GRANT PRIDECO INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

COMMISSION FILE NUMBER 001-15423

GRANT PRIDECO, INC.
(Exact name of Registrant as specified in its Charter)

DELAWARE 76-0312499
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

1330 POST OAK BLVD.
SUITE 2700
HOUSTON, TEXAS 77056
(Address of Principal Executive (Zip Code)
Offices)

(832) 681-8000
(Registrant's telephone number, including area code)

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 whether the issuer is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRANT PRIDECO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNT)

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

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GRANT PRIDECO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

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GRANT PRIDECO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

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

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GRANT PRIDECO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. GENERAL

Basis of Presentation

The accompanying consolidated financial statements of Grant Prideco, Inc.
(the "Company" or "Grant Prideco") have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all disclosures required by
generally accepted accounting principles for complete financial statements. All
significant transactions between Grant Prideco and its consolidated subsidiaries
have been eliminated. The interim financial statements have not been audited.
However, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
statements have been included. Results of operations for interim periods are not
necessarily indicative of the results of operations that may be expected for the
entire year. The balance sheet at December 31, 2002 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These interim financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2002.

The Annual Report on Form 10-K for the year ended December 31, 2002 includes
disclosures related to significant accounting policies including revenue
recognition, accounts receivable valuation, inventory valuation, business
combinations, impairment of long-lived assets, goodwill and intangible assets,
estimates related to contingent liabilities and future claims, and pension
liabilities.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
certain assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements, and the
related reported amounts of revenues and expenses during the reporting period.
The significant estimates made by management in the accompanying consolidated
financial statements include reserves for inventory obsolescence,
self-insurance, valuation of goodwill and long-lived assets, product warranty
claims, determination of income taxes, contingent liabilities and purchase
accounting allocations. Actual results could differ from those estimates.

Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 2003 classifications and are of a normal recurring
nature. These reclassifications have no impact on net income.

2. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes changes in stockholders' equity during
the periods that do not result from transactions with stockholders. The
Company's total comprehensive income (loss) is as follows:

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3. INVENTORIES

Inventories by category are as follows:

4. OTHER CHARGES

2000 Charges

The Company recorded certain charges in 2000 totaling $7.9 million that
related to accrued liabilities. The accrued liability balances as of June 30,
2003 are summarized below (in thousands):

In July 2003, the contingent liability was settled for $3.3 million,
therefore a $1.4 million adjustment was made in the second quarter of 2003 to
reduce the accrued liability to the actual settlement amount and is recorded in
"Other Charges" in the Consolidated Statements of Operations. The litigation
accrual of $0.6 million is expected to be settled by the end of the year.

2002 Charges

Results for the second quarter of 2002 include $7.0 million of pre-tax
charges, $4.9 million net of tax. These charges include $2.6 million related to
fixed asset write-downs and $4.5 million for executive severance payments and
related expenses. These charges are summarized in the following chart by segment
(in thousands):

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(a) The fixed asset write-downs relate to idled assets taken out of service
pursuant to the Company's ongoing automation and efficiency initiatives
and are classified as held for sale. The amount was determined by use
of internal appraisals and evaluations to assess the estimated fair
value upon disposition. The equipment, which has a carrying value of
$0.2 million, is expected to be disposed of within the next 12 months.

(b) The severance charge relates to an executive employee terminated during
June 2002. The amount accrued for severance was based upon the
terminated employee's employment contract, which was paid in July 2002.

Second Quarter 2003 Charges

Results for the second quarter of 2003 include $7.9 million of pre-tax
charges, $5.1 million net of tax. These charges include $6.4 million related to
inventory reserves for exited product lines and $1.5 million for stock
compensation expense and are summarized in

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the following chart by segment (in thousands):

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(a) The inventory reserves for the exited product lines were reported as
cost of sales and relates to the write-down of inventories, primarily
industrial drilling products, to their net estimated realizable values.
The amount was determined by use of internal appraisals and evaluations
to assess the estimated net realizable value upon disposition. The
inventory, which has a carrying value of $3.8 million, is expected to
be disposed of within the next 12 months.

(b) In May 2003 two Board of Directors volunteered to step down to reduce
the number of common directors between Grant Prideco and its former
parent, Weatherford International LTD. (Weatherford), and vesting of
their stock-based compensation was accelerated.

5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution from the exercise or
conversion of securities into common stock. Common stock equivalent shares are
excluded from the computation if their effect was antidilutive. When a loss
occurs for the period, the effect of stock options is not included in the
diluted computation because to do so would be antidilutive. The computation of
diluted earnings per share for the three and six months ended June 30, 2002 did
not include options to purchase 4.5 million and 4.9 million shares,
respectively, of common stock because their exercise prices were greater than
the average market price of the common stock for the applicable period. The
computation of diluted earnings per share for the three and six months ended
June 30, 2003 did not include options to purchase 4.6 million shares of common
stock because their exercise prices were greater than the average market price
of the common stock.

6. STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation programs using the
intrinsic value method of accounting established by APB No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Under APB No. 25, no
compensation expense is recognized when the exercise price of an employee stock
option is equal to the market price of common stock on the grant date.
Nonemployee stock-based compensation is accounted for using the fair value
method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation".

Had compensation cost for stock options been determined based on the fair
value at the grant dates for awards under the Company's incentive compensation
plans, the Company's net earnings and net earnings per share would have been
reduced to the pro forma amounts indicated as follows:

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The weighted average fair value of each stock option included in the
preceding pro forma amounts were estimated using the Black-Scholes option
pricing model and is amortized over the vesting period of the underlying
options.

7. SENIOR CREDIT FACILITY

As of June 30, 2003, the Company had borrowed $78.9 million under a $240
million Senior Credit Facility (Senior Credit Facility), comprised of $32.5
million of revolving credit facility borrowings and $46.4 million related to the
term loan borrowings. Also, $4.7 million had been used to support outstanding
letters of credit. Net borrowing availability was $92.4 million as of June 30,
2003. The revolving credit facility borrowings under the Senior Credit Facility
are recorded as "Long-Term Debt" in the accompanying Consolidated Balance
Sheets, as the Company has the intent and ability under the credit agreements to
maintain these obligations for longer than one year.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets".
Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite
lives are no longer amortized but will be subject to annual impairment tests.
Other intangible assets will continue to be amortized over their useful lives.

The Company completed the transitional goodwill impairment test as of
January 1, 2002 during the fourth quarter of 2002 and recorded a pre-tax
goodwill impairment charge of $9.3 million, $6.4 million net of tax, related to
its Industrial reporting unit. This charge had no impact on cash flows and was
recorded as a cumulative effect of a change in accounting principle in the
Consolidated Statements of Operations effective January 1, 2002.

The carrying amount of goodwill by reporting unit is as follows:

Intangible assets of $39.0 million and $37.4 million, net of accumulated
amortization of $3.4 million and $5.3 million, as of December 31, 2002 and June
30, 2003, respectively, are recorded at cost and are amortized on a
straight-line basis. The Company's intangible assets primarily consist of
patents, covenants not to compete, technology licenses, and customer
relationships that are amortized over the definitive terms of the related
agreement or the Company's estimate of the useful lives if there are no
definitive terms. The following table shows the Company's intangible assets by
asset category (in thousands):

Amortization expense related to intangible assets for the six months ended
June 30, 2002 and 2003 were $0.5 million and

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$2.0 million, respectively, and is recorded in "General and Administrative" and
"Research and Engineering" expenses in the Consolidated Statements of
Operations. Amortization expense related to existing intangible assets for the
remainder of 2003 is estimated to be $1.9 million and for each of the years 2004
through 2008 is estimated to be approximately $3.5 million, $2.9 million, $2.8
million, $2.4 million, and $2.3 million, respectively.

9. RESTRICTED CASH

At June 30, 2003, the Company had $4.4 million of restricted cash. The
restricted cash relates to the Company's 60% interest in Tianjin Pipe Company
(TPCO) that is designated for property, plant, and equipment expenditures and is
subject to dividend and distribution restrictions.

10. SEGMENT INFORMATION

BUSINESS SEGMENTS

The Company operates through four business segments: Drilling Products and
Services, ReedHycalog(TM), Tubular Technology and Services, and Marine Products
and Services. The Company's Drilling Products and Services segment manufactures
and sells a full range of proprietary and API drill pipe, drill collars, heavy
weight drill pipe and accessories. The ReedHycalog segment designs,
manufactures, and distributes fixed-cutter and roller-cone drill bits. The
Company's Tubular Technology and Services segment designs, manufactures, and
sells a line of premium connections and associated premium tubular products and
accessories. The Company's Marine Products and Services segment manufactures and
sells a variety of products used in subsea construction and installation, which
consists primarily of large bore casing and riser products and high
specification valves for use in drilling and production activity. In addition to
the products and services provided through the Company's four primary business
segments, the Company also has an Other segment that, until discontinuing these
product lines during the first half of 2003, manufactured drill pipe and other
products used in the industrial markets for fiber optic cable installation,
construction, and water well drilling. See Note 15 for further discussions
related to the Company's Other operations.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN No.
46). FIN No. 46 clarifies the application of Accounting Research Bulletin No.
51,

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"Consolidated Financial Statements", to certain entities in which equity
investors do not have the characteristics of a controlling interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies to the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company is currently
evaluating the potential effect, if any, this interpretation will have on its
consolidated results of operations and its financial condition, with respect to
entities acquired before February 1, 2003.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that financial instruments within its scope be classified as an
asset or liability. SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003 and must be applied to the Company's
existing financial instruments effective July 1, 2003, the beginning of the
first fiscal period after June 15, 2003. The Company does not expect the
adoption of SFAS No. 150 to have a material impact on the Company's consolidated
results of operations or financial condition.

12. ACQUISITIONS

On December 20, 2002, the Company purchased the ReedHycalog drill bits
business from Schlumberger Technology Corporation and its affiliates
(Schlumberger) for approximately $350 million, consisting of $255 million in
cash (subject to adjustment), approximately $90 million in Grant Prideco common
stock, and approximately $5 million of assumed non-current liabilities. At June
30, 2003, goodwill recognized in the acquisition of ReedHycalog was $159.6
million. The results of ReedHycalog have been included in the financial
statements from the date of acquisition. ReedHycalog is a leading designer,
manufacturer, and distributor of fixed-cutter and roller-cone drill bits to the
global oil and gas industry.

The purchase price for ReedHycalog(TM) has been allocated to the estimated
fair value of assets acquired and liabilities assumed. The preliminary purchase
price allocation is based upon the Company's current estimates of respective
fair values. Some allocations are based on studies and independent valuations.
The Company expects to finalize the determination of the fair value of all of
the ReedHycalog(TM) assets and liabilities in 2003. Deferred tax liabilities
will also be finalized after the final allocation of the purchase price and the
final tax basis of the assets and liabilities has been determined.

The following unaudited pro forma summary presents information as if
ReedHycalog had been acquired at the beginning of the period presented. The pro
forma amounts include certain adjustments, including recognition of depreciation
and amortization based on the allocated purchase price of the properties, plant,
and equipment acquired and of intangible assets; reduction of employee benefit
expenses related to benefit plans not to be continued by Grant Prideco;
increased interest expense on acquisition debt; and elimination of interest
income that is not expected to have a continuing impact. The pro forma amounts
do not reflect any benefits from synergies that might be achieved from the
combined operations.

The pro forma results are not necessarily indicative of what would have
occurred if the ReedHycalog acquisition had been in effect for the periods
presented and they are not intended to be a projection of future results.

On September 13, 2002, the Company acquired the assets of Grey-Mak Pipe,
Inc. (Grey-Mak), a company headquartered in Casper, Wyoming, that specializes in
the threading of casing and tubing and provides related accessories. The Company
paid approximately $4.8 million in cash, and goodwill recognized in the
acquisition was approximately $0.7 million. Grey-Mak's results of operations and
financial condition are included in the Company's Tubular Technology and
Services segment.

On March 26, 2002, the Company acquired an additional 48.5% interest in
Jiangsu Shuguang Grant Prideco Tubular Limited (JSG), a Chinese entity engaged
in the manufacture and sale of drill pipe to the Chinese and related markets,
thereby giving the Company a 70% controlling interest in JSG. The Company
previously owned approximately 21.5% of JSG and

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accounted for its investment under the equity method. The Company paid
approximately $0.5 million in cash and issued 1.3 million shares of Grant
Prideco common stock for the additional interest. Goodwill recognized in the
step acquisition of JSG was approximately $11.3 million. Subsequent to acquiring
a controlling interest, the Company's consolidated financial statements include
the accounts of JSG in the Drilling Products and Services segment. Previously
recorded goodwill of $2.9 million related to the Company's initial 21.5%
investment has been reclassified from "Investments in and Advances to
Unconsolidated Affiliates" to "Goodwill" in the Consolidated Balance Sheets.

On March 26, 2002, the Company also entered into a joint venture with TPCO
for the manufacture of unfinished upset to grade pipe in China, with the intent
of this joint venture supplying JSG with all of its tubular requirements. The
Company currently owns a 60% interest in the joint venture with TPCO and plans
to invest approximately $5 million for machinery and equipment representing the
Company's contribution to the joint venture. As of June 30, 2003, the Company
had invested approximately $2.7 million into this joint venture.

On May 7, 2002, the Company acquired 65% of Rotator AS (Rotator), a
Norwegian company that manufactures control valves and systems for the offshore
oil and gas industry. On January 28, 2003, the Company purchased the remaining
35% interest in Rotator. Total consideration for the purchase of Rotator was 0.3
million shares of Grant Prideco common stock with a value of approximately $5.1
million and $6.1 million in cash. Goodwill recognized in the acquisition of
Rotator was $5.1 million, all of which related to the 2003 step-acquisition.
Rotator's results of operations and financial condition are included in the
Company's Marine Products and Services segment.

On November 6, 2001, the Company acquired a license to Plexus
International's (Plexus) patented POS-GRIP(TM) wellhead and related technology
for subsea well applications and certain exploration and development wells,
including the associated wellhead rental business for $2 million in cash. The
terms of the agreement also provided for additional consideration to be paid
based on a multiple of Plexus' actual earnings for the annual period ending
December 31, 2002, not to exceed $5.5 million. The Company paid total additional
consideration of $2.5 million in April 2003. Goodwill recognized in the
acquisition of Plexus was $2.5 million. Plexus' results of operations and
financial condition are included in the Company's Marine Products and Services
segment.

The acquisitions discussed above were accounted for using the purchase
method of accounting. The results of operations of all acquisitions are included
in the Consolidated Statements of Operations from their respective dates of
acquisition. The purchase prices were allocated to the net assets acquired based
upon their estimated fair market values at the dates of acquisitions. The
acquisitions mentioned above, with the exception of the ReedHycalog acquisition,
are not material to the Company individually or in the aggregate for each
applicable year, therefore pro forma information is not presented. See Note 13
for supplemental cash flow information concerning acquisitions.

13. SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes investing activities relating to acquisitions
(in thousands):

For additional information on 2003 acquisition activity and goodwill changes
see Notes 8 and 12.

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14. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company's 50.01% owned joint venture, Voest-Alpine, is accounted for
under the equity method of accounting due to the minority owner having
substantive participating rights. Summarized financial information for
Voest-Alpine is as follows (in thousands):

The Company's equity in earnings differs from its proportionate share of net
income (loss) due to the elimination of intercompany profit on Voest-Alpine
sales to the Company.

15. EXITING PRODUCT LINES

On March 25, 2003, the Company sold Star Iron Works, Inc. (Star), a
manufacturer of drilling tools for the water well, construction, and utility
boring industries, for $11.0 million in cash and a note valued at approximately
$0.9 million. The gain recognized on the sale of Star was $1.3 million, $0.8
million net of tax, and is recorded in the Consolidated Statements of Operations
as "Other, Net".

During the second quarter of 2003, the Company announced the shut-down of
its Bryan, Texas facility, where the majority of its industrial drilling
products and oil and gas tubing operations have occurred. Future operations, if
any, will be conducted at the Company's Navasota, Texas location. In connection
with the decision to shut-down the Bryan, Texas facility, the Company recorded a
$6.4 million charge to reduce the carrying value of inventories, primarily
industrial drilling products, to their estimated net realizable values. For
further discussion on the charge, see Note 4.

16. PREFERRED SUPPLIER CREDIT AGREEMENT

In April 2000, Weatherford spun off Grant Prideco to its stockholders as an
independent, publicly traded company (the "Distribution"). In connection with
the initial capitalization of the Company, and in consideration of amounts due
from the Company to Weatherford at the time of the Distribution, the Company
entered into a preferred supplier agreement with Weatherford. Pursuant to this
agreement Weatherford agreed for at least a three-year period from the
Distribution date to purchase a minimum of 70% of its requirements of certain
products from the Company; and the Company agreed to a $30 million credit,
subject to a limitation of the application of the credit to no more than 20% of
any purchase. In April 2003, the agreement was extended for two additional years
and the unused preferred supplier credit balance was reduced by $6.6 million and
was treated as a reduction in the accrued liability as a credit to other income.
Such adjustment is reflected in "Other, Net" in the accompanying Consolidated
Statement of Operations for the three and six months ended June 30, 2003. At
June 30, 2003, the remaining credit balance was $9.4 million, of which $1
million is classified as "Other Accrued Liabilities", with the remaining balance
classified as "Other Long-Term Liabilities" in the accompanying Consolidated
Balance Sheets.

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17. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The following unaudited condensed consolidating balance sheet as of June 30,
2003, condensed consolidating statements of operations for the three and six
months ended June 30, 2002 and 2003 and condensed consolidating statements of
cash flows for the six months ended June 30, 2002 and 2003 are provided for the
Company's domestic subsidiaries that are guarantors of debt securities issued by
the Company. The Company's obligations to pay principal and interest under the
9% and 9 5/8% Senior Notes are guaranteed on a joint and several basis by all of
the Company's domestic subsidiaries. The guarantees are full and unconditional
and the guarantor subsidiaries are 100% owned by Grant Prideco, Inc.

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2003
(UNAUDITED)
(IN THOUSANDS)

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
(IN THOUSANDS)

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
(IN THOUSANDS)

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
(IN THOUSANDS)

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion is intended to assist you in understanding our
financial condition as of December 31, 2002 and June 30, 2003, and our results
of operations for each of the three and six months ended June 30, 2002 and 2003.
This discussion should be read with our financial statements and their notes
included elsewhere in this report as well as our financial statements and
related Management's Discussion and Analysis of Financial Condition and Results
of Operations for the year ended December 31, 2002, previously filed with the
Securities and Exchange Commission in our Annual Report on Form 10-K.

Our discussion of our results of operations and financial condition contains
statements relating to our future results, including certain projections and
trends, which constitute forward-looking statements. Certain risks and
uncertainties may cause actual results to be materially different from projected
results contained in these forward-looking statements and other disclosures.
These risks and uncertainties are more fully described under "Forward-Looking
Statements and Exposures" below. As used herein, unless otherwise required by
the context, the term "Grant Prideco" refers to Grant Prideco, Inc. and the
terms "we," "our," and similar words refer to Grant Prideco and its
subsidiaries. The use herein of such terms as "group," "organization," "we,"
"us," "our," and "its," or references to specific entities, are not intended to
be a precise description of corporate relationships.

GENERAL

We are the world leader in drill stem technology development and drill pipe
manufacturing, sales and service; a global leader in drill bit technology,
manufacturing, sales and service; a leading provider of high-performance
engineered connections and premium tubulars in North America; and a provider of
a variety of products, services and technological solutions to offshore markets
worldwide. We historically have operated through three primary business
segments: (1) Drilling Products and Services, (2) Tubular Technology and
Services and (3) Marine Products and Services. On December 20, 2002, we acquired
the ReedHycalog drill bits business from Schlumberger Technology Corporation and
its affiliates, which we are operating as our fourth primary business segment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In our annual report on Form 10-K for the year ended December 31, 2002, we
identified our most critical accounting policies upon which our financial
condition depends as those relating to revenue recognition, accounts receivable
valuation, inventory valuation, business combinations, impairment of long-lived
assets, goodwill and intangible assets, estimates related to contingent
liabilities and future claims, and pension liabilities.

EXITED PRODUCT LINES

During the first quarter of 2003, we made a strategic decision to exit the
manufacture and sale of industrial drilling products and oil and gas tubing.
Pursuant to this decision, we sold our Star Iron Works, Inc. (Star) subsidiary,
shut-down operations at our Bryan, Texas facility, and we are in the process of
liquidating our remaining inventory. These Bryan, Texas operations generated
approximately $37 million of revenues and $5 million of operating losses during
fiscal 2002. Also as a result of this decision, we recognized a $1.3 million
pre-tax, $0.8 million after tax, gain on sale of our Star operation during the
first quarter of 2003 and recorded inventory reserves of $6.4 million in cost of
sales for the exited product lines, which related to the write-down of
inventories, primarily industrial drilling products, to their estimated net
realizable values.

MARKET TRENDS AND OUTLOOK

Our business is materially dependent on the level of oil and gas drilling
activity worldwide, which, in turn, depends on the level of capital spending by
major, independent, and state-owned exploration and production companies. This
capital spending is driven by current prices for oil and gas and the perceived
stability and sustainability of those prices. Most of our business segments
follow both domestic and international rig counts levels, however, their
revenues, cash flows, and profitability follow the rig counts at different
stages within the market cycles. Drill pipe demand is also a function of
customer inventory levels and typically lags changes in the rig counts by
approximately six to nine months. Results from our Tubular Technology and
Services segment should closely follow changes in North American rigs drilling
for deep-gas, especially in the Gulf of Mexico, but short-term demand can also
be affected by inventories held by OCTG distributors.

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Demand for our Marine Products and Services follows the level of offshore and
deepwater drilling activity, especially the Gulf of Mexico. Although this
drilling is dependent upon prices for oil and gas, it is less likely to follow
short-term changes in oil and gas prices, as deepwater projects are more capital
intensive and are typically based upon long-term forecasts for oil and gas
prices. Historically, drill bit demand and ReedHycalog's earnings and cash flows
have closely tracked the domestic and international rig count, which we believe
will offset somewhat the extreme cyclicality and mid-to-late cycle returns from
our Drilling Products and Services segment.

Prices for oil and natural gas have been and continue to be volatile, and
material declines adversely affect the demand for our products and services. The
following table sets forth certain information with respect to oil and natural
gas prices and the North American (U.S. and Canadian) and international rig
counts:

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(a) Price per barrel of West Texas Intermediate (WTI) crude. Source: U.S. Energy
Information Administration.

(b) Price per MMBtu. Source: U.S. Energy Information Administration.

(c) Source: Baker Hughes Rig Count (International Rig Count excludes China and
the former Soviet Union).

FUTURE MARKET TRENDS AND EXPECTATIONS

During the first half of 2003, North American rig counts increased, and we
expect them to continue to increase throughout the remainder of 2003, but at a
more moderate rate. To date these increases have only marginally benefited our
operations, as the increased rig count has been mainly attributable to shallow,
land-based drilling as opposed to deep-gas and offshore drilling that are
important drivers for the majority of our operations. Recently, there has been
an increase in deep formation drilling, which we believe will benefit our
operations. This increase corresponded with incremental improvements in
international drilling activity, seasonal increases in Canadian drilling, and
overall stronger U.S. activity, which all benefit our operations. We believe the
effects of these items on the third quarter of 2003 will be somewhat offset by
continued conservative purchasing by drilling contractors and OCTG distributors
due to uncertain outlooks by these customers and by seasonal declines in our
European operations, which close for a period during the summer. As a result, we
currently expect that third quarter 2003 results of operations will be in the
range of $0.06 and $0.08 per share. If these trends continue, we anticipate that
the fourth quarter of 2003 should incrementally improve from there, with
anticipated earnings in the range of $0.08 and $0.10 per share. Our
forward-looking statements and estimates do not take into account any transition
expenses associated with the ReedHycalog acquisition.

In order to meet our expectations for the third quarter of 2003, and the
remainder of the year, it will be necessary for us to obtain and complete new
drill pipe orders that were not committed to us by customers as of the end of
the second quarter. In addition, in order to meet our expectations for the
remainder of 2003, our drill stem order rate and backlog as well as our premium
connection businesses will need to increase substantially. In order for this to
occur, rig counts must continue to increase throughout the remainder of 2003,
including increases in rigs drilling offshore and for deep-gas, and our
customers' perceptions regarding the sustainability of these rig counts must
cause them to increase their purchases of drill pipe and drill stem products.

In addition, we are conducting company-wide assessments of all of our
manufacturing strategies and practices to

18

determine possible improvements which could allow us to improve manufacturing
efficiencies, reduce costs, and improve future profitability. We currently
manufacture many of our components and finished products at numerous locations
around the world. Management is uncertain when these assessments will be
completed. Our forward-looking statements and estimates assume that none of the
reviews will adversely affect our results of operations in any period.

All of our forecasts and assumptions are considered forward-looking
statements, and are subject to numerous risks and uncertainties, including those
highlighted under "Forward-Looking Statements and Exposures".

RESULTS OF OPERATIONS

OTHER CHARGES AFFECTING OUR RESULTS OF OPERATIONS

2000 Charges

We recorded certain charges in 2000 totaling $7.9 million that related to
accrued liabilities. The accrued liability balances as of June 30, 2003 are
summarized below (in thousands):

In July 2003, the contingent liability was settled for $3.3 million,
therefore a $1.4 million adjustment was made in the second quarter of 2003 to
reduce the accrued liability to the actual settlement amount and is recorded in
"Other Charges" in the Consolidated Statements of Operations. The litigation
accrual of $0.6 million is expected to be settled by the end of the year.

Second Quarter 2002 Charges

Results for the second quarter of 2002 include $7.0 million of pre-tax
charges, $4.9 million net of tax. These charges include $2.6 million related to
fixed asset write-downs and $4.5 million for executive severance payments and
related expenses and are summarized in the following chart by segment (in
thousands):

- ----------

(a) The fixed asset write-downs relate to idled assets taken out of service
pursuant to our ongoing automation and efficiency initiatives and are
classified as held for sale. The amount was determined by use of internal
appraisals and evaluations to assess the estimated fair value upon
disposition. The equipment, which has a carrying value of $0.2 million, is
expected to be disposed of within the next 12 months.

(b) The severance charge relates to an executive employee terminated during June
2002. The amount accrued for severance was based upon the terminated
employee's employment contract, which was paid in July 2002.

19

Second Quarter 2003 Charges

Results for the second quarter of 2003 include $7.9 million of pre-tax
charges, $5.1 million net of tax. These charges include $6.4 million related to
inventory reserves for exited product lines and $1.5 million for stock
compensation expense and are summarized in the following chart by segment (in
thousands):

- ----------

(a) Includes other charges of $2.4 million related to fixed asset write-downs.

(b) Includes other charges of $0.2 million related to fixed asset write-downs.

(c) Includes other charges of $0.4 million related to inventory reserves for
exited product lines which were classified as cost of sales.

(d) Includes other charges of $6.0 million related to inventory reserves for
exited product lines which were classified as cost of sales.

(e) Includes other charges of $4.5 million related to executive severance costs.

(f) Includes other charges of $1.5 million for stock compensation expense and a
$1.4 million credit for a previously recorded contingent liability.

20

CONSOLIDATED RESULTS

Net income was $3.8 million ($0.03 per share) on revenues of $190.1 million
in the second quarter of 2003, compared to net income of $3.9 million ($0.03 per
share) on revenues of $168.6 million in the second quarter of 2002. Second
quarter of 2003 earnings includes a $4.2 million gain from favorably
renegotiating a liability to our former parent; a charge of $4.1 million to
reflect the estimated net realizable value of inventory for the exited product
lines (primarily industrial drilling products); and transition costs of $1.1
million related to the ReedHycalog acquisition completed in December 2002.
Second quarter of 2002 earnings includes charges totaling $4.9 million ($0.03
per share) related to fixed asset write-downs of $1.8 million and severance
costs of $3.1 million.

Consolidated operating income was $10.9 million in the second quarter of
2003, compared to $12.4 million in the second quarter of 2002, including the
charges mentioned above.

SEGMENT RESULTS

DRILLING PRODUCTS AND SERVICES SEGMENT

Our Drilling Products and Services segment revenues decreased $20.0 million,
or 23%, in the second quarter of 2003 as compared to the same period in 2002.
Operating income decreased $9.9 million, or 55%, in the second quarter of 2003
as compared to the same period in 2002 (including a $2.4 million charge related
to idled fixed assets in the second quarter of 2002) and operating margins of
12% are down from 20% in last year's second quarter. For the three months ended
June 30, 2003, drill pipe footage sold decreased 0.2 million feet, from 1.9
million to 1.7 million feet sold when compared to the same period in 2002, and
average sales price per foot decreased by 12%. These decreases reflect the
continued weak demand in the North American drill pipe market and a decline in
product mix from higher margin, large-diameter, premium drilling products to
lower margin, small-diameter, non-premium drilling products. Also contributing
to the decrease in revenues are decreased sales of tool joints and products
other than drill pipe when compared to the same period in 2002.

REEDHYCALOG(TM)

ReedHycalog, which was acquired on December 20, 2002, reported revenues of
$56.7 million in the second quarter of 2003, which is up $3.5 million when
compared to the first quarter of 2003. Operating income in the second quarter of
2003, which includes $0.5 million of transition costs related to the integration
of ReedHycalog, was $12.9 million, and operating income margin was 23%. This
compares to operating income in the first quarter of 2003 of $9.7 million, which
includes $1.5 million of transition costs related to the integration, and
operating income margin of 18%. These increases are attributable to market
penetration by the new TReX(TM) fixed-cutter drill bit, strengthening U.S. and
international drilling activity, favorable absorption of manufacturing costs,
which were partially offset by the seasonal decline in Canadian drilling
activity.

TUBULAR TECHNOLOGY AND SERVICES SEGMENT

Our Tubular Technology and Services segment revenues decreased $9.6 million,
or 17%, in the second quarter of 2003 as compared to the same period in 2002.
This decrease reflects the impact of exiting the tubing product lines as well as
decreased premium threading and tubular processing activities. The second
quarter of 2003 also includes incremental revenues related to our purchase of
Grey-Mak Pipe, Inc. (Grey-Mak) in September 2002, coupled with increased sales
at our couplings business, which closely follows the U.S. rig count. Operating
income in the Tubular Technology and Services segment decreased $2.6 million, or
53%, in the second quarter of 2003 (including a $0.4 million charge to reflect
the estimated realizable value of inventory of exited tubing product lines) as
compared to the same period in 2002 (including a $0.2 million charge related to
idled fixed assets). This decrease reflects the unfavorable shift in product mix
from premium threading and processing to lower-margin products, partially offset
by improved operating results at our couplings business.

MARINE PRODUCTS AND SERVICES SEGMENT

Our Marine Products and Services segment revenues decreased $0.7 million, or
5%, in the second quarter of 2003 as compared to the same period in 2002.
Operating loss was $1.0 million in the second quarter of 2003 as compared to a
loss of $0.6 million in the second quarter of 2002. This decrease in revenue and
increase in operating loss is attributable to a

21

temporary decline in project-based sales when compared to the prior year period
at XL Systems and Rotator.

OTHER OPERATIONS

Our Other operations revenues decreased $4.9 million, or 71%, in the second
quarter of 2003 as compared to the same period in 2002 and operating loss
increased $6.2 million, which includes a charge of $6.0 million to reflect the
estimated realizable value of inventory for the exited product lines.

This segment included our industrial drill pipe operations and our
construction casing and water well operations. We have exited the industrial
drill pipe business with the shut-down of the Bryan, Texas manufacturing
facility this quarter. Our Drilling Products and Services segment will now be
managing this facility, as the plant can provide back-up heat-treating for our
drill pipe operations. In March 2003, we exited the construction casing and
water well business with the sale of Star Iron Works, Inc. (Star) for $11
million in cash and a note valued at approximately $0.9 million. We recorded a
gain of $1.3 million on the sale, $0.8 million after-tax. Going forward, this
segment will only include the disposition of our remaining industrial product
inventories.

OTHER ITEMS

Our interest expense increased $4.8 million in the second quarter of 2003 as
compared to the same period in 2002. This increase is due to new debt related to
the ReedHycalog acquisition in December 2002. We issued $175 million 9% Senior
Notes Due 2009 and entered into a new $240 million Senior Credit Facility
(Senior Credit Facility), which includes a $50 million term loan. See "Liquidity
and Capital Resources" for further discussion of the Senior Credit Facility.

Other, Net increased $7.2 million in the second quarter of 2003 as compared
to the same period in 2002. This increase primarily relates to a $6.6 million
gain from favorably renegotiating a liability to our former parent and favorable
foreign exchange fluctuations of $1.4 million, partially offset by transition
costs of $1.1 million associated with the ReedHycalog integration.

Our effective tax rate for the second quarter of 2003 was 35% as compared to
27% for the same period in 2002. This increase in the effective tax rate is due
to higher expected foreign earnings in 2003 related to the ReedHycalog
acquisition partially offset by the favorable renegotiation of a liability with
our former parent.

22

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2002

The following table summarizes the results of the Company (in thousands):

- ----------

(a) Includes other charges of $2.4 million related to fixed asset write-downs.

(b) Includes other charges of $0.2 million related to fixed asset write-downs.

(c) Includes other charges of $0.4 million related to inventory reserves for
exited product lines which were classified as cost of sales.

(d) Includes other charges of $6.0 million related to inventory reserves for
exited product lines which were classified as cost of sales.

(e) Includes other charges of $4.5 million related to executive severance costs.

(f) Includes other charges of $1.5 million for stock compensation expense and a
$1.4 million credit for a previously recorded contingent liability.

CONSOLIDATED RESULTS

Net income was $7.9 million ($0.06 per share) on revenues of $380.6 million
for the six months ended June 30, 2003, compared to net income of $5.0 million
($0.04 per share) on revenues of $320.7 million for the same period in 2002. For
the six months ended June 30, 2003, earnings includes a $4.2 million gain from
favorably renegotiating a liability to our former parent; a charge of $4.1
million to reflect the estimated net realizable value of inventory for the
exited product lines (primarily industrial drilling products); and transition
costs of $2.8 million related to the ReedHycalog acquisition completed in
December 2002. For the six months ended June 30, 2002, earnings includes charges
totaling $4.9 million ($0.03 per share) related to fixed asset write-downs of
$1.8 million and severance costs of $3.1 million. Also included in net income
for the six months ended June 30, 2002 is a cumulative effect of an accounting
change of $6.4 million, net of tax, related to a transitional goodwill
impairment charge reflecting the adoption of Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" effective
January 1, 2002.

Consolidated operating income was $27.9 million for the six months ended
June 30, 2003, compared to $30.9 million for the same period in 2002, including
the charges mentioned above.

23

SEGMENT RESULTS

DRILLING PRODUCTS AND SERVICES SEGMENT

Our Drilling Products and Services segment revenues decreased $34.2 million,
or 20%, for the six months ended June 30, 2003 as compared to the same period in
2002. Operating income decreased $22.3 million, or 57%, for the six months ended
June 30, 2003 as compared to the same period in 2002 (including a $2.4 million
charge related to idled fixed assets in the second quarter of 2002) and
operating margins of 13% are down from 23% for the six months ended June 30,
2002. For the six months ended June 30, 2003, drill pipe footage sold decreased
0.2 million feet, from 3.2 million to 3.0 million feet sold when compared to the
same period in 2002, and average sales price per foot decreased by 11%. These
decreases reflect the continued weak demand in the North American drill pipe
market and a decline in product mix from higher margin, large-diameter, premium
drilling products to lower margin, small-diameter, non-premium drilling
products. Also contributing to the decrease in revenues are decreased sales of
tool joints and products other than drill pipe, offset by incremental revenues
for the six months ended June 30, 2003 related to the purchase of JSG in March
2002. The operating income decrease also reflects a decrease in equity earnings
related to the purchase of JSG in March 2002, which was previously an equity
method investment, and related to our investment in Voest-Alpine due to
decreased worldwide oil and gas drilling activity.

REEDHYCALOG(TM)

ReedHycalog, which was acquired on December 20, 2002, reported revenues of
$110.0 million for the six months ended June 30, 2003. Operating income was
$22.6 million, which includes $2.0 million of transition costs related to the
integration of ReedHycalog, and the operating income margin was 21%. During the
second quarter of 2002, ReedHycalog's results reflected continued market
penetration of the new TReX(TM) fixed-cutter bit.

TUBULAR TECHNOLOGY AND SERVICES SEGMENT

Our Tubular Technology and Services segment revenues decreased $13.5
million, or 12%, for the six months ended June 30, 2003 as compared to the same
period in 2002. This decrease reflects the impact of exiting the tubing product
lines as well as decreased premium threading and tubular processing activities.
The six months ended June 30, 2003 also includes incremental revenues related to
our purchase of Grey-Mak in September 2002. Operating income in the Tubular
Technology and Services segment decreased $2.7 million, or 35%, for the six
months ended June 30, 2003 (including a $0.4 million charge to reflect the
estimated realizable value of inventory of exited tubing product lines) as
compared to the same period in 2002 (including a $0.2 million charge related to
idled fixed assets). This decrease reflects the unfavorable shift in product mix
from premium threading and processing to lower-margin products, partially offset
by improved operating results at our couplings business.

MARINE PRODUCTS AND SERVICES SEGMENT

Our Marine Products and Services segment revenues increased $4.7 million, or
17%, for the six months ended June 30, 2003 as compared to the same period in
2002. Operating loss was $0.8 million for the six months ended June 30, 2003 as
compared to a loss of $0.9 million for the six months ended June 30, 2002. These
improved results are due to the purchase of Rotator in the second quarter of
2002 and an 8% increase in sales at XL Systems.

OTHER OPERATIONS

Our Other operations revenues decreased $7.0 million, or 50%, for the six
months ended June 30, 2003 as compared to the same period in 2002, and operating
loss increased $5.6 million, which includes a charge of $6.0 million to reflect
the estimated realizable value of inventory for the exited product lines.

This segment included our industrial drill pipe operations and our
construction casing and water well operations. We have exited the industrial
drill pipe business with the shut-down of the Bryan, Texas manufacturing
facility this quarter. Our Drilling Products and Services segment will now be
managing this facility, as the plant can provide back-up heat-treating for our
drill pipe operations. In March 2003, we exited the construction casing and
water well business with the sale of Star for $11 million in cash and a note
valued at approximately $0.9 million. We recorded a gain of $1.3 million on the
sale, $0.8

24

million after-tax. Going forward, this segment will only include the disposition
of our remaining industrial product inventories.

OTHER ITEMS

Our interest expense increased $9.6 million for the six months ended June
30, 2003 as compared to the same period in 2002. This increase is due to new
debt related to the ReedHycalog acquisition in December 2002. We issued $175
million 9% Senior Notes Due 2009 and entered into a new $240 million Senior
Credit Facility (Senior Credit Facility), which includes a $50 million term
loan. See "Liquidity and Capital Resources" for further discussion of the Senior
Credit Facility.

Other, Net increased $8.5 million for the six months ended June 30, 2003 as
compared to the same period in 2002. This increase primarily relates to a $6.6
million gain from favorably renegotiating a liability to our former parent and
favorable foreign exchange fluctuation of $2.3 million, partially offset by
transition costs of $2.2 million associated with the ReedHycalog integration.

Our effective tax rate for the six months ended June 30, 2003 was 35% as
compared to 31% for the same period in 2002. This increase in the effective tax
rate is due to higher expected foreign earnings in 2003 related to the
ReedHycalog acquisition partially offset by the favorable renegotiation of a
liability with our former parent.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

At June 30, 2003, we had cash and cash equivalents of $21.8 million and net
working capital of $339.8 million as compared to cash and cash equivalents of
$21.9 million and net working capital of $340.3 million at December 31, 2002.

The following table summarizes our cash flows provided by operating
activities, net cash used in investing activities and net cash used in financing
activities for the periods presented (in thousands):

OPERATING ACTIVITIES

Net cash flows provided by operating activities decreased by $30.3 million
for the six months ended June 30, 2003 as compared to the same period in 2002.
The decrease in operating cash flows is attributable primarily to an increase in
inventories. Inventories increased during the six months ended June 30, 2003 at
our ReedHycalog and Drilling Products and Services segments in anticipation of
increased activity during the latter part of 2003.

INVESTING ACTIVITIES

Net cash used in investing activities decreased by $1.0 million for the six
months ended June 30, 2003 as compared to the same period in 2002. Net cash used
in investing activities for the six months ended June 30, 2003 includes net cash
used in acquisitions of $8.4 million related to the remaining 35% interest
purchase of Rotator, additional consideration paid for Plexus based on a
multiple of earnings, and costs associated with the ReedHycalog acquisition,
which were more than offset by proceeds received of $11.0 million from the sale
of Star in the first quarter of 2003. Net cash used in investing activities for
the six months ended June 30, 2002 includes net cash used in acquisitions of
$2.3 million which primarily relates to the purchase of an additional 48.5%
interest in JSG in the first quarter of 2002.

FINANCING ACTIVITIES

Net cash used in financing activities decreased $20.8 million for the six
months ended June 30, 2003 as compared to the

25

same period in 2002. This decrease reflects lower repayments on our Senior
Credit Facility when compared to the same period in 2002.

Capital Expenditures

Our capital expenditures for property, plant, and equipment totaled $21.8
million and $19.8 million for the six months ended June 30, 2002 and 2003,
respectively. We currently expect to expend approximately $20 million for
capital expenditures for property, plant, and equipment during the remainder of
2003 related to our capital improvement program to reduce operating
expenditures, and capital expansion projects in Indonesia, China, and The
Netherlands.

New Senior Credit Facility and Other Long-Term Debt

Our debt balances are primarily comprised of: (1) borrowings under our
Senior Credit Facility that we entered into contemporaneously with the closing
of the ReedHycalog acquisition and which replaced our prior revolving credit
facility, (2) our $200 million 9 5/8% Senior Notes due 2007, and (3) our $175
million 9% Senior Notes due 2009.

At June 30, 2003, we had outstanding borrowings of $78.9 million under the
Senior Credit Facility, of which $32.5 million related to the revolving credit
facility borrowings, and $46.4 million related to the term loan. Also, $4.7
million had been used to support outstanding letters of credit. Net committed
remaining availability was $92.4 million. At December 31, 2002, we had
outstanding borrowings of $107.3 million, of which $50 million related to the
term loan, and $4.2 million had been used to support outstanding letters of
credit. Net borrowing availability at that time was $91.0 million.

We estimate our required principal and interest payments for our outstanding
debt to be approximately $28.5 million for the remainder of 2003. We currently
expect to satisfy all capital expenditures and debt service requirements during
2003 from operating cash flows, existing cash balances, and the revolver portion
of our Senior Credit Facility.

Based on our current projected capital expenditures, required principal and
interest payments, operating cash flows, existing cash balances, and estimated
availability under the Senior Credit Facility, we believe we can satisfy all of
our expected commitments during the next 12 months and will have sufficient
liquidity to not only maintain our existing operations but to take advantage of
strategic opportunities that may present themselves during such period.
Acquisitions and expansions will be financed from cash flow from operations,
borrowings under our Senior Credit Facility, or through the issuance of
additional debt and equity financing, as appropriate. Any future financing will
be arranged to meet our requirements, with the timing, amount, and form of issue
dependent on the prevailing market and general economic conditions.

Other Commitments

As part of our investment in Voest-Alpine, we entered into a supply contract
with Voest-Alpine under which we agreed to purchase a minimum of 57,000 metric
tons of green tubulars during 2003 and 52,000 metric tons per year thereafter
through July 2007. Because this agreement requires us to purchase tubulars
regardless of our needs, our purchases under this agreement may be made for
inventory during periods of low customer demand. These types of purchases would
require us to use our working capital and expose us to risks of excess inventory
during those periods. Although these purchases could require us to expend a
material amount of money, we expect that we will be able to eventually use or
sell all of the tubular products we are required to purchase from Voest-Alpine.
We currently believe we will meet our contractual commitments for 2003 without
incurring unnecessary penalties or material unnecessary inventory positions.

In connection with our spinoff from Weatherford in April 2000, we entered
into a preferred supplier agreement with Weatherford in which Weatherford agreed
to purchase at least 70% of its requirements for certain products from us. In
return, we agreed to sell those products at prices not greater than the price
that we sell to similarly situated customers, and, as partial consideration for
amounts due to Weatherford at that time, we provided Weatherford a $30 million
credit towards 20% of the purchase price of those products. We recently
renegotiated this contract with Weatherford, which extended this contract until
March 2005 and reduced the outstanding credit balance by $6.6 million.

26

RECENT ACCOUNTING PRONOUNCEMENTS

For recent accounting pronouncements, see Note 11 of the unaudited
consolidated financial statements included herein.

FORWARD-LOOKING STATEMENTS AND EXPOSURES

In light of the SEC's Regulation FD, we have elected to provide in this
report various forward-looking statements and operational details. We have done
so to assure full market disclosure of information that we generally make
available to our investors and securities analysts. We expect to provide updates
to this information on a regular basis in our periodic and current reports filed
with the SEC. We have also made our investor conference calls open to all
investors and encourage all investors to listen in on these calls. We will
publicly announce the call-in information in a press release before such calls.
We are providing this information to assist our investors in better
understanding our business. These expectations reflect only our current view on
these matters as of the date of this report and are subject to change based on
changes of facts and circumstances. There can be no assurance that these
expectations will be met, and our actual results will likely vary (up or down)
from those currently projected. These estimates speak only of our expectations
as of the date of this report, and we make no undertaking to update this
information. The absence of an update should not be considered as an affirmation
of our current expectations or that facts have not changed during the quarter
that would impact our expectations.

RISK FACTORS AND EXPOSURES

Our Company, and the businesses in which it operates, are subject to various
risks and uncertainties that could have adverse consequences on our results of
operations and financial condition, and that could cause actual results to be
materially different from projected results contained in the forward-looking
statements in this report and in our other disclosures. Investors should
carefully consider these risks and uncertainties when evaluating our Company and
the forward-looking statements that we make. These risks and uncertainties
include, but are not limited to, the following:

A DECLINE OR STAGNATION IN DOMESTIC AND WORLDWIDE OIL AND GAS DRILLING
ACTIVITY WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our business is materially dependent on the level of oil and gas drilling
activity in North America and worldwide, which in turn depends on the level of
capital spending by major, independent and state-owned exploration and
production companies. This capital spending is driven by current prices for oil
and gas and the perceived stability and sustainability of those prices. Oil and
gas prices have been subject to significant fluctuation in recent years in
response to changes in the supply and demand for oil and gas, market
uncertainty, world events, governmental actions, and a variety of additional
factors that are beyond our control, including:

o the level of North American and worldwide oil and gas exploration and
production activity;

o worldwide economic conditions, particularly economic conditions in North
America;

o oil and gas production costs;

o the expected costs of developing new reserves;

o national government political requirements and the policies of the
Organization of Petroleum Exporting Countries (OPEC);

o the price and availability of alternative fuels;

o environmental laws and regulations; and

o tax policies.

Decreased demand for our products results not only from periods of lower
drilling activity, but also from the resulting build up of customer inventory of
drill pipe associated with idle rigs, which can be used on active rigs in lieu
of new

27

purchases. The time period during which drill pipe inventory is used is a
function of the number of rigs actively drilling and the expected future level
of drilling activity. A decrease in the number of rigs actively drilling results
in a large amount of unused drill pipe on idle rigs and a decrease in demand for
new drill pipe. In general, customers begin placing orders for new drill pipe
when expected rig utilization over the next two quarters approaches the number
of rigs for which customers have available drill pipe.

Our forward-looking statements assume that rig counts, particularly in North
America, will continue to increase throughout the remainder of 2003 and that
this will drive significant increases in our drill stem products, tubular
technology products, and drill bit operations. A decline, or even a leveling off
or stagnation of drilling activity, would cause our actual results to be
significantly less than those currently expected.

OUR EXPECTATIONS FOR OUR RESULTS OF OPERATIONS DURING 2003 ARE DEPENDENT
UPON A SIGNIFICANT INCREASE IN OUR DRILL STEM AND PREMIUM CONNECTION
BUSINESSES DURING THE REMAINDER OF THE YEAR.

Entering the third quarter of 2003, our consolidated backlog was $120.4
million. Although this backlog is at a higher level than the past several
quarters, in order to meet our expectations for the third quarter of 2003 and
the remainder of 2003, it will be necessary for us to obtain and complete new
drill pipe orders that were not committed to as of the end of the second
quarter. In addition, in order to meet our expectations for the remainder of
2003, our drill stem order rate and backlog as well as our premium connection
businesses will need to increase substantially. In order for this to occur, rig
counts must continue to increase throughout the remainder of 2003, including
increases in rigs drilling offshore and for deep gas, and our customers'
perceptions regarding the sustainability of these rig counts must cause them to
increase their purchases of drill pipe, drill stem products, and premium
connections.

AN ECONOMIC DOWNTURN COULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND
SERVICES AND OUR RESULTS OF OPERATIONS.

The U.S. and worldwide economies slowed during 2002, and their future
directions are uncertain. If expected economic improvement in the U.S. does not
occur or international markets decline unexpectedly, our results of operations
and financial condition could be materially adversely affected.

INCREASES IN THE PRICES OF OUR RAW MATERIALS COULD ADVERSELY AFFECT OUR
MARGINS AND RESULTS OF OPERATIONS.

We use large amounts of steel tubulars and bars in the manufacture of our
products. The price of these raw materials has a significant impact on our cost
of producing products. If we are unable to pass future raw material price
increases on to our customers, our margins and results of operations could be
adversely affected.

DUE TO INTENSE COMPETITION IN OUR INDUSTRY, OUR REVENUES MAY DECLINE IF WE
DO NOT DEVELOP, PRODUCE, AND COMMERCIALIZE NEW COMPETITIVE TECHNOLOGIES AND
PRODUCTS OR IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR CURRENT AND FUTURE
INTELLECTUAL PROPERTY RIGHTS RELATING TO OUR TECHNOLOGIES AND PRODUCTS.

The markets for our premium products and services are characterized by
continual developments. Substantial improvements in the scope and quality of
product function and performance can occur over a short period of time. In order
to remain competitive, we must be able to develop commercially competitive
products in a timely manner in response to changes in technology. Our ability to
develop new products and maintain competitive advantages depends on our ability
to design and commercially market products that meet the needs of our customers,
including delivery schedules, and product specifications.

Additionally, the time and expense invested in product development may not
result in commercially feasible applications that provide revenues. We could be
required to write-off our entire investment in a new product that does not reach
commercial viability. Moreover, we may experience operating losses after new
products are introduced and commercialized because of high start-up costs,
unexpected operating costs or problems, or lack of demand.

Many of our products and the processes we use to manufacture them have been
granted U.S. and international patent protection, or have patent applications
pending. Nevertheless, patents may not be granted for our applications and, if
patents are issued, the claims allowed may not be sufficient to protect our
technology. If our patents are not enforceable, or if any of our products
infringe patents held by others, our financial results may be adversely
affected. Our competitors may be able to

28

independently develop technologies that are similar to ours without infringing
on our patents, which is especially true internationally where the protection of
intellectual property rights may not be as effective. In addition, obtaining and
maintaining intellectual property protection internationally may be
significantly more expensive than doing so domestically. We may have to spend
substantial time and money defending our patents and, after our patents expire,
our competitors will not be legally constrained from developing products
substantially similar to ours.

OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION ARE DEPENDENT UPON OUR
ABILITY TO SUCCESSFULLY INCREASE AND DECREASE, WITHOUT MATERIAL DISRUPTION,
OUR MANUFACTURING CAPACITY AND EXPENSE IN RESPONSE TO CHANGES IN DEMAND AND
TO MAINTAIN PRICES FOR OUR PRODUCTS, WHICH CAN BE ADVERSELY AFFECTED BY
CHANGES IN INDUSTRY CONDITIONS AND COMPETITIVE FORCES.

Our projections assume a steady increase in demand for our products and
services during the remainder of 2003, in particular our drill stem products in
which we are forecasting significant increases during the second half of 2003.
In order to meet our projections, we assume we will increase our production
during peak demand periods with minimal operational disruption and inefficiency.
If this does not happen, our results of operations during ramp-up for high
demand periods could be materially adversely affected.

Our ability to maintain the prices of our products is subject to various
risks, including adverse changes in industry conditions, as well as unexpected
actions by our competitors. If market conditions or other factors cause us to
decrease prices, our results could be materially adversely affected.

OUR INTERNATIONAL OPERATIONS MAY EXPERIENCE SEVERE INTERRUPTIONS DUE TO
POLITICAL, ECONOMIC, OR OTHER RISKS, WHICH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION OR UNEXPECTED COSTS.

During the first half of 2003, we derived approximately 39% of our total
revenues from our facilities outside the U.S. In addition, large parts of sales
from our domestic locations were for use in foreign countries. In addition, many
of our key manufacturing operations are outside of the U.S. We currently do not
carry political risk insurance.

Our manufacturing facilities located outside of the U.S. incur costs in
local currencies. In addition, our long-term supply contract with Voest-Alpine
is denominated in Euros. We have no significant offset for revenues in Euros and
we have not hedged for currency risk associated with these exposures. Thus, our
costs and margins and can be materially affected by significant changes to
exchange rates, in particular, the Euro-dollar exchange rate. Our expectations
for the second half of 2003 assume that there will be no material changes in
exchange rates that adversely affect our operations.

Overall, our operations in international locations, including Mexico,
Austria, Italy, China, Indonesia, United Kingdom, Canada, and Singapore are
subject to various political and economic conditions existing in those countries
that could disrupt operations or cause us to incur unexpected costs. These risks
include:

o changes in foreign tax laws;

o changes in regulations and labor practices;

o currency fluctuations and devaluations;

o currency restrictions and limitations on repatriation of profits; and

o political instability or military conflict.

Our foreign operations may suffer disruptions, and we may incur losses that
will not be covered by insurance. In particular, terrorist attacks and other
threats to U.S. national security and resulting U.S. military activity
throughout the world increase the possibility that our operations could be
interrupted or adversely affected. Such disruption could result in our inability
to ship products in a timely and cost-effective manner or our inability to place
contractors and employees in various countries or regions.

Any material currency fluctuations or devaluations; or political events that
disrupt oil and gas exploration and

29

production; the movement of funds and assets; or increases in operating costs
could materially adversely affect our results of operations and financial
condition.

IF WE ARE UNABLE TO ADEQUATELY RENEW OR REPLACE OUR PROCESSING AGREEMENT
WITH U.S. STEEL, OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD BE
ADVERSELY AFFECTED.

We have entered into a contract with U.S. Steel to provide processing
services for virtually all of its large diameter casing products. This contract
expires on December 31, 2003, and it will not be renewed. During the first half
of 2003, this contract contributed approximately $3.4 million in revenues. If we
are unable to adequately replace this business with comparable revenues and
sales margins, our results of operations and financial condition could be
adversely affected.

IN CONNECTION WITH OUR BUSINESS OPERATIONS, WE COULD BE SUBJECT TO
SUBSTANTIAL LIABILITY CLAIMS THAT ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.

Our products are complex, and the failure of this equipment to operate
properly or to meet specifications may greatly increase our customers' costs of
drilling a well. In addition, many of these products are used in hazardous
drilling and production applications where an accident or product failure can
cause personal injury or loss of life; damage to property, equipment, oil and
gas reservoirs, or the environment; regulatory investigations and penalties; and
the suspension of the end-user's operations. If our products or services fail to
meet specifications or are involved in accidents or failures, we could face
warranty, contract, or other litigation claims for which we may be held
responsible and our reputation for providing quality products may suffer.

Our insurance may not be adequate in risk coverage or policy limits to cover
all losses or liabilities that we may incur or be held responsible for.
Moreover, in the future, we may not be able to maintain insurance at levels of
risk coverage or policy limits that we deem adequate or at premiums that are
reasonable for us, particularly in the recent environment of significant
insurance premium increases. Further, any claims made under our policies will
likely cause our premiums to increase. Any future damages deemed to be caused by
our products or services that are assessed against us and that are not covered
by insurance, or that are in excess of policy limits or subject to substantial
deductibles, could have a material adverse effect on our results of operations
and financial condition.

WE ARE SUBJECT TO ENVIRONMENTAL, HEALTH, AND SAFETY LAWS AND REGULATIONS
THAT EXPOSE US TO POTENTIAL FINANCIAL LIABILITY.

Our operations are regulated under a number of federal, state, local, and
foreign environmental laws and regulations which govern, among other things, the
discharge of hazardous materials into the air and water, as well as the
handling, storage, and disposal of hazardous materials and the remediation of
contaminated sites. Compliance with these environmental laws is a major
consideration in the manufacturing of our products. Because we use and generate
hazardous substances and wastes in our manufacturing operations, we may be
subject to material financial liability for any investigation and clean up of
such hazardous materials, and any related personal injury damages or toxic tort
claims. We have not historically carried insurance for such matters.

In addition, many of our current and former properties are or have been used
for industrial purposes. Accordingly, we also may be subject to financial
liabilities relating to the investigation and remediation of hazardous materials
resulting from the action of previous owners or operators of industrial
facilities on those sites. Liability in many instances may be imposed on us
regardless of the legality of the original actions relating to the hazardous or
toxic substances or whether or not we knew of, or were responsible for, the
presence of those substances.

We are also subject to various federal, state, local, and foreign laws and
regulations relating to safety and health conditions in our manufacturing
facilities. Those laws and regulations may subject us to material financial
penalties or liabilities for any noncompliance, as well as potential business
disruption if any of our facilities, or a portion of any facility, is required
to be temporarily closed as a result of any violation of those laws and
regulations. Any such financial liability or business disruption could have a
material adverse effect on our financial condition and results of operations.

ASSIMILATING REEDHYCALOG INTO OUR CORPORATE STRUCTURE MAY STRAIN OUR
RESOURCES AND MAY PROVE TO BE DIFFICULT.

30

The ReedHycalog acquisition was significantly larger than any of our
previous acquisitions. The significant expansion of our business and operations,
in terms of both geography and magnitude, resulting from the acquisition of
ReedHycalog may strain our administrative, operational, and financial resources.
In addition, the ReedHycalog acquisition included the drill bit assets, but did
not include much of the corporate infrastructure necessary to operate such a
business. The creation of corporate and administrative infrastructure for
ReedHycalog and the assimilation of ReedHycalog into our Company is requiring
substantial time, effort, attention, and dedication of management resources and
may detract our management in unpredictable ways from our traditional business.
The transition process could create a number of potential challenges and adverse
consequences for us, including the possible unexpected loss of key employees,
customers or suppliers, a possible loss of revenues or an increase in operating
or other costs. These types of challenges and uncertainties could have a
material adverse effect on our business, financial condition, and results of
operations. We may not be able to manage the combined operations and assets
effectively or realize any of the anticipated benefits of ReedHycalog.

As part of our business strategy, we intend to pursue other strategic
acquisitions and we may face similar challenges regarding such acquisitions.

OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY ACTIONS UNDER U.S.
TRADE LAWS AND NEW FOREIGN ENTRANTS INTO U.S. MARKETS.

Although we are a U.S.-based manufacturing company, we own and operate
international manufacturing operations that support our U.S.-based businesses.
If actions under U.S. trade laws were instituted that limited our access to
these products, our ability to meet our customer specifications and delivery
requirements would be reduced. Any adverse effects on our ability to import
products from our foreign subsidiaries could have a material adverse effect on
our results of operations.

Additionally, foreign producers of tubular goods have been found to have
sold their products, which may include premium connections, for export to the
U.S. at prices that are lower than the cost of production, or their prices in
their home market, or a major third-country market. Anti-dumping orders
restricting the manner and price at which tubular goods from certain countries
can be imported are currently in effect. If such orders are revoked or changed,
we could be exposed to increased competition from imports that could reduce our
sales and market share. In addition, the premium connections market served by
our Atlas Bradford(R) product line is highly competitive. The level of
competition could further increase if foreign steel mills, with their own lines
of internationally accepted premium connections, more successfully penetrate the
U.S. markets.

OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED DUE TO AN
IMPLEMENTATION OF A NEW ENTERPRISE-WIDE RESOURCE PLANNING (ERP) SYSTEM.

We currently are implementing a new ERP system that we believe will, in the
long-term, significantly enhance our information systems, internal processes,
and controls. This implementation is ongoing, includes a significant amount of
management's time and dedication, and may distract management in unpredictable
ways from our core businesses. Additionally, the ERP system might not result in
the anticipated benefits and may actually cause disruptions and inefficiencies
in our businesses that could result in increases in our operating and other
costs that could adversely affect our results of operations, especially in the
early stages of implementation.

31

OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED DUE TO UNEXPECTED
LITIGATION OR WARRANTY ISSUES ARISING FROM OUR PRODUCTS AND OPERATIONS.

Although we carry insurance that we consider customary for our industry,
litigation and claims for which we are not insured can occur, including employee
claims, intellectual property claims, breach of contract claims, and warranty
claims. Our forward-looking statements assume that such uninsured claims or
issues will not occur. As previously outlined under our critical accounting
policies, we account for warranty reserves on a specific identification basis.
As a result, a significant unexpected warranty issue during a particular quarter
or year could cause a material reduction in our results of operations in the
quarter or year that the reserve for such warranty is made.

MATERIAL CHANGES IN KEY ASSUMPTIONS ABOUT THE COMPANY'S REPORTING UNITS AND
THEIR BUSINESS PROSPECTS, OR CHANGES IN MARKET CONDITIONS, COULD RESULT IN
A GOODWILL IMPAIRMENT CHARGE.

As of June 30, 2003, we reported goodwill totaling $399.3 million. SFAS No.
142, "Goodwill and Other Intangible Assets" provides for an annual two-step
goodwill impairment test with respect to existing goodwill. We conduct this
impairment test in the third quarter of each year. The first step of the test
involves a comparison of the fair value of each of the Company's reporting
units, as defined under SFAS No. 142, with its carrying value. If the carrying
amount exceeds the fair value of a reporting unit, the Company is required to
complete the second step of the impairment test, which compares the implied
value of reporting unit goodwill with the carrying amount of that goodwill. The
Company's estimates of fair value are based on various valuation techniques,
including discounted cash flow projections and comparable company market value
multiples. The estimates of cash flows, based on reasonable and supportable
assumptions and projections, require management's judgment. Any changes in key
assumptions about the Company's reporting units and their business prospects, or
changes in market conditions, could result in a goodwill impairment charge that
could materially adversely affect our results of operations.

MANAGEMENT IS CONDUCTING COMPANY-WIDE ASSESSMENTS OF OUR MANUFACTURING
STRATEGIES IN AN EFFORT TO IMPROVE EFFICIENCIES AND FUTURE PROFITABILITY.
THE INITIAL IMPACT OF DECISIONS RESULTING FROM THESE ASSESSMENTS COULD
MATERIALLY AFFECT OUR RESULTS OF OPERATIONS.

We currently manufacture many of our components and finished products at
numerous locations around the world. We are conducting company-wide assessments
of all of our manufacturing strategies and practices to determine possible
improvements which could allow us to improve manufacturing efficiencies, reduce
costs, and improve future profitability. Management is uncertain when these
assessments will be completed. Our forward-looking statements assume that none
of the reviews will adversely affect our results of operations in any period.

ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES

FINANCIAL INSTRUMENTS

We are currently exposed to certain market risks arising from transactions
that we enter into in the normal course of business. These risks relate to
fluctuations in foreign currency exchange rates and changes in interest rates.

FOREIGN CURRENCY RISK

The functional currency for a majority of our international operations is
the applicable local currency. Results of operations for foreign subsidiaries
with functional currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities of these
foreign subsidiaries are translated into U.S. dollars using the exchange rates
in effect at the balance sheet date, and the resulting translation adjustments
are included in stockholders' equity. However, foreign currency transaction
gains and losses are reflected in income for the period. We sometimes hedge our
exposure to changes in foreign exchange rates principally with forward
contracts.

Forward contracts designated as hedges of foreign currency transactions are
marked to the forward rate with the resulting gains and losses recognized in
earnings, offsetting losses and gains on the transactions hedged. We enter into
foreign exchange contracts only as a hedge against existing economic exposures
and not for speculative or trading purposes. The

32

counterparties to our foreign exchange contracts are creditworthy multinational
commercial banks. We believe that the risk of counterparty nonperformance is
minimal. At June 30, 2003, we had no open forward contracts.

Our manufacturing facilities located outside of the U.S. incur costs in
local currencies, but they tend to sell in U.S. dollars, and in some cases owe
U.S. dollar denominated debt. In addition, our long-term supply contract with
Voest-Alpine is denominated in Euros. We have no significant offset of revenues
in the local currencies or Euros and we have not hedged for currency risk
associated with these exposures.

INTEREST RATES

We are and will be subject to market risk for changes in interest rates
related primarily to our long-term debt. Excluding the Senior Notes, most of our
long-term borrowings are at variable rates, which reflect current market rates,
and therefore the fair value of these borrowings approximates book value.

The fair value of financial instruments which differed from their carrying
value at December 31, 2002 and June 30, 2003, were as follows (in millions):

Currently, we have variable interest rate debts totaling approximately $81.6
million. These variable rate debts expose us to the risk of increased interest
expense in the event of increases in short-term interest rates. If the variable
interest rate were to increase by 1% from June 2003 levels, our combined
interest expense would increase by approximately $0.8 million annually.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

In response to regulations promulgated by the Securities and Exchange
Commission relating to the recently enacted Sarbanes-Oxley Act, we have
instituted a formalized process intended to provide greater focus and accuracy
with respect to disclosures contained in our reports filed with the Securities
and Exchange Commission. These procedures include obtaining input and
recommendations from our key managers in our operating divisions and in our
legal, finance and accounting departments, detailed reviews of the financial and
operational results of each of our segments with senior management from these
divisions, input and review from our outside legal and accounting advisors, and
reviews and certificates from our key accounting and operating personnel
regarding our results of operations and books and records.

Within 90 days before the filing of this Report, the Company's principal
executive officer and principal financial officer evaluated the effectiveness of
the Company's disclosure controls and procedures we have instituted. Based on
the evaluation, our principal executive officer and principal financial officer
believe that:

1. the Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in
the reports it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms;

2. such information is accumulated and communicated to the Company's
management, including the Company's principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure; and

3. the Company's disclosure controls and procedures are effective.

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CHANGES IN INTERNAL CONTROLS

There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
evaluation referred to in the preceding paragraph, nor have there been any
corrective actions with regard to significant deficiencies or material
weaknesses.

PART II

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

On May 7, 2003, the Company held its 2003 Annual Meeting of Stockholders. At
the meeting, stockholders voted on new directors, approval of an employee stock
purchase plan, and a stockholder proposal relating to board of director
diversity. The following is a summary of the votes on each of these items:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

1. Exhibits:

31.1 Certification of Michael McShane, President and Chief Executive
Officer of the Registrant, dated August 14, 2003, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Louis A. Raspino, Sr. Vice President and Chief
Financial Officer of the Registrant, dated August 14, 2003,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Michael McShane, President and Chief Executive
Officer of the Registrant, and Louis A. Raspino, Sr. Vice
President and Chief Financial Officer of the Registrant, dated
August 14, 2003, in accordance with 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

2. Reports filed on Form 8-K during the three months ended June 30, 2003 -

1. Report on Form 8-K/A, dated January 3, 2003, filed April 4, 2003, under
Item 7. Financial Statements, Pro Forma Information, and Exhibits,
filing updated pro forma information related to the ReedHycalog
acquisition as of December 31, 2002.

2. Report on Form 8-K, dated May 2, 2003, filing the Company's press
release related to its first quarter 2003 results of operations.

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SIGNATURES

Pursuant to the requirements of Section 12 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.

GRANT PRIDECO, INC.

By: /s/ LOUIS A. RASPINO
---------------------------------
Louis A. Raspino
Sr. Vice President and Chief
Financial Officer

By: /s/ GREG L. BOANE
---------------------------------
Greg L. Boane
Corporate Controller and
Principal Accounting Officer

Date: August 14, 2003

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EXHIBIT INDEX