<PAGE>   1




- --------------------------------------------------------------------------------
                                   FORM 10-K/A
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------

(MARK ONE)
      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996 OR

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

                        Commission file number 1-12317

                             NATIONAL-OILWELL, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                        76-0475815
- ---------------------------------                      ------------------
  (State or other jurisdiction                          (I.R.S. Employer
of incorporation or organization)                      Identification No.)

                                5555 SAN FELIPE
                                 HOUSTON, TEXAS
                                     77056
              --------------------------------------------------
                   (Address of principal executive offices)
                                      
                                (713) 960-5100
              --------------------------------------------------
             (Registrant's telephone number, including area code)

         Securities registered pursuant to Section 12(b) of the Act:
                                      
  COMMON STOCK, PAR VALUE $.01                  NEW YORK STOCK EXCHANGE
 ----------------------------               ---------------------------------
     (Title of Class)                         (Exchange on which registered)
                                      
                                      
       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. [ ]

As of March 5, 1997, 17,874,128 common shares were outstanding. Based upon the
closing price of these shares on the New York Stock Exchange and excluding
solely for purposes of this calculation 13,249,583 shares beneficially owned by
directors, executive officers and 5% or more stockholders, the aggregate market
value of the common shares of National-Oilwell, Inc. held by non-affiliates was
approximately $157,000,000. By this calculation, the Registrant is not making a
determination of the affiliate or non-affiliate status of any person.

                      DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement in connection with the 1997 Annual Meeting of Stockholders
is incorporated in Part III of this report.


<PAGE>   2



                                     PART I


ITEM 1.   BUSINESS

GENERAL

The Company is a worldwide leader in the design, manufacture and sale of
machinery and equipment and in the distribution of maintenance, repair and
operating ("MRO") products used in oil and gas drilling and production. The
Company's machinery and equipment include drawworks, mud pumps and power
swivels, which are the major mechanical components of rigs used to drill oil
and gas wells. Many of these components are designed specifically for
applications in offshore, extended reach and deep land drilling. The Company
distributes products and provides services from a network of approximately 120
service centers and from its Houston headquarters. Further segment financial
information is in Management's Discussion and Analysis of Financial Condition
and Results of Operations and in Footnote 12 of the Notes to Consolidated
Financial Statements.

The Company's business is dependent on and affected by the level of worldwide
oil and gas drilling and production activity, aging of the worldwide rig fleet
which was generally constructed prior to 1982 and the profitability and cash
flow of oil and gas companies and drilling contractors. Drilling activity has
recently increased in the offshore and deeper land markets, both of which are
particularly well served by the drilling machinery and equipment manufactured
by the Company. As of December 31, 1996, the worldwide offshore mobile drilling
rig utilization rate was over 90% and the number of active U.S. land rigs had
increased approximately 14% compared to December 31, 1995. As drilling activity
has increased, the Company has experienced increased demand for its
manufactured products and distribution services as existing rigs are upgraded,
refurbished and repaired, new rigs are constructed and expendable parts are
used.

In April 1987, Armco Inc. and USX Corporation formed National-Oilwell, a
Delaware partnership (the "Partnership"), to consolidate their respective
oilfield equipment manufacturing and distribution operations. Prior to such
consolidation, each of the separate business operations had been a leader in
the oilfield equipment and distribution businesses since the late 1800's.
Beginning in 1993, a new executive and operating team was assembled to manage
the Company's business, enhance its operating performance and build a platform
for growth by focusing on markets in which its product lines are market leaders
and which are believed by management to provide the most significant growth
potential. As part of that strategy, the Company disposed of certain of its
non-core equipment manufacturing businesses and product lines and reengineered
its distribution business. In January 1996, the new management team and an
investor group purchased the business of the Company and incorporated
National-Oilwell, Inc. as a Delaware corporation. In October 1996, the company
sold 4,600,000 shares of its common stock in an initial public offering and
listed its shares on the New York Stock Exchange.


BUSINESS STRATEGY

The Company's current business strategy is to enhance its leading market
positions and operating performance by:

Leveraging Its Market Leading Installed Base. The Company believes its market
leading installed base presents substantial opportunities to capture a
significant portion of any increased level of expenditures by its customers for
the construction of new drilling rigs and equipment as well as the upgrade and
refurbishment of existing drilling rigs and equipment.


Capitalizing on Increasing Demand for Higher Horsepower Drilling Machinery. The
Company believes the advanced age of the existing fleet of drilling rigs,
coupled with increasing drilling activity involving greater water depths and
extended reach, ultimately will increase the demand for new drilling rig
construction and the upgrading and capacity enhancement of existing rigs. The
Company's higher horsepower drawworks, mud pumps and power swivels provide, in
many cases, the largest capacities currently available in the industry.





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<PAGE>   3

Building on Distribution Strengths. The Company has developed and implemented
integrated information and process systems that enhance procurement, inventory
management and logistics activities. The Company has regionally centralized its
procurement, inventory and logistics operations in order to gain cost and
inventory utilization efficiencies while retaining responsiveness to local
markets. In addition, the strategic integration of the Company's distribution
expertise, extensive distribution network and growing base of customer
alliances provides an increased opportunity for cost effective marketing of the
Company's manufactured equipment.


Capitalizing on Alliance/Outsourcing Trends. As a result of efficiency
initiatives, oil and gas companies and drilling contractors are frequently
seeking alliances with suppliers, manufacturers and service providers, or
outsourcing their procurement, inventory management and logistics requirements
for equipment and supplies in order to achieve cost and capital improvements.
The Company believes that it is well positioned to provide these services as a
result of the Company's (i) large and geographically diverse network of
distribution service centers in major oil and gas producing areas, (ii)
purchasing leverage due to the volume of products sold, (iii) breadth of
available product lines and (iv) information systems that offer customers
enhanced online and onsite services.


OILFIELD EQUIPMENT

The Company designs, manufactures and sells land drilling rigs and the major
mechanical components for both land and offshore rigs used to drill oil and gas
wells. Many of these components are designed specifically for applications in
offshore, extended reach and deep land drilling. This equipment is installed on
new drilling rigs and used in the upgrade, refurbishment and repair of existing
drilling rigs. A significant portion of the Company's business includes the
sale of replacement parts for its own manufactured machinery and equipment. The
Company estimates that approximately 65% of the mobile offshore rig fleet and
the majority of the world's larger land rigs (2,000 horsepower and greater)
manufactured in the last twenty years utilize drawworks, mud pumps and other
drilling machinery components manufactured by the Company. In addition, the
Company also manufactures and sells centrifugal and reciprocating pumps used in
oilfield and industrial applications.


Products

The Company's line of drilling machinery and equipment includes drawworks, mud
pumps, power swivels (also known as "top drives"), traveling equipment and
rotary tables. This machinery constitutes the majority of the components
involved in the primary functions of the drilling of oil and gas wells which
consist of pumping fluids and hoisting, supporting and rotating the drill
string. The Company also manufactures and sells a wide variety of fluid-end
accessories for all major manufacturers' pumps under its Mission-Fluid King(R)
brand name. Fluid-end accessories are expendables consumed on reciprocating mud
pumps during the drilling process and include replacement parts such as liners,
valves, seats, pistons, piston rods and packing accessories. These products are
typically replaced at regular intervals and are essential to drilling
operations.

The Company also designs and manufactures centrifugal and reciprocating pumps
and pumping systems, as well as a wide variety of fluid-end accessories and
expendable pump parts for oil and gas drilling and oil production and transfer.
Mission-Fluid King(R) centrifugal pumps are utilized in various oil and gas
drilling applications including drilling mud mixing, low pressure fluid
transport and charging reciprocating pumps. Reciprocating pumps are used in a
variety of artificial lift, oil transfer and industrial applications. The
Company estimates that over 20,000 reciprocating pumps manufactured by the
Company have been installed throughout the world. A sizable aftermarket for
repair parts for these pumps exists and the Company also provides fluid-end
expendables under the Mission-Fluid King(R) name to this market. Most of the
pumps sold are incorporated into systems (which generally consist of a
reciprocating pump, a power source, piping, valves, meters and other fabricated
parts installed on a skid) thereby providing the Company with an opportunity to
offer the customer a complete turnkey package. The Company also sells
reciprocating pumps to the refining, petrochemical, mining and steel
industries.





                                       2

<PAGE>   4
Marketing of Company Products

Substantially all of the Company's drilling machinery, equipment and spare
parts sales and a large portion of the Company's pumps and parts are sold
through the Company's direct sales force and through the Company's distribution
service centers. The Company also markets its pumps and parts through
distribution networks not owned by the Company. Sales to foreign state-owned
oil companies are typically made in conjunction with agent or representative
arrangements. During 1996, management estimates that approximately 48% of
oilfield equipment revenues was from products sold for delivery to destinations
located outside North America.

The Company believes it is able to leverage its position as a manufacturer of
market-leading oilfield products by marketing those products through the
Company's distribution services business. During 1996, approximately 28% of
oilfield equipment revenues was from products sold through the Company's
established network of distribution service centers. Management believes that
the Company has an advantage over its competitors in the oilfield equipment
markets by virtue of its extensive distribution network making such products
readily available from numerous locations.


Competition

The oilfield equipment industry is highly competitive and the Company's
revenues and earnings can be affected by price changes, introduction of new
products and improved availability and delivery. Over the last several years
the market for oilfield equipment experienced excess capacity in some products
provided by the Company, which resulted in increased price competition in
certain areas of the Company's business. The Company competes with a large
number of companies, some of which may offer certain more technologically
advanced products or possess greater financial resources than the Company.
Competition for drilling systems and machinery comes from Continental Emsco
Company, Maritime Hydraulics U.S. Inc., Varco international, Inc. and Dreco
Energy Services Ltd. The principal competitors with the Company's Mission-Fluid
King(R) product line are Harrisburg/Woolley, Inc. and Southwest Oilfield
Products, Inc. Competition for the Company's reciprocating pumps comes
primarily from Wheatley-Gaso Inc. and Gardner Denver Machinery Inc.


Manufacturing and Backlog

Sales of the Company's products are made on the basis of written orders and
oral commitments. The Company estimates that the value of its orders for new
oilfield equipment (excluding spare parts orders) was approximately $21 million
as of December 31, 1996 as compared to orders of $3 million as of December 31,
1995. Essentially all of the current backlog will be shipped during 1997.

The Company's principal manufacturing facilities are located in Houston, Texas
and McAlester, Oklahoma. The Company also outsources the manufacture of parts
or purchases components in finished form from qualified subcontractors. The
Company's manufacturing operations require a variety of components, parts and
raw materials which the Company purchases from multiple commercial sources. The
Company has not experienced and does not expect any significant delays in
obtaining deliveries of essential components, parts and raw materials.


Engineering

The Company maintains a staff of engineers and technicians to (i) design and
test new products, components and systems for use in drilling and pumping
applications, (ii) enhance the capabilities of existing products and (iii)
assist the Company's sales organization and customers with special projects.
The Company's product engineering efforts focus on developing technology to
improve the economics and safety of drilling and pumping processes. The Company
has recently developed a 750 ton capacity power swivel to complement its lower
capacity models. The Company has also introduced a 4,000 horsepower drawworks
to increase customer efficiencies when drilling at extended depths and during
horizontal drilling. A disc brake system for drawworks has been developed which
can be operated remotely and provides higher braking torque capabilities than
previous systems. The disc brake system is available for new equipment or can
be adapted to upgrade drawworks previously sold by the Company.





                                       3

<PAGE>   5
Patents and Trademarks

The Company owns or has a license to use a number of patents covering a variety
of products. Although in the aggregate these patents are of importance, the
Company does not consider any single patent to be of a critical or essential
nature. In general, the Company depends on technological capabilities,
manufacturing quality control and application of its expertise rather than
patented technology in the conduct of its business. The Company enjoys
significant product name-brand recognition, principally through its
National-Oilwell(R), National(R), Oilwell(R). and Mission-Fluid King(R)
trademarks.


DISTRIBUTION SERVICES

The Company provides distribution services through its network of distribution
service centers located near major drilling and production activity worldwide,
but principally in the United States and Canada. These distribution service
centers have historically stocked and sold a variety of expendable items for
oilfield applications and company manufactured spare parts. As oil and gas
companies and drilling contractors have refocused on their core competencies
and emphasized efficiency initiatives to reduce costs and capital requirements,
the Company's distribution services have expanded to offer outsourcing and
alliance arrangements that include comprehensive procurement, inventory
management and logistics support.

The Company is able to leverage its position as a leading provider of
distribution services by marketing products manufactured by the Company. During
1996, approximately $52 million of the Company's distribution services revenues
resulted from the sale of the Company's oilfield equipment products. Management
believes that the Company has a competitive advantage in the distribution
services business by virtue of its ability to distribute market-leading
products manufactured by the Company's oilfield equipment business.


Products and Marketing

Maintenance, Repair and Operating Supplies and Equipment. The MRO supplies and
equipment stocked by the Company's distribution service centers vary by
location. Each distribution point generally offers a large line of oilfield
products including valves, fittings, flanges, spare parts for oilfield
equipment and miscellaneous expendable items. Most drilling contractors and oil
and gas companies typically buy such supplies and equipment pursuant to
non-exclusive contracts, which normally specify a discount from the Company's
list price for each product or product category for a one-year period. At
December 31, 1996, the Company had approximately 1,300 active contracts for
maintenance, repair and operating supplies and equipment with customers
primarily located in North America.

The Company markets and distributes its products and services through several
channels, including its network of oilfield distribution service centers, a
direct sales force and sales representatives and agents. The Company's
distribution services network includes over 100 facilities located throughout
the major oil and gas producing regions of the United States and Canada. In
addition, the Company has international distribution service points in seven
locations in the United Kingdom, South America and the Pacific Rim. The
Company's distribution services customers are primarily major and large
independent oil companies and drilling contractors, but sales are also made to
hundreds of smaller customers. Due to the nature of its distribution services
business, the Company does not maintain a backlog for such operations.

As a result of efficiency initiatives that are taking place in the oil and gas
industry, drilling contractors and oil and gas companies are more frequently
seeking strategic alliances and outsourcing their procurement and inventory
management requirements. These strategic alliances constitute a growing
percentage of the Company's business and differ from standard agreements for
MRO supplies and equipment in that the Company becomes the customer's primary
supplier of those items. In certain cases, the Company has assumed
responsibility for procurement, inventory management and product delivery for
the customer, in some cases by working directly out of the customer's
facilities.





                                       4

<PAGE>   6
Oil Country Tubular Goods. The Company's tubular business is focused on the
procurement, inventory management and delivery of oil country tubular goods
manufactured by third parties. Tubular goods primarily consist of well casing
and production tubing used in the drilling, completion and production of oil
and gas wells. Well casing is used to line the walls of a wellbore to provide
structural support. Production tubing provides the conduit through which the
oil or gas will be brought to the surface upon completion of the well.
Historically, sales of tubular goods have been concentrated in North America,
although the Company makes occasional sales for shipment to foreign
destinations. Substantially all of the Company's sales of tubular goods are
made through the Company's direct sales force.

In response to customer demands for improved efficiency in tubular procurement
and distribution, the Company has developed strategic alliances between the
Company and its customers. These strategic alliances enable the Company to more
efficiently source tubular goods for its customers, while decreasing the
capital and personnel requirements of the customer. These alliance
relationships currently constitute a majority of the Company's tubular sales.
Since alliances provide additional consistency and predictability to the
procurement process, the Company has also benefited from improved utilization
of its assets and from an increase in the turnover rate of its tubular
inventory.


Competition

The oilfield distribution services business is highly competitive. The
Company's revenues and earnings can be affected by competitive actions such as
price changes, improved delivery and other actions by competitors. In addition,
there are few barriers to entry for competitors in the distribution services
business. The Company's principal competitors include Continental Emsco
Company, Wilson Supply Company, Red Man Pipe & Supply Co. and McJunkin
Corporation in the United States and CE Franklin Ltd. and DOSCO Supply in the
Canadian market. The Company also competes with numerous regional or local
oilfield supply stores in both of these markets and in international markets.


Suppliers

The Company obtains MRO products from a number of suppliers. The Company does
not believe that any one supplier of MRO products is material to the Company.
For the year ended December 31, 1996, the Company purchased approximately 32%
of its tubular requirements pursuant to a distribution agreement with the U.S.
Steel Group of USX Corporation, and its remaining requirements from various
suppliers. The Company is not obligated to purchase any minimum amount of
tubular goods under the agreement with the U.S. Steel Group or any other
distribution agreement. The Company has not experienced and does not foresee
experiencing a shortage in MRO products or tubular goods sold by the Company.


EMPLOYEES

As of December 31, 1996, the Company had a total of 1,550 employees, 1,286 of
whom were salaried and 264 of whom were paid on an hourly basis. Of the
Company's workforce, 371 of the employees are employed by the Company's foreign
subsidiaries and are located outside the United States. The Company considers
its relationship with its employees to be good.





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<PAGE>   7
OPERATING RISKS AND INSURANCE

The Company's operations are subject to the usual hazards inherent in
manufacturing products and providing services for the oil and gas industry.
These hazards can cause personal injury and loss of life, business
interruptions, property and equipment damage and pollution or environmental
damage. The Company maintains comprehensive insurance covering its assets and
operations at levels which management believes to be appropriate and in
accordance with industry practice. No assurance can be given that insurance
coverage will be adequate in all circumstances or against all hazards, or that
the Company will be able to maintain adequate insurance coverage in the future
at commercially reasonable rates or on acceptable terms.


GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

The Company's operations are subject to regulation by federal, state and local
authorities in the United States and regulatory authorities with jurisdiction
over its foreign operations. Environmental laws and regulations have changed
substantially and rapidly over the last 20 years, placing more restrictions and
limitations on activities that may impact the environment, such as emissions of
pollutants, generation and disposal of wastes and use and handling of chemical
substances. Although compliance with various governmental laws and regulations
has not materially adversely affected the Company's financial condition or
results of operations, no assurance can be given that compliance with such laws
or regulations will not have a material adverse impact on the Company's
business in the future.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or the legality of the
original conduct, on certain classes of persons with respect to the release of
a hazardous substance into the environment. These persons include the owner and
operator of the disposal site or sites where the release occurred and companies
that disposed or arranged for the disposal of the hazardous substances found at
such site. The Company currently owns or leases, and has in the past owned or
leased, numerous properties that for many years have been used for the
manufacture and storage of products and equipment containing or requiring oil
and/or hazardous substances. Although the Company has utilized operating and
disposal practices that it believes were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by the Company or on or under other locations
where such wastes have been taken for disposal. In addition, many of these
properties have been operated by third parties whose treatment and disposal or
release of hydrocarbons or other wastes were not under the Company's control.
These properties and the wastes disposed thereon may be subject to CERCLA, the
Resource Conservation and Recovery Act and analogous state laws. Under such
laws, the Company would be required to remove or remediate previously disposed
wastes (including groundwater contamination) or to perform remedial operations
to prevent future contamination.


AGREEMENT WITH PREVIOUS OWNERS

The Purchase Agreement entered into in connection with the acquisition of the
Partnership provides that the Company will be responsible for (i) all of the
liabilities, including environmental costs, disclosed and undisclosed, created
after April 1, 1987 with respect to the business operations of the predecessor
Partnership as they were being conducted on the closing date, (ii) disclosed
liabilities created after April 1, 1987 with respect to operations of the
Partnership discontinued or sold prior to the closing date ("Discontinued
Operations"), (iii) disclosed liabilities for environmental costs for
conditions in existence as of April 1, 1987 ("Pre-1987 Environmental Costs"),
(iv) fifty percent of the first $8.0 million of the aggregate of undisclosed
Pre-1987 Environmental Costs and undisclosed liabilities related to
Discontinued Operations and (v) taxes other than United States federal income
taxes. While there can be no assurance as to undisclosed liabilities, the
Company's financial statements reflect appropriate reserves that management
currently considers appropriate for potential future liabilities under the
agreement.





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<PAGE>   8
RISK FACTORS

In evaluating the Company and its business, the following risk factors should
be considered.

Dependence on Oil and Gas Industry

The Company's business is substantially dependent upon the condition of the oil
and gas industry and the industry's willingness to explore for and produce oil
and gas. The degree of such willingness is generally dependent upon the
prevailing view of future product prices, which are influenced by numerous
factors affecting the supply and demand for oil and gas, including the level of
drilling activity, worldwide economic activity, interest rates and the cost of
capital, environmental regulation, tax policies, political requirements of
national governments, coordination by the Organization of Petroleum Exporting
Countries ("OPEC") and the cost of producing oil and gas. Any significant 
reduction in demand for drilling services, in cash flows of drilling 
contractors or in rig utilization rates below current levels could result in a 
drop in demand for products manufactured and sold by the Company.


Volatility of Oil and Gas Prices

Oil and gas prices and activity have been characterized by significant
volatility over the last twenty years. Since 1986, domestic spot oil prices
(West Texas Intermediate) have ranged from a low of approximately $11 per
barrel in 1986 to a high of approximately $40 per barrel in 1991; domestic spot
gas prices (Henry Hub) have ranged from lows below $1.00 per mcf of gas in 1992
to highs above $3.00 per mcf in 1996. These price changes have caused numerous
shifts in the strategies of oil and gas companies and drilling contractors and
their expenditure levels and patterns, particularly with respect to decisions
to purchase major capital equipment of the type manufactured by the Company. No
assurance can be given as to the future price levels of oil and gas or the
volatility thereof or that the future price of oil and gas will be sufficient
to support current levels of exploration and production-related activities.


Highly Competitive Industry

The oilfield products and services industry is highly competitive. The
Company's revenues and earnings can be affected by competitive actions such as
price changes, introduction of new products or improved availability and
delivery. Over the last several years the market for oilfield services and
equipment has experienced overcapacity which has resulted in increased price
competition in many areas of the Company's business. The Company competes with
a large number of companies, some of which may offer certain more
technologically advanced products or possess greater financial resources than
the Company.


Potential Product Liability and Warranty Claims

Certain products of the Company are used in potentially hazardous drilling,
completion and production applications that can cause personal injury or loss
of life, damage to property, equipment or the environment and suspension of
operations. The Company maintains insurance coverage in such amounts and
against such risks as it believes to be in accordance with normal industry
practice. Such insurance does not, however, provide coverage for all
liabilities (including liabilities for certain events involving pollution), and
there can be no assurance that such insurance will be adequate to cover all
losses or liabilities that may be incurred by the Company in its operations.
Moreover, no assurance can be given that the Company will, in the future, be
able to maintain insurance at levels it deems adequate and at rates it
considers reasonable or that any particular types of coverage will be
available. Litigation arising from a catastrophic occurrence at a location
where the Company's equipment and services are used may, in the future, result
in the Company's being named as a defendant in product liability or other
lawsuits asserting potentially large claims. The Company is a party to various
legal and administrative proceedings which have arisen from ongoing and 





                                       7

<PAGE>   9
discontinued operations. No assurance can be given with respect to the outcome
of these or any other pending legal and administrative proceedings and the
effect such outcomes may have on the Company.

Impact of Governmental Regulations

Many aspects of the Company's operations are affected by political developments
and are subject to both domestic and foreign governmental regulation, including
those relating to oilfield operations, worker safety and the protection of the
environment. In addition, the Company depends on the demand for its services
from the oil and gas industry and, therefore, is affected by changing taxes,
price controls and other laws and regulations relating to the oil and gas
industry generally. The adoption of laws and regulations curtailing exploration
for or production of oil and gas for economic or other policy reasons could
adversely affect the Company's operations. The Company cannot determine the
extent to which its future operations and earnings may be affected by new
legislation, new regulations or changes in existing regulations.


Impact of Environmental Regulations

The Company's operations are affected by numerous foreign, federal, state and
local environmental laws and regulations. The technical requirements of these
laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may impose penalties or sanctions for damages to natural
resources or threats to public health and safety. Such laws and regulations may
also expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company that were in compliance with all applicable
laws at the time such acts were performed. Sanctions for noncompliance may
include revocation of permits, corrective action orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide
for joint and several liability for remediation of spills and releases of
hazardous substances. In addition, companies may be subject to claims alleging
personal injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources.


Risk of Certain Foreign Markets

Certain of the Company's revenues result from the sale of products to customers
for ultimate destinations in the Middle East, Africa and other international
markets and are subject to risks of instability of foreign economies and
governments. Furthermore, the Company's sales can be affected by laws and
regulations limiting exports to particular countries.

The Company attempts to limit its exposure to foreign currency fluctuations by
limiting the amount of sales denominated in currencies other than United States
dollars, Canadian dollars and British pounds. The Company has not engaged in
and does not currently intend to engage in any significant hedging or currency
trading transactions designed to compensate for adverse currency fluctuations
among those or any other foreign currencies.


Control by Certain Stockholders

The Company's stockholders who owned shares prior to the initial public
offering collectively own an aggregate of 13,249,583 shares of common stock,
representing 74.1% of the outstanding shares. As a result of such ownership,
such stockholders could individually or collectively have the power to control
the outcome of certain matters submitted to a vote of the Company's
stockholders, including the election of the Board of Directors, and their
interests may not reflect the interests of other stockholders. In addition, a
decision by certain of these stockholders to sell shares will accelerate
repayment by the Company of a portion or all of the seller notes incurred in
connection with the Acquisition. There can be no assurance that funds to repay
the seller notes will be available at such time.





                                       8

<PAGE>   10

ITEM 2.   PROPERTIES

The Company owned or leased 124 facilities worldwide as of December 31, 1996,
including the following principal manufacturing and administrative facilities:



<TABLE>
<CAPTION>
                                      APPROX. BUILDING
         LOCATION                     SPACE (SQ. FT.)       DESCRIPTION                                         STATUS
         --------                     ---------------       -----------                                         ------
         <S>                              <C>               <C>                                                 <C>
         Houston, Texas                   217,000           Manufactures drilling machinery and equipment       Leased
         McAlester, Oklahoma              117,000           Manufactures pumps and expendable parts              Owned
         Houston, Texas                   116,000           Administrative offices                              Leased
</TABLE>


The manufacturing facilities listed above are used in the Company's oilfield
equipment business. The Company also has five satellite repair and
manufacturing facilities that refurbish and manufacture new equipment and
parts. These facilities are located in Houston, Texas; Odessa, Texas; New
Iberia, Louisiana; Aberdeen, Scotland and Singapore. The Company believes that
the capacity of its manufacturing and repair facilities is adequate to meet
demand for the foreseeable future. The Company owns or leases approximately 120
distribution service centers worldwide to operate its distribution service
business. No individual facility is significant to the distribution services
business. The Company also leases space at a number of tubular storage
locations for use in its tubular goods distribution business.



ITEM 3.   LEGAL PROCEEDINGS

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



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

No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.




                                    PART II


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

The Company's common stock was listed on the New York Stock Exchange (ticker
symbol: NOI) effective October 29, 1996. The stock price range between the
listing and December 31, 1996 was a low of $20.00 and a high of $30.75.

As of March 5, 1997, there were 65 holders of record of the Company's common
stock.

The Company has not paid any dividends, and none are anticipated during 1997.
The Company's current Credit Facility imposes limitations on the payment of
dividends.





                                       9


<PAGE>   11

ITEM 6.   SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with

Management's Discussion and Analysis and the Notes to Consolidated Financial
Statements included elsewhere herein (in thousands, except per share amount):



<TABLE>
<CAPTION>
                                                        SUCCESSOR                                PREDECESSOR
                                                        ---------      -------------------------------------------------------
                                                                                 YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------------------------------------
                                                          1996           1995           1994           1993            1992
                                                        ---------      ---------      ---------      ---------       ---------
<S>                                                     <C>            <C>            <C>            <C>             <C>
OPERATING DATA:
  Revenues                                              $ 648,621      $ 545,803      $ 562,053      $ 627,281       $ 569,911
  Operating income (loss) before special items (1)         34,708         13,781         15,208            489         (25,038)
  Operating income (loss) (1)                              18,097         22,239         29,124         (8,076)        (31,538)
  Income (loss) before taxes and extraordianry loss (2)     6,794         19,577         24,921        (15,592)        (35,387)
  Income (loss) before extraordinary loss (2)(3)            4,245         17,640         23,880        (17,463)        (35,127)
  Net income (loss) (3)                                       245         17,640         23,880        (17,463)        (35,127)
  Income per share before extraordinary loss (2)(4)          0.18             --             --             --              --
  Net income per share (4)                                   0.02             --             --             --              --

OTHER DATA:
  Depreciation and amortization                             3,591          3,595          6,027         10,721          12,233
  Capital expenditures                                      3,136          4,764          3,604          1,967           4,941

BALANCE SHEET DATA:
  Working capital                                         130,070        177,365        151,810        171,632         179,407
  Total assets                                            266,743        288,578        268,304        343,479         371,883
  Long-term debt, less current maturities                  36,392          9,128              -         69,816          56,467
  Owners' equity                                          109,080        178,012        161,888        170,676         192,546
</TABLE>



(1)  In 1996, the Company recorded charges related to the cancellation of
     management agreements and expenses related to a special incentive plan that
     terminated upon the occurrence of its initial public offering of common
     stock. In 1995 and 1994, the Company recorded gains from the sales of
     certain non-core equipment manufacturing businesses, product lines and
     assets, net of other costs. In 1993 and 1992, the Company recorded charges
     primarily related to the disposal of manufacturing facilities and a product
     line.

(2)  In 1996, National-Oilwell recorded an extraordinary loss of $4,000, net of
     income tax benefit of $2,400, due to the write-off of deferred debt costs.

(3)  Prior to January 1, 1996, the Company was a general partnership and 
     therefore not subject to U.S. federal and state income taxes.

(4)  Based on the weighted average shares outstanding of 14,357,076 in 1996. No
     shares were outstanding prior to 1996.



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

GENERAL

Effective January 1, 1996, all of the Company's operations were acquired from
subsidiaries of Armco Inc. and USX Corporation (the "Acquisition") for $180
million plus approximately $12 million in transaction costs. The Acquisition
was funded from the sale of $30 million in equity, incurrence of $114 million
of debt and the use of $48 million of acquired cash. Reference herein to the
Company refers to the predecessor partnership for periods prior to January 1,
1996 and to National-Oilwell, Inc. for subsequent periods.

The Company's revenues are directly related to the level of worldwide oil and
gas drilling and production activities and the profitability and cash flow of
oil and gas companies and drilling contractors, which in turn are affected by
current and anticipated prices of oil and gas. While the price of oil and gas
is generally a function of supply and demand, additional influences include
costs of exploration and production, worldwide political and economic
influences, environmental factors and governmental regulation.

As a result of a change in management and a redirection of the Company's
strategy which began in 1993, the Company sold various product lines,
consolidated certain manufacturing facilities and concentrated its operations
within two business segments: Oilfield Equipment and Distribution Services.





                                     10

<PAGE>   12
RESULTS OF OPERATIONS

The following table and the following financial information in the discussion
of the Oilfield Equipment and Distribution Services segments provide certain
information that segregates the results of operations of previously sold
product lines and businesses in order to focus on ongoing operations (in
millions):



<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                                  -----------------------------------
                                   1996          1995          1994
                                 --------      --------      --------
<S>                              <C>           <C>           <C>
Revenues:
  Oilfield Equipment             $  181.6      $  146.5      $  187.9
  Distribution Services             518.7         432.3         415.7
  Eliminations                      (51.7)        (33.0)        (60.0)
                                 --------      --------      --------
      Ongoing Operations            648.6         545.8         543.6
  Disposed Businesses                  --            --          18.5
                                 --------      --------      --------
        Total                    $  648.6      $  545.8      $  562.1
                                 ========      ========      ========

Operating Income:
  Oilfield Equipment             $   21.3      $    7.2      $    7.0
  Distribution Services              17.5           9.4           9.0
  Corporate                          (4.1)         (2.9)         (2.9)
                                 --------      --------      --------
        Ongoing Operations           34.7          13.7          13.1
  Disposed Businesses                  --            --           2.1
  Special Charges (Income)           16.6          (8.5)        (13.9)
                                 --------      --------      --------
        Total                    $   18.1      $   22.2      $   29.1
                                 ========      ========      ========
</TABLE>



Oilfield Equipment

The Oilfield Equipment segment designs and manufactures a large line of
proprietary products, including drawworks, mud pumps, power swivels and
reciprocating pumps. A substantial installed base of these products results in
a recurring replacement parts and maintenance business. In addition, a full
line of drilling pump expendable products are sold for maintenance of the
Company's and other manufacturers' equipment.

Sales of new equipment manufactured by the Company can result in large
fluctuations in volume between periods depending on the size and timing of the
shipment of orders. Individual orders of machinery and equipment by foreign
national oil companies can be particularly large. The Company recorded a $33
million sale of this nature in 1994 but did not have a similar sale in 1995 or
1996.

Revenues and operating profits have been negatively impacted over the last
several years by excess industry capacity that has prevented or reduced price
increases. Accordingly, the Company has concentrated on controlling and
reducing its costs by consolidating operations and streamlining selling and
administrative functions. The Company believes it will benefit from any
increased industry demand as additional activity can be achieved through its
existing facilities.

During the second quarter of 1996, the Company began to experience a
significant increase in demand for its capital equipment, especially from
offshore drilling contractors. The Company believes that offshore drillers have
begun to experience higher demand for and cash flows from their services that
allow them to upgrade and repair machinery and equipment on existing rigs.
Improvements to the existing fleet have been deferred for many years due to low
cash flows caused by an excess supply of rigs relative to demand, and the need
for such upgrades and repairs may be large. If utilization rates of the
offshore mobile rig fleet remain above 90%, management believes new demand for
the construction of rigs could result in a further increase in demand for
machinery and equipment manufactured by the Company. Similarly, toward the end
of 1996, the Company began to receive a significant increase in the number of
inquiries for the purchase of new land drilling rigs and equipment for land
rigs. The Company believes the excess supply of large drilling rigs and
equipment that has existed since 1981 may have reduced to the point that demand
for rigs and equipment will result in new construction of land rigs as well.





                                      11


<PAGE>   13
Revenues during 1996 increased $35.1 million (24%) over 1995 due to an increase
in all areas, including new and refurbished drilling and production equipment,
spare parts and expendable products. Revenues in 1995 were down $41.4 million
(22%) from 1994, in large part due to the absence of $33 million in revenues
associated with an international rig package that was sold in 1994.

Operating income for the Oilfield Equipment segment increased $14.1 million in
1996 as compared to the prior year as a result of higher revenues, product mix
and the consolidation in late 1995 of the Company's United Kingdom
manufacturing facility into its Houston location, thereby achieving lower costs
and a more efficient manufacturing process. Operating income increased slightly
in 1995 in spite of the revenue decline primarily as a result of the
consolidation of facilities and other cost reduction initiatives.


Distribution Services

Distribution Services revenues result primarily from the sale of MRO products
from the Company's network of distribution service centers and from the sale of
well casing and production tubing. These products are purchased from numerous
manufacturers and vendors, including the Company's Oilfield Equipment segment.
While the Company has increased revenues and improved its operating income by
entering into alliances and outsourcing arrangements, improvements in operating
results remain primarily dependent on attaining increased volumes of activity
through its distribution service centers while controlling the fixed costs
associated with numerous points of sale.

Revenues in 1996 increased by $86.4 million (20%) over 1995 due to an overall
increase in market activity, including a $31.2 million increase in tubular
products sales and a $36.4 million increase in MRO products sales. Distribution
Services' revenues in 1995 were ahead of the 1994 level by $16.6 million (4%)
due to improved general market conditions in North America.

Operating income increased $8.1 million during 1996 as compared to the same
period in 1995 due to the higher revenue levels, and represented 9.4% of the
revenue increase. Operating income increased in 1995 as compared to 1994 by
only $0.4 million due to a change in product mix, as revenues from lower margin
tubular products increased as a percentage of segment revenues.


Corporate

Corporate charges represent the unallocated portion of centralized and
executive management costs. These costs were $2.9 million in each of 1995 and
1994. Corporate costs were up $1.2 million during 1996, with $0.9 million of
the increase due to the expense of the management fee paid pursuant to the
Management Services Agreement prior to its termination in connection with the
initial public offering. Even though this agreement has terminated, corporate
costs in 1997 are estimated to remain between $4-5 million due to increased
costs required of a public company and due to anticipated merger and
acquisition efforts.


Special Charges (Income)

The Company incurred certain one-time expenses in connection with its initial
public offering of common stock, as follows: (i) the Management Services
Agreement was terminated at a cost of $4.4 million ($2.8 million after tax) and
will be paid in quarterly installments of $250,000 through March 31, 2001,
subject to certain accelerating events; and (ii) expenses and payout under the
Company's Value Appreciation Plans. The Value Appreciation Plans resulted in the
Company recording an expense of $12.2 million ($7.6 million after tax) and
making a cash payment of $2.9 million at the time of closing and incurring an
obligation to make future annual cash payments of $.7 million for five years
beginning January 17, 1997 and future issuances of 340,926 shares of Common
Stock valued at $5.8 million.





                                      12


<PAGE>   14
During 1995, the Company recorded a gain of $8.5 million from the sale of a
non-oilfield centrifugal pump and switch valve product line and from the sale
of excess property and equipment of closed manufacturing facilities in the
United Kingdom and Canada. A net gain of $13.9 million was recorded in 1994
from the sales of several production equipment product lines offset in part by
costs associated with the closure of the United Kingdom facility.

Interest Expense

Interest expense increased substantially during 1996 due to debt incurred in
connection with the Acquisition. As a substantial portion of the debt was
repaid with proceeds from the IPO, interest expense is expected to decline to
less than $5 million in 1997 at current debt levels. Interest expense had
declined in 1995 as compared to 1994 due to reductions in debt made possible by
operating profits and proceeds from the dispositions of various businesses,
product lines and assets that generated over $75 million in cash.

Income Taxes

Due to its partnership status, the Company was not subject to U.S. federal or
state income taxes prior to 1996 and accordingly the tax provision during such
periods relates to foreign income taxes as computed under Statement of
Financial Accounting Standard ("SFAS") No. 109. Beginning in 1996, the Company
is subject to U.S. federal and state taxes and recorded a combined U.S.
federal, state and foreign tax rate of 38% for 1996.

Extraordinary Loss

In connection with the IPO, the previous credit facility was replaced by a new
credit facility, resulting in the write-off of $6.4 million ($4.0 million after
tax) in deferred financing costs related to the replaced agreement.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the Company had working capital of $130 million, a
decrease of $47 million from December 31, 1995, primarily due to the use of
cash in connection with the Acquisition.

Due to the size of the Company's distribution services business, significant
components of the Company's assets are accounts receivable and inventories. Net
of Acquisition adjustments, accounts receivable increased by $25 million during
1996 due to significantly higher revenues. Inventories decreased slightly in
spite of higher activity levels due to a focused effort in the oilfield
equipment operations to control and reduce capital employed in this area. Since
1993, the Company has focused significant internal attention and emphasis on
accelerating the collection of accounts receivable, reducing inventories and
improving the Company's return on capital employed.

The Company's business has not required large expenditures for capital
equipment in recent years. Total capital expenditures were $3.1 million during
1996, $4.8 million in 1995 and $3.6 million in 1994. Enhancements to
information and inventory control systems represent a large portion of these
capital expenditures. Total annual capital expenditures of as much as $6-8
million over the next three years are anticipated as the company further
enhances its information systems. The Company believes it has sufficient
existing manufacturing capacity to meet currently anticipated demand for its
products and services. Significant increases in demand for oilfield equipment
products, to the extent qualified subcontracting and outsourcing are not
available, could result in increases in capital expenditures.

The Company believes that cash generated from operations and amounts available
under its revolving credit facility will be sufficient to fund operations,
working capital needs, capital expenditure requirements and financing
obligations. The Company also believes any significant increase in capital
expenditures caused by any need to increase manufacturing capacity can be
funded from operations or through debt financing.





                                      13

<PAGE>   15
The Company has a $120 million senior secured revolving credit facility ("Credit
Facility") that is available for acquisitions and general corporate purposes
through October 2001, of which up to $25 million may be used for letters of
credit. The Credit Facility is subject to a borrowing base limitation of various
percentages of eligible inventory, accounts receivable and the book value of
certain fixed assets, all of which totaled $114 million as of December 31, 1996.
The Credit Facility bears interest at prime plus .75% or LIBOR plus 2.0%,
subject to adjustment based on the Company's total funded debt and operating
profit. Depending on the Company's financial performance, the interest rates
could increase or decrease by .5%. The facility is secured by substantially all
of the Company's assets and contains certain financial covenants and ratios as
well as a limitation on dividends.

Long-term debt includes $20 million in notes payable to the Company's previous
owners that bear interest at 9%. At the Company's option, interest payments
through January 16, 2003 may be deferred. Subsequent to year end, the Company
elected to defer payment of $1.8 million of interest expense recorded in 1996
that was due January 16, 1997. One-half of the sum of the principal and any
accumulated deferred interest is payable on January 16, 2004, and the balance
is payable on January 16, 2005. The notes are subject to partial or full
prepayment in certain events, including the sale of significant assets by the
Company or the sale of Company stock by stockholders who acquired their
interests at the time of the Acquisition.

The Company intends to pursue acquisition candidates, but the timing, size or
success of any acquisition effort and the related potential capital commitments
cannot be predicted. The Company expects to fund future acquisitions primarily
through cash flow from operations and borrowings, including the unborrowed
portion of the Credit Facility, as well as possible issuances of additional
equity or debt. There can be no assurance that additional financing for
acquisitions will be available at terms acceptable to the Company.

Inflation has not had a significant impact on the Company's operating results
or financial condition in recent years.


RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", which requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The methodology required by SFAS No. 121 is not materially
different from the Company's past practice, and its adoption on January 1, 1996
did not have a material impact on its consolidated financial statements.

In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation", was
issued that establishes alternative methods of accounting and disclosure for
employee stock-based compensation arrangements. The Company has elected to
continue the use of the intrinsic value based method of accounting for its
employee stock option plan which does not result in the recognition of
compensation expense when employee stock options are granted if the exercise
price of the option equals or exceeds the fair market value of the stock at the
date of grant. At the time any option grants are outstanding, the Company will
provide pro forma disclosure of net income and earnings per share in the notes
to the consolidated financial statements as if the fair value based method of
accounting had been applied.





                                      14

<PAGE>   16
FORWARD-LOOKING STATEMENTS

Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Such forward-looking
statements include, without limitation, the statements regarding the trends in
the industry set forth in the "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections regarding
the Company's anticipated future financial results and position. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results
to differ materially from the Company's expectations are disclosed in this
filing, including but not limited to the matters described in "Risk Factors" in

I
tem 1.



ITEM 8.      FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

             Attached hereto and a part of this report are financial statements
             and supplementary data listed in Item 14.



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

             None.



                                    PART III


ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

             Incorporated by reference to the definitive Proxy Statement for
             the 1997 Annual Meeting of Stockholders.



ITEM 11.     EXECUTIVE COMPENSATION

             Incorporated by reference to the definitive Proxy Statement for
             the 1997 Annual Meeting of Stockholders.



ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

             Incorporated by reference to the definitive Proxy Statement for
             the 1997 Annual Meeting of Stockholders.



ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

             Incorporated by reference to the definitive Proxy Statement for
             the 1997 Annual Meeting of Stockholders.





                                      15

<PAGE>   17

                                    PART IV


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

a)   Financial Statements and Exhibits

     1.  Financial Statements
         The following financial statements are presented in response to Part 
         II, Item 8:


<TABLE>
<CAPTION>
                                                                                                       Page(s) in
                                                                                                       This Report
                                                                                                       -----------
<S>                                                                                                        <C>
Consolidated Balance Sheets as of December 31, 1996 and 1995...............................................20

Consolidated Statements of Operations for Each of the Three Years in
the Period Ended December 31, 1996 ........................................................................21

Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1996 ...............................................................22

Consolidated Statements of Owners' Equity for Each of the Three Years
in the Period Ended December 31, 1996 .....................................................................23

Notes to Consolidated Financial Statements.................................................................24
</TABLE>



     2.  Financial Statement Schedules

         All schedules are omitted because they are not applicable, not
         required or the information is included in the financial statements or
         notes thereto.

     3.  Exhibits

         1.1      Form of Purchase Agreement. (1)
        
         2.1      Purchase Agreement by and among Oilwell, Inc., National Supply
                  Company, Inc., USX Corporation, Armco Inc. and the Company
                  dated September 22, 1995. (1)
        
         3.1      Amended and Restated Certificate of Incorporation of the 
                  Company. (1)
        
         3.2      Bylaws of the Company. (1)

        10.1*     Employment Agreement dated as of January 16, 1996 between Joel
                  V. Staff and the Company. (1)

        10.2*     Employment Agreement effective as of January 17, 1996 between 
                  C.R. Bearden and the Company, with similar agreements with
                  Lynn L. Leigh, Jerry N. Gauche, Paul M. Nation, James J.  
                  Fasnacht and Steven W. Krablin, and a similar agreement   
                  effective as of February 5, 1996 between Merrill A. Miller
                  Jr. and the Company. (1)                                  

        10.3      Stockholders Agreement among the Company and its stockholders 
                  dated as of January 16, 1996. (1)

        10.4      Waiver and First Amendment to Stockholders Agreement dated as 
                  of July 24, 1996. (1)

        10.5*     Employee Incentive Plan.  (1)





                                      16

<PAGE>   18

       10.6*     Stock Award and Long-Term Incentive Plan.  (1)

       10.7*     First Amendment to Stock Award and Long-Term Incentive 
                 Plan. (1)

       10.8*     Value Appreciation and Incentive Plan A.  (1)

       10.9*     Value Appreciation and Incentive Plan B.  (1)

       10.10*    Restricted Stock Agreement between the Company and Joel V. 
                 Staff, with similar agreements with C.R. Bearden, Jerry N.
                 Gauche, Steven W. Krablin, Merrill A. Miller, Jr., James J.
                 Fasnacht and Paul M. Nation. (1)

       10.12*    Supplemental Savings Plan.  (1)

       10.13     Amended and Restated Credit Agreement dated October 23, 
                 1996. (1)

       10.14     Deferred Fee Agreement.  (1)

       10.15*    First Amendment to Value Appreciation and Incentive Plan 
                 A. (1)

       10.16*    First Amendment to Value Appreciation and Incentive Plan 
                 B. (1)

       10.17     Second Amendment to Stockholders Agreement dated as of October
                 18, 1996. (1)

       21.1      Subsidiaries of the Company.

       23.1      Consent of Ernst & Young LLP.

       27.1      Financial Data Schedule.

- ----------

*    Represents a management contract or compensatory plan.



(1) Exhibit incorporated herein by reference to the Registrant's registration 
    statement on Form S-1 (Registration No. 333-11051) dated August 29, 1996, 
    as amended.





                                      17

<PAGE>   19

                                   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.

                                                        NATIONAL-OILWELL, INC.


    DATE:    August 18, 1997                    BY:    /s/ STEVEN W. KRABLIN
          --------------------------                   -------------------------
                                                          STEVEN W. KRABLIN
                                                          VICE PRESIDENT AND
                                                       CHIEF FINANCIAL OFFICER







                                      18

<PAGE>   20


                         REPORT OF INDEPENDENT AUDITORS





To the Shareholders and Board of Directors
National-Oilwell, Inc.


          We have audited the accompanying consolidated balance sheets of
National-Oilwell, Inc. (as defined in Note 1) as of December 31, 1996 and 1995,
and the related consolidated statements of operations, owners' equity, and cash
flows 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National-Oilwell, Inc. (as defined in Note 1) at December 31, 1996 and 1995,
and the consolidated 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.



                                                    ERNST & YOUNG LLP


Houston, Texas
July 25, 1997






                                      19

<PAGE>   21
                             NATIONAL-OILWELL, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                                  SUCCESSOR       PREDECESSOR
                                                                 ------------     ------------
                                                                 DECEMBER 31,     DECEMBER 31,
                                                                     1996            1995
                                                                 ------------     ------------
<S>                                                               <C>             <C>
                            ASSETS

Current assets:
   Cash and cash equivalents                                      $   4,315       $  65,452
   Receivables, less allowance of  $2,760 and $4,015                102,858          74,986
   Inventories                                                      115,479         120,686
   Deferred taxes                                                     4,028              --
   Prepaids and other current assets                                  6,710           4,543
                                                                  ---------       ---------
              Total current assets                                  233,390         265,667

Property, plant and equipment, net                                   18,680          18,877
Deferred taxes                                                        6,847           1,450
Goodwill                                                              6,327              --
Deferred financing costs                                              1,166           1,089
Other assets                                                            333           1,495
                                                                  ---------       ---------

                                                                  $ 266,743       $ 288,578
                                                                  =========       =========

                LIABILITIES AND OWNERS' EQUITY

Current liabilities:
   Accounts payable                                                  77,935          66,665
   Customer prepayments                                               5,126           7,500
   Accrued compensation                                               7,839           3,071
   Other accrued liabilities                                         12,420          11,066
                                                                  ---------       ---------
              Total current liabilities                             103,320          88,302

Long-term debt                                                       36,392           9,128
Insurance reserves                                                    6,599           6,201
Other liabilities                                                    11,352           6,935
                                                                  ---------       ---------
              Total liabilities                                     157,663         110,566

Commitments and contingencies

Owners' equity:

    Common stock - par value $.01; 17,857,698 shares issued
        and outstanding                                                 179              --
    Additional paid-in capital                                      107,497              --
    Partners' capital                                                    --         185,506
    Cumulative translation adjustment                                 1,159          (7,494)
    Retained earnings                                                   245              --
                                                                  ---------       ---------
                                                                    109,080         178,012
                                                                  ---------       ---------
                                                                  $ 266,743       $ 288,578
                                                                  =========       =========
</TABLE>





        The accompanying notes are an integral part of these statements.

                                      20

<PAGE>   22
                             NATIONAL-OILWELL, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                           SUCCESSOR               PREDECESSOR
                                           ---------        --------------------------
                                                     YEAR ENDED DECEMBER 31,
                                           -------------------------------------------
                                              1996             1995             1994
                                           ---------        ---------        ---------
<S>                                        <C>              <C>              <C>
Revenues                                   $ 648,621        $ 545,803        $ 562,053

Cost of revenues                             557,354          474,791          482,423
                                           ---------        ---------        ---------

Gross profit                                  91,267           71,012           79,630

Selling, general, and administrative          56,559           57,231           64,422
Special charges (income)                      16,611           (8,458)         (13,916)
                                           ---------        ---------        ---------

Operating income                              18,097           22,239           29,124

Interest and financial costs                 (12,095)          (2,358)          (5,777)
Interest income                                  440            1,097            1,046
Other income (expense)                           352           (1,401)             528
                                           ---------        ---------        ---------

Income before income taxes and 
  extraordinary loss                           6,794           19,577           24,921

Provision for income taxes                     2,549            1,937            1,041
                                           ---------        ---------        ---------
Income before extraordinary loss               4,245           17,640           23,880
Extraordinary loss, net of income
  tax benefit of $2,400                       (4,000)              --               --
                                           ---------        ---------        ---------

Net income                                 $     245        $  17,640        $  23,880
                                           =========        =========        =========

Weighted average shares outstanding           14,357
                                           =========

Income per share:
  Before extraordinary loss                $    0.18
  Extraordinary loss                           (0.16)
                                           ---------
  Net income                               $    0.02
                                           =========
</TABLE>





       The accompanying notes are an integral part of these statements.

                                      21

<PAGE>   23
                             NATIONAL-OILWELL, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                      SUCCESSOR               PREDECESSOR
                                                                      ---------        --------------------------

                                                                                 YEAR ENDED DECEMBER 31,
                                                                      -------------------------------------------
                                                                        1996             1995             1994
                                                                      ---------        ---------        ---------

<S>                                                                   <C>              <C>              <C>
Cash flow from operating activities:
   Net income                                                         $     245        $  17,640        $  23,880
   Adjustments to reconcile net income to net cash
   provided (used) by operating activities:
       Depreciation and amortization                                      3,591            3,595            6,027
       Provision for losses on receivables                                  405            2,855              545
       Provision for deferred income taxes                               (2,411)             509              909
       Gain on sale of assets                                              (490)            (662)            (910)
       Foreign currency transaction (gain) loss                            (157)           1,170               54
       Special charges (income)                                          16,611           (8,458)         (13,916)
       Extraordinary loss                                                 6,400               --               --
   Changes in assets and liabilities, net of Acquisition:
       Decrease (increase) in receivables                               (25,146)          24,583              491
       Decrease in inventories                                              628            2,205           12,483
       Decrease (increase) in prepaids and other current assets            (677)          (4,730)           4,287
       Increase in accounts payable                                      10,927            6,959            7,614
       Increase (decrease) in other assets/liabilities, net             (11,210)          (3,996)          (3,913)
                                                                      ---------        ---------        ---------

            Net cash provided (used) by operating activities             (1,284)          41,670           37,551
                                                                      ---------        ---------        ---------

Cash flow from investing activities:
    Purchases of property, plant and equipment                           (3,136)          (4,764)          (3,604)
    Proceeds from sale of assets                                            573            6,865            1,731
    Proceeds from disposition of businesses                                  --            6,944           69,821
    Acquisition of predecessor company, net of cash acquired           (106,248)              --               --
    Other                                                                  (350)            (218)             251
                                                                      ---------        ---------        ---------

            Net cash provided (used) by investing activities           (109,161)           8,827           68,199
                                                                      ---------        ---------        ---------

Cash flow from financing activities:
    Borrowings (payments) on long-term debt                             (96,114)           9,128          (69,842)
    Proceeds from issuance of common stock                              107,676               --               --
    Borrowings proceeds from Acquisition debt                           103,378               --               --
    Principal payments under capital lease obligations                       --               --             (911)
    Cash distribution to partners                                            --           (1,918)         (31,000)
                                                                      ---------        ---------        ---------

            Net cash provided (used) by financing activities            114,940            7,210         (101,753)
                                                                      ---------        ---------        ---------

Effect of exchange rate losses on cash                                     (180)          (1,673)            (595)
                                                                      ---------        ---------        ---------

Increase in cash and equivalents                                          4,315           56,034            3,402
Cash and cash equivalents, beginning of year                                 --            9,418            6,016
                                                                      ---------        ---------        ---------
Cash and cash equivalents, end of year                                $   4,315        $  65,452        $   9,418
                                                                      =========        =========        =========
</TABLE>





        The accompanying notes are an integral part of these statements.


                                      22

<PAGE>   24
                             NATIONAL-OILWELL, INC.
                   CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                      ADDITIONAL                    CUMULATIVE
                                             COMMON     PAID-IN      PARTNERS'      TRANSLATION       RETAINED
                                             STOCK      CAPITAL      CAPITAL        ADJUSTMENT        EARNINGS          TOTAL
                                           ---------   ---------    ---------       ----------        ---------       ---------
<S>                                        <C>         <C>          <C>              <C>              <C>             <C>
Predecessor:
   Balance at December 31, 1993                                     $ 176,904        $  (6,228)                       $ 170,676
      Net income                                                                        23,880                           23,880
      Translation adjustment                                                            (1,668)                          (1,668)
      Distribution                                                    (31,000)                                          (31,000)
                                                                    ---------        ---------                        ---------
                                                                    
   Balance at December 31, 1994                                       169,784           (7,896)                         161,888
      Net income                                                       17,640                                            17,640
      Translation adjustment                                                               402                              402
      Distribution                                                     (1,918)                                           (1,918)
                                                                    ---------        ---------                        ---------
                                                                    
   Balance at December 31, 1995                                       185,506           (7,494)                         178,012
                                                                    
Successor:                                                          
      Issuance of 17,857,698 shares        $     179   $ 107,497                                                        107,676
      Elimination of partners' interests                             (185,506)           7,494                         (178,012)
      Net income                                                                                      $     245             245
      Translation adjustment                                                             1,159                            1,159
                                           ---------   ---------    ---------        ---------        ---------       ---------
                                                                    
   Balance at December 31, 1996            $     179   $ 107,497    $      --        $   1,159        $     245       $ 109,080
                                           =========   =========    =========        =========        =========       =========
</TABLE>





        The accompanying notes are an integral part of these statements.


                                      23

<PAGE>   25
                             NATIONAL-OILWELL, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION AND BASIS OF PRESENTATION

National-Oilwell, Inc. was formed to acquire National-Oilwell, a general
partnership between National Supply Company, Inc., a subsidiary of Armco Inc.,
and Oilwell, Inc., a subsidiary of USX Corporation, and subsidiaries, (the
"Partnership"). The consolidated financial information of the Partnership, as
predecessor, has been included with the consolidated financial information of
National-Oilwell, Inc. and subsidiaries for purposes of comparability.
References herein to National-Oilwell, Inc. (the "Company") refer to the
Partnership for periods prior to January 1, 1996 and to National-Oilwell, Inc.
and subsidiaries for subsequent periods. Effective as of January 1, 1996,
National-Oilwell, Inc. acquired the Partnership (the "Acquisition") for a
purchase price of $180 million, which approximated book value. The transaction
was accounted for under the purchase method of accounting and accordingly all
assets and liabilities of the Partnership were recorded at their fair values
resulting in only minimal basis adjustments. The purchase price and related
expenses were financed by new equity, existing cash, a new credit facility
consisting of a revolving credit line totaling $120 million and term debt of
$30 million, a $5 million subordinated note and seller notes of $20 million.
Approximately $67 million of the revolving credit line was utilized to
consummate the transaction. A summary of the transaction is as follows (in
thousands):


<TABLE>
<S>                                                                <C>
Fair value of assets acquired, other than cash                     $242,268
Cash paid to acquire Partnership                                    106,248
Purchase price financed by seller notes                              20,000
                                                                   --------
        Liabilities assumed                                        $116,020
                                                                   ========
</TABLE>



On October 29, 1996, the Company sold 4.6 million shares of its common stock
through an initial public offering (the "IPO"). Net proceeds of approximately
$72 million were used to repay debt incurred in connection with the
Acquisition, including the outstanding balance of approximately $24 million in
term loans under the existing credit facility, the $5 million subordinated note
and $43 million of the revolving credit facility.

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


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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


Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash and cash
equivalents, receivables, payables and debt instruments. Cash equivalents
include only those investments having a maturity of three months or less at the
time of purchase. The carrying values of these financial instruments
approximate their respective fair values.


Inventories

Inventories consist of (a) oilfield products and oil country tubular goods, (b)
manufactured equipment and (c) spare parts for manufactured equipment.
Inventories are stated at the lower of cost or market using the first-in,
first-out or average cost methods.





                                      24

<PAGE>   26
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Expenditures for major
improvements which extend the lives of property and equipment are capitalized
while minor replacements, maintenance and repairs are charged to operations as
incurred. Disposals are removed at cost less accumulated depreciation with any
resulting gain or loss reflected in operations. Depreciation is provided using
the straight-line method over the estimated useful lives of individual items.


Intangible Assets

Deferred financing costs are amortized on a straight-line basis over the
five-year life of the related debt security and accumulated amortization was
$40,000 at December 31, 1996. Goodwill is amortized on a straight-line basis
over its estimated life of 40 years. Accumulated amortization was $162,000 at
December 31, 1996.


Foreign Currency

The functional currency for the Company's Canadian, United Kingdom and
Australian subsidiaries is the local currency. The cumulative effects of
translating the balance sheet accounts from the functional currency into the
U.S. dollar at current exchange rates are included in cumulative foreign
currency translation adjustments. The U.S. dollar is used as the functional
currency for the Singapore and Venezuelan subsidiaries. For all operations,
gains or losses from remeasuring foreign currency transactions into the
functional currency are included in income.


Revenue Recognition

Revenue from the sale of products is recognized upon passage of title to the
customer.


Income Taxes

The Company provides for income taxes under the liability method pursuant to
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax
reporting basis of assets and liabilities.


Concentration of Credit Risk

The Company grants credit to its customers which operate primarily in the oil
and gas industry. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
Receivables are generally due within 30 days. The Company maintains reserves
for potential losses and such losses have historically been within management's
expectations.


Long-Lived Assets

Effective January 1, 1996, SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, was adopted
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and estimated future
undiscounted cash flows indicate the carrying value of those assets may not be
recoverable. The adoption did not have a material effect on the financial
statements.





                                      25


<PAGE>   27
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Stock-Based Compensation

Effective January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, and elected to continue to use the intrinsic value
method in accounting for its stock-based employee compensation plans.


Net Income Per Share

Average shares outstanding is the weighted average of issued shares of common
stock outstanding for the entire year, 340,926 shares of common stock deemed to
be outstanding for the entire year pursuant to the Value Appreciation Plans
discussed in Note 8 and 4.6 million common shares issued on October 29, 1996 in
connection with the initial public offering. Earnings per share for periods
prior to 1996 are not relevant due to the Partnership status.


 3.       INVENTORIES

    Inventories consist of (in thousands):


<TABLE>
<CAPTION>
                                                        December 31,
                                                  -----------------------
                                                    1996           1995
                                                  --------       --------
<S>                                               <C>            <C>
Raw materials and supplies                        $  9,510       $ 11,528
Work in process                                      6,141          4,842
Finished goods and purchased products               99,828        104,316
                                                  --------       --------
                  Total                           $115,479       $120,686
                                                  ========       ========
</TABLE>



Foreign inventories were approximately 20% and 21% of total inventories at
December 31, 1996 and 1995, respectively.


 4.  PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment consist of (in thousands):


<TABLE>
<CAPTION>
                                                        December 31,
                                    Estimated     -----------------------
                                  Useful Lives      1996           1995
                                  ------------    --------       --------
<S>                                <C>            <C>            <C>
Land and improvements              2-20 Years     $  2,057       $  2,509
Buildings                          5-31 Years        5,587         10,404
Machinery and equipment            5-12 Years        7,761         31,139
Computer and office equipment      3-10 Years        6,866         19,079
                                                  --------       --------
                                                    22,271         63,131
     Less accumulated depreciation                  (3,591)       (44,254)
                                                  --------       --------
                                                  $ 18,680       $ 18,877
                                                  ========       ========
</TABLE>






                                      26


<PAGE>   28
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


 5.  LONG-TERM DEBT

     Long-term debt consists of (in thousands):


<TABLE>
<CAPTION>
                                                             December 31,     
                                                       -----------------------
                                                         1996           1995  
                                                       --------       --------
     <S>                                               <C>            <C>     
                                                                              
     Revolving credit facilities                       $ 16,392       $     --
     Previous credit agreement                               --          9,128
     Seller notes                                        20,000             --
                                                       --------       --------
                                                       $ 36,392       $  9,128
                                                       ========       ========
</TABLE>





Credit Agreement

The Company entered into a new five-year Senior Secured Revolving Credit
Facility (the "Credit Facility") effective as of the closing of the IPO. The
Credit Facility provides for a $120 million revolving loan, of which $25
million may be used for letters of credit. Outstanding letters of credit at
December 31, 1996 totaled $12 million. The Credit Facility is subject to a
borrowing base limitation of various percentages of eligible inventory,
accounts receivable and the book value of certain fixed assets. The Credit
Facility is secured by substantially all of the Company's assets and contains
certain financial covenants and ratios as well as a limitation on dividends.
The interest rate on the Credit Facility is prime plus .75% or LIBOR plus 2.00%
(9.00% and 7.53% at December 31, 1996). A commitment fee of 0.375% is charged
on the unused portion. Borrowing availability was approximately $86 million at
December 31, 1996.


Seller Notes

The Company owes $10 million to each of the two sellers in connection with the
Acquisition. The notes are subordinate to other existing debt and bear interest
at the rate of 9%. At its option, the Company may defer payment of interest due
prior to January 16, 2003. On January 16, 1997, the Company elected to defer
payment of $1.8 million in interest expense recorded in 1996. One-half of the
sum of the principal and any deferred interest is payable on January 16, 2004,
and the balance is payable on January 16, 2005. The notes are subject to full
or partial prepayment in certain events, including the sale of significant
assets by the Company or the subsequent sale of Company stock by stockholders
who acquired their interests at the time of the Acquisition. There are no
scheduled maturities of long-term debt prior to the $16,392,000 payable in
October 2001.


6.  PENSION PLANS

The Company and its consolidated subsidiaries have several pension plans
covering substantially all of its employees. Defined-contribution pension plans
cover most of the U.S. and Canadian employees and are based on years of service
and a percentage of current earnings. For the years ended December 31, 1996,
1995 and 1994, pension expense for defined-contribution plans was $1.6 million,
$1.5 million and $1.9 million, respectively, and the funding is current.

The Company's subsidiary in the United Kingdom has a defined-benefit pension
plan whose participants are primarily retired and terminated employees who are
no longer accruing benefits. The pension plan assets are invested primarily in
equity securities, United Kingdom government securities, overseas bonds and
cash deposits. The plan assets at fair market value were $36.8 million at
December 31, 1996 and $32.1 million at December 31, 1995. The projected benefit
obligation was $25.8 million at December 31, 1996 and $23.1 million at December
31, 1995. Net periodic pension cost or benefit has been insignificant during
the last three years.





                                      27

<PAGE>   29
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7.  COMMITMENTS AND CONTINGENCIES

The Company leases land, buildings and storage facilities, vehicles and data
processing equipment under operating leases extending through various dates up
to the year 2004. Rent expense for the years ended December 31, 1996, 1995 and
1994 was $9.3 million, $9.7 million and $8.7 million, respectively. The
Company's minimum rental commitments for operating leases at December 31, 1996
were as follows: 1997 - $4.9 million; 1998 - $3.9 million; 1999 - $1.8 million;
2000 - $1.2 million; 2001 - $1.1 million; thereafter - $6.4 million.

The Company is involved in various claims, regulatory agency audits and pending
or threatened legal actions involving a variety of matters. The total liability
on these matters at December 31, 1996 cannot be determined; however, in the
opinion of management, any ultimate liability, to the extent not otherwise
provided for, should not materially affect the financial position, liquidity or
results of operations of the Company.

The Company's business is affected both directly and indirectly by governmental
laws and regulations relating to the oilfield service industry in general, as
well as by environmental and safety regulations that specifically apply to the
Company's business. Laws and regulations protecting the environment have
generally become more expansive and stringent in recent years and the Company
believes the trend will continue. Although the Company has not incurred
material costs in connection with its compliance with such laws, there can be
no assurance that other developments, such as stricter environmental laws,
regulations and enforcement policies thereunder, could not result in
additional, presently unquantifiable, costs or liabilities to the Company.


8.  COMMON STOCK

The Company has authorized 40 million shares, $.01 par value, common stock. The
Company has also authorized 10 million shares of $.01 par value preferred
stock, none of which is issued or outstanding.

Pursuant to the Company's Stock Award and Long-Term Incentive Plan, 941,303
shares of restricted common stock were purchased by executive officers. These
shares are subject to restriction on transferability and are not entitled to
participate in dividends or distributions. Restrictions lapse annually
regarding 20% of these shares beginning on January 17, 1997 or in their
entirety upon the occurrence of (i) a merger or consolidation of the Company,
(ii) a sale of all or substantially all the assets of the Company, or (iii) a
sale of all the common stock of the Company. Restrictions will lapse on an
additional 20% of an executive officer's shares upon an involuntary termination
of employment without cause. Any restricted shares may be repurchased by the
Company for $.001 per share upon termination of the executive officer's
employment. On August 28, 1996, the Company's board of directors approved,
subject to stockholder approval, the amendment and restatement of the plan to
authorize the issuance of up to 1,000,000 additional shares of common stock
pursuant to awards made thereunder, all of which remained available for
issuance as of December 31, 1996.

In January 1996, the Company established Value Appreciation Plans (the "Plans")
intended to reward participants for enhancing the value of the Company's common
stock. The IPO represented a triggering event under these Plans. Based upon the
offering price of $17.00, the Plans resulted in a one-time charge before taxes
of $12.2 million ($7.6 million after tax). The Company paid $2.9 million of
this amount in cash at the time of the IPO, $3.5 million in cash will be paid
in five annual installments beginning January 17, 1997 and 340,926 shares of
common stock will be issued. One-half of the shares of common stock will be
issued one year after the IPO and the remaining one-half on January 17, 1999,
subject to earlier issuance to terminated employees in certain circumstances.





                                      28


<PAGE>   30
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9.  INCOME TAXES

Prior to 1996, the Company was a partnership for U.S. federal tax purposes and
provided for foreign taxes but did not provide for U.S. federal or state taxes
on its income.

The domestic and foreign components of income before income taxes were as
follows (in thousands):


<TABLE>
<CAPTION>
                           1996            1995           1994
                         --------        --------       --------
<S>                      <C>             <C>            <C>
Domestic                 $ (1,530)       $ 14,194       $ 22,840
Foreign                     8,324           5,383          2,081
                         --------        --------       --------
                         $  6,794        $ 19,577       $ 24,921
                         ========        ========       ========
</TABLE>





The components of the provision for income taxes consisted of (in thousands):


<TABLE>
<CAPTION>
                           1996            1995           1994
                         --------        --------       --------
<S>                      <C>             <C>            <C>
Current:
    Federal              $  3,841        $     --       $     --
    State                     307              --             --
    Foreign                   812           1,428            132
                         --------        --------       --------
                            4,960           1,428            132
                         --------        --------       --------
Deferred:
    Federal                (3,898)             --             --
    State                    (864)             --             --
    Foreign                 2,351             509            909
                         --------        --------       --------
                           (2,411)            509            909
                         --------        --------       --------
                         $  2,549        $  1,937       $  1,041
                         ========        ========       ========
</TABLE>





The difference between the effective tax rate reflected in the provision for
income taxes and the U.S. federal statutory rate was as follows (in thousands):


<TABLE>
<CAPTION>
                                                   1996           1995           1994
                                                 -------        -------        -------
<S>                                              <C>            <C>            <C>
Federal income tax at statutory rate             $ 2,378        $ 6,852        $ 8,722
Foreign income tax rate differential                  90            184            368
Untaxed U.S. partnership income                       --         (4,968)        (7,994)
Nondeductible expenses                               321            398            293
Unutilized foreign operating loss                     --          1,037            278
Change in deferred tax valuation allowance          (462)        (1,577)          (809)
Other                                                222             11            183
                                                 -------        -------        -------

                                                 $ 2,549        $ 1,937        $ 1,041
                                                 =======        =======        =======
</TABLE>






                                      29

<PAGE>   31
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Significant components of the Company's deferred tax assets and liabilities
were as follows (in thousands):


<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                  ----------------------------------------
                                                                    1996            1995            1994
                                                                  --------        --------        --------
<S>                                                               <C>             <C>             <C>
Deferred tax assets:
    Book over tax depreciation                                    $    232        $  1,153        $  1,729
    Compensation liabilities                                         4,945              --              --
    Insurance reserves                                               4,626              --              --
    Other accrued liabilities                                        3,305           1,205           2,887
    Net operating loss carryforwards                                 7,615           6,780           7,268
    Other                                                            4,454           1,070             508
                                                                  --------        --------        --------
                Total deferred tax assets                           25,177          10,208          12,392
                Valuation allowance for deferred tax assets        (12,815)         (8,310)         (9,887)
                                                                  --------        --------        --------
                                                                    12,362           1,898           2,505
                                                                  --------        --------        --------
Deferred tax liabilities:
    Tax over book depreciation                                       1,376             448             346
    Other                                                              111              --             200
                                                                  --------        --------        --------
                Total deferred tax liabilities                       1,487             448             546
                                                                  --------        --------        --------
                Net deferred tax assets                           $ 10,875        $  1,450        $  1,959
                                                                  ========        ========        ========
</TABLE>



In connection with the Acquisition, the Company adjusted its deferred tax assets
and liabilities as of January 1, 1996 resulting in an increase to deferred tax
assets of $13.7 million and related valuation allowance of $5.0 million. The
increase in the valuation allowance at January 1, 1996 was related to the
Company's estimate of restated deferred tax assets that may not be realized. Any
future decrease in the valuation allowance recorded at January 1, 1996 will
reduce goodwill. The deferred tax valuation allowance, after considering the
effect of the above increase, decreased $462,000 and $1.6 million for the
periods ending December 31, 1996 and December 31, 1995, respectively. The
decrease in the valuation allowance in 1995 is related to the realization of
foreign net operating losses that were previously deferred. The Company's
deferred tax assets are expected to be realized principally through future
earnings.

Undistributed earnings of the Company's foreign subsidiaries amounted to $14.3
million and $9.1 million at December 31, 1996 and December 31, 1995,
respectively. Those earnings are considered to be permanently reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
made. Distribution of these earnings in the form of dividends or otherwise
would result in both U.S. federal taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable in various foreign countries.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable; however, unrecognized foreign tax credit carryforwards
would be available to reduce some portion of the U.S. liability. Withholding
taxes of approximately $1.4 million would be payable upon remittance of all
previously unremitted earnings at December 31, 1996.

The Company made income tax payments of $3.3 million, $332,000 and $557,000
during the years ended December 31, 1996, 1995 and 1994, respectively.





                                      30

<PAGE>   32
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10. SPECIAL CHARGES (INCOME) AND EXTRAORDINARY LOSS

 Special charges (income) consist of the following (in thousands):


<TABLE>
<CAPTION>
                                              1996           1995            1994
                                            --------       --------        --------
<S>                                         <C>            <C>             <C>
IPO related expenses                        $ 16,611       $     --        $     --
Sale of product lines and assets                  --         (8,458)        (15,648)
Employee terminations and other costs             --             --           1,732
                                            --------       --------        --------
                    Total                   $ 16,611       $ (8,458)       $(13,916)
                                            ========       ========        ========
</TABLE>




IPO Related Expenses. In connection with the IPO, the Company incurred certain
one-time expenses. The Management Service Agreement was terminated at a cost of
$4.4 million ($2.8 million after tax) and will be paid in quarterly installments
of $250,000 through March 31, 2001, subject to certain accelerating events. The
Company's Value Appreciation Plans were triggered, resulting in awards to
certain executives and key employees totaling $12.2 million ($7.6 million after
tax) as discussed in Note 8. Also, in connection with the IPO, the existing
credit facility was replaced, resulting in the write-off of $6.4 million ($4.0
million after tax) of deferred financing costs related to the existing agreement
which has been reflected in the accompanying statement of operations as an
extraordinary loss.


Sale of Product Lines and Assets. During the second quarter of 1995 the Company
completed the sale of the Wilson-Snyder centrifugal pump and switch valve
product line. Proceeds of approximately $6.9 million from that sale resulted in
a gain of $5.5 million. In addition, the Company recorded a net gain of
approximately $3.0 million related to the final closure of a facility in the
United Kingdom and the sale of related property and equipment.

During 1994, the Company completed the sales of certain production equipment
product lines not considered part of its core businesses resulting in a gain of
$15.6 million. Proceeds received in 1994 totaled $41.0 million and were used to
reduce debt.


Employee Terminations and Other Costs. In conjunction with the announced
shutdown of a manufacturing facility in the United Kingdom, the Company
expensed approximately $3.2 million in 1994 relating to employee termination
benefits. These benefits were paid in the fourth quarter of 1994 and in 1995.
The consolidation of the Company's Houston, Texas manufacturing operations
resulted in lease termination and other costs of $600,000 which were paid in
1994. The Company also reversed $2.1 million in excess accruals made in prior
years for potential demolition and environment cleanup regarding a sold
manufacturing facility.


11.  RELATED PARTY TRANSACTIONS

In connection with the Acquisition, the Company entered into a five-year
Management Service Agreement with the Company's largest stockholder, The
Inverness Group, Inc., whereby the Company would pay $1,000,000 per year for
senior management assistance and other services as agreed. The agreement also
provided that The Inverness Group, Inc. receive 1% of the aggregate transaction
value in connection with each acquisition or disposition completed during the
five year period and that First Reserve Corporation, the Company's second
largest stockholder, receive certain fees in connection with specific
Acquisitions. In connection with the IPO, this agreement was terminated (See
Note 10).





                                      31

<PAGE>   33
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The Company paid transaction fees of $1.8 million to the Inverness Group, Inc.
and $1.2 million to First Reserve Corporation in connection with the
Acquisition. Fees of $4.7 million were also paid to General Electric Capital
Corporation in connection with the provision of the Credit Agreements entered
into in connection with the Acquisition.


12.  BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

The Company's operations consist of the Oilfield Equipment segment and the
Distribution Services segment. The Oilfield Equipment segment designs and
manufactures a variety of oilfield equipment for use in oil and gas drilling,
completion and production activities. The Distribution Services segment
distributes an extensive line of oilfield supplies, oilfield equipment and
tubular products. The Disposed Businesses information includes the results of
operations disposed of in prior years. Intersegment sales and transfers are
accounted for at commercial prices.

No single customer accounted for 10% or more of consolidated revenues during
the year ended December 31, 1996 and December 31, 1994. For the year ended
December 31, 1995, one major oil company accounted for 12.5% of consolidated
revenues.





                                      32


<PAGE>   34
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Summarized financial information is as follows (in thousands):

Business Segments


<TABLE>
<CAPTION>
                                    OILFIELD     DISTRIBUTION                                   DISPOSED
                                  EQUIPMENT (1)    SERVICES    CORPORATE (2)    ELIMINATION    BUSINESS (3)       TOTAL
                                  -------------    --------    -------------    -----------    ------------      --------
<S>                                 <C>            <C>            <C>             <C>             <C>            <C>
1996

Revenues from:
    Unaffiliated customers          $129,936       $518,685       $     --        $     --        $     --       $648,621
    Intersegment sales                51,732             --             --         (51,732)             --             -- 
                                    --------       --------       --------        --------        --------       --------
        Total revenues               181,668        518,685             --         (51,732)             --        648,621
Operating income (loss)               21,283         17,483        (20,669)             --              --         18,097
Capital expenditures                   2,055          1,050             31              --              --          3,136
Depreciation and amortization          1,886          1,650             55              --              --          3,591
Identifiable assets                   91,168        154,985         23,378          (2,788)                        266,743

1995

Revenues from:
    Unaffiliated customers          $113,511       $432,292       $     --        $     --        $     --       $545,803
    Intersegment sales                33,006             --             --         (33,006)             --             -- 
                                    --------       --------       --------        --------        --------       --------
        Total revenues               146,517        432,292             --         (33,006)             --        545,803
Operating income (loss)               10,443          9,435         (2,866)             --           5,227         22,239
Capital expenditures                   3,540          1,157             67              --              --          4,764
Depreciation and amortization          1,899          1,662             34              --              --          3,595
Identifiable assets                   93,287        128,321         69,761          (2,791)             --        288,578

1994

Revenues from:
    Unaffiliated customers          $127,854       $415,722       $     --        $     --        $ 18,477       $562,053
    Intersegment sales                60,041             --             --         (60,041)             --             -- 
                                    --------       --------       --------        --------        --------       --------
        Total revenues               187,895        415,722             --         (60,041)         18,477        562,053
Operating income (loss)                5,314          9,036         (2,898)             --          17,672         29,124
Capital expenditures                   1,690          1,832             44              --              38          3,604
Depreciation and amortization          1,922          2,564              8              --           1,533          6,027
Identifiable assets                   99,298        162,170         12,150          (5,314)             --        268,304
</TABLE>



- ----------

(1)  Operating income/(loss) of the oilfield equipment segment includes special
     charges (income) of $(3,231) and $1,732 for 1995 and 1994, respectively.

(2)  Operating income/(loss) of Corporate includes special charges (income) of
     $16,611 for 1996. Corporate identifiable assets in 1995 included $65.5
     million of cash and cash equivalents.

(3)  Operating income/(loss) of the disposed businesses includes special
     charges (income) of $(5,227) and $(15,648) for 1995 and 1994,
     respectively. Operating results prior to the disposal date for the
     business sold in 1995 were immaterial.





                                      33

<PAGE>   35
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Geographic Areas:


<TABLE>
<CAPTION>
                                  UNITED                       UNITED
                                  STATES         CANADA        KINGDOM          OTHER       ELIMINATION        TOTAL
                                 --------       --------       --------        --------     -----------       --------
<S>                              <C>            <C>            <C>             <C>            <C>             <C>     
1996

Revenues from:
    Unaffiliated customers       $521,277       $ 76,137       $ 26,957        $ 24,250       $     --        $648,621
    Interarea sales                29,099            245          1,912             504        (31,760)             -- 
                                 --------       --------       --------        --------       --------        --------
        Total revenues            550,376         76,382         28,869          24,754        (31,760)        648,621
Operating income                   11,975          1,386          1,926           2,810             --          18,097
Export sales of U.S.                   --          1,845          3,815          90,183             --          95,843
Identifiable assets               200,751         28,503         19,541          17,948             --         266,743

1995

Revenues from:
    Unaffiliated customers       $430,671       $ 59,390       $ 35,776        $ 19,966       $     --        $545,803
    Interarea sales                34,416            878         16,285             233        (51,812)             -- 
                                 --------       --------       --------        --------       --------        --------
        Total revenues            465,087         60,268         52,061          20,199        (51,812)        545,803
Operating income (loss)            18,707          2,003         (1,383)          2,912             --          22,239
Export sales of U.S.                   --          1,700          1,539          80,075             --          83,314
Identifiable assets               228,817         23,851         17,789          18,121             --         288,578

1994

Revenues from:
    Unaffiliated customers       $442,555       $ 73,052       $ 29,708        $ 16,738       $     --        $562,053
    Interarea sales                26,144            579          9,726             106        (36,555)             -- 
                                 --------       --------       --------        --------       --------        --------
        Total revenues            468,699         73,631         39,434          16,844        (36,555)        562,053
Operating income (loss)            27,166          1,872           (314)            400             --          29,124
Export sales of U.S.                   --          1,436            635         102,265             --         104,336
Identifiable assets               186,634         34,567         32,136          14,967             --         268,304
</TABLE>






13.   QUARTERLY FINANCIAL DATA (UNAUDITED)

      Summarized quarterly results were as follows:



<TABLE>
<CAPTION>
1996                            1ST QUARTER      2ND QUARTER      3RD QUARTER     4TH QUARTER         TOTAL
                                -----------      -----------      -----------     -----------      -----------
<S>                              <C>              <C>              <C>             <C>              <C>      
Revenues                         $ 141,144        $ 153,499        $ 173,499       $ 180,479        $ 648,621
Gross profit                        18,294           21,793           24,675          26,505           91,267
Special charges/(income)                --               --               --          16,611           16,611
Income (loss) before taxes and
    extraordinary loss               2,081            4,586            7,341          (7,214)           6,794
Income before extraordinary loss     1,434            2,566            4,756          (4,511)           4,245
Extraordinary loss, net of
    income tax benefit of $2,400        --               --               --          (4,000)          (4,000)  
Net income                           1,434            2,566            4,756          (8,511)             245
Income per share before
    extraordinary loss                0.10             0.19             0.35           (0.27)            0.18
Net income per share                  0.10             0.19             0.35           (0.51)            0.02

1995

Revenues                         $ 135,935        $ 130,508        $ 133,641       $ 145,719        $ 545,803
Gross profit                        15,067           19,820           17,484          18,641           71,012
Special charges/(income)              (706)          (6,794)             113          (1,071)          (8,458)
Income before taxes                  2,952            7,630            5,423           3,572           19,577
Net income                           2,616            6,762            4,981           3,281           17,640
</TABLE>






                                      34

<PAGE>   36
                             NATIONAL-OILWELL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SUBSEQUENT EVENTS
 
     On April 25, 1997, the Company purchased the drilling controls business of
Ross Hill Controls and its affiliate, Hill Graham Controls Limited for $19
million in cash. This business involves the manufacture, sale and service of
electrical control systems used in conjunction with drilling operations. The
transaction will be accounted for under the purchase method of accounting and
will not have a material effect on the Company's financial statements.
 
     On May 15, 1997, the Company purchased 100% of the common stock of PEP,
Inc., a manufacturer of petroleum expendable pump products. The Company issued
400,000 shares of common stock to fund the transaction which will be recorded in
accordance with the pooling of interests method of accounting. The transaction
will not have a material effect on the Company's historical financial statements
and financial statements prior to April 1, 1997 will not be restated.
 
     On May 14, 1997, the Company entered into a definitive agreement with Dreco
Energy Services Ltd. to combine the two companies. The terms of the agreement
provide for the exchange of 100% of the Dreco common shares for Dreco
exchangeable shares, which can be converted into National-Oilwell common shares,
in a pooling of interests transaction that is expected to be tax free to both
companies. The merger has been approved by the boards of directors of both
companies and is subject to various conditions, including approvals by the
shareholders of both companies and regulatory approvals in both the United
States and Canada.
 



                                       35

<PAGE>   37

 
                              INDEX TO EXHIBITS


<TABLE>
<CAPTION>
       Exhibit
         No.     Description
       -------   -----------
        <S>      <C>
         1.1     Form of Purchase Agreement.  (1)

         2.1     Purchase Agreement by and among Oilwell, Inc., National Supply
                 Company, Inc., USX Corporation, Armco Inc. and the Company
                 dated September 22, 1995. (1)

         3.1     Amended and Restated Certificate of Incorporation of the 
                 Company. (1)

         3.2     Bylaws of the Company.  (1)

        10.1*    Employment Agreement dated as of January 16, 1996 between Joel
                 V. Staff and the Company. (1)
             
        10.2*    Employment Agreement effective as of January 17, 1996 between 
                 C.R. Bearden and the Company, with similar agreements with
                 Lynn L. Leigh, Jerry N. Gauche, Paul M. Nation, James J.
                 Fasnacht and Steven W. Krablin, and a similar agreement
                 effective as of February 5, 1996 between Merrill A. Miller,
                 Jr. and the Company. (1)
             
        10.3     Stockholders Agreement among the Company and its stockholders 
                 dated as of January 16, 1996. (1)
             
        10.4     Waiver and First Amendment to Stockholders Agreement dated as 
                 of July 24, 1996. (1)
             
        10.5*    Employee Incentive Plan.  (1)
             
        10.6*    Stock Award and Long-Term Incentive Plan.  (1)
             
        10.7*    First Amendment to Stock Award and Long-Term Incentive 
                 Plan. (1)
             
        10.8*    Value Appreciation and Incentive Plan A.  (1)
             
        10.9*    Value Appreciation and Incentive Plan B.  (1)
             
        10.10*   Restricted Stock Agreement between the Company and Joel V. 
                 Staff, with similar agreements with C.R. Bearden, Jerry N.
                 Gauche, Steven W. Krablin, Merrill A. Miller, Jr., James J.
                 Fasnacht and Paul M. Nation. (1)
             
        10.12*   Supplemental Savings Plan.  (1)
             
        10.13    Amended and Restated Credit Agreement dated October 23, 
                 1996. (1)
             
        10.14    Deferred Fee Agreement.  (1)
             
        10.15*   First Amendment to Value Appreciation and Incentive Plan 
                 A. (1)
             
        10.16*   First Amendment to Value Appreciation and Incentive Plan 
                 B. (1)
             
        10.17    Second Amendment to Stockholders Agreement dated as of October
                 18, 1996. (1)
             
        21.1     Subsidiaries of the Company.

        23.1     Consent of Ernst & Young LLP.
             
        27.1     Financial Data Schedule.
</TABLE>


- ----------

*    Represents a management contract or compensatory plan.



(1) Exhibit incorporated herein by reference to the Registrant's registration 
    statement on Form S-1 (Registration No. 333-11051) dated August 29, 1996, 
    as amended.


                                     





<PAGE>   1
                                                                   Exhibit 23.1




                        CONSENT OF INDEPENDENT AUDITORS


  We consent to the incorporation by reference in the Registration Statement
  Form S-8 (No. 333-15859) pertaining to the 1996 Stock Award and Long Term
  Incentive Plan, the National-Oilwell, Inc. Value Appreciation and Incentive
  Plan A and the National-Oilwell, Inc. Value Appreciation and Incentive Plan B
  of our report dated July 25, 1997, with respect to the consolidated financial
  statements of National-Oilwell, Inc. and its predecessor, as amended, included
  in this Form 10-K/A.



                                                  ERNST & YOUNG LLP

  Houston, Texas
  August 15, 1997








<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                           4,315
<SECURITIES>                                         0
<RECEIVABLES>                                  105,618
<ALLOWANCES>                                     2,760
<INVENTORY>                                    115,479
<CURRENT-ASSETS>                               233,390
<PP&E>                                          22,271
<DEPRECIATION>                                   3,591
<TOTAL-ASSETS>                                 266,743
<CURRENT-LIABILITIES>                          103,320
<BONDS>                                         36,392
<COMMON>                                           179
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<OTHER-SE>                                     108,901
<TOTAL-LIABILITY-AND-EQUITY>                   266,743
<SALES>                                        648,621
<TOTAL-REVENUES>                               648,621
<CGS>                                          557,354
<TOTAL-COSTS>                                  557,354
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                   405
<INTEREST-EXPENSE>                              12,095
<INCOME-PRETAX>                                  6,794
<INCOME-TAX>                                     2,549
<INCOME-CONTINUING>                              4,245
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                 (4,000)
<CHANGES>                                            0
<NET-INCOME>                                       245
<EPS-PRIMARY>                                      .02
<EPS-DILUTED>                                      .02
        

</TABLE>