CAMCO INTERNATIONAL INC, 10-K, 1997-03-17

CAMCO INTERNATIONAL INC
10-K, 1997-03-17
PUMPS & PUMPING EQUIPMENT

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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, 1996

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

COMMISSION FILE NUMBER 1-10718

CAMCO INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<C> <C>
DELAWARE 13-3517570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7030 ARDMORE, HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (713) 747-4000

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

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <C>
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Rights to Purchase Common Stock, $.01 Par Value New York Stock Exchange, Inc.
</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. [ ]

Aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the price at which the stock was sold as of February 28,
1997: $932,191,506.

Number of shares of common stock outstanding as of February 28, 1997:
24,056,555.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III Items 10, 11, 12 and 13 will be
included in a proxy statement to be filed pursuant to Regulation 14A, and is
incorporated herein by reference.

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PART I

ITEM 1. BUSINESS.

GENERAL

Camco International Inc. and subsidiaries (collectively, "Camco" or the
"Company") is one of the world's leading providers of oilfield equipment and
services for numerous specialty applications in key phases of oil and gas
drilling, completion, and production. Many of the Company's products and
services have recognized names in the industry and are associated with
technological innovation and quality. Camco operates on a worldwide basis with
its equipment and services being sold or used in approximately 50 countries.
Approximately 71% of the Company's revenues in 1996 were derived from equipment
or services sold or provided outside the United States.

Camco is the leading world producer of electric submersible pump systems,
gas lift systems and synthetic diamond drill bits. Camco also operates one of
the largest fleets of coiled tubing units in the United States, is one of the
world's two leading providers of subsurface safety valve systems and is the
world's third leading provider of roller cone drill bits. Information regarding
world markets excludes the former Soviet Union (the "FSU") and China, for which
reliable market information is unavailable.

Camco's business consists of an Oilfield Equipment Segment and an Oilfield
Services Segment.

Oilfield Equipment Segment. Camco's Oilfield Equipment Segment provides a
wide range of manufactured oilfield products, principally under the names Reda
Pump ("Reda"), Lasalle Engineering ("Lasalle"), Lawrence Technology, Hycalog,
Reed Tool ("Reed"), Camco Products and Site Oil Tools ("Site"). Reda
manufactures electric submersible pumps ("ESPs") used to lift high volumes of
fluids from producing wells. Lasalle, acquired in September 1996, provides oil
well production services, project management and ancillary equipment for ESP
systems. Lawrence Technology manufactures electric cables and wire used with
ESPs. Hycalog manufactures synthetic diamond drill bits, and Reed manufactures
roller cone drill bits. Synthetic diamond drill bits have a faster rate of
penetration, drill more footage, generally have a higher unit sales price and
are used primarily in high cost drilling locations where their relatively higher
price can be justified by their corresponding reduction in total drilling time
and, therefore, costs. Roller cone drill bits generally have lower unit prices,
are less application sensitive and are used in a wider variety of drilling
applications. Camco Products manufactures gas lift systems used to increase the
volume of production from oil wells, subsurface safety valves used as fail-safe
devices to shut-in production in oil and gas wells in emergencies, and packers
and other items used in the completion and production phases of oil and gas
development. In December 1996, Camco Products expanded its gas lift business by
acquiring the artificial lift business line of Halliburton Company. Site Oil
Tools, which was acquired by the Company in March 1995, manufactures a full line
of packers, accessory equipment and services for the completion of oil and gas
wells. The Oilfield Equipment Segment accounted for approximately 84% of Camco's
total revenues in 1996.

Oilfield Services Segment. Camco's Oilfield Services Segment provides a
wide range of oilfield services, principally under the names Camco Coiled Tubing
Services ("Camco Coiled Tubing") and Camco Wireline. Camco Coiled Tubing
provides coiled tubing services and nitrogen services and performs other
downhole operations used in the initial completion of wells and in well
maintenance and treatment during the productive life of a well. Camco Wireline
provides mechanical wireline services used to install or retrieve downhole flow
control devices and to obtain reservoir data using specialized instruments. The
Oilfield Services Segment accounted for approximately 16% of Camco's total
revenues in 1996.

Selected financial data related to Camco's business segments, foreign and
domestic operations, and export sales is set forth in Note 10 of the Notes to
the Consolidated Financial Statements included elsewhere herein.

The Company, which was incorporated in Delaware in 1988, is the successor
to Camco, Incorporated, which was incorporated in Texas in 1946. The Company's
headquarters are located at 7030 Ardmore, Houston, Texas 77054.

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RECENT DEVELOPMENTS

On February 27, 1997, the Company entered into an agreement to acquire
Production Operators Corp, a Delaware corporation ("PROP"), pursuant to an
expected tax free merger (the "Merger") in which the stockholders of PROP will
receive 1.30 shares of the Company's common stock in exchange for each
outstanding share of PROP Common Stock. PROP is a market leader in total
responsibility gas compression services. The Company currently expects that the
acquisition of PROP will be slightly dilutive to earnings per share of Common
Stock in 1997 and begin to be accretive to earnings in 1998.

Based on the number of shares of PROP Common Stock outstanding as of
February 26, 1997, a total of approximately 13,268,330 shares of the Company's
Common Stock would be issued in the Merger. In addition, approximately 527,670
shares of the Company's Common Stock would be reserved for issuance by the
Company for outstanding options under PROP's benefit plans. The Merger is
subject to various conditions, including the receipt of all required regulatory
approvals and the expiration or termination of all waiting periods (and
extensions thereof) under the Hart-Scott-Rodino Act. Although there can be no
assurance that the Merger will close, the Company currently anticipates that the
acquisition will be consummated shortly after the receipt of such regulatory
approvals and the approval of the Merger by the stockholders of the Company and
PROP.

BUSINESS OPERATIONS

OILFIELD EQUIPMENT SEGMENT

Electric Submersible Pumps. Reda manufactures downhole ESPs. Reda was
founded in 1930. An ESP system consists of an electric motor, which provides
direct drive to a pump immediately above the motor, and surface control systems.
The motor and pump are positioned above the perforation of the production zone
at the bottom of the production tubing string in an oil well. ESPs are often the
most economical means of lifting high volumes of reservoir fluids (600 to 20,000
barrels per day) to the surface from oil wells which either do not flow
naturally or have low natural flow rates. In many cases, use of an ESP makes a
well economical to produce where it otherwise would be abandoned. Many ESPs are
used in wells where large quantities of water are produced with the oil. As high
flow rate wells mature, they will, in most cases, begin to produce large
quantities of water. Water also may be present as a consequence of secondary
recovery techniques involving the injection of steam or water into the
oil-bearing formation to increase oil production. ESPs are also used in deep or
deviated wells where other artificial lift systems cannot function reliably.

Although the actual life of an ESP system is influenced by variable well
characteristics such as corrosive and abrasive content in the fluid and by
downhole temperatures, the average life of a typical ESP system is approximately
18 months. Upon failure, the ESP system is pulled and either repaired with new
components or replaced entirely depending on wear and condition. Reda's network
of sales and service centers and responsiveness to replacement demands have been
important in developing new markets. Demand for Reda's products is primarily
driven by oil prices, replacement of other artificial lift systems and the
replacement market for ESPs worldwide.

Lawrence Technology manufactures cable for submersible pump installations.
This specialized cable, capable of withstanding corrosive fluids and the high
temperatures encountered downhole, carries the electric current from the surface
to the motor located at the production zone. Demand for Lawrence Technology's
products is driven primarily by demand for ESPs and by the replacement market
for ESP cable worldwide.

Lasalle Engineering, acquired in September 1996, specializes in providing
oil well production services, project management and ancillary equipment for
ESPs. Lasalle has led the development of offshore ESP systems and was project
manager in Brazil for the first subsea ESP installation in the world.

Electric submersible pumps and ESP cable accounted for revenues of $234.6
million, $204.8 million and $223.1 million in 1996, 1995 and 1994, respectively.

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Drill Bits. Hycalog manufactures synthetic diamond drill bits. It was
founded in 1946 and manufactured its first natural diamond drill bits in 1953.
The bits manufactured by Hycalog are polycrystalline diamond compact ("PDC")
bits which utilize synthetic diamonds as the primary cutting element. PDC bits
allow faster rates of drilling penetration and can drill complete well sections
without the need for bit replacement. As a result, they are used in high cost
drilling locations (such as offshore or in remote locations) where their
advantages reduce drilling time sufficient to justify the high unit sales
prices. Hycalog manufactures both steel body bits and matrix bits. Steel body
bits are favored for large cutter PDC's used to drill in softer formations at
fast rates of penetration. Matrix bits have a tungsten carbide body which makes
them better suited for soft to medium formations and better able to resist
abrasive drilling fluids. Several different types of diamond bits may need to be
used in one well (diamond bits can also be used in conjunction with roller cone
bits) as different formations are encountered in drilling a well. As a result,
diamond drill bit designs are often custom engineered for specific formation
characteristics expected to be encountered. A single PDC bit may drill from
several hundred feet to over 20,000 feet depending on the hardness and
abrasiveness of the formation. Hycalog's patented "hybrid bit" technology, which
combines synthetic and natural diamonds on a single bit, has longer wear life in
harder formations than other PDC bits that do not include natural diamonds. PDC
bits are often used with a downhole motor.

Reed manufactures roller cone drill bits and has been an established bit
manufacturer since 1916. Reed produces roller cone drill bits for a wide variety
of oil and gas well drilling applications. Roller cone bits consist of a steel
body and three rotating cones which have cutting teeth. Reed manufactures bits
with milled teeth and with tungsten carbide insert teeth, which have a longer
life in harder formations. A number of different sizes of bits are used during
the drilling of the well, and the bits are generally dulled during the drilling
process. Drilling an average well in the United States to a depth of 6,000 feet
typically might consume four to six roller cone bits. The bits are manufactured
for inventory in a variety of standard sizes. Reed has proprietary nozzle
designs (Mudpick and Mudpick II trademarks) used in its drill bits. Mudpick
allows the drilling fluid to clean the bit more effectively while drilling,
which increases rates of drilling penetration by up to 25%. By providing a
sweeping effect across the interface of the teeth and rock, Mudpick II
hydraulics improve the removal of the cuttings (in addition to cleaning the bit)
and further improve the rate of drilling penetration. Reed also holds a patent
for a threaded ring bearing design that significantly reduces the likelihood of
losing a cone from the drill bit in the well when it becomes worn and, as a
result, reduces the likelihood of costly retrieval operations. The combination
of Mudpick II hydraulics and the threaded ring bearing was introduced as
enhanced hydraulic performance ("EHP") bits in 1992. Demand for Camco's drill
bit products is primarily driven by levels of drilling activity worldwide.

Drill bits accounted for revenues of $193.4 million, $180.6 million and
$156.5 million in 1996, 1995 and 1994, respectively.

Completion Equipment. Camco Products manufactures gas lift systems,
downhole safety valves used in oil and gas well completions, packers and
accessory equipment. Camco began distributing gas lift systems in 1946 and
started manufacturing its own equipment in 1951. Gas lift systems consist
principally of mandrels containing gas lift valves which are placed in the
production tubing string of an oil well. Gas is compressed and injected from the
surface down the annulus between the production tubing and casing, enters the
tubing through the gas lift valves, and lifts the oil in the production tubing
to the surface. The gas is then separated from the oil at the surface,
compressed and reinjected downhole, forming a closed-loop system. Gas lift is
usually the most economic method of lifting fluid when natural gas is produced
with the oil or is available from other wells for injection.

Safety valve systems are typically installed several hundred feet below the
well head in an oil or gas well and connected to surface control equipment. If
loss of control pressure at the surface occurs, the valve automatically closes,
thereby preventing a potential blowout and environmental harm. Safety valves,
made by certified manufacturers, are required by regulation in offshore wells
and other environmentally sensitive areas of the United States and many foreign
locations.

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Camco Products' other completion equipment includes packers, expansion
joints and sliding sleeves, as well as equipment to facilitate wireline
operations in a well. Demand for equipment manufactured by Camco Products is
principally driven by the level of offshore well completions worldwide.

OILFIELD SERVICES SEGMENT

Coiled Tubing Services. Camco Coiled Tubing provides coiled tubing and
nitrogen services in the United States, Nigeria and Venezuela. Camco Coiled
Tubing operates a fleet of approximately 55 coiled tubing units and 105 nitrogen
pumping units. Nitrogen pumping has various oilfield applications including
pipeline purging. Coiled tubing is flexible steel tubing with a diameter of up
to 3 1/2 inches manufactured in lengths of thousands of feet and wound or coiled
around a large reel mounted on a truck or a skid unit. Coiled tubing is inserted
into wells to perform various well-servicing operations, including the injection
of nitrogen to clean out debris from the well and the injection of chemicals for
well treatment. Because the coiled tubing can be inserted through the wellhead
into the production tubing, it can be used to perform workovers without using a
larger, more costly workover rig. The other principal advantages of employing
coiled tubing in a workover include (i) not having to "kill" the well during
such operations, thereby reducing the risk of formation damage to the well, (ii)
the ability to reel continuous coiled tubing in and out of a well significantly
faster than conventional pipe, which must be jointed and unjointed, (iii) the
ability to direct fluids into a wellbore with more precision, allowing for
localized stimulation treatments and providing a source of energy to manipulate
downhole tools and (iv) enhanced access to remote or offshore fields due to the
smaller size and mobility of a coiled tubing unit.

Camco Coiled Tubing principally operates in the United States, Nigeria and
Venezuela, and, through a joint venture, in the FSU. Demand for Camco Coiled
Tubing's services is primarily driven by the level of oil and gas well service
and workover activity in the United States, Nigeria and Venezuela. Well service
and workover activity is driven by energy prices. The Company believes the
demand for coiled tubing services will grow due to continued technological
improvements that have increased the dependability and durability of tubing, and
the range and types of services available.

Coiled tubing services accounted for revenues of $68.1 million, $64.7
million and $62.4 million in 1996, 1995 and 1994, respectively.

Wireline Services. Camco Wireline provides mechanical wireline (or
slickline) services. Mechanical wireline services are distinct from electric
wireline services used for geologic data collection and interpretation. A
wireline is a piano-wire sized smooth cable with which special tools can be
lowered into the well bore to place or retrieve equipment, such as a gas lift
valve or a downhole safety valve, or to measure and record bottom hole data to
determine the condition of producing wells. These services are performed under
full well pressure without the need to "kill" the well. Camco Wireline provides
services in the United States and worldwide to offshore markets where the
majority of gas lift systems and safety valves are used. Demand for Camco
Wireline's services is primarily driven by the level of completions and
workovers worldwide.

SALES, SERVICE AND DISTRIBUTION

The Company markets its products in each of its three operating groups
primarily through its own sales organization, providing technical assistance to
customers on the application of various products. In certain international
locations, products are distributed through independent sales agents who have
access to technical support from each of the Company's operating groups. Camco
maintains finished goods and repair parts inventories at various stocking points
and service centers around the world. Inventories are replenished from the
production of the Company's manufacturing facilities based on expected business
levels and customer requirements.

In recent years, a number of major oil and gas producers along with many
leading oilfield equipment and service producers, including Camco, have entered
into business alliances in an attempt to reduce or better control the overall
cost to find, drill, complete and produce oil and gas. These alliances involve
relatively long-term supply and service arrangements. The Company's management
believes that as alliances become more prevalent, most of its key customers will
select alliance partners primarily on a product-by-product basis,

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particularly for the higher technology, value added equipment and services which
constitute most of Camco's business. Camco has successfully entered into
alliances in various regions around the world and with respect to several of its
key products.

CUSTOMERS

Camco's customers are primarily major and independent oil and gas companies
and foreign national oil companies. No single customer accounted for more than
10% of Camco's total revenues in 1996, but the loss of a major oil company or
certain foreign national oil companies as a customer would be significant.

INTERNATIONAL OPERATIONS

Camco's equipment and services are used in approximately 50 countries by
U.S. customers operating abroad and by foreign customers. Sales of equipment and
services outside of the United States accounted for 71%, 70% and 69% of total
revenues in 1996, 1995 and 1994, respectively. Certain of Camco's international
operations are subject to special risks inherent in doing business outside the
United States such as risks of war, boycotts, civil disturbances and
governmental activities, including currency restrictions and arbitrary
imposition of taxes. See Note 10 to the Consolidated Financial Statements
included elsewhere herein for additional financial data related to Camco's
revenues by geographic region.

The Company wholly owns all of its foreign subsidiaries engaged in
manufacturing outside of the United States and wholly owns most of its sales and
service operations outside of the United States. Government-owned petroleum
companies located in some of the countries in which Camco operates have adopted
policies (or are subject to governmental policies) giving preference to the
purchase of goods and services from companies that are majority owned by local
nationals. As a result of such policies, Camco relies on joint ventures, license
arrangements and other business combinations with local nationals in these
countries. Camco is a participant in joint ventures or a shareholder in
corporations in Abu Dhabi, Dubai and Ras Al Khaimah in the United Arab Emirates,
Egypt, Colombia, Malaysia, Brunei, Indonesia, Norway and the FSU.

The Company has significant operations in Nigeria, Venezuela and the FSU,
areas which have experienced political instability, high inflation and
significant currency fluctuations in recent years. Given the dynamic political
and economic environment in each of these areas, business activity is expected
to remain somewhat volatile from year to year. Exposure to these risks is
actively monitored by management and action taken when appropriate under the
circumstances to limit such exposures. Despite these actions, there can be no
assurance that volatility in these markets will not adversely impact the
Company's operations.

Camco operates in various foreign countries and is, therefore, subject to
currency fluctuations in these countries. Changes in the value of the U.S.
dollar against these currencies will affect the Company's results of operations
and financial position. Camco conducts a portion of its business in highly
inflationary environments such as South America, Mexico and Nigeria. The effect
of currency rate changes in these countries is reflected in the results of
operations in accordance with Statement of Financial Accounting Standards No.
52.

In 1996, the Company recorded translation losses of $4.8 million, primarily
due to the devaluation of the Venezuelan bolivar in April 1996. In 1995,
translation losses were $5.7 million including approximately $4 million due to
the devaluation of the bolivar in December 1995 and approximately $1 million due
to the significant devaluation of the naira in Nigeria. Additionally, during
1995 and 1996 the cumulative translation account, a component of stockholders'
equity, reflected gains of $.5 million and $7.1 million, respectively, primarily
due to the strengthening of the U.K. pound sterling versus the U.S. dollar. The
Company actively monitors foreign subsidiaries' net asset positions denominated
in foreign currencies and takes actions when appropriate under the circumstances
to limit its risk to currency fluctuation and devaluation.

MANUFACTURING AND RAW MATERIALS

Most of Camco's equipment products are made from steel and steel alloys
which are machined to some degree of close tolerance in the manufacturing
process. Machined pieces are inspected against product specifications and
assembled. Some products are performance tested after assembly. Some parts are

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purchased in finished form from qualified suppliers when it is not economical
for Camco to perform the machining, or when the material, such as elastomers, is
other than steel. Camco has more than one source for every material it requires
in the manufacture of its products.

RESEARCH AND PRODUCT DEVELOPMENT

Camco's business strategy is to be an industry leader in technically
demanding oilfield equipment and services markets. Camco attempts to keep each
of its key products at the forefront of engineering and technical advances, and
each business unit has ongoing programs to advance this goal. In 1996, 1995 and
1994, total research and development expenditures were $26.3 million, $24.3
million and $23.8 million, respectively.

PATENTS AND TECHNOLOGY

At February 28, 1997, Camco had approximately 275 U.S. patents and 425
foreign patents in effect with approximately 60 U.S. patent applications and
approximately 175 foreign patents pending. Camco has been diligent in obtaining
patents to protect its technological developments. There is, however, no patent
or group of related patents which would enable any Camco division to dominate
its industry and no single patent or group of related patents that is material
to Camco's business.

SEASONALITY

Demand for Camco's equipment and services is subject to some seasonality
factors. Higher activity generally is experienced in the fall and winter. Demand
generally increases in the second half of the year as a result of industry
spending patterns as well as economic factors that affect the Company's
customers, such as increased cash flow from winter demand for natural gas. In
addition, in cold weather climates activity generally slows in the spring due to
both difficulty in moving equipment and government restrictions on moving heavy
equipment on affected roadways during the spring thaws. Weather conditions in
the North Sea and Arctic areas (during the winter) and in the Gulf of Mexico
(during the summer and early fall) can cause temporary disruptions to activity
in areas in which Camco operates.

ORDER BACKLOG

At December 31, 1996, the Company's backlog of firm orders for products and
equipment was approximately $76.5 million compared to approximately $53.9
million at December 31, 1995. Substantially all of such orders are expected to
be filled in 1997.

INDUSTRY CONDITIONS

Demand for and pricing of Camco's equipment and services depends primarily
upon 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 well
service and workover activity worldwide. Drilling, completion and workover
activity in turn is largely dependent on the level and volatility of oil and
natural gas prices.

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Pricing for crude oil and natural gas continued to trend upward in 1996.
West Texas Intermediate ("WTI") crude prices averaged $3.75 per barrel higher
than 1995, or $22.16 for the year. U.S. natural gas prices averaged $2.52 per
MCF in 1996, or 80 cents higher than the previous year. As a result of these
higher overall commodity prices, 1996 worldwide drilling activity increased,
after a slight decline in 1995. Average rig count activity for the previous
three years is summarized in the table below:

<TABLE>
<CAPTION>
RIG COUNT 1996 1995 1994
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<S> <C> <C> <C>
United States........................... 779 723 775
Canada.................................. 270 231 261
----- ----- -----
North America................. 1,049 954 1,036
International........................... 792 759 734
----- ----- -----
Worldwide..................... 1,841 1,713 1,770
----- ----- -----
</TABLE>

Worldwide demand for crude oil is forecast to increase by 2% to 3% per year
through the turn of the century. Although oil prices are expected to soften
somewhat in 1997 from unusually high prices in late 1996, the Company expects
oil prices to average between $18 and $22 per barrel. U.S. natural gas prices
are also expected to decline from the high levels of 1996. Provided that oil
prices remain within this range and natural gas prices are not unusually weak,
the Company expects activity levels in North America to increase modestly in
1997. Canadian activity is expected to remain near the high activity levels of
1996.

The international rig count increased for the second consecutive year, up
4% in 1996 to an average rig count of 792. Activity levels are expected to
increase in South America as western oil companies proceed to drill, and develop
properties leased from government oil companies in 1996. The Company expects a
modest increase overall in worldwide drilling, completion and production
activities.

Russian oil production continues to decline, representing a significant
opportunity for western companies to provide oilfield equipment and services to
increase production in that country. Since early 1994, only limited project
financing and hard currency has been available to fund oilfield equipment
purchases and the Company's sales, primarily of ESPs, have declined
significantly over the past three years, from a peak level in 1993.

Industry conditions will continue to be influenced by numerous factors over
which Camco has no control, including the level and volatility of world oil and
gas prices, production levels of the Organization of Petroleum Exporting
Countries ("OPEC") and general activity levels of oil and gas producers
worldwide. Although it is impossible to predict the impact of such factors on
the Company, management believes these risks are acceptable. However, there can
be no assurance that any one of these factors would not have a material adverse
effect on its operations.

BUSINESS STRATEGY

Camco's business strategy is to be an industry leader in technically
demanding oilfield equipment and services markets where the Company's technology
and high quality products and services make it possible for customers to produce
oil and gas in increasingly remote and technically demanding environments. The
Company provides customers with technical innovations in its products and
services which lower their costs to find and produce oil and gas. The Company
seeks to minimize the effect of volatility of oil and gas prices and to maximize
profitability under varying market conditions by managing its cost structure in
response to changes in its markets.

Consistent with the Company's business strategy, Camco's equipment and
services are focused on serving difficult drilling and production environments,
providing value added applications and developing innovative solutions to
customer problems. Camco seeks to maintain a reputation for offering advanced
technology through an ongoing research and development program. This commitment
is evidenced by numerous drilling records set over the past three years by both
Reed Tool and Hycalog. In addition, Camco's Products and Services business unit
was awarded the A.S.M.E. Best Mechanical Engineering Achievement Award for its
patented system for "Drilling with Coiled Tubing" at the 1995 Offshore
Technology Conference ("OTC").

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Field tests of this technology are ongoing and based on early results, drilling
with coiled tubing continues to show promise as a means to economically produce
smaller infield oil reserves. Reed was also a runner-up at the 1995 OTC for its
new "PMC" drill bit design using a patented manufacturing process.

COMPETITION

Camco's equipment and services are sold in highly competitive markets and
its sales and earnings can be affected by competitive actions such as price
changes, new product developments, or improved availability and delivery. Camco
competes with a large number of companies, some of which are larger than the
Company, have greater financial resources and offer substantially broader
product and service lines. The Company believes that competition for sales of
its products and services is based on numerous factors, including quality,
performance and reliability, availability, technological advances and price.

Camco is responding to this highly competitive environment through efforts
both to reduce the actual cost of its products and to increase their economic
value to the customer. Camco's design engineers and manufacturing engineers have
worked toward reducing the cost of manufacturing products to permit lower
selling prices while maintaining the technical qualities that the various
markets require. In addition, Camco's research and development efforts are
focused on improving a product's economic value to the customer by improving its
performance, thereby allowing Camco to compete on technology rather than on
price alone.

The principal competitors in ESPs are Centrilift (a division of Baker
Hughes), Oil Dynamics Inc. (a division of Franklin Electric), and ESP Inc. (a
division of Wood Group).

Camco's principal competition in drill bits comes from Hughes Christensen
(a division of Baker Hughes), Smith International and Security DBS (a division
of Dresser Industries).

Competition for gas lift equipment comes primarily from a division of
Weatherford Enterra. Baker Hughes and Halliburton Energy Services are the
principal competitors in safety valves.

The primary competitors for coiled tubing and nitrogen services are
Halliburton, Dowell (a division of Schlumberger) and BJ Services. Competition
for mechanical wireline services comes primarily from Halliburton and numerous
small regional companies.

OPERATING RISKS AND INSURANCE

Camco's operations are subject to hazards inherent in the oil and gas
industry, such as fire, explosion, blowouts and oil spills that can cause
personal injury or loss of life, damage to property, equipment, the environment
and marine life, and suspension of operations. In addition, claims for loss of
oil and gas production and damages to formations can occur in the completion and
workover business. Litigation arising from a catastrophic occurrence at a
location where Camco's products are used may in the future result in the Company
being named as a defendant in lawsuits asserting potentially large claims. The
Company maintains insurance coverage that it believes to be customary in the
industry against these hazards. The Company maintains general liability and
property damage insurance, as well as product liability, business interruption
and other insurance, and self-insures against workers' compensation claims.
However, insurance may not provide complete protection against casualty losses.
Further, no assurance can be given that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable.

Although the Company believes it will be able to obtain insurance coverage
adequate for its current operations, a successful liability claim for which the
Company is underinsured or uninsured could have a material adverse effect on the
Company.

Camco has safety and environmental compliance programs staffed by full time
professional employees. In addition, Camco involves all levels of executive and
operating management in a continuous effort to improve its safety and
environmental record.

9
<PAGE> 10

EMPLOYEES

At December 31, 1996, the Company had approximately 4,570 employees
worldwide, including approximately 1,950 whom were employed in international
locations. Approximately 550 employees at December 31, 1996 are represented
under collective bargaining agreements in two of its manufacturing facilities in
the United States and one international plant in Belfast. The Company believes
that its relations with its employees are satisfactory.

ENVIRONMENTAL MATTERS AND REGULATIONS

Camco's business is affected both directly and indirectly by governmental
regulations relating to the oil and gas industry in general, as well as
environmental and safety regulations that apply specifically to Camco's
business. Various Federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of public health and the environment, may affect Camco's operations,
expenses and costs. Environmental regulations have increasingly limited and
restricted activities that may have an impact on the environment, such as
emissions of air and water pollutants, generation and disposal of wastes, and
use and handling of hazardous substances. These limitations and restrictions
have increased operating costs for Camco and other similar businesses. In
addition, it is reasonable to expect that the costs of compliance will continue
to increase in the foreseeable future.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "superfund" law, imposes liability, regardless of
fault or the legality of the original conduct, on certain classes of persons
that contributed to the release of a "hazardous substance" into the environment.
These persons include the current or previous owner and operator of a facility
and companies that disposed or arranged for the disposal of the hazardous
substance found at a facility. CERCLA also authorizes the Environmental
Protection Agency (the "EPA") and, in some cases, private parties to take
actions in response to threats to the public health or the environment and to
seek recovery from such responsible classes of persons of the costs of such
actions. In the course of its operations, Camco has generated and will generate
wastes that may fall within CERCLA's definition of "hazardous substances." In
addition, prior owners or operators at current or past Camco sites may have
disposed of hazardous substances on these properties. Camco may be responsible
under CERCLA for all or part of the costs to clean up facilities at which such
substances have been disposed.

Camco's operations may generate wastes that are subject to the Federal
Resource Conservation and Recovery Act ("RCRA") and comparable state statutes.
The EPA has limited disposal options for certain hazardous wastes and may adopt
more stringent disposal standards for nonhazardous wastes. In addition, RCRA
includes a statutory exemption that allows oil and gas exploration and
production wastes to be classified as non-hazardous wastes. A similar exemption
is contained in many of the state counterparts to RCRA. If oil and gas
exploration and production wastes were required to be managed and disposed of as
hazardous wastes, either as a result of changes in RCRA or the imposition of
more stringent state regulations, domestic oil and gas producers, including many
of the Company's customers, could be required to incur substantial obligations
with respect to such wastes. Because of the potential impact on the Company's
customers, any regulatory changes that impose additional restrictions or
requirements on the disposal of oil and gas wastes could adversely effect demand
for the Company's services and products.

Camco is also subject to laws and regulations concerning occupational
health and safety. These laws, such as the Federal Occupational Safety and
Health Act ("OSHA") and comparable state statutes, establish standards that
apply generally to businesses in the manufacturing sector, including Camco's
businesses.

Camco is also subject to laws and regulations concerning transportation and
pipeline operations. These laws, under the Department of Transportation,
establish standards that apply generally to businesses in the oilfield sector,
including Camco's businesses.

The Company believes that it is currently in compliance in all material
respects with the requirements of transportation, environmental and occupational
health and safety laws and regulations. Because such laws and regulations are
frequently changed, the Company is unable to predict the impact that such laws
and regulations may have on the Company's business.

10
<PAGE> 11

ITEM 2. PROPERTIES

Camco's principal facilities are as shown in the table below:

<TABLE>
<CAPTION>
APPROXIMATE
BUILDING
OWNED/ LAND SPACE
LOCATION LEASED (ACRES) (SQUARE FEET) DESCRIPTION
-------- --------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
UNITED STATES
Reda
Bartlesville, OK............. 9 acres 21 410,000 Manufacturing facility and
owned/12 acres offices
leased(a)
Bartlesville, OK............. Owned 0.5 175,000 Offices
Reed
Houston, TX.................. Owned 36 535,000 Manufacturing facility and
offices
Lawrence Technology
Lawrence, KS................. Owned 41 330,000 Manufacturing facility and
offices
Camco Products
Houston, TX.................. Owned 37 400,000 Manufacturing facility and
offices
Garland, TX.................. Leased(b) 8 84,000 Manufacturing facility and
offices
North Slope, Alaska.......... Building 9 45,000 Warehouses, repair facility and
owned/Land offices
leased(c)
Hycalog
Houston, TX.................. Leased(d) 0.5 40,000 Manufacturing facility and
offices
CANADA
Site
Calgary, Alberta............. Leased(e) 1 40,000 Manufacturing facility and
offices
SINGAPORE
Reda
Jurong....................... Building 11 220,000 Manufacturing facility and
owned/Land offices
leased(f)
Reed
Jurong....................... Building 6 95,000 Manufacturing facility and
owned/Land offices
leased(g)
UNITED KINGDOM
Camco Products
Belfast, Northern Ireland.... Building 16 150,000 Manufacturing facility and
owned/Land offices
leased(h)
Hycalog
Stonehouse, England.......... Owned 4 75,000 Manufacturing facility and
offices
Lasalle
Inverurie, Scotland.......... Owned 3 41,000 Manufacturing facility and
offices
VENEZUELA
Camco Products
Las Morochas................. Owned 13 75,000 Manufacturing facility,
warehouses and offices
Maracaibo.................... Leased(i) 2.5 42,000 Manufacturing facility and
offices
</TABLE>

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

(a) Lease expires May 25, 2037.

(b) Lease expires December 10, 1999.

(d) Lease expires March 31, 1999.

(e) Lease expires May 31, 1997.

(f) Lease expires October 1, 2009.

(g) Lease expires May 16, 2011.

(h) Lease expires November 7, 2987.

(i) Lease expires December 31, 1998.

11
<PAGE> 12

In addition, as of December 31, 1996, Camco owned 18 sales, service and
other facilities in the United States and 6 in foreign countries and leased 32
sales and service centers in the United States and 57 in foreign countries.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management, uninsured losses, if
any, resulting from the ultimate resolution of these matters will not have a
material adverse effect on the financial position or results of operations of
the Company.

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

None.

PART II

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

The Company's Common Stock, $.01 par value, has traded on the New York
Stock Exchange under the symbol "CAM" since December 10, 1993. The following
table sets forth, for the periods indicated, the high and low sales prices of
the Common Stock as reported on the NYSE Composite Tape and dividends per share.

<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1996
First quarter............................................. $32 3/8 $25 1/4 $.05
Second quarter............................................ 37 30 1/2 .05
Third quarter............................................. 37 1/2 32 1/4 .05
Fourth quarter............................................ 47 1/4 36 3/4 .05
1995
First quarter............................................. $20 5/8 $16 5/8 $.05
Second quarter............................................ 24 3/4 20 1/4 .05
Third quarter............................................. 25 1/8 21 3/4 .05
Fourth quarter............................................ 28 3/8 20 3/4 .05
</TABLE>

As of February 28, 1997, there were 63 record holders of the Common Stock.
This number does not include the number of security holders for whom shares are
held in a "nominee" or "street" name.

The Company has paid quarterly dividends of $.05 per share since its
initial public offering in December 1993, or a total of $.20 per share in 1996.
Subject to market conditions and other factors, the Company intends to continue
paying regular quarterly dividends on its Common Stock. In addition, as long as
any amount is outstanding under the Company's term loan facility, the Company is
restricted by a covenant limiting the cumulative payment of dividends if the
payment of such dividends results in the Company's net worth falling below
acceptable minimum levels. This restriction has not had any impact on the
Company's ability to pay its regular quarterly dividends to stockholders.
Because the Company operates some of its business, particularly its
international operations, through subsidiaries, its ability to pay dividends is
partly dependent upon its ability to receive dividends and other payments from
its subsidiaries.

12
<PAGE> 13

ITEM 6. SELECTED FINANCIAL INFORMATION

The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the notes thereto, included elsewhere herein.

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues.................................. $672,732 $595,131 $590,103 $586,281 $499,574
Cost of sales and services................ 403,521 362,299 380,914 381,705 347,757
-------- -------- -------- -------- --------
Gross margin........................... 269,211 232,832 209,189 204,576 151,817
Selling, general and administrative
expenses............................... 183,985 170,840 159,140 157,456 153,047
Amortization of intangible assets......... 6,460 6,022 6,036 6,664 7,065
Other income, technology fee(a)........... -- -- -- -- (14,476)
Nonrecurring charges(b)................... -- -- -- -- 33,200
-------- -------- -------- -------- --------
Operating income (loss)................ 78,766 55,970 44,013 40,456 (27,019)
Interest expense, net..................... 2,574 4,034 3,926 12,480 13,622
-------- -------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes and cumulative effect
of change in accounting principle...... 76,192 51,936 40,087 27,976 (40,641)
Provision (benefit) for income taxes...... 25,684 15,618 11,614 8,105 (12,218)
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
change in accounting principle......... 50,508 36,318 28,473 19,871 (28,423)
Cumulative effect of change in accounting
principle, net of benefit for income
taxes(c)............................... -- -- -- (10,660) --
-------- -------- -------- -------- --------
Net income (loss)......................... $ 50,508 $ 36,318 $ 28,473 $ 9,211 $(28,423)
======== ======== ======== ======== ========
Earnings Per Share(d):
Income before cumulative effect of change
in accounting principle................ $ 2.03 $ 1.48 $ 1.13 $ .79
Cumulative effect of change in accounting
principle.............................. -- -- -- (.42)
-------- -------- -------- --------
Net income................................ $ 2.03 $ 1.48 $ 1.13 $ .37
======== ======== ======== ========
BALANCE SHEET DATA:
Working capital........................... $198,015 $188,308 $165,719 $168,882 $225,102
Total assets.............................. 749,014 661,267 634,522 661,285 723,344
Long-term debt(e)......................... 70,420 71,998 86,122 106,440 209,244
Stockholders' equity...................... 439,219 397,818 363,793 356,138 341,545
OTHER:
Depreciation and amortization............. 39,435 31,876 32,764 32,293 35,881
Capital expenditures...................... 33,533 25,883 24,486 16,787 23,430
Research and development.................. 26,267 24,293 23,804 19,793 27,139
Dividends per share....................... .20 .20 .20 -- --
</TABLE>

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

(a) Income recognized by Camco related to a technology transfer agreement with a
major defense contractor in Slovakia.

(b) Charges incurred by Camco related to severance and termination expenses and
legal fees and other charges related to antitrust litigation involving its
drill bit business.

(c) The Company changed to the accrual method of accounting for post retirement
benefits other than pensions effective January 1, 1993.

(d) Earnings per share for 1993 has been calculated based on the average common
equivalent shares outstanding subsequent to the Company's initial public
offering on December 10, 1993.

(e) Long-term debt in 1992 includes debt payable to Pearson Plc, Camco's parent
company prior to December 10, 1993.

13
<PAGE> 14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with "Selected
Financial Information" and the Consolidated Financial Statements, and related
notes thereto, included elsewhere herein.

GENERAL

Pricing for crude oil and natural gas continued to trend upward in 1996.
West Texas Intermediate ("WTI") crude prices averaged $3.75 per barrel higher
than 1995, or $22.16 for the year. U.S. natural gas prices averaged $2.52 per
MCF, in 1996, or 80 cents higher than the previous year. As a result of these
higher overall commodity prices, 1996 worldwide drilling activity increased,
after a slight decline in 1995. Average rig count activity is summarized in the
table below:

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
RIG COUNT
United States............................................... 779 723 775
Canada...................................................... 270 231 261
----- ----- -----
North America..................................... 1,049 954 1,036
International............................................... 792 759 734
----- ----- -----
Worldwide......................................... 1,841 1,713 1,770
----- ----- -----
</TABLE>

The international rig count increased for the second consecutive year, up
4% in 1996 to an average rig count of 792. Activity levels are expected to
increase in South America as western oil companies proceed to drill and develop
properties leased from government oil companies in 1996. The Company expects a
modest increase in overall worldwide drilling, completion and production
activities.

Oil production in the FSU continues to decline, representing a significant
opportunity for western companies to provide oilfield equipment and services to
increase production in that country. Since early 1994, only limited project
financing and hard currency has been available to fund oilfield equipment
purchases and the Company's sales, primarily of ESPs, have declined
significantly over the past three years, from a peak level in 1993.

In 1996, the Company recorded translation losses of $4.8 million, primarily
due to the devaluation of the Venezuelan bolivar in April 1996. In 1995,
translation losses were $5.7 million, including approximately $4 million due to
the devaluation of the bolivar in December 1995 and approximately $1 million due
to the significant devaluation of the naira in Nigeria. Additionally, during
1995 and 1996 the cumulative translation account, a component of stockholders'
equity, reflected gains of $.5 million and $7.1 million, respectively, primarily
due to the strengthening of the U.K. pound sterling versus the U.S. dollar. The
Company actively

14
<PAGE> 15

monitors foreign subsidiaries' net asset positions denominated in foreign
currencies and takes actions when appropriate under the circumstances to limit
its risk to currency fluctuation and devaluation.

The distribution of Camco's revenues by geographic region is shown below,
based upon the region in which equipment or services were sold or provided to
the customer:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
United States and Canada................................... $263.4 $234.6 $224.5
Europe (including FSU)..................................... 122.4 86.8 118.1
Middle East and Africa..................................... 116.9 89.8 98.1
Mexico and Central and South America....................... 112.0 118.3 88.2
Far East................................................... 58.0 65.6 61.2
------ ------ ------
$672.7 $595.1 $590.1
====== ====== ======
</TABLE>

See Note 10 to the Consolidated Financial Statements contained elsewhere in
this report for further information related to Camco's business segments and
revenues by geographic region. The information in Note 10 is based on the source
from which the equipment and services originated.

15
<PAGE> 16

RESULTS OF OPERATIONS

1996 COMPARED TO 1995

Consolidated revenues for 1996 increased $77.6 million, or 13%, from 1995
to a record $672.7 million. This increase reflects the overall increase in
worldwide drilling and completion activity and includes the effect of increased
revenues attributable to business acquisitions by the Company over the past two
years. Oilfield equipment revenues were up 15% to $568.3 million in 1996, led by
a 31% increase in completion product sales, particularly in the United States
and Canada, Middle East and Africa and the North Sea. ESP revenues increased
$29.8 million, or 14.6%, primarily due to higher sales in the United States,
Middle East and Africa and Europe, which included increased sales to the FSU and
additional sales resulting from the acquisition of Lasalle in September. In
addition, drill bit sales increased 7% to $193.3 million, with increased
revenues in most regions of the world. Oilfield services revenues were up 2.6%
to $104.4 million as an increase in coiled tubing revenues in Nigeria and
wireline revenues in the North Sea were somewhat offset by slightly lower coiled
tubing revenues in the United States.

Revenues in the United States and Canada increased $28.8 million, or 12.2%,
from $234.6 million in 1995 to $263.4 million in 1996. Increased Canadian
completion product sales by Site and a 14.5% increase in United States equipment
sales, reflecting overall activity increases, accounts for the majority of the
increased revenue. Revenues from sales outside of North America in 1996 were
$48.8 million higher than the previous year at $409.3 million. European sales
were up 41% compared to 1995, including a $12 million increase in ESP sales to
the FSU after two consecutive years of decline. North Sea revenues in 1996 also
were up significantly, primarily due to increased completion products and
services revenues, record PDC bit revenues and the addition of Lasalle late in
the third quarter. Revenues increased by more than 30% in the Middle East and
Africa, primarily due to higher sales of completion products and ESPs into that
region. Partially offsetting these revenue increases, Far East sales were
significantly lower compared to 1995, primarily due to decreased ESP sales and
lower completion products sales.

Gross margins increased $36.4 million to $269.2 million, or 40% of revenues
in 1996, from $232.8 million, or 39.1% of revenues in 1995. The majority of the
margin increase is attributable to higher revenues and better margins on
oilfield services resulting from cost reduction programs begun in previous
years.

Selling, general and administrative expenses ("SG&A") increased $13.1
million to $184 million, in line with the related revenue increase. SG&A as a
percentage of sales in 1996 was 1.4% lower than the previous year at 27.3% of
revenues as some of these expenses are not directly variable with revenues.
Translation losses in 1996 were $1 million less than the previous year at $4.8
million, favorably affecting consolidated operating profit.

Operating income increased $22.8 million, or 40.7% in 1996 to $78.8
million. Oilfield equipment operating income increased $25.7 million, oilfield
services operating income increased $4.4 million, partially offset by a $7.3
million increase in corporate expenses. Operating income from completion
products increased substantially, primarily due to the volume increase described
above, improved pricing in selected markets and lower manufacturing costs as a
result of higher throughput in its plants. Oilfield equipment operating income
was also higher due to increased rock bit sales into the premium international
markets. The increase in oilfield services operating income is primarily a
result of increased revenues and profitability attributable to higher wireline
activity in the North Sea and U.S. Gulf of Mexico. In addition, losses incurred
by the Company's coiled tubing joint venture in the FSU were $1.5 million less
than the previous year, as sales of condensate were sufficient to cover
operating expenses in the last half of 1996.

Net interest expense decreased $1.5 million from 1995 to $2.6 million for
the year. Lower borrowings on high interest rate bolivar debt in 1996 and lower
debt levels on the U.S. credit facility for 1996 accounted for most of the
decrease compared to 1995.

16
<PAGE> 17

1995 COMPARED TO 1994

Consolidated revenues increased from $590.1 million in 1994 to $595.1
million in 1995 despite difficult business conditions in several of the
Company's major international markets and an overall decline in worldwide
drilling activity. Oilfield equipment segment revenues increased $13.0 million,
or 2.7%, to $493.4 million in 1995, while oilfield services revenues decreased
$8.0 million, or 7.3%, to $101.7 million in 1995. The net increase in oilfield
equipment revenues was attributable to increased ESP and drill bit sales in
South America, an increase in ESP and cable sales in the Far East and an
increase in completion products sales in the United States and Canada. These
revenue increases were partially offset by a substantial decline in ESP and
cable sales to the FSU because of a lack of hard currency in that market to
purchase foreign equipment and services, a decrease in completion product sales
in the Far East as a result of the Company's strategy to focus its resources on
higher margin markets, and a decrease in drill bit sales in the United States
due to lower rig activity. Oilfield services revenues decreased primarily due to
the divestiture of S.T.O.P., the Company's safety service division, in the first
quarter of 1995.

Revenues in the United States and Canada increased reflecting higher
Canadian completion product sales by Site which was acquired in the first
quarter of 1995. Revenues increased 4.5% in the United States and Canada from
$224.5 million in 1994 to $234.6 million in 1995 despite a 3% decrease in U.S.
revenues due to lower activity levels this year. Revenues from sales outside of
the United States and Canada decreased slightly from $365.6 million in 1994 to
$360.5 million in 1995 as a 34% increase in product sales in South America was
offset by substantial declines in ESP sales to the FSU. The decline in ESP sales
in the FSU resulted in a significant decrease in European sales, despite
improved equipment sales in the North Sea. Middle East and Africa sales
decreased as an increase in drill bit sales to the Middle East and Africa were
more than offset by a decline in ESP and completion product sales in this
region. Mexico and Central and South America sales were up substantially,
reflecting increased drill bit and ESP sales to Venezuela, and to a lesser
extent, revenue increases in other South American countries, particularly
Colombia. Far East revenues increased in 1995, despite significantly lower
completion product sales, as a result of improved ESP and cable sales and sales
of drill bits throughout the region.

Gross margins increased $23.6 million to $232.8 million, or 39.1% of
revenues in 1995, from $209.2 million, or 35.4% of revenues, in 1994. Oilfield
equipment margins improved 4% in 1995 to approximately 45% of revenues due to
improved pricing in certain product lines and geographic regions, lower
manufacturing costs resulting from prior year cost reduction programs, and a
reduction in sales in highly competitive, tender bit markets such as the Far
East. Gross margins on oilfield services were 4.5% higher at 19.5% of revenues
in 1995, primarily due to a significant reduction in international service
costs.

SG&A increased $11.7 million in 1995 to $170.8 million, or 28.7% of
revenues. The majority of the increase is attributable to a higher proportion of
drill bit revenues, which have significantly higher selling and distribution
costs than the Company's other product lines. In addition, translation losses
were $1 million higher in 1995 at $5.7 million compared to $4.7 million in 1994.

Operating income increased $12.0 million, or 27.2%, from $44.0 million in
1994 to $56.0 million in 1995. This increase in operating income consisted of an
$8.5 million increase in oilfield equipment operating income and a $3.9 million
increase in oilfield services operating income, offset by a $.4 million increase
in Corporate expenses. The increase in oilfield equipment operating income was
attributable to increased drill bit sales reflecting higher overall
international activity levels, penetration of the international market by the
Company's roller cone bit products and increased sales of the Company's PDC
products. Additionally, operating income from completion products increased
substantially due to higher gross margins reflecting improved pricing, reduced
manufacturing costs, the Company's strategy to focus its resources on higher
margin markets, and the additional income resulting from the acquisition of Site
in the first quarter 1995. The increase in oilfield services operating income is
primarily due to the improvement in coiled tubing income as a result of the
reduced cost base in the Nigerian operations and improved pricing in the U.S.
operations. In addition, losses realized by the Company's coiled tubing joint
venture in Russia were $1.0 million less than the prior year. At December 31,
1995, the Company has guaranteed a bank loan of the venture which had an
outstanding balance of $2.1 million.

17
<PAGE> 18

Net interest expense in 1995 was slightly higher at $4.0 million compared
to 1994. In anticipation of the currency devaluation in Venezuela, the Company
increased its local borrowings during 1995. This increase in interest expense on
high interest rate bolivar debt offset the benefit of reduced interest in the
United States on lower net borrowings.

FINANCIAL CONDITION

Capital Resources and Liquidity

Net cash flows from operating activities were $104.7 million, $41.4 million
and $74.9 million in 1996, 1995 and 1994, respectively. Higher net income and a
decrease in working capital, after excluding the increase attributable to
acquisitions in 1996, accounts for most of the 1996 increase over 1995. Cash
flow from operating activities exceeded capital expenditure requirements in each
of the past three years and is anticipated to be sufficient to fund future
capital requirements.

Net cash outflows from investing activities were $77.2 million, $23.7
million and $23.6 million in 1996, 1995 and 1994, respectively. In addition to a
significant increase in capital expenditures in 1996, the Company used $46.4
million of cash to purchase Lasalle Engineering and the gas lift business from
Halliburton during 1996. Net cash outflows from financing activities were $20.2
million, $21.2 million and $45.3 million in 1996, 1995 and 1994, respectively.
Pursuant to a share repurchase plan instituted by the Company this year, Camco
bought back approximately 343,000 shares of its common stock, reserved and to be
used exclusively for employee benefit plans, for $13.4 million during the fourth
quarter of 1996.

The Company currently has an Unsecured Credit Facility with a group of
banks for $200 million consisting of a $75 million Term Loan and a $125 million
Revolving Loan Facility. Borrowings under the revolving credit facility are due
in December, 1997 and the term loan matures on December 7, 1998. Interest rates
on borrowings are LIBOR based. Under the Company's $200 million credit facility,
$83.1 million is committed at December 31, 1996. Total debt outstanding under
the credit facility was $80.0 million at both December 31, 1996 and 1995.
Borrowings under the revolving credit facility are expected to fluctuate with
seasonal changes and changes in the Company's financing needs.

In addition to customary representations, warranties, borrowing conditions,
affirmative covenants and events of default, the Credit Facility includes
financial covenants, with which Camco is in compliance, relating to maintenance
of a minimum level of net worth, maintenance of a minimum interest coverage
ratio, a maximum ratio of funded debt to total capital and limitations on
payment of dividends, fundamental changes in business, sales of assets, pledges
of assets, subsidiary indebtedness, mergers, consolidation and transactions with
affiliates.

The Company believes that the combination of its working capital, the
unused portion of the revolving credit facility and its cash flow from
operations should provide it with sufficient capital resources and liquidity to
meet its debt service requirements under the credit facility and manage its
business needs.

Requirements for Capital

Capital expenditures, excluding acquisitions, were $33.5 million, $25.9
million and $24.5 million in 1996, 1995 and 1994, respectively. Capital spending
increased in 1995 and 1996 as new contracts and business opportunities warranted
additional investments. The Company's service business and manufacturing
operations require an ongoing level of spending to maintain the Company's
productive assets, and new service contracts may require upgraded equipment to
meet job specifications and new safety requirements. Increased demand for leased
equipment, primarily ESPs, substantial refurbishment and upgrade of machine
tools in the completion products international plants, purchase of larger
diameter capability coiled tubing units and the continued refurbishment of the
rock bit plant in Singapore explains most of the increase. Capital expenditures
in 1997 are anticipated to increase to approximately $40 million, primarily due
to anticipated increases in spending for manufacturing machine tools and
additional service equipment required for contracts.

This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things,
the Company's prospects, developments and

18
<PAGE> 19

business strategies for its operations, all of which are subject to certain
risks, uncertainties and assumptions. These forward-looking statements are
identified by their use of terms and phrases such as "expect," "estimate,"
"project," "believe," and similar terms and phrases. These risks include,
changes in market conditions in the oil and gas industry, declines in prices of
oil and gas, political instability in foreign countries in which the Company
operates, currency fluctuations and contracts, in particular those in South
America, increased competition in the Company's markets, governmental
restrictions affecting oil and gas exploration, the ability of the Company to
integrate and realize anticipated synergies for its completed and pending
acquisitions, including that of PROP, the ability of the Company to achieve and
execute internal business plans, and the impact of any economic downturns and
inflation and other market factors affecting the demand and supply of oil and
gas and the products and services relating thereto. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those expected, estimated or
projected.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Camco International Inc.:

We have audited the consolidated balance sheets of Camco International Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 Camco
International Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 10, 1997

19
<PAGE> 20

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Sales..................................................... $503,235 $459,733 $466,620
Services.................................................. 169,497 135,398 123,483
-------- -------- --------
672,732 595,131 590,103
-------- -------- --------
COST AND EXPENSES:
Cost of sales............................................. 270,712 253,268 275,716
Cost of services.......................................... 132,809 109,031 105,198
-------- -------- --------
403,521 362,299 380,914
-------- -------- --------
Gross margin........................................... 269,211 232,832 209,189
Selling, general and administrative expenses.............. 183,985 170,840 159,140
Amortization of intangible assets......................... 6,460 6,022 6,036
-------- -------- --------
Operating income....................................... 78,766 55,970 44,013
Interest expense.......................................... 5,877 7,788 5,946
Interest income........................................... (3,303) (3,754) (2,020)
-------- -------- --------
Income before provision for income taxes.................. 76,192 51,936 40,087
Provision for income taxes................................ 25,684 15,618 11,614
-------- -------- --------
Net income................................................ $ 50,508 $ 36,318 $ 28,473
======== ======== ========
Earnings per share........................................ $ 2.03 $ 1.48 $ 1.13
======== ======== ========
Average common and common equivalent shares outstanding... 24,852 24,516 25,110
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

20
<PAGE> 21

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 41,179 $ 32,290
Accounts receivable, net of allowances of $14,054 and
$14,137................................................ 145,009 134,406
Inventories............................................... 160,088 137,953
Deferred income taxes..................................... 27,031 21,989
Prepaid expenses and other................................ 13,253 8,128
-------- --------
Total current assets.............................. 386,560 334,766
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net of depreciation.......... 135,455 133,858
INTANGIBLE ASSETS, net of amortization of $57,844 and
$51,384................................................... 214,826 181,262
OTHER....................................................... 12,173 11,381
-------- --------
Total assets...................................... $749,014 $661,267
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt........................................... $ -- $ 1,402
Current maturities of long-term debt...................... 10,345 10,777
Accounts payable.......................................... 39,234 29,847
Accrued liabilities....................................... 121,499 92,459
Income taxes payable...................................... 17,467 11,973
-------- --------
Total current liabilities......................... 188,545 146,458
-------- --------
LONG-TERM DEBT.............................................. 70,420 71,998
DEFERRED INCOME TAXES....................................... 3,564 7,045
OTHER LONG-TERM LIABILITIES................................. 47,266 37,948
-------- --------
Total liabilities................................. 309,795 263,449
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
authorized, 25,228,115 and 25,193,493 shares issued.... 252 252
Additional paid-in capital................................ 439,629 438,947
Retained earnings......................................... 41,070 (4,375)
Cumulative translation adjustment......................... (11,405) (18,576)
Treasury stock, 1,264,528 and 1,000,000 shares, at cost... (30,327) (18,430)
-------- --------
Total stockholders' equity........................ 439,219 397,818
-------- --------
Total liabilities and stockholders' equity........ $749,014 $661,267
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

21
<PAGE> 22

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK
------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993............... $250 $436,009 $(59,391) $(20,730) $ --
Net income............................. -- -- 28,473 -- --
Purchase of treasury stock............. -- -- -- -- (18,430)
Dividends to stockholders ($.20 per
share).............................. -- -- (4,953) -- --
Common stock issued pursuant to
employee stock plans................ 1 883 -- -- --
Currency translation adjustment........ -- -- -- 1,681 --
---- -------- -------- -------- --------
BALANCE, December 31, 1994............... 251 436,892 (35,871) (19,049) (18,430)
Net income............................. -- -- 36,318 -- --
Dividends to stockholders ($.20 per
share).............................. -- -- (4,822) -- --
Common stock issued pursuant to
employee stock plans................ 1 2,055 -- -- --
Currency translation adjustment........ -- -- -- 473 --
---- -------- -------- -------- --------
BALANCE, December 31, 1995............... 252 438,947 (4,375) (18,576) (18,430)
Net income............................. -- -- 50,508 -- --
Purchase of treasury stock............. -- -- -- -- (13,413)
Dividends to stockholders ($.20 per
share).............................. -- -- (4,852) -- --
Common stock issued pursuant to
employee stock plans................ -- 682 (211) -- 1,516
Currency translation adjustment........ -- -- -- 7,171 --
---- -------- -------- -------- --------
BALANCE, December 31, 1996............... $252 $439,629 $ 41,070 $(11,405) $(30,327)
==== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

22
<PAGE> 23

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 50,508 $ 36,318 $ 28,473
Adjustments to reconcile net income to net cash provided
by operating activities --
Gain from sale of assets.................................. (2,216) (2,022) --
Depreciation and amortization............................. 39,435 31,876 32,764
Benefit for deferred and other taxes...................... (8,699) (10,147) (1,506)
(Increase) decrease in accounts receivable................ (2,051) (13,238) 18,557
(Increase) decrease in inventories........................ (4,951) (3,745) 5,883
Increase (decrease) in accounts payable................... 803 (4,169) (13,574)
Increase in accrued liabilities........................... 22,359 8,700 108
Increase (decrease) in income taxes payable............... 4,058 (2,653) 2,004
Increase in other, net.................................... 5,411 505 2,228
-------- -------- --------
Net cash provided by operating activities......... 104,657 41,425 74,937
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (33,533) (25,883) (24,486)
Proceeds from sale of property, plant and equipment....... 2,737 7,903 889
Business acquisitions..................................... (46,373) (5,750) --
-------- -------- --------
Net cash used in investing activities............. (77,169) (23,730) (23,597)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in borrowings under term loan.................... (10,000) (10,000) (5,000)
Increase (decrease) in borrowings under revolving credit
facility............................................... 10,000 (5,000) (15,000)
Decrease in other debt.................................... (3,410) (2,792) (2,407)
Dividends paid to stockholders............................ (4,852) (4,822) (4,953)
Proceeds from exercise of stock options................... 1,463 1,453 498
Purchase of treasury stock................................ (13,413) -- (18,430)
-------- -------- --------
Net cash used in financing activities............. (20,212) (21,161) (45,292)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 1,613 (215) (784)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 8,889 (3,681) 5,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 32,290 35,971 30,707
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 41,179 $ 32,290 $ 35,971
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 2,574 $ 4,034 $ 3,609
Cash paid for income taxes................................ $ 31,963 $ 27,251 $ 11,480
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

23
<PAGE> 24

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Camco International Inc. and subsidiaries ("Camco" or the "Company")
manufactures products, and provides services to customers in the oil and gas
drilling, completion and production sectors of the oilfield services industry.
The consolidated financial statements include the accounts of the Company and
all of its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in 20
to 50 percent owned joint ventures where the Company exercises significant
influence over operating and financial policies are accounted for by the equity
method. All other investments are carried at cost, which does not exceed the
estimated net realizable value of such investments.

Use of Estimates

The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenue and expenses. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments purchased
with original maturities of three months or less to be cash equivalents. Such
investments are carried at fair value.

Inventories

Inventories, net of allowances, are valued at the lower of cost (first-in,
first-out or last-in, first-out) or market. Inventory costs consist of
materials, labor and plant overhead.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost and generally depreciated
on a straight-line basis over the estimated useful lives of the assets. The
estimated useful lives used in computing depreciation range from 10 to 30 years
for buildings and 3 to 10 years for machinery and equipment, including service
equipment. Expenditures for major additions and improvements are capitalized
while minor replacements, maintenance and repairs are charged to expense as
incurred. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts, and any
resulting gain or loss is included in the consolidated statements of operations.

Intangible Assets

Intangible assets is comprised primarily of goodwill which is amortized
over 20 to 40 years using the straight-line method. Camco's management
periodically evaluates recorded goodwill balances, net of accumulated
amortization, for impairment based on the undiscounted cash flows associated
with the asset compared to the carrying amount of that asset. Management
believes that there have been no events or circumstances which warrant revision
to the remaining useful life or affect the recoverability of goodwill in any of
its business units.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".
This standard requires an asset and liability approach for financial accounting
and income tax reporting based on enacted tax rates and laws in effect in the
years in which differences are expected to reverse.

24
<PAGE> 25

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition

The Company's revenues are composed of product sales and rental, service
and other revenues. The Company records product sales when the goods are sold to
a customer. Rental, service and other revenues are recorded as the services are
performed.

Foreign Currency Translation

The Company's financial statements of foreign subsidiaries are reported in
U.S. dollars based on the functional currency.

Foreign subsidiaries using the U.S. dollar as their functional currency
translate as follows: current assets (except inventories) and all liabilities
(except minority interests) at the rates of exchange in effect at year-end,
long-term assets and inventories at historical rates and minority interest at
the rates in effect at the dates provided. Revenue and expense accounts are
translated at the average rates of exchange in effect during the year, except
for depreciation and cost of manufactured products sold, which are translated at
historical rates. Translation adjustments are charged or credited directly to
operations.

Foreign subsidiaries using the local currency as their functional currency
translate into U.S. dollars using the current rate method. Assets and
liabilities are translated at the rates of exchange in effect at year-end,
common stock and paid-in capital are translated using historical rates and
revenue and expense accounts are translated at the average rates of exchange in
effect during the year. Translation adjustments are recorded as a separate
component of stockholders' equity rather than directly to operations.

Concentration of Credit Risk

The Company extends credit to various companies in the oil and gas industry
which may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit risk through credit
approvals and limits and, where appropriate, to be secured by collateral, and to
provide an allowance for doubtful accounts for potential losses. Management does
not believe the Company is exposed to concentrations of credit risk that are
likely to have a material impact on the Company's financial position or results
of operations.

Environmental Expenditures

Liabilities for environmental expenditures are recorded when it is probable
that obligations have been incurred and the costs can be reasonably estimated.
Estimates are based on currently available facts and technology, presently
enacted laws and regulations and the Company's prior experience in remediation
of contaminated sites.

Earnings Per Share

Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. There is no
significant difference between earnings per share on a primary and fully diluted
basis.

2. ACQUISITIONS AND DIVESTITURES

In March 1995, the Company acquired Site Oil Tools, a Canadian manufacturer
of completion equipment, for $5.8 million in a cash transaction.

In March 1995, the Company sold the assets of its safety service business,
S.T.O.P., in a cash transaction. The Company recognized net income of $1.5
million, or 6 cents per share, on the disposal.

25
<PAGE> 26

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In September 1996, the Company acquired Lasalle Engineering Limited for
$29.5 million in a cash transaction.

In December 1996, the Company acquired the gas lift business of
Halliburton, including their Venezuelan subsidiary, for $16.9 million in a cash
transaction.

The acquisitions discussed above were accounted for as purchases.

3. INVENTORIES

Inventories, net of allowances, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials............................................... $ 18,405 $ 17,013
Parts and components........................................ 48,300 37,983
Work in process............................................. 24,747 15,670
Finished goods.............................................. 68,636 67,287
-------- --------
$160,088 $137,953
======== ========
Inventories determined using the --
LIFO basis................................................ $ 38,107 $ 32,916
FIFO basis................................................ 121,981 105,037
-------- --------
$160,088 $137,953
======== ========
</TABLE>

Work in process and finished goods inventories include the cost of
materials, labor and plant overhead. The excess of current costs, determined
using the FIFO basis, over the carrying values of LIFO inventories was
approximately $11.9 million and $10.0 million at December 31, 1996 and 1995,
respectively.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Land........................................................ $ 3,891 $ 3,919
Buildings................................................... 63,918 61,259
Machinery and equipment..................................... 226,630 196,760
Service equipment........................................... 56,297 60,479
--------- ---------
350,736 322,417
Accumulated depreciation.................................... (215,281) (188,559)
--------- ---------
$ 135,455 $ 133,858
========= =========
</TABLE>

Total maintenance and repair expense for the years ended December 31, 1996,
1995 and 1994, was $16.4 million, $15.0 million, and $16.5 million,
respectively.

26
<PAGE> 27

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1995
-------- -------
<S> <C> <C>
Salaries, wages and related benefits........................ $ 42,979 $37,179
Accrued insurance........................................... 13,451 12,174
Accrued taxes other than income............................. 11,117 5,554
Other....................................................... 53,952 37,552
-------- -------
$121,499 $92,459
======== =======
</TABLE>

6. DEBT

Short-Term Debt

The Company retired all of its short-term debt in 1996. The prior year
balance consisted primarily of unsecured Venezuelan bank debt denominated in
bolivars, bearing interest rates from approximately 40% to 75%, with principal
outstanding of $1.4 million at December 31, 1995.

Long-Term Debt

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1995
------- -------
<S> <C> <C>
Term loan................................................... $50,000 $60,000
Revolving loan facility..................................... 30,000 20,000
Other....................................................... 765 2,775
------- -------
80,765 82,775
Less -- Current portion of long-term debt................... 10,345 10,777
------- -------
$70,420 $71,998
======= =======
</TABLE>

The Company has outstanding an Unsecured Credit Facility consisting of a
$75 million Term Loan and a $125 million Revolving Loan Facility of which up to
$25 million may be used for Letters of Credit. Semiannual principal payments of
$5 million are due on the Term Loan with a final payment due in 1998. The
outstanding balance of the Revolving Loan is due in 1997. The Company's policy
is to classify borrowings under the revolving credit facility as long-term debt
since the Company has a commitment with a commercial bank to refinance the
Revolving Loan, and intends to maintain these obligations for longer than one
year.

Interest rates on borrowings are LIBOR based. The weighted average interest
rate for the Term and Revolving loans was 6.15% during 1996 and 6.50% during
1995. The maximum and average Revolving Loan borrowings were $35.0 million and
$16.9 million, respectively, in 1996 and $30.0 million and $25.6 million,
respectively, in 1995. Outstanding Letters of Credit issued under the Credit
Facility were $3.1 million and $4.5 million at the end of 1996 and 1995. A fee
of 1/4% is paid on any unused balance of the Credit Facility. As of December
31, 1996, the Company had $91.9 million available under the Revolving Loan.

27
<PAGE> 28

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in business, sales of assets, pledges of assets, subsidiary indebtedness,
mergers, consolidation and transactions with affiliates.

Maturities of the Company's long-term debt at December 31, 1996, are as
follows (in thousands):

<TABLE>
<S> <C>
1997................................................ $10,345
1998................................................ 40,100
1999................................................ 120
2000................................................ 100
2001................................................ 100
Thereafter.......................................... 30,000
-------
$80,765
=======
</TABLE>

7. INCOME TAXES

Camco's domestic operations, and certain of its foreign branch operations
were included in the consolidated tax return of Pearson Inc., its former parent
company, through December 9, 1993. Subsequent to that date, Camco filed its own
U.S. consolidated Federal income tax return. Camco has a tax sharing agreement
with its former parent related to previous tax years from 1990 through 1993.
Pursuant to that agreement, Camco agreed to pay Pearson the amount of any
increase in such tax liability resulting from Internal Revenue Service action in
those years and Pearson agreed to pay Camco the amount of any decrease in such
liability that may arise during the same period. The Company believes that tax
provisions are adequate to cover any potential exposure related to those tax
years.

Income (loss) before provision (benefit) for income taxes and provision
(benefit) for income taxes composed of the following (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Income (loss) before provision (benefit) for income
taxes
United States....................................... $ 3,062 $ 12,025 $(1,171)
Non-United States................................... 73,130 39,911 41,258
------- -------- -------
$76,192 $ 51,936 $40,087
======= ======== =======
Provision for income taxes
Current
United States.................................... $13,283 $ 15,879 $ 2,193
Non-United States................................ 19,065 11,873 10,719
------- -------- -------
32,348 27,752 12,912
------- -------- -------
Deferred
United States.................................... (7,149) (12,824) (1,276)
Non-United States................................ 485 690 (22)
------- -------- -------
(6,664) (12,134) (1,298)
------- -------- -------
$25,684 $ 15,618 $11,614
======= ======== =======
</TABLE>

28
<PAGE> 29

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes in 1996 and 1995 reflect the impact of temporary
differences between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations. The
components of the net deferred tax asset (liability) are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 24,813 $ 20,473
Compensation and benefits................................. 11,873 10,889
Other..................................................... 10,005 10,287
-------- --------
46,691 41,649
Valuation allowance....................................... (19,660) (19,660)
-------- --------
27,031 21,989
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation...................... (3,523) (4,497)
Unremitted earnings of foreign affiliates................. -- (1,715)
Other..................................................... (41) (833)
-------- --------
(3,564) (7,045)
-------- --------
Net deferred tax asset...................................... $ 23,467 $ 14,944
======== ========
</TABLE>

The consolidated provision for income taxes differs from the provision
computed at the statutory U.S. Federal income tax rate for the following reasons
(in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Expected tax provision at U.S. statutory rate.......... $26,667 $18,177 $14,030
Non-U.S. income, taxed at less than U.S. statutory
rate................................................. (983) (2,693) (6,920)
Losses for which no tax benefit was received........... -- 134 4,504
------- ------- -------
$25,684 $15,618 $11,614
======= ======= =======
</TABLE>

Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $95.0 million at December 31, 1996. It is the
Company's current policy that these earnings, which reflect full provision for
non-U.S. income taxes, have no additional provision for U.S. taxes on foreign
subsidiaries earnings which are expected to be reinvested indefinitely. However,
additional income taxes have been provided on planned repatriations of foreign
earnings after taking into account tax-exempt earnings and applicable foreign
tax credits.

8. RETIREMENT AND EMPLOYEE BENEFIT PLANS

Retirement Plans

The Company and its subsidiaries have defined benefit retirement plans
covering substantially all employees. The total cost of all plans for 1996, 1995
and 1994 was $5.4 million, $5.2 million and $4.3 million, respectively.

Annual cost is determined using the projected unit credit actuarial method.
Prior-service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits. An
assumption is made for modified career average plans such that the average
earnings base period will be updated to the years prior to retirement.

It is the Company's practice to fund amounts for pension sufficient to meet
the minimum requirements set forth in applicable employee benefit and tax laws
and such additional amounts as the Company may

29
<PAGE> 30

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determine to be appropriate from time to time. The assets of the various plans
include corporate equities, government securities and corporate debt securities.

The funded status at December 31 was as follows (in thousands):

<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
------------------- ---------------
1996 1995 1996 1995
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation............................ $ 58,839 $ 51,665 $5,550 $3,873
======== ======== ====== ======
Accumulated benefit obligation....................... $ 61,285 $ 54,916 $5,804 $4,050
======== ======== ====== ======
Projected benefit obligation......................... $ 75,626 $ 71,409 $7,642 $5,334
Plan assets at fair value.............................. 63,936 57,853 8,182 4,923
-------- -------- ------ ------
Projected benefit obligation in excess of Plan
assets............................................... (11,690) (13,556) 540 (411)
Unrecognized net loss.................................. 2,284 6,589 51 561
Unrecognized prior-service cost........................ 2,871 3,057 -- --
Additional liability................................... (2,400) (2,657) -- --
-------- -------- ------ ------
(Accrued) prepaid pension cost recognized in the
consolidated balance sheets.......................... $ (8,935) $ (6,567) $ 591 $ 150
======== ======== ====== ======
</TABLE>

Net periodic pension cost for the years ended December 31 included the
following components (in thousands):

<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
--------------------------- ---------------------
1996 1995 1994 1996 1995 1994
------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Service cost, benefits earned during the
period................................ $ 3,695 $ 3,573 $ 3,086 $ 793 $ 677 $ 550
Interest cost on the projected benefit
obligation............................ 5,341 4,747 4,189 525 361 178
Actual return on plan assets............ (5,272) (4,578) (4,369) (544) (407) (178)
Net amortization........................ 890 871 795 2 -- --
------- ------- ------- ----- ----- -----
Net periodic pension cost............... $ 4,654 $ 4,613 $ 3,701 $ 776 $ 631 $ 550
======= ======= ======= ===== ===== =====
</TABLE>

All defined benefit pension plans sponsored by the Company are funded to
the extent required by Federal regulation in each of the years ended December
31, 1996, 1995 and 1994. The assumed long-term rate of return on plan assets was
9.0 percent, the discount rate used in estimating benefit obligations was 8.0
percent and the rate of compensation increase assumed for salary-related plans
was 6.5 percent.

Included in the above tables is the funded status and net periodic pension
cost of Camco's deferred compensation plan (the "DC Plan"). Under the DC Plan,
certain officers and selected key management personnel of the Company may
receive an amount upon retirement at age 65 equal to (x) an award level for such
individual as determined by the Board (up to a maximum of 60%) multiplied by the
average of the individual's highest five consecutive years earnings (including
bonuses up to a maximum of 20% of base pay each year) out of the last ten
consecutive years before retirement minus (y) the sum of the individual's
benefits under the pension plan and other tax-qualified plans sponsored by the
individual's former employers. An individual's benefits under the DC Plan vest
on the earliest of the date the individual completes ten years of service, the
individual's death or age 65. Benefits are subject to adjustment for early
retirement (before age 65).

30
<PAGE> 31

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Thrift Plan

All U.S. employees are eligible to participate in the Company sponsored
Thrift Plan. The Plan allows eligible employees to contribute up to 15% of
compensation, subject to IRS and plan limitations, on a pre-tax basis and up to
10% of compensation on an after-tax basis. Employee pre-tax contributions are
matched by the Company at the rate of 50 cents per every dollar contributed, up
to an annual maximum Company match of $1,500 per year. The Company match vests
at 20% per year and is fully vested after five years of service. The annual
expense recognized by the Company for the matching contribution was $2.0
million, $1.6 million and $1.8 million in 1996, 1995 and 1994, respectively.

Nonpension Postretirement Benefits

The Company offers a postretirement medical plan to substantially all
employees in the United States over age 60 who qualify for retirement and, on
the last day of active employment, are enrolled as participants in Company
medical plans for active employees. Participants under age 65 are required to
pay the full average actual cost of providing benefits to active and retired
employees. Participants age 65 and older contribute approximately 30 percent of
the actual cost of providing benefits to active and retired employees. Total
benefits provided over the lifetime of participants after they reach age 65 are
limited to $100,000 per participant.

The expected cost of providing nonpension postretirement benefits is
accrued during the years employees render service in accordance with SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
The discount rate used in determining SFAS No. 106 costs and future obligations
was 8.0 percent in 1996 and 1995 and 7.5 percent in 1994. The assumed health
care cost trend rate was 9.0 percent in 1996, 10.0 percent in 1995 and 12.0
percent in 1994, scaling to 6.0 percent over six years. A one percent increase
in the trend rate for health care costs would increase the accumulated
postretirement benefit obligation by approximately 7.0 percent and the service
and interest cost by approximately 7.4 percent. The Company is not required to
fund its future obligation under the plan and does not intend to, unless
favorable tax treatment becomes available.

Accumulated postretirement benefit obligation in excess of plan assets is
classified in the accompanying balance sheets as other long-term liabilities and
consists of the following as of December 31 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1995
------- -------
<S> <C> <C>
Retirees and beneficiaries.................................. $ 6,421 $10,020
Fully eligible participants................................. 2,542 3,664
Other active participants................................... 3,339 4,064
Unrecognized net gain....................................... 6,158 764
------- -------
Total............................................. $18,460 $18,512
======= =======
</TABLE>

Net periodic postretirement cost for the years ended December 31, are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Service cost................................................ $ 314 $ 375 $ 533
Interest cost............................................... 919 1,337 1,258
Amortization of unrecognized gain........................... (451) -- --
----- ------ ------
Total............................................. $ 782 $1,712 $1,791
===== ====== ======
</TABLE>

31
<PAGE> 32

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Management Incentive Programs

The Company has an incentive bonus plan (the "Management Bonus Program") in
which selected key employees, including executive officers, are eligible to
receive cash bonus payments based on measures of profitability and cash flow of
the Company and various units of the Company which are established and approved
by the Board of Directors for each participant in the program at the beginning
of each year. A minimum performance level must be achieved by the Company or a
particular unit of the Company before any bonus may be earned.

Stock Plans

The Company has a long-term incentive plan (the "Incentive Plan") which
provides for the granting of options and issuance of restricted stock to
officers and key employees. There are 1,750,000 shares reserved for issuance
under the Incentive Plan. Through December 31, 1996 options covering 1,174,750
shares of common stock have been granted under this plan. The option price per
share is equal to the fair market value of a Company share on the date of grant,
with an exercise price range from $15.00 to $28.70, and a weighted average
exercise price at grant date of $20.70. The term of each option is ten years and
the options are exercisable in either three or four equal annual installments
beginning on the first anniversary of the date of grant. Weighted average
remaining contractual life approximates seven years.

On December 10, 1993, options covering 208,185 shares of Common Stock were
granted under the Incentive Plan to Company employees who agreed to forfeit
options to acquire Pearson ordinary shares granted in 1992. The options became
exercisable in 1994 and have a term of ten years. These options were granted at
an exercise price of $8.46 resulting in a charge to income of $.8 million in
1994.

The Non-employee Directors Stock Option Plan was approved by the sole
stockholder of the Company on December 9, 1993. On May 14, 1996 the Stockholders
of the Company approved the amendments to the Stock Option Plan for non-employee
directors to increase the number of shares reserved from 100,000 to 250,000 for
the nonqualified stock options. Through December 31, 1996 options consisting of
95,998 shares of common stock have been granted under this plan. The option
price per share is equal to the fair market value of a Company share on the date
of grant. The exercise price at grant date ranges from $15.00 to $33.80, with a
weighted average exercise price at grant date of $31.40. The term of each option
is ten years and the options are exercisable generally in three equal annual
installments beginning on the first anniversary of the date of grant, assuming
continued service on the Board. Weighted average contractual life remaining
approximates nine years.

32
<PAGE> 33

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information regarding the Company's stock option plans is summarized below:

<TABLE>
<CAPTION>
WEIGHTED-
SHARES UNDER AVERAGE
OPTION EXERCISE PRICE
------------ --------------
<S> <C> <C>
Balance at December 31, 1993.............................. 526,185 $12.41
Granted................................................. 436,750 17.28
Exercised............................................... (58,917) 8.46
---------
Balance at December 31, 1994.............................. 904,018 15.03
Granted................................................. 30,000 22.83
Exercised............................................... (134,576) 10.79
Canceled................................................ (58,000) 16.09
---------
Balance at December 31, 1995.............................. 741,442 16.01
Granted................................................. 485,998 29.53
Exercised............................................... (103,937) 14.07
Canceled................................................ (4,875) 17.45
---------
Balance at December 31, 1996.............................. 1,118,628 18.25
=========
Available for grant at December 31, 1996.................. 351,442
=========
Shares exercisable at December 31, 1996................... 267,723 17.44
=========
</TABLE>

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for awards in 1995 and
1996 consistent with the provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income -- as reported................................... $50,508 $36,318
Net income -- pro forma..................................... 48,700 36,279
Earnings per share -- as reported........................... 2.03 1.48
Earnings per share -- pro forma............................. 1.96 1.48
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: expected
divided yield of 0.8%; expected stock price volatility range of 27.6% to 29.1%;
risk-free interest rate range of 6.1% to 7.2%; and expected lives of 10 years.

The ranges of option fair values granted during 1996 and 1995, are from
$13.98 to $18.39 and from $10.85 to $11.54, respectively. The weighted average
of these fair values are $14.53 and $11.32, respectively.

33
<PAGE> 34

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options exercisable at December 31, 1996 and related weighted average
exercise price and life information follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE REMAINING
OPTIONS EXERCISE LIFE
GRANT DATE EXERCISABLE EXERCISE PRICE PRICE (YEARS)
---------- ----------- ---------------- -------- -----------
<S> <C> <C> <C> <C>
12/14/94............................. 134,054 $17.25 $17.25 8
12/10/93............................. 86,151 $15.00 15.00 7
12/10/93............................. 18,275 $ 8.46 8.46 7
All other............................ 29,243 $19.75 to $34.94 31.09 9
</TABLE>

The Company's Incentive Plan authorizes the granting of restricted stock
awards. Under the plan, 104,500 shares of restricted stock were awarded to
Company executive officers and other key employees that will vest over periods
ranging from three to five years based upon the completion of specified periods
of future service with the Company. In addition, 135,000 restricted shares of
Common Stock were awarded to executive officers and other key employees and
approximately 119,000 shares have been earned based upon the attainment of
specified performance objectives and will vest over the next year. Compensation
is being charged to income over the vesting period for these awards which
resulted in expense recognition of $2.3 million, $1.7 million and $1.2 million
in 1996, 1995 and 1994, respectively.

9. COMMITMENTS AND CONTINGENCIES

Operating Leases

Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year as of December 31, 1996, are as follows
(in thousands):

<TABLE>
<S> <C>
1997........................................................ $ 5,331
1998........................................................ 3,407
1999........................................................ 2,377
2000........................................................ 1,817
2001........................................................ 1,305
Thereafter.................................................. 12,857
-------
$27,094
=======
</TABLE>

The Company incurred total rental expense of approximately $9.0 million,
$8.8 million and $9.0 million in 1996, 1995 and 1994, respectively.

Legal Proceedings

The Company is involved in certain lawsuits and claims, including claims by
Federal and local authorities under various environmental protection laws,
arising in the normal course of business. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.

34
<PAGE> 35

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign Exchange Contracts

Camco enters into a variety of foreign exchange contracts to manage its
exposure to fluctuations in foreign currency exchange rates. These contracts
generally involve the exchange of one currency for another at a future date. The
carrying value of these contracts at December 31, 1996 and 1995 approximated
fair value based on exchange rates and quoted market prices at December 31, 1996
and 1995 for comparable contracts, and was not significant.

Stockholder Rights Agreement

The Company has a Stockholder Rights Agreement to protect against coercive
or unfair takeover tactics. Under the terms of the agreement, the Company
distributed to its stockholders one right for each share of Common Stock held.

Each right entitles the holder to purchase one share of Common Stock for
$65 per share, subject to adjustment or, under certain circumstances, to
purchase stock of the Company or of the acquiring entity for one half of the
market value. The rights are exercisable only if a person or group acquires 15%
or more of the Company's Common Stock or makes a tender offer for 15 percent or
more of the Common Stock. The rights expire on December 15, 2004.

Stock Repurchase Plan

In 1996, the Board of Directors authorized a stock repurchase program for
up to $20 million of the Company's Common Stock. Shares of the Company's Common
Stock purchased pursuant to the program are reserved and used exclusively for
employee benefit plans. During the fourth quarter of 1996, the Company purchased
342,600 shares of the Company's stock in the open market, at an average price of
approximately $38.60 per share for an aggregate amount of $13.4 million.

10. SEGMENT INFORMATION

The Company is a diversified international energy service and manufacturing
company that provides a variety of services and equipment to the oil and gas
industry.

Revenues by industry segment and geographic area include both revenues from
unaffiliated customers and intercompany revenues from related companies. The
price at which intercompany sales are made is generally based on the selling
price to unaffiliated customers, less a discount, or the direct product cost
plus a markup.

Export sales from the United States to other geographic areas, including
intercompany sales to foreign subsidiaries, are as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Europe (including Former Soviet Union)............... $ 43,218 $ 33,519 $ 39,365
Mexico and Central and South America................. 79,978 86,857 57,436
Far East............................................. 28,610 30,002 45,725
Middle East and Africa............................... 25,610 17,670 22,744
Canada............................................... 19,557 16,120 22,396
-------- -------- --------
$196,973 $184,168 $187,666
======== ======== ========
</TABLE>

35
<PAGE> 36

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following financial information by geographic region for the years
ended December 31, 1996, 1995 and 1994, is based on the source from which the
equipment and services originate (in thousands):

<TABLE>
<CAPTION>
ADDITIONAL OPERATING
OUTSIDE INTERCOMPANY INCOME IDENTIFIABLE
REVENUES REVENUES (LOSS) ASSETS
-------- ------------ --------- ------------
<S> <C> <C> <C> <C>
1996
USA and Canada................................. $359,576 $ 114,950 $ 24,039 $342,145
Europe (including Former Soviet Union)......... 136,851 27,182 21,148 134,036
Middle East and Africa......................... 14,541 -- 3,705 18,092
Mexico and Central and South America........... 60,950 207 7,182 47,385
Far East....................................... 100,814 53,300 32,761 207,356
Eliminations................................... -- (195,639) (10,069) --
-------- --------- -------- --------
Consolidated........................... $672,732 $ -- $ 78,766 $749,014
======== ========= ======== ========
1995
USA and Canada................................. $314,194 $ 110,397 $ 26,662 $308,011
Europe (including Former Soviet Union)......... 103,361 17,002 6,988 84,478
Middle East and Africa......................... 10,833 -- 1,667 14,807
Mexico and Central and South America........... 65,777 -- 1,271 36,077
Far East....................................... 100,966 37,070 22,552 217,894
Eliminations................................... -- (164,469) (3,170) --
-------- --------- -------- --------
Consolidated........................... $595,131 $ -- $ 55,970 $661,267
======== ========= ======== ========
1994
USA and Canada................................. $304,715 $ 117,388 $ 18,808 $292,488
Europe (including Former Soviet Union)......... 86,691 12,860 1,715 82,893
Middle East and Africa......................... 14,719 190 (2,596) 12,407
Mexico and Central and South America........... 52,152 544 1,995 43,271
Far East....................................... 131,826 34,892 34,431 203,463
Eliminations................................... -- (165,874) (10,340) --
-------- --------- -------- --------
Consolidated........................... $590,103 $ -- $ 44,013 $634,522
======== ========= ======== ========
</TABLE>

36
<PAGE> 37

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information for industry segments is as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING DEPRECIATION
OUTSIDE INCOME IDENTIFIABLE AND CAPITAL
REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
Oilfield equipment................. $568,314 $ 87,893 $616,404 $31,473 $28,001
Oilfield services.................. 104,418 11,624 48,125 7,054 5,370
Corporate.......................... -- (20,751) 84,485 908 162
-------- -------- -------- ------- -------
Consolidated............... $672,732 $ 78,766 $749,014 $39,435 $33,533
======== ======== ======== ======= =======
1995
Oilfield equipment................. $493,397 $ 62,209 $532,981 $23,574 $20,766
Oilfield services.................. 101,734 7,236 51,957 7,690 4,802
Corporate.......................... -- (13,475) 76,329 612 315
-------- -------- -------- ------- -------
Consolidated............... $595,131 $ 55,970 $661,267 $31,876 $25,883
======== ======== ======== ======= =======
1994
Oilfield equipment................. $480,428 $ 53,726 $514,554 $23,535 $17,864
Oilfield services.................. 109,675 3,333 60,655 8,669 6,602
Corporate.......................... -- (13,046) 59,313 560 20
-------- -------- -------- ------- -------
Consolidated............... $590,103 $ 44,013 $634,522 $32,764 $24,486
======== ======== ======== ======= =======
</TABLE>

11. UNAUDITED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1996
Revenues.......................... $145,524 $163,540 $167,303 $196,365 $672,732
Gross margin...................... 59,135 66,016 66,350 77,710 269,211
Income before provision for income
taxes.......................... 15,046 17,397 19,664 24,085 76,192
Net income........................ 10,231 11,480 12,918 15,879 50,508
Earnings per share................ $ 0.41 $ 0.46 $ 0.52 $ 0.64 $ 2.03
======== ======== ======== ======== ========
1995
Revenues.......................... $139,783 $134,751 $149,192 $171,405 $595,131
Gross margin...................... 55,886 53,709 58,737 64,500 232,832
Income before provision for income
taxes.......................... 13,956 9,373 13,237 15,370 51,936
Net income........................ 10,089 6,756 9,268 10,205 36,318
Earnings per share................ $ 0.41 $ 0.28 $ 0.37 $ 0.42 $ 1.48
======== ======== ======== ======== ========
</TABLE>

37
<PAGE> 38

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)

38
<PAGE> 39

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Camco International Inc.:

We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Camco International Inc. (a Delaware
Corporation) and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1996, included in this
Form 10-K and have issued our report thereon dated February 10, 1997. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Financial statement Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This financial statement schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Houston, Texas
February 10, 1997

39
<PAGE> 40

CAMCO INTERNATIONAL INC. AND SUBSIDIARIES

SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
CLASSIFICATION OF YEAR EXPENSE DEDUCTIONS YEAR
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS DEDUCTED FROM
ACCOUNTS RECEIVABLE IN THE BALANCE SHEETS:
Year ended December 31, 1996................... $14,137 $2,761 $(2,844) $14,054
Year ended December 31, 1995................... 14,424 3,537 (3,824) 14,137
Year ended December 31, 1994................... 15,749 1,415 (2,740) 14,424
</TABLE>

40
<PAGE> 41

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

For certain information concerning directors and executive officers of the
Company, reference is made to the information included under the captions
"Proposal 1: Election of Three Directors", "Executive Officers" and "Compliance
with Section 16(a) of the Securities Exchange Act" included in the definitive
Proxy Statement, which relates to the Annual Meeting of Stockholders of the
Company to be held on May 20, 1997 (the "Proxy Statement"), to be filed within
120 days after the close of the fiscal year, which information is incorporated
herein by such reference.

ITEM 11. EXECUTIVE COMPENSATION.

For information concerning this Item, reference is made to the captions
"Compensation of Directors", "Executive Compensation Committee Report",
"Executive Compensation", "Retirement Plans", "Nicholson Employment Agreement",
"Executive Severance Agreements", "Performance Presentation", and "Compensation
Committee Interlocks, Insider Participation and Certain Transactions" in the
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

For information concerning this Item, reference is made to the captions
"Principal Stockholders", "Security Ownership of Management" and "Change of
Control" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information concerning this Item, reference is made to the
"Compensation Committee Interlocks, Insider Participation and Certain
Transactions" in the Proxy Statement.

PART IV

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

(a) Exhibits, Financial Statements and Financial Statement Schedules.

(1) and (2) Financial Statements and Financial Statement Schedules
Consolidated Financial Statements and related Schedule II of the Company are
included in Item 8 (Consolidated Financial Statements and Supplementary Data).
All other schedules for the Company have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements or the notes thereto.

41
<PAGE> 42

(3) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Reorganization Agreement (incorporated by reference to
Exhibit No. 2.1 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
2.2 -- Agreement and Plan of Merger dated as of February 27,
1997, by and among Camco International Inc., Plane
Acquisition Corp. and Production Operators Corp.
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on March 7,
1997)
2.3 -- Irrevocable Proxy dated February 27, 1997 (incorporated
by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K filed on March 7, 1997).
3.1 -- Restated Certificate of Incorporation (incorporated by
reference to Exhibit No. 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
3.2 -- By-laws (incorporated by reference to Exhibit No. 3.4 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of Common Stock.
4.2 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit No. 4.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
4.3 -- Rights Agreement dated as of December 15, 1994, between
Camco International Inc. and First Chicago Trust Company
of New York, as Rights Agent, which includes as exhibits,
the form of Right Certificate and the Summary of Rights
to Purchase Common Shares (incorporated by reference to
Exhibit No. 1 to the Company's Registration Statement on
Form 8-A dated December 19, 1994).
10.1* -- Nonemployee Directors Stock Option Plan as amended
(incorporated by reference to Exhibit No. 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996)).
10.2* -- Deferred Compensation Plan (incorporated by reference to
Exhibit No. 10.2 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-83562)).
10.3* -- Long-Term Incentive Plan of Camco International Inc.
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.4* -- Description of Management Bonus Program (incorporated by
reference to Exhibit No. 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.5* -- Letter Agreement between the Company and Gary Nicholson
(incorporated by reference to Exhibit No. 10.5 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.6* -- Form of Executive Severance Agreement (incorporated by
reference to Exhibit No. 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.7* -- Form of First Amendment to Executive Severance Agreement
(incorporated by reference to Exhibit No. 10.7 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-83562)).
10.8 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit No. 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
</TABLE>

42
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.9 -- Reed Hourly Thrift Plan, as amended (incorporated by
reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-18129)).
10.10 -- Tax Allocation Agreement (incorporated by reference to
Exhibit No. 10.9 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
10.11 -- U.S. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.10 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.12 -- U.K. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.11 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.13 -- Credit Facility dated December 7, 1993 (incorporated by
reference to Exhibit No. 10.12 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.14 -- First Amendment to Credit Facility dated August 29, 1994
(incorporated by reference to Exhibit No. 10.14 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-83562)).
10.15 -- Amended, Restated and Consolidated Lease Agreement dated
as of May 7, 1990, between the City of Bartlesville,
Oklahoma, and Reda, a division of Camco International
Inc. (incorporated by reference to Exhibit No. 10.13 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.16 -- Lease dated September 12, 1994, between Jurong Town
Corporation and Reda Pump Company (Singapore) Private
Limited (incorporated by reference to Exhibit No. 10.14
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.17 -- Building Agreement dated May 12, 1983, between Jurong
Town Corporation and Reed Rock Bit Company International,
Ltd. (incorporated by reference to Exhibit No. 10.15 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.18 -- 999 Year Lease dated November 7, 1988, between The
Department of Economic Development and Camco Limited
(incorporated by reference to Exhibit No. 10.16 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.19 -- Amended and Restated Joint Venture Agreement dated July
7, 1993, between Reda Industries Ltd. and P.T. Imeco
Inter Sarana (incorporated by reference to Exhibit No.
10.17 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70036)).
10.20 -- Joint Venture Agreement dated June 23, 1990, between
Camco Soviet Services Limited, Tyumengastechnology and
Urengoigasprom (incorporated by reference to Exhibit No.
10.18 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70036)).
10.21 -- Agreement for Technology Transfer, Grant For License, and
the Sale of Manufacturing Know-How and Technical
Assistance dated December 5, 1991, between the Reda
Division of Camco International Inc., Reda Pump Company
(Singapore) Private Ltd., the Lawrence Technology
Division of Camco International Inc. and Zavody Tazkeho
Strojarstva, Dubnica Nad Vahom (incorporated by reference
to Exhibit No. 10.19 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.22* -- Forms of Restricted Share Agreements (incorporated by
reference to Exhibit No. 10.22 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
</TABLE>

43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.23 -- Lease Agreement dated July 9, 1979, between the State of
Alaska Department of Natural Resources, Division of
Forest, Land and Water Management and Camco Wireline,
Inc. (incorporated by reference to Exhibit No. 10.23 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-83562)).
10.24 -- Stock Purchase Agreement between the Company and Pearson
Inc. (incorporated by reference to Exhibit No. 10.24 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-83562)).
10.25 -- Camco Thrift Plan, as amended (incorporated by reference
to Exhibit No. 4.6 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-09299)).
10.26 -- Camco 1996 Savings Related Share Option Scheme
(incorporated by reference to Exhibit No. 4.6 to the
Company's Registration Statement on Form S-8 (Reg No.
333-14817)).
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>

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

* Management Contract or Incentive Program.

As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Annual Report certain instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.

(b) No reports on Form 8-K were filed by the Company during the fourth
quarter of 1996.

44
<PAGE> 45

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, on March 17, 1997.

CAMCO INTERNATIONAL INC.

By: /s/ GARY D. NICHOLSON
------------------------------------
Gary D. Nicholson
Chairman of the Board, President and
Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
to the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ GARY D. NICHOLSON Chairman of the Board, March 17, 1997
------------------------------------------------- President, and Chief Executive
Gary D. Nicholson Officer
(Principal Executive Officer)

/s/ HERBERT S. YATES Senior Vice President -- Finance March 17, 1997
------------------------------------------------- and Chief Financial Officer
Herbert S. Yates (Principal Financial Officer)

/s/ BRUCE F. LONGAKER JR. Vice President -- Finance March 17, 1997
------------------------------------------------- and Corporate Controller
Bruce F. Longaker Jr. (Principal Accounting Officer)

/s/ HUGH H. GOERNER Director March 17, 1997
-------------------------------------------------
Hugh H. Goerner

/s/ ROBERT L. HOWARD Director March 17, 1997
-------------------------------------------------
Robert L. Howard

/s/ WILLIAM J. JOHNSON Director March 17, 1997
-------------------------------------------------
William J. Johnson

/s/ WILLIAM A. KRAUSE Director March 17, 1997
-------------------------------------------------
William A. Krause

/s/ CHARLES P. SIESS, JR. Director March 17, 1997
-------------------------------------------------
Charles P. Siess, Jr.

/s/ GILBERT H. TAUSCH Director March 17, 1997
-------------------------------------------------
Gilbert H. Tausch
</TABLE>

45
<PAGE> 46

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
2.1 -- Reorganization Agreement (incorporated by reference to
Exhibit No. 2.1 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
2.2 -- Agreement and Plan of Merger dated as of February 27,
1997, by and among Camco International Inc., Plane
Acquisition Corp. and Production Operators Corp.
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on March 7,
1997)
2.3 -- Irrevocable Proxy dated February 27, 1997 (incorporated
by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K filed on March 7, 1997).
3.1 -- Restated Certificate of Incorporation (incorporated by
reference to Exhibit No. 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
3.2 -- By-laws (incorporated by reference to Exhibit No. 3.4 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of Common Stock.
4.2 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit No. 4.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
4.3 -- Rights Agreement dated as of December 15, 1994, between
Camco International Inc. and First Chicago Trust Company
of New York, as Rights Agent, which includes as exhibits,
the form of Right Certificate and the Summary of Rights
to Purchase Common Shares (incorporated by reference to
Exhibit No. 1 to the Company's Registration Statement on
Form 8-A dated December 19, 1994).
10.1* -- Nonemployee Directors Stock Option Plan as amended
(incorporated by reference to Exhibit No. 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996)).
10.2* -- Deferred Compensation Plan (incorporated by reference to
Exhibit No. 10.2 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-83562)).
10.3* -- Long-Term Incentive Plan of Camco International Inc.
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.4* -- Description of Management Bonus Program (incorporated by
reference to Exhibit No. 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.5* -- Letter Agreement between the Company and Gary Nicholson
(incorporated by reference to Exhibit No. 10.5 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.6* -- Form of Executive Severance Agreement (incorporated by
reference to Exhibit No. 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.7* -- Form of First Amendment to Executive Severance Agreement
(incorporated by reference to Exhibit No. 10.7 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-83562)).
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
10.8 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit No. 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.9 -- Reed Hourly Thrift Plan, as amended (incorporated by
reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-18129)).
10.10 -- Tax Allocation Agreement (incorporated by reference to
Exhibit No. 10.9 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
10.11 -- U.S. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.10 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.12 -- U.K. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.11 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.13 -- Credit Facility dated December 7, 1993 (incorporated by
reference to Exhibit No. 10.12 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.14 -- First Amendment to Credit Facility dated August 29, 1994
(incorporated by reference to Exhibit No. 10.14 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-83562)).
10.15 -- Amended, Restated and Consolidated Lease Agreement dated
as of May 7, 1990, between the City of Bartlesville,
Oklahoma, and Reda, a division of Camco International
Inc. (incorporated by reference to Exhibit No. 10.13 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.16 -- Lease dated September 12, 1994, between Jurong Town
Corporation and Reda Pump Company (Singapore) Private
Limited (incorporated by reference to Exhibit No. 10.14
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.17 -- Building Agreement dated May 12, 1983, between Jurong
Town Corporation and Reed Rock Bit Company International,
Ltd. (incorporated by reference to Exhibit No. 10.15 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.18 -- 999 Year Lease dated November 7, 1988, between The
Department of Economic Development and Camco Limited
(incorporated by reference to Exhibit No. 10.16 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.19 -- Amended and Restated Joint Venture Agreement dated July
7, 1993, between Reda Industries Ltd. and P.T. Imeco
Inter Sarana (incorporated by reference to Exhibit No.
10.17 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70036)).
10.20 -- Joint Venture Agreement dated June 23, 1990, between
Camco Soviet Services Limited, Tyumengastechnology and
Urengoigasprom (incorporated by reference to Exhibit No.
10.18 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70036)).
10.21 -- Agreement for Technology Transfer, Grant For License, and
the Sale of Manufacturing Know-How and Technical
Assistance dated December 5, 1991, between the Reda
Division of Camco International Inc., Reda Pump Company
(Singapore) Private Ltd., the Lawrence Technology
Division of Camco International Inc. and Zavody Tazkeho
Strojarstva, Dubnica Nad Vahom (incorporated by reference
to Exhibit No. 10.19 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
10.22* -- Forms of Restricted Share Agreements (incorporated by
reference to Exhibit No. 10.22 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.23 -- Lease Agreement dated July 9, 1979, between the State of
Alaska Department of Natural Resources, Division of
Forest, Land and Water Management and Camco Wireline,
Inc. (incorporated by reference to Exhibit No. 10.23 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-83562)).
10.24 -- Stock Purchase Agreement between the Company and Pearson
Inc. (incorporated by reference to Exhibit No. 10.24 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-83562)).
10.25 -- Camco Thrift Plan, as amended (incorporated by reference
to Exhibit No. 4.6 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-09299)).
10.26 -- Camco 1996 Savings Related Share Option Scheme
(incorporated by reference to Exhibit No. 4.6 to the
Company's Registration Statement on Form S-8 (Reg No.
333-14817)).
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>

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

* Management Contract or Incentive Program.

<PAGE> 1
EXHIBIT 21.1

CAMCO INTERNATIONAL INC.
CORPORATE STRUCTURE
AS OF DECEMBER 31, 1996

<TABLE>
<CAPTION>
DATE
CORPORATE ENTITY INCORPORATED * FEIN INC.
- ------------------------------------------------------ ------------ -- ------------- --------------
<S> <C> <C> <C> <C>
CAMCO INTERNATIONAL INC. Delaware 13-3517570 12-19-88
Camco International Group Inc. Delaware 76-0454952 07-12-93
Camco International Capital Corporation Delaware 74-1663615 03-24-69
Camco Trading Corp. Texas 74-1828479 01-24-75
Camco Reda Group, Inc. Delaware 76-0498021 04-01-96
Camco Drilling Group, Inc. Delaware 76-0498022 04-01-96
Camco International Limited U.S.Virgin IS 66-0411441 12-18-84
Camco Services International Inc. Texas 74-1918519 05-13-77
CSI Cameroun S.A.R.L. Cameroun 01-01-82
Adinin-Camco SDN. BHD. Brunei 49 04-01-86
Camco (Malaysia) SDN. BHD. Malaysia 49 03-20-78
Camco Oilfield Services Limited Trinidad 80 10-02-79
Camco Services Danmark Denmark 51 11-01-84
Camco Services Norway AS Norway 50 02-26-82
Camco Services of Saudi Arabia Limited Saudi Arabia 50 08-13-78
Marjan Oilfield Services Company Abu Dhabi 49 02-01-79
Camco LLC Dubai 49 09-01-94
K/S Camco Services Norway AS Norway 49 02-26-82
Camco International (Colombia) S.A. Colombia 05-07-96
Nowcam Services (Nigeria) Limited Nigeria 06-13-91
Camco International (UK) Limited U.K. 01-01-95
Camco Drilling Group Limited U.K. 07-10-87
Camco, Limited U.K. N. Ire. 10-06-58
Camco Limited Nigeria 98 04-15-70
Camco S.A.R.L. France 08-01-77
Camco U.K. Pension Trustee Limited U.K. N. Ire 12-14-93
Camco Soviet Services Limited U.K. 06-15-90
Tyumgascamco Limited Russia 49 06-23-90
Reda Industries Limited U.K. 10-01-84
PT Reda Pump Indonesia 80 07-09-93
Lasalle Engineering (Holdings) Limited U.K. 03-15-91
Lasalle Engineering Limited U.K. 01-24-86
Camco Cayman Limited Cayman Is. 03-08-73
Camco Asia (Private) Limited Singapore 06-02-71
Camco de Mexico S.A. de C.V. Mexico 12-09-59
Camco de Venezuela S.A. Venezuela 09-20-49
Manufacturas Camco De Venezuela, S.A. Venezuela 11-05-87
Camco Well Services Cayman Is. 02-19-74
C.J.R. Limited Cayman Is. 09-03-82
Camco Wireline, C.A. Venezuela 02-28-59
Petroil Services Corporation Cayman Is. 50 06-05-85
Camco Reda S.A. Peru 09-06-85
Oilfield Equipment Leasing Limited Jersey Is. 08-27-91
Reed Tool Singapore Pte Ltd Singapore 03-18-88
Camco International (Canada) Limited Canada 01-01-95
Reed Tool Company S.A.R.L. France 07-15-88
Camco Drilling Group Norge A/S Norway 08-26-87
Acc. S.A. de C.V. Mexico 49 03-20-75
Reda Del Ecuador, S.A. Ecuador 01-28-92
Industrial Operations Holdings Inc. Liberia 11-14-75
Reda Ras Al Khaimah Ltd. U.A.E. 47 10-19-75
ESI Private Ltd Singapore 08-14-92
Reda Pump Company (Singapore) Private Limited Singapore 01-06-70
Wan Shih Pump Pte. Ltd. Singapore 09-30-85
Egyptian-American Technical Services Company Egypt 50 11-06-87
Camco International (Australia) PTY Limited Australia 12-17-96
Camco International (Brasil) LTDA Brazil 08-27-92
</TABLE>

* Indentations Denote 100% Ownership of Subsidiaries Unless Otherwise Noted.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-78666, 33-78668, 333-09299, 333-14817, and
333-18129.

ARTHUR ANDERSEN LLP

Houston, Texas
March 17, 1997

<ARTICLE> 5
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 41,179
<SECURITIES> 0
<RECEIVABLES> 145,009
<ALLOWANCES> 0
<INVENTORY> 160,088
<CURRENT-ASSETS> 386,560
<PP&E> 350,736
<DEPRECIATION> 215,281
<TOTAL-ASSETS> 749,014
<CURRENT-LIABILITIES> 188,545
<BONDS> 0
0
0
<COMMON> 252
<OTHER-SE> 438,967
<TOTAL-LIABILITY-AND-EQUITY> 439,219
<SALES> 503,235
<TOTAL-REVENUES> 672,732
<CGS> 270,712
<TOTAL-COSTS> 403,521
<OTHER-EXPENSES> 190,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,574
<INCOME-PRETAX> 76,192
<INCOME-TAX> 25,684
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,508
<EPS-PRIMARY> 0
<EPS-DILUTED> 2.03

</TABLE>