements are charged to operations as incurred; major
                  repairs, replacements or improvements are capitalized.

                  Long-lived assets and certain identifiable intangible assets
                  are reviewed for impairment whenever events or changes in
                  circumstances indicate that the carrying amount of an asset
                  may not be recoverable. Recoverability of assets to be held
                  and used is measured by a comparison of the carrying amount of
                  an asset to future net cash flows expected to be generated by
                  the asset. If such assets are considered to be impaired, the
                  impairment to be recognized is measured by the amount by which
                  the carrying amount exceeds the fair value of the assets.
                  Assets to be disposed of are reported at the lower of the
                  carrying amount or fair value less costs to sell.

         (f)      INCOME TAXES

                  Income taxes are accounted for under the asset and liability
                  method. Deferred tax assets and liabilities are recognized for
                  the future tax consequences attributable to differences
                  between the financial statement carrying amounts of existing
                  assets and liabilities and their respective tax bases and
                  operating loss and tax credit carryforwards. Deferred tax
                  assets and liabilities are measured using enacted tax rates
                  expected to apply to taxable income in the years in which
                  those temporary differences are expected to be recovered or
                  settled. The effect on deferred tax assets and liabilities of
                  a change in tax rates is recognized in income in the period
                  that includes the enactment date.

                                      F-8

<PAGE>   37

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         (g)      REVENUE RECOGNITION

                  The Company recognizes construction contract revenues for rigs
                  and significant components using the percentage-of-completion
                  method. Under the percentage-of-completion method, revenues
                  and profits are recognized based on the percentage of
                  completion throughout the performance period of the contract.
                  The percentage-of-completion is calculated based on the ratio
                  of contract costs incurred to date to total estimated contract
                  costs after providing for all known or anticipated costs.
                  Costs include material, direct labor and engineering and
                  manufacturing overhead. Selling expenses and general and
                  administrative expenses are charged to operations as incurred.
                  The effect of changes in estimates of contract costs is
                  recorded currently. If estimates of costs to complete
                  contracts indicate a loss, provision is made currently for the
                  total loss anticipated. All remaining revenue is generally
                  recorded when the equipment is shipped.

                  Costs and estimated earnings in excess of billing on
                  uncompleted contracts represent revenues earned under the
                  percentage-of-completion method but not yet billable under the
                  terms of the contract. Amounts are billable under contracts
                  generally upon shipment of the products or completion of the
                  contracts. Included in revenues and cost of goods sold for the
                  year ended December 31, 1999 are $4,812,000 and $3,412,000,
                  respectively, related to uncompleted contracts ($1,400,000,
                  net) at December 31, 1999. Included in revenues and cost of
                  goods sold for the year ended December 31, 1998 are
                  $14,218,000 and $9,789,0000, respectively, related to
                  uncompleted contracts ($4,429,000 net) at December 31, 1998.

         (h)      INCOME (LOSS) PER COMMON SHARE

                  Basic income (loss) per common share is computed by dividing
                  net income (loss) available to common shareholders by the
                  weighted average number of common shares outstanding for the
                  period. Diluted income per common share reflects the potential
                  dilution that could occur if securities or other contracts to
                  issue common stock were exercised or converted into common
                  stock or resulted in the issuance of common stock that then
                  shared in the earnings of the entity. For the years and
                  quarters presented herein, basic and diluted income (loss) per
                  common share are the same. Options outstanding at December 31,
                  1998 and 1997 are antidilutive as the exercise price is
                  greater than the average market price during 1998 and 1997,
                  respectively. Options outstanding at December 31, 1999 are
                  antidilutive due to the net loss incurred during the year.

                  Securities excluded from the computation of diluted income per
                  common share for 1999 that could be potentially dilutive in
                  the future consist of options to purchase 2,426,000 shares of
                  common stock at December 31, 1999.

         (i)      FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS

                  The Company invests its excess cash in financial instruments,
                  primarily overnight investments and money market mutual funds.
                  These financial instruments could potentially subject the
                  Company to concentrations of credit risk; however, the
                  Company's management considers the financial stability and
                  creditworthiness of a financial institution before investing
                  the Company's funds. The carrying amounts of the financial
                  instruments in the accompanying financial statements (cash,
                  accounts receivable and payables) approximate fair value
                  because of the short maturities of these instruments. The
                  capital lease obligation bears interest at rates that
                  approximate market rates, thus the carrying amount
                  approximates estimated fair value.

                                      F-9

<PAGE>   38

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                  A substantial portion of the Company's customers are engaged
                  in the energy industry. This concentration of customers may
                  impact the Company's overall exposure to credit risk, either
                  positively or negatively, in that customers may be similarly
                  affected by changes in economic and industry conditions. The
                  Company performs ongoing credit evaluations of its customers.
                  The Company maintains reserves for potential credit losses,
                  and actual losses have historically been within the Company's
                  expectations. Foreign sales also present various risks,
                  including risks of war, civil disturbances and governmental
                  activities that may limit or disrupt markets, restrict the
                  movement of funds or result in the deprivation of contract
                  rights or the taking of property without fair consideration.
                  Most of the Company's foreign sales, however, are to large
                  international companies or are secured by letters of credit or
                  similar arrangements.

         (j)      USE OF ESTIMATES

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported amounts of revenues and expenses during the
                  reporting period. Actual results could differ from those
                  estimates.

         (k)      COMPREHENSIVE INCOME

                  On January 1, 1998, the Company adopted SFAS No. 130,
                  Reporting Comprehensive Income. SFAS No. 130 establishes
                  standards for reporting and presentation of comprehensive
                  income and its components in a full set of financial
                  statements. Comprehensive income consists of net income and
                  net unrealized gains (losses) on securities and is presented
                  in the consolidated statements of stockholder's equity and
                  comprehensive income. The statement requires only additional
                  disclosures in the consolidated financial statements; it does
                  not affect the Company's financial position or results of
                  operations. Prior year financial statement information has
                  been reclassified to conform to the requirements of SFAS No.
                  130.

         (l)      RECENT ACCOUNTING PRONOUNCEMENTS

                  Statement of Financial Accounting Standards No. 133,
                  Accounting for Derivative Instruments and Hedging Activities,
                  was issued by the Financial Accounting Standards Board in June
                  1998. SFAS 133 standardizes the accounting for derivative
                  instruments, including derivative instruments embedded in
                  other contracts. Under the standard, entities are required to
                  carry all derivative instruments in the statement of financial
                  position at fair value. The accounting for changes in the fair
                  value (i.e., gains or losses) of a derivative instrument
                  depends on whether it has been designated and qualifies as
                  part of a hedging relationship and, if so, on the reason for
                  holding it. If specified conditions are met, entities may
                  elect to designate a derivative instrument as a hedge of
                  exposures to changes in fair values, cash flows, or foreign
                  currencies. If the hedged exposure is a fair value exposure,
                  the gain or loss on the derivative instrument is recognized in
                  earnings in the period of change together with the offsetting
                  loss or gain on the hedged item attributable to the risk being
                  hedged. If the hedged exposure is a cash flow exposure, the
                  effective portion of the gain or loss on the derivative
                  instrument is reported initially as a component of other
                  comprehensive income (outside earnings) and subsequently

                                      F-10

<PAGE>   39


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


                  reclassified into earnings when the forecasted transaction
                  affects earnings. Any amounts excluded from the assessment of
                  hedge effectiveness, as well as the ineffective portion of the
                  gain or loss, is reported in earnings immediately. Accounting
                  for foreign currency hedges is similar to the accounting for
                  fair value and cash flow hedges. If the derivative instrument
                  is not designated as a hedge, the gain or loss is recognized
                  in earnings in the period of change.

                  The Company will adopt SFAS 133 beginning January 1, 2001. The
                  Company has not yet determined the impact that SFAS 133 will
                  have on the financial statements. Management believes that the
                  determination will not be meaningful until closer to the date
                  of initial adoption.

         (m)      RECLASSIFICATIONS

                  Certain prior year amounts were reclassified to conform with
                  current year presentation.

(3)      ACQUISITIONS

         On March 31, 1997, the Company acquired certain assets and assumed
         liabilities of Bowen Tools, Inc. (Bowen), a wholly-owned subsidiary of
         the French chemical concern L'Air Liquide, for a total consideration of
         $75.1 million. On April 17, 1997, the Company also acquired the stock
         of Cardwell International Ltd. (Cardwell), a privately owned company,
         as well as certain assets held by affiliates of Cardwell for
         approximately $12 million in cash at closing and partial payment ($3
         million) of a note payable to bank. In addition the Company incurred
         approximately $3.2 million ($2.6 million for Bowen and $.6 million for
         Cardwell) of transaction costs in connection with the acquisitions. The
         acquisitions were financed through a $65 million senior secured term
         loan facility and $31 million of interim senior subordinated increasing
         rate notes. The notes outstanding under the term loan facility and the
         senior subordinated increasing rate notes were repaid with the proceeds
         from the Company's equity offering (see note 1).

         Bowen, headquartered in Houston, Texas, designs, manufactures and
         markets fishing and drilling tools, power and wireline/pressure control
         equipment used in the drilling and completion of oil and gas wells.
         Cardwell, headquartered in El Dorado, Kansas, manufactures and sells
         drilling rigs, related oilfield equipment and supplies predominantly to
         foreign countries.

         The acquisitions have been recorded using the purchase method of
         accounting and results of operations of the acquired companies have
         been included in the consolidated statement of operations of IRI from
         the dates of the respective acquisitions. The cost of the Bowen and
         Cardwell acquisitions have been allocated to the assets acquired and
         liabilities assumed based on their respective fair values as follows
         (in thousands):

<TABLE>
<S>                                                        <C>
                Current assets                              $        57,389
                Property, plant and equipment                        37,647
                Excess of cost over fair value of net
                    tangible assets of businesses
                    acquired                                          6,096
                Other assets                                            812
                Current liabilities                                 (11,677)
                                                              -----------------
                          Total                             $        90,267
                                                              =================
</TABLE>

                                      F-11

<PAGE>   40

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         The excess of consideration given over the fair value of the net
         tangible assets acquired of $6,096,000 is being amortized over five
         years using the straight-line method.

(4)      INVENTORIES

         A summary of inventories follows (in thousands):

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,       DECEMBER 31,
                                                                        1999               1998
                                                                  -----------------  ------------------
<S>                                                               <C>                 <C>

                Raw materials and supplies                        $          35,524   $          46,743
                Work in process                                              13,929              21,241
                Finished goods                                               43,119              41,167
                                                                  -----------------  ------------------

                      Total                                       $          92,572   $         109,151
                                                                  =================  ==================
</TABLE>


(5)      PROPERTY, PLANT AND EQUIPMENT

         A summary of property, plant and equipment follows (in thousands):

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,      DECEMBER 31,
                                                                        1999              1998
                                                                  ----------------- ------------------
<S>                                                               <C>               <C>

                Land and land improvements                        $           2,823  $           2,910
                Buildings                                                     8,169              7,731
                Machinery and equipment                                      48,041             46,965
                                                                  ----------------- ------------------
                                                                             59,033             57,606
                Less accumulated depreciation                               (13,336)            (8,414)
                                                                  ----------------- ------------------

                      Property, plant and equipment, net          $          45,697  $          49,192
                                                                  ================= ==================
</TABLE>


         Machinery and equipment includes capitalized lease assets of $1,119,000
at December 31, 1999 and 1998.

(6)      NOTES PAYABLE

         In connection with the acquisitions described in note 3, the Company
         entered into a $65.0 million senior secured term loan facility due in
         quarterly installments beginning June 30, 1997 through March 31, 2002
         and a $31.0 million interim senior subordinated increasing rate note
         due March 31, 1998. Amounts outstanding under these notes were repaid
         with proceeds from the Company's initial public offering in November
         1997. The extinguishment of this debt resulted in an extraordinary
         charge of $1,512,000 consisting of unamortized financing costs of
         $2,353,000 and income tax benefit of $841,000.

         The Company had a $9.7 million revolving credit facility with a
         maturity date of March 31, 2000. Amounts outstanding under the
         revolving credit facility were secured by substantially all of the
         assets of the Company and accrued interest at a rate per annum equal to
         the one, two, three or six-month LIBOR plus 2-3/4%. The revolving
         credit facility agreement contained provisions, among others, that
         restricted incurrence of indebtedness, guarantees, acquisitions, and
         distributions to shareholders, and required the Company to meet
         specified financial maintenance tests.

                                      F-12

<PAGE>   41


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         On December 29, 1999, the revolving credit facility was replaced with a
         new $10.0 million revolving credit facility, which matures on December
         28, 2000 and provides exclusively for bank guarantees and commercial
         and standby letters of credit. The new revolving credit facility
         agreement contains provisions, among others, that limit liens on
         accounts receivables, inventory and related general intangibles and
         that require the Company to meet specified financial maintenance tests.
         At December 31, 1999, approximately $5.9 million was available for bank
         guarantees and letters of credit under the new revolving credit
         facility. The Company had no outstanding indebtedness at December 31,
         1999.

(7)      SHAREHOLDERS' EQUITY

         On October 14, 1997, the Company merged into ESI. ESI was the surviving
         corporation and changed its name to IRI International Corporation. At
         the time of the merger, ESI had 100 common shares issued and
         outstanding, no liabilities and its sole asset was its investment in
         the Company. As a result of the merger, each share of common stock of
         ESI was converted into 300,000 shares of the surviving corporation,
         each treasury share of common stock was canceled and each share of
         preferred stock of the Company, including accrued and unpaid dividends
         thereon, was canceled. The authorized capital stock of the Company was
         increased to 100,000,000 common shares and 25,000,000 preferred shares.
         The consolidated financial statements, including all references to the
         number of shares of common and preferred stock and all per share
         information, have been adjusted to reflect the merger and the other
         changes in capital structure on a retroactive basis.

(8)      COMPREHENSIVE INCOME (LOSS)

         The accumulated balances for each classification of comprehensive
         income (loss) are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          ACCUMULATED
                                    FOREIGN           MINIMUM                OTHER
                                   CURRENCY           PENSION            COMPREHENSIVE
                                     ITEMS           LIABILITY           INCOME (LOSS)
                               ------------------ -----------------  -----------------------
<S>                          <C>                  <C>                <C>

   Beginning balance         $             26     $       (1,988)    $        (1,962)
   Current period change                 (412)             1,988               1,576
                               ------------------ ----------------   -----------------------

   Ending balance            $           (386)    $            -     $          (386)
                               ================== =================  =======================
</TABLE>


(9)      STOCK OPTIONS

         Prior to its initial public stock offering, the Company granted its
         Directors and certain of its officers and employees an aggregate of
         1,933,000 options to purchase shares of common stock. Directors not
         employed by the Company received options to purchase an aggregate of
         160,000 shares of common stock having an exercise price equal to the
         initial public offering price. The options granted to Directors not
         employed by the Company vest as to one-half of the option shares on the
         effective date of the Offering and as to a further one-quarter of the
         option shares on the first and second anniversaries of the effective
         date of the Offering. Certain executive officers and employees

                                      F-13

<PAGE>   42


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

       received options to purchase an aggregate of 1,773,000 shares of common
       stock having an exercise price equal to the greater of the initial public
       offering price and the fair market value of the option shares on the date
       such options vest. The options granted to certain executive officers and
       employees generally vest as to one-third of the option shares upon the
       effective date of the Offering and as to a further one-third of the
       option shares on the first and second anniversaries of the effective date
       of the Offering. During 1998, the Company cancelled 1,931,000 outstanding
       stock options and granted 1,645,000 new options with an exercise price
       equal to the fair market value of the common stock at grant date. During
       1999, the Company granted an aggregate of 901,000 options with an
       exercise price equal to the fair market value of the common stock at
       grant date to certain executive officers and employees. In addition,
       70,000 options were forfeited by employees that terminated their
       employment with the Company.

       A summary of the status of the Company's fixed stock option plan as of
       December 31, 1999 and 1998 and changes during the years then ended is
       presented below:

<TABLE>
<CAPTION>
                                                                                              WEIGHTED
                                                                       SHARES                  AVERAGE
                            FIXED OPTIONS                              (000)               EXERCISE PRICE
          --------------------------------------------------        --------------      ---------------------
<S>                                                                <C>                  <C>
          Outstanding at December 31, 1996                                      -      $            -
          Granted                                                           1,933               18.00
          Forfeited                                                            (2)              18.00
                                                                    --------------      ---------------------

          Outstanding at December 31, 1997                                  1,931               18.00

          Granted                                                           1,645                3.56
          Cancelled                                                        (1,931)             (18.00)
                                                                    --------------      ---------------------

          Outstanding at December 31, 1998                                  1,645                3.56

          Granted                                                             901                3.97
          Forfeited                                                           (70)              (3.56)
                                                                    ==============      =====================

          Outstanding at December 31, 1999                                  2,476      $         3.71
                                                                    ==============      =====================

          Options exercisable at December 31, 1999                          1,526      $         3.66
                                                                    ==============      =====================

          Weighted average fair value of
               options granted during 1999                                             $         3.97
                                                                                        =====================
</TABLE>


         The weighted average remaining contracted life of stock options at
         December 31, 1999 was approximately nine years.

                                      F-14

<PAGE>   43



         The Company applies APB Opinion 25 in accounting for its stock option
         plan. Accordingly, no compensation cost has been recognized for stock
         options granted to employees. Compensation expense is recorded for
         options granted to nonemployee directors based on the estimated fair
         value of the options on the date of grant. The compensation cost that
         has been charged against income for nonemployee director options
         granted was $370,000 and $499,000 for the years ended December 31, 1999
         and 1998, respectively. Had compensation cost for the Company's stock
         option plans been determined based on the fair value at the grant dates
         for awards to employees under the Plan consistent with the method of
         SFAS No. 123, the Company's net income (loss) and income (loss) per
         common share for the years ended December 31, 1999, 1998 and 1997 would
         have been reduced to the pro forma amounts indicated below (in
         thousands except per share amounts):

<TABLE>
<CAPTION>

                                                      1999                 1998                 1997
                                                -----------------    -----------------    ------------------
<S>                                           <C>                  <C>                  <C>
       Net income (loss):

           As reported                        $        (10,905)    $         12,382     $          11,023
                                                =================    =================    ==================

           Pro forma                          $        (12,627)    $         11,199     $           7,216
                                                =================    =================    ==================

       Basic and diluted income (loss)
         per common share:
             As reported                      $         (0.27)     $           0.31     $           0.35
                                                =================    =================    ==================

             Pro forma                        $         (0.32)     $           0.28     $           0.23
                                                =================    =================    ==================
</TABLE>

         The fair value of each option grant is estimated on the date granted
         using the Black-Scholes option-pricing model with the following
         weighted-average assumptions:

<TABLE>
<CAPTION>
                                                      1999               1998              1997
                                                -----------------  ----------------- ------------------
<S>                                             <C>                <C>               <C>
       Expected life (years)                           5                  5                 3.3
       Risk-free interest rate                         6.34%              4.42%             6.20%
       Volatility                                     70.00%             70.00%            30.00%
       Dividend yield                                  0.00%              0.00%             0.00%
</TABLE>

                                      F-15

<PAGE>   44



                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(10)     INCOME TAXES

         Income tax expense (benefit) attributable to income (loss) before
         extraordinary item consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                        -------------------------------------------------------
                                                              1999                1998               1997
                                                        -----------------    ----------------    --------------
<S>                                                  <C>                  <C>                 <C>
             Current:

                 U. S. Federal                       $         (3,539)    $           2,609   $         1,965
                 State                                              -                   425               312
                 Foreign                                          400                   249               509
                                                        -----------------    ----------------    --------------

                                                               (3,139)                3,283             2,786
                                                        -----------------    ----------------    --------------
             Deferred:

                 U. S. Federal                                 (5,333)                    -                 -
                 State                                              -                     -                 -
                 Foreign                                            -                     -                 -
                                                        -----------------    ----------------    --------------

                                                               (5,333)                    -                 -
                                                        -----------------    ----------------    --------------

                     Total income tax expense
                       (benefit)                     $         (8,472)    $           3,283   $         2,786
                                                        -----------------    ----------------    --------------
</TABLE>

         Income tax expense (benefit) differs from the amount computed by
         applying the statutory rate of 35% to income (loss) before income taxes
         as follows (in thousands):

<TABLE>
<CAPTION>

                                                         YEARS ENDED DECEMBER 31,
                                       -------------------------------------------------------------
                                            1999                1998                   1997
                                       ----------------    ----------------    ---------------------
<S>                                 <C>                 <C>                 <C>

Computed "expected" tax
     expense (benefit)              $        (6,782)    $        5,483      $            5,362
Change in the valuation
     allowance                               (1,029)              (998)                 (1,291)
Amortization of negative
     goodwill                                (1,409)            (1,879)                 (1,879)
Amortization of goodwill                        439                442                     308
State income taxes, net of
    federal benefit                               -                276                     203
Foreign taxes and other                         309                (41)                     83
                                       ----------------    ----------------    ---------------------

                                    $        (8,472)    $        3,283      $            2,786
                                       ----------------    ----------------    ---------------------
</TABLE>

                                      F-16
<PAGE>   45


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         The tax effects of temporary differences that give rise to significant
         portions of the deferred federal income tax assets and liabilities as
         of December 31, 1999 and 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                  -----------------------------------------------
                                                                           1999                    1998
                                                                  ---------------------   -----------------------
<S>                                                            <C>                        <C>
         Deferred income tax assets:
             Capital loss carryforward                         $               841         $          690
             Basis in inventories                                            3,758                  4,201
             Unrealized loss on marketable equity securities                     -                    260
             Employee benefits                                               1,002                  1,102
             Net operating loss carryforwards                                8,145                  1,050
             Other, principally accrued liabilities                            249                    378
                                                                  ---------------------    ---------------------

                   Total gross deferred income tax assets                   13,995                  7,681

             Less valuation allowance                                        2,351                  3,380
                                                                  ---------------------    ---------------------

                   Net deferred income tax assets                           11,644                  4,301
                                                                  ---------------------    ---------------------

         Deferred income tax liabilities:
             Costs and estimated earnings in excess of
               billings on uncompleted contracts                             1,270                  1,917
             Basis in and depreciation of property,
               plant and equipment                                           4,604                  2,384
             Unrealized gain on marketable equity
               securities                                                      437                      -
                                                                  ---------------------    ---------------------

                   Total gross deferred income tax
                       liabilities                                           6,311                  4,301
                                                                  ---------------------    ---------------------

                   Net deferred income tax assets              $             5,333         $            -
                                                                  =====================    =====================
</TABLE>

         The Company has provided a valuation allowance for deferred tax assets
         of $2,351,000 and $3,380,000 at December 31, 1999 and December 31,
         1998, respectively. The valuation allowance decreased $1,029,000 during
         the year ended December 31, 1999 and $998,000 during the year ended
         December 31, 1998. In assessing the realizability of deferred tax
         assets, management considers whether it is more likely than not that
         some portion or all of the deferred tax assets will not be realized.
         The ultimate realization of deferred tax assets is dependent upon the
         generation of future taxable income during the periods in which those
         temporary differences become deductible. Management considers the
         scheduled reversal of deferred tax liabilities, projected future
         taxable income, and tax planning strategies in making this assessment.

         Under the Internal Revenue Code of 1986, in general, a change of more
         than 50% in the composition of a company's equity owners during any
         three years results in a limitation on such company's ability to
         utilize its loss carryforwards in subsequent years. The Company has
         undergone such an ownership change as a result of the sale described in
         note 1; accordingly, the amount of the Company's preacquisition net
         operating loss carryforwards that may be utilized per year is limited
         to approximately $300,000 (aggregate $3,000,000 available at December
         31, 1999) expiring from 2003 through 2009. To the extent such
         carryforwards are not utilized in a year, they may be utilized in
         subsequent years.

                                      F-17

<PAGE>   46


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     In addition, at December 31, 1999, after carryback, the Company has a
     net operating loss carryforward of $20,300,000 which will expire in
     2020, if unused.

(11) LEASES

     At December 31, 1999, minimum future annual payments required under a
     capital lease together with the present value of the net minimum lease
     payments and noncancelable operating leases, primarily for repair
     facilities and offices and office equipment, were as follows (in
     thousands):

<TABLE>
<CAPTION>
                                                                    OPERATING           CAPITAL
                                                                      LEASES            LEASES
                                                                 ----------------- ------------------
<S>                               <C>                         <C>                  <C>
                                   2000                       $           1,071      $         316
                                   2001                                     580                  -
                                   2002                                     133                  -
                                   2003                                      40                  -
                                   2004                                       1                  -
                                                                 -----------------     ------------------

                    Total minimum lease payments              $           1,825                316
                                                                 -----------------
            Less amount representing interest                                                   17
                                                                                       ------------------

                        Present value of minimum
                            lease payments                                           $         299
                                                                                       ------------------
</TABLE>

     Total rental expense was $2,555,000, $2,751,000 and $2,142,000 for the
     years ended December 31, 1999, 1998 and 1997, respectively.

(12) PENSION AND OTHER POSTRETIREMENT PLANS

     The Company has a noncontributory defined pension benefit plan, which
     covers substantially all employees. Employees with 10 or more years of
     service are entitled to pension benefits beginning at normal retirement
     age (65) based on years of service and the employees' compensation for
     the 60 consecutive month period in which his compensation is the
     highest. The plan incorporates provisions for early retirement, the
     privilege to elect a life annuity, surviving spouse benefits, and
     disability benefits.

     Employees of the Company who were employees of Ingersoll-Rand Oilfield
     Products Company or the Ideco Division of Dresser Industries, Inc.,
     immediately prior to becoming employees of IRI, are entitled to
     uninterrupted service tenure for purposes of retirement benefit
     calculations. Benefits payable under the IRI retirement plan are offset
     by benefits payable under the retirement plans of Dresser and
     Ingersoll-Rand Oilfield Products Company.

                                      F-18

<PAGE>   47


                IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         The Company uses the accrued benefit cost method to compute the annual
         contributions to the plan, with minimum and maximum contributions
         determined on a cumulative basis and the Company having the flexibility
         to choose which contribution to make and which can vary from one period
         to the next.

         The accrued benefit cost includes a normal cost which is computed as
         the present value of the pro rata portion for the benefit accrual
         during the year being valued and a past service cost which is the
         present value of that portion of the projected benefit which has been
         accrued up to the valuation date. The unfunded past-service cost may be
         liquidated over a period of between 10 and 30 years.

         In addition to the Company's defined benefit pension plan, the Company
         sponsors a defined benefit health care plan that provides
         postretirement medical benefits to retirees or full-time employees who
         retire attaining age 55 with at least 10 years of service as of
         September 1, 1996. Current retirees receive benefits for life while
         full time employees (future retirees) only receive benefits until age
         65. This plan is a contributory, with retirees contributing 20% of the
         health care costs. The Company's contribution is capped at a 5% annual
         increase in health care costs, with the remaining increases to be paid
         by the employee. The Company's policy is to fund the cost of medical
         benefits in amounts determined at the discretion of management.

                                      F-19

<PAGE>   48


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         The funded status and the amounts recognized in the balance sheets as
         of December 31, 1999, 1998 and 1997, the date of the last actuarial
         valuation are as follows (in thousands):

<TABLE>
<CAPTION>
                                                        PENSION BENEFITS                       OTHER BENEFITS
                                               -----------------------------------   ------------------------------------
                                                 1999        1998         1997         1999         1998         1997
                                               ---------   ----------   ----------   ----------   ----------   ----------
<S>                                          <C>         <C>          <C>          <C>          <C>          <C>
CHANGE IN BENEFIT OBLIGATION:
    Benefit obligation at beginning of year   $ 8,435     $ 8,061        $ 7,289      $ 1,829      $ 1,841      $ 1,821
    Service cost                                  107         106            108            -            -            -
    Interest cost                                 536         520            571          134          134          144
    Plan participants' contributions                -           -              -           26           27           30
    Actuarial (gain) loss                      (1,361)        322            691          157          (28)          44
    Benefits paid                                (771)       (574)          (598)        (263)        (145)        (198)
                                               ---------   ----------   ----------   ----------   ----------   ----------

          Benefit obligation at end of year     6,946       8,435          8,061        1,883        1,829        1,841
                                               ---------   ----------   ----------   ----------   ----------   ----------
CHANGE IN PLAN ASSETS:
    Fair value of plan  assets at  beginning
      of year                                   6,849       7,122          7,321            -            -            -
    Actual return on plan assets                1,625         301            399            -            -            -
    Employer contribution                           -           -              -          231          118          168
    Plan participants' contributions                -           -              -           26           27           30
    Benefits paid                                (771)       (574)          (598)        (257)        (145)        (198)
                                               ---------   ----------   ----------   ----------   ----------   ----------

          Fair  value of plan  assets at end
             of year                            7,703       6,849          7,122            -            -            -
                                               ---------   ----------   ----------   ----------   ----------   ----------

    Funded status                                 757      (1,586)          (939)      (1,883)      (1,829)      (1,841)
    Unrecognized actuarial loss                  (536)      1,988          1,457          456          323          360
                                               ---------   ----------   ----------   ----------   ----------   ----------

          Net amount recognized               $   221     $   402        $   518      $(1,427)     $(1,506)     $(1,481)
                                               ---------   ----------   ----------   ----------   ----------   ----------

    Amounts recognized in the statement of
      financial position consist of:
        Prepaid benefit cost                  $   221     $     -        $     -      $     -      $     -      $     -
        Accrued benefit liability                   -      (1,586)          (939)      (1,427)      (1,506)      (1,481)
        Accumulated other comprehensive loss        -       1,988          1,457            -            -            -
                                               ---------   ----------   ----------   ----------   ----------   ----------

          Net amount recognized               $   221     $   402        $   518      $(1,427)     $(1,506)     $(1,481)
                                               ---------   ----------   ----------   ----------   ----------   ----------

WEIGHTED-AVERAGE  ASSUMPTIONS AS OF DECEMBER 31:
    Discount rate                                7.75%       6.75%          7.30%         7.75%        6.75%       7.30%
    Expected return on plan assets               8.00%       8.00%          8.00%          N/A          N/A        N/A
    Rate of compensation increase                  N/A         N/A            N/A          N/A          N/A        N/A
</TABLE>

                                      F-20

<PAGE>   49

                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         The assumed health care cost trend rate was 10% in 1995 graded down to
         5% after 12 years. Because health care cost increases over 5% annually
         are borne by the employees, the amounts reported (in thousands) are not
         affected by increases in the assumed health care cost trend rate.

<TABLE>
<CAPTION>
                                               PENSION BENEFITS                       OTHER BENEFITS
                                       ----------------------------------   ------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT
    COST:                                1999        1998         1997         1999         1998         1997
                                       --------   ----------   ----------   ----------   ----------   ----------
<S>                                 <C>           <C>          <C>          <C>          <C>          <C>
    Service cost                    $     107          106          108            -           -            -
    Interest cost                         536          520          571          134         134          144
    Expected return on plan assets       (534)        (557)        (570)           -           -            -
    Amortization of prior service
      cost                                  -            -            -            -           -            -
    Amortization of transition
      asset                                 -            -            -            -           -            -
    Recognized net actuarial loss          72            9            7           19          45            -
</TABLE>

         The projected benefit obligation, accumulated benefit obligation, and
         fair value of plan assets for the pension plan with accumulated benefit
         obligations in excess of plan assets were $6,946,000, $6,946,000, and
         $7,703,000, respectively, as of December 31, 1999 and $8,435,000,
         $8,435,000 and $6,849,000, respectively, as of December 31, 1998.

         As of September 1, 1995, the pension plan was frozen insofar as future
         accrual of pension benefits. Because the plan amendment to freeze the
         plan was planned in conjunction with the ESI acquisition discussed in
         note 1, the resulting curtailment gain was taken into consideration in
         remeasuring the Company's projected benefit obligation and the date of
         the acquisition.

         The Pension Guaranty Corporation provides protection to plan
         participants by assuring employees that the fixed commitment of the
         Company for funding vested accrued benefits of the plan will be paid up
         to specified maximum amounts should the Company be unable to fund the
         fixed commitment.

         The pension plan is administered by the Pension Committee which is
         appointed by IRI's Board of Directors.

         On August 11, 1995, the defined benefit health care plan was amended to
         terminate all employees from the plan except those eligible to retire
         on June 30, 1995 and all current retirees. In addition under the
         amended plan, active employees eligible to retire will, after the age
         of 65, receive through the retirement plan, 80% of the cost of medical
         insurance with a 5% cap over a base year premium of calendar 1996.
         Because it was expected that the plan would be terminated in
         conjunction with the ESI acquisition discussed in note 1, the effects
         were considered in measuring the Company's accumulated post retirement
         benefit obligation as of the acquisition date.

         The Company also has a defined contribution plan which covers most of
         its employees. The plan provides mandatory minimum contributions from
         the Company to eligible employees in the plan equal to 7-1/2% of their
         annual pay. Plan participants become fully vested in contributions made
         by the Company following three years of credited service. The Company
         recognized expense associated with the plan of approximately $892,000,
         $1,289,000 and $1,076,000 for the years ended December 31, 1999, 1998
         and 1997, respectively.

                                      F-21

<PAGE>   50


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(13)     RESTRUCTURING CHARGE

         On October 8, 1998, the Company announced a restructuring program in
         which the workforce would be reduced by up to 315 employees. During
         1999, the Company continued its restructuring program. Accordingly, the
         Company consolidated manufacturing operations, closing two plants, and
         further reduced its workforce by 122 employees in addition to the 315
         employees originally estimated. Expenses incurred in connection with
         the restructuring program have been reported as a restructuring charge
         of $1,779,000 in 1999 and $590,000 in 1998. Substantially all amounts
         were paid as of December 31, 1999.

(14)     BUSINESS SEGMENTS

         In the fourth quarter of 1998, the Company adopted SFAS No. 131,
         Disclosures about Segments of an Enterprise and Related Information.
         The Company's reportable segments are strategic business units that
         offer different products and services. They are managed separately
         because each business requires different technology and marketing
         strategies. Financial data for periods reported prior to the year ended
         1998 have been restated to conform to the presentation according to
         SFAS No. 131.

         The Company operates through three business segments consisting of
         Oilfield Equipment, Downhole Products, and Specialty Steel. The
         Oilfield Equipment segment is principally engaged in the design and
         manufacture of drilling and well servicing rigs and components for use
         on land and offshore drilling platforms. The Company specializes in
         providing small truck-mounted rigs to stationary land deep drilling
         rigs to meet the functional requirements of customers drilling in
         remote and harsh environments. The Downhole Products segment designs,
         manufactures, sells and rents fishing and drilling tools. The Company's
         Specialty Steel segment manufactures premium carbon, alloy and
         specialty steel for use in commercial and military products as well as
         for the manufacture of oilfield equipment products. IRI's steel
         products are also used in the petroleum, aircraft and power generation
         industries.

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. The Company
         evaluates performance based on operating income or loss before income
         taxes excluding nonrecurring gains and losses and foreign exchange
         gains and losses.

                                      F-22

<PAGE>   51


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         Financial information by industry segment is summarized below (in
thousands):

<TABLE>
<CAPTION>
                                    OILFIELD        DOWNHOLE      SPECIALTY    CORPORATE
                                    EQUIPMENT       PRODUCTS       STEEL       AND OTHER     ELIMINATIONS       TOTAL
                                 --------------    -----------    ---------    ----------    -------------    ----------
<S>                              <C>              <C>             <C>          <C>           <C>              <C>
YEAR ENDED DECEMBER 31, 1999
   Sales to unaffiliated
     customers                   $    44,365        $   42,892      $ 4,933    $       -        $    -        $   92,190
   Operating income (loss)            (5,850)            2,543          722      (17,991)            -           (20,576)
   Identifiable assets                48,659            95,201        7,165       66,068             -           217,093
   Depreciation and
     amortization                        562             3,248           42        1,217             -             5,069
   Amortization of goodwill                -                 -            -        1,254             -             1,254
   Amortization of negative
     goodwill                              -                 -            -        4,026             -             4,026
   Capital expenditures                   13             2,165            -            -             -             2,178

YEAR ENDED DECEMBER 31, 1998:
   Sales to unaffiliated
   customers                     $    88,395        $   76,249      $10,401    $       -        $    -        $  175,045
   Operating income (loss)            13,533            17,186        1,668      (15,084)            -            17,303
   Identifiable assets                72,237           108,277        8,047       50,605             -           239,166
   Depreciation and
     amortization                        379             3,283           69          301             -             4,032
   Amortization of goodwill                -                 -            -        1,255             -             1,255
   Amortization of negative
     goodwill                              -                 -            -        5,367             -             5,367
   Capital expenditures                  745             8,836          214          210             -            10,005

YEAR ENDED DECEMBER 31, 1997:
   Sales to unaffiliated
   customers                     $   106,529        $   65,336      $13,501    $       -        $    -        $  185,366
   Operating income (loss)            15,617            11,869        4,503       (9,370)            -            22,619
   Identifiable assets                94,011            86,030        9,457       61,576             -           251,074
   Depreciation and
     amortization                        248             3,493           30        1,100             -             4,871
   Amortization of goodwill                -                 -            -          880             -               880
   Amortization of negative
     goodwill                              -                 -            -        5,367             -             5,367
   Capital expenditures                2,216             1,649          314        1,885             -             6,064
</TABLE>

         Export sales by geographic region based upon the ultimate destination
         in which equipment or services were sold, shipped or provided to the
         customer by the Company were as follows (in thousands):

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                           ---------------------------------------------------------------
                                                 1999                   1998                  1997
                                           ------------------    -------------------    ------------------
<S>                                     <C>                   <C>                    <C>

Russia                                  $           4,522     $            22,137    $           47,375
Europe (excluding Russia)                           6,937                  12,649                12,783
Asia (excluding Russia)                             7,928                  17,831                11,113
South America                                       1,014                  15,829                 9,166
Africa                                             25,732                  17,469                14,432
Other                                               3,545                   1,869                 6,665
                                           ------------------    -------------------    ------------------

     Total export sales                            49,678                  87,784               101,534

Domestic sales                                     42,512                  87,261                83,832
                                           ------------------    -------------------    ------------------

     Total sales                        $          92,190     $           175,045    $          185,366
                                           ------------------    -------------------    ------------------
</TABLE>

                                      F-23

<PAGE>   52


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         In 1999, one customer accounted for 16.9% of revenues. For the year
         ended December 31, 1998, no one customer accounted for more than 10% of
         revenues.

(15)     COMMITMENTS AND CONTINGENCIES

         The Company has contract commitments aggregating $41.0 million at
         December 31, 1999 for the manufacture and delivery of drilling and
         workover rigs during fiscal year 2000.

         At December 31, 1999, the Company was contingently liable for
         approximately $4.1 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.

         Various federal, state and local laws, regulations and ordinances
         govern the removal, encapsulation or disturbance of asbestos containing
         materials (ACMs). Such laws and regulations may impose liability for
         the release of ACMs and may provide for third parties to seek recovery
         from owners or operators of facilities at which ACMs were or are
         located for personal injury associated with exposure to ACMs. The
         Company is aware of the presence of ACMs at its facilities, but it
         believes that such materials are in acceptable condition at this time.
         The Company believes that any future costs related to remediation of
         ACMs at these sites will not be material, either on an annual basis or
         in the aggregate, although there can be no assurance with respect
         thereto.

         The Company has sought to reduce the impact of costs arising from or
         related to actual or potential environmental conditions at the Bowen
         Tools Division facilities caused or created by Bowen or its
         predecessors in title through the Company's contractual arrangements
         with Air Liquide America Corporation (Air Liquide). Pursuant to such
         arrangements, Air Liquide and Bowen agreed to indemnify the Company for
         such costs. Air Liquide provided the Company with certain environmental
         assessments with respect to most of the Bowen properties conveyed to
         the Company. In some cases, these initial assessments recommended the
         performance of further investigation to evaluate the need for and to
         determine the extent of the removal or remediation of hazardous
         substances required to address historical operations of Bowen. Air
         Liquide is conducting a further environmental review of the Bowen Tools
         Division facilities to determine the potential scope of remeditaion to
         be conducted at such facilities by Air Liquide or Bowen. There can be
         no assurance that Air Liquide or Bowen will meet its obligations under
         the indemnification arrangements or that there will not be future
         contamination for which the Company might be fully liable and that may
         require the Company to incur significant costs that could have a
         material adverse effect on the Company's financial conditions and
         results of operations.

         Although the Company believes that it is in substantial compliance with
         existing laws and regulations, there can be no assurance that
         substantial costs for compliance will not be incurred in the future.
         Moreover, it is possible that other developments, such as stricter
         environmental laws, regulations and enforcement policies thereunder,
         could result in additional, presently unquantifiable, costs or
         liabilities to the Company.

                                      F-24

<PAGE>   53


                 IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         The Company is involved in various other claims and legal actions
         arising in the ordinary course of business. In the opinion of
         management, the ultimate disposition of these matters will not have a
         material adverse effect on the Company's consolidated financial
         disposition, results of operations or liquidity.

(16)     QUARTERLY FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 (UNAUDITED)

<TABLE>
<CAPTION>
                                         QUARTER ENDED       QUARTER ENDED        QUARTER ENDED       QUARTER ENDED
               1999                        MARCH 31,            JUNE 30,          SEPTEMBER 30,        DECEMBER 31,
-----------------------------------     ----------------    -----------------    ----------------    -----------------
<S>                                     <C>                 <C>                  <C>                 <C>
Revenues                                $    22,543         $   19,877           $    26,102         $    23,668
Gross profit                                  6,715             (4,128)(a)             7,220                (773)(b)
Net income (loss)                            (1,502)(d)         (9,590)(c)(d)          2,346(d)           (2,159)
Basic and diluted income (loss)
 per common share                             (0.04)             (0.24)                 0.06               (0.05)

               1998
-----------------------------------
Revenues                                $    47,232         $   51,399           $    40,650         $    35,764
Gross profit                                 12,849             15,468                11,064               9,038
Net income (loss)                             4,372              5,525                 2,799(d)             (314)(d)
Basic and diluted income (loss)
 per common share                              0.11               0.14                  0.07               (0.01)

               1997
-----------------------------------
Revenues                                $    16,594         $   41,191           $    54,345         $    73,236
Gross profit                                  4,142              8,519                12,653              20,848
Net income (loss)                             1,657             (1,236)                2,530               8,072
Basic and diluted income (loss)
 per common share                              0.06              (0.04)                 0.08                0.23
</TABLE>

         The Company acquired the business and operations of the Bowen Tools
         Division on March 31, 1997 and Cardwell International, Ltd. on April
         17, 1997 (see note 3).

         (a)      Includes pre-tax charges of $6.8 million, consisting of a $2.0
                  million increase in the inventory obsolescence reserve, $2.1
                  million write-off of pre-contract engineering and design costs
                  incurred for a contract that did not materialize, a $2.2
                  million charge for contract adjustments and other charges.

         (b)      Includes pre-tax inventory valuation charges of $5.9 million.

         (c)      Includes pre-tax charges of $1.3 million relating to provision
                  for bad debt and software implementation.

         (d)      Includes restructuring charges of $805,000, $653,000 and
                  $321,000 incurred during the first three quarters of 1999 and
                  $429,000 and $161,000 during the third and fourth quarter of
                  1998, respectively (see note 13).

                                      F-25