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 SEPTEMBER 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 Offices) (Zip Code)

(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 the Company's 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. STOCK-BASED COMPENSATION

Pro Forma Stock Option Compensation Expense

The Company accounts for its stock-based compensation programs using the
intrinsic value method of accounting established by Accounting Principles Board
(APB) Opinion 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. Non-employee stock-based compensation is
accounted for using the fair value method in accordance with Statement of
Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-based
Compensation".

Had compensation expense 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 was estimated using the Black-Scholes option pricing
model and is amortized over the vesting period of the underlying options.

Employee Stock Purchase Plan

In May 2003, the Company's Employee Stock Purchase Plan ("ESPP") was
approved and the Company reserved 1.3 million shares of Grant Prideco common
stock ("Common Stock") for issuance under the ESPP. Under the ESPP, eligible
employees may have up to 10% of their earnings withheld, subject to certain
limitations. Each one-year offering period commences on January 1 of each year,
except the initial offering period which commenced on July 1, 2003 and will
conclude on December 31, 2003. The price at which the Common Stock may be
purchased under the ESPP is equal to 85% of the lower of the fair market value
of the Common Stock on the commencement date or the last trading day of each
offering period. As of September 30, 2003, the proceeds collected by the Company
under the ESPP totaled approximately $0.4 million.

3. 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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4. INVENTORIES

Inventories by category are as follows:

5. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

6. OTHER CHARGES

2000 Charges

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

In July 2003, the dispute underlying the contingent liability accrual was
settled for $3.3 million, therefore a $1.4 million adjustment was made in the
second quarter of 2003 to reduce the accrued contingent liability to the actual
settlement amount and is recorded in "Other Charges" in the Consolidated
Statements of Operations. The litigation accrual of $0.7 million is expected to
be settled within the next 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.

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These charges 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 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.

(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 the following chart by segment (in thousands):

- ----------

(a) The inventory reserves for the exited product lines were reported as
cost of sales and relate 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 remaining inventory, which has a carrying value of
$1.8 million as of September 30, 2003, is expected to be liquidated
within the next 12 months.

(b) In May 2003, two members of the 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 and was recorded in "Other Charges" in the Consolidated
Statements of Operations.

7. 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 nine months ended September 30,
2002 did not include options to purchase 5.9 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 nine months ended
September 30, 2003 did not include options to purchase 5.4 million and 5.2
million shares, respectively, of common stock because their exercise prices were
greater than the average market price of the common stock.

8. SENIOR CREDIT FACILITY

As of September 30, 2003, the Company had borrowed $62.0 million under a
$240 million Senior Credit Facility (Senior Credit Facility), comprised of $17.4
million of revolving credit facility borrowings and $44.6 million related to the
term loan borrowings. Also, $6.2 million was used to support outstanding letters
of credit as of September 30, 2003. Net

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borrowing availability was $121.7 million as of September 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.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, the Company adopted 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 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 $38.3 million, net of accumulated
amortization of $3.4 million and $6.3 million, as of December 31, 2002 and
September 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, trademarks, and customer
relationships that are amortized over the definitive terms of the related
agreement or the Company's estimate of their 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 nine months ended
September 30, 2002 and 2003 were $0.7 million and $3.0 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 $1.0 million and for each of the years 2004 through 2008 is estimated to be
approximately $3.6 million, $3.0 million, $3.0 million, $2.5 million, and $2.4
million, respectively.

10. RESTRICTED CASH

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At September 30, 2003, the Company had $1.9 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.

11. SEGMENT INFORMATION

BUSINESS SEGMENTS

The Company operates through four primary 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 September
2003, the Company sold the Rotator control valve business included in the Marine
Products and Services segment. See Note 14 for further discussion of this
disposition. 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 exiting its 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
14 for further discussions related to the Company's Other operations.

12. 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, "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. In October 2003,
the FASB issued FASB Staff Position, Interpretation No. 46-6 "Effective Date of
FASB Interpretation No. 46, Consolidation of Variable Interest Entities" which
provides that FASB Interpretation No. 46 is effective for an entity's first
reporting period ending after December 15, 2003 for variable interest entities
created before February 1, 2003. The Interpretation applies immediately to
variable interest entities created after January 1, 2003, or in which we obtain
an interest after that date. The Company is currently evaluating the potential

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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 adopted SFAS No. 150 in the
third quarter of 2003 and there was no impact on the Company's consolidated
results of operations or financial condition.

13. 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
September 30, 2003, goodwill recognized in the acquisition of ReedHycalog was
$159.2 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 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 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 property, 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,

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thereby giving the Company a 70% controlling interest in JSG. The Company
previously owned approximately 21.5% of JSG and 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 September 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. In September 2003, the Company
sold Rotator. See Note 14 for further discussion.

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 15
for supplemental cash flow information concerning acquisitions.

14. DISPOSITIONS

On September 2, 2003, the Company sold Rotator for $13.5 million in cash,
subject to a working capital adjustment by the end of 2003. The gain recognized
on the sale was $2.2 million, $1.4 million net of tax, and is recorded in the
Consolidated Statements of Operations as "Other, Net". Revenues related to
Rotator included in the Marine Products and Services segment's results for the
three and nine months ended September 30, 2002 and 2003 were $4.9 million and
$8.6 million, and $2.2 million and $8.7 million, respectively. Operating income
related to Rotator for the three and nine months ended September 30, 2002 and
2003 were $0.4 million and $0.9 million, and $0.3 million and $0.9 million,
respectively.

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". Revenues related to Star included in the Other segment's
results for the three and nine months ended September 30, 2002 and 2003 were
$5.0 million and $15.3 million, and $0 and $3.6 million, respectively. Operating
income related to Star for the three and nine months ended September 30, 2002
and 2003 were $0.4 million and $1.2 million, and $0 and $0.1 million,
respectively.

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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 6.

15. SUPPLEMENTAL CASH FLOW INFORMATION

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

For additional information on 2003 goodwill changes and acquisition
activity, see Notes 9 and 13.

16. 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.

17. 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
Statements of Operations for the nine months ended September 30, 2003. At
September 30, 2003, the remaining credit balance was $8.8 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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18. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The following unaudited condensed consolidating balance sheet as of
September 30, 2003, condensed consolidating statements of operations for the
three and nine months ended September 30, 2002 and 2003 and condensed
consolidating statements of cash flows for the nine months ended September 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 SEPTEMBER 30, 2003
(IN THOUSANDS)

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

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

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(IN THOUSANDS)

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(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 September 30, 2003, and our
results of operations for each of the three and nine months ended September 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 tubular products and services. 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 the 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. During the third quarter of 2003, we sold our Rotator control
value business for $13.5 million in cash, subject to a working capital
adjustment by the end of 2003. We recognized a $2.2 million pre-tax, $1.4
million after tax, gain on this sale.

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 count levels, however, their
revenues, cash flows, and

18

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 and those rigs operated by major oil companies. Short-term demand in this
segment can also be affected by inventories held by OCTG distributors. Demand
for our Marine Products and Services follows the level of offshore and deepwater
drilling activity, especially the Gulf of Mexico. Although deepwater 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 counts, which we believe will
somewhat offset 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:

- ----------

(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 nine months 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
continued effects of these items on the fourth 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 their seasonal
desire to hold reduced inventories at year-end to minimize ad-valorem taxes. As
a result, we currently expect that fourth quarter 2003 results of operations
will be in the range of $0.06 to $0.08 per share. Our forward-looking statements
and estimates do not take into account any transition expenses associated with
the ReedHycalog acquisition, which we currently expect to be less than $1.0
million, after-tax, during the fourth quarter of 2003. Also, in order to meet
our expectations for the fourth quarter of 2003, 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 third quarter.

19

In addition, 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. We currently manufacture many of our components and
finished products at numerous locations around the world. Management estimates
these assessments will be completed in early 2004. 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 balance as of September 30, 2003 is
summarized below (in thousands):

In July 2003, the dispute underlying the contingent liability accrual was
settled for $3.3 million, therefore a $1.4 million adjustment was made in the
second quarter of 2003 to reduce the accrued contingent liability to the actual
settlement amount and is recorded in "Other Charges" in the Consolidated
Statements of Operations. The litigation accrual of $0.7 million, which is in
our Marine Products and Services segment, is expected to be settled within the
next 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 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.

(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.

20

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) The inventory reserves for the exited product lines were reported as
cost of sales and relate to the write-down of inventories, primarily
industrial drilling products, to their estimated net 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 $1.8
million as of September 30, 2003, is expected to be liquidated within
the next 12 months.

(b) In May 2003, two members of the Board of Directors volunteered to
step down to reduce the number of common directors between us and our
former parent, Weatherford International LTD. (Weatherford), and
vesting of their stock-based compensation was accelerated and was
recorded in "Other Charges" in the Consolidated Statements of
Operations.

THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2002

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

- ----------

(a) Includes transition costs of $1.5 million, $1.0 million in Operating
Income (Loss) and $0.5 million in Other Income (Expense) related to the
ReedHycalog acquisition in December 2002.

(b) Includes a gain of $2.2 million related to the sale of the Rotator
control valve business in September 2003.

21

CONSOLIDATED RESULTS

Net income was $7.5 million ($0.06 per share) on revenues of $221.3 million
in the third quarter of 2003, compared to net income of $1.9 million ($0.02 per
share) on revenues of $162.2 million in the third quarter of 2002. Third quarter
of 2003 earnings includes a $1.4 million gain from the sale of the Rotator
control valve business in the Marine Products and Services segment and
transition costs of $0.9 million related to the ReedHycalog acquisition
completed in December 2002.

Consolidated operating income was $21.9 million in the third quarter of
2003, compared to $10.6 million in the third quarter of 2002, which includes
transition costs of $1.0 million in 2003 related to ReedHycalog.

SEGMENT RESULTS

DRILLING PRODUCTS AND SERVICES SEGMENT

Our Drilling Products and Services segment revenues increased $9.2 million,
or 12%, in the third quarter of 2003 as compared to the same period in 2002.
Operating income increased $0.8 million, or 6%, in the third quarter of 2003 as
compared to the same period in 2002 and operating margins of 17% are down
slightly from 18% in last year's third quarter. The increases in revenues and
operating income are primarily due to increased drill pipe footage sold of 0.4
million feet, from 1.6 million feet sold to 2.0 million feet sold. Also, drill
collar sales increased $3.7 million in the third quarter of 2003 when compared
to the same period in 2002. Operating income margins are slightly down due to a
3% decrease in average sales price per foot, coupled with a decrease in equity
earnings related to our investment in Voest-Alpine due to lower sales volumes
and pricing of their OCTG products.

REEDHYCALOG(TM)

ReedHycalog, which was acquired on December 20, 2002, reported revenues of
$68.1 million in the third quarter of 2003, which is up $11.4 million when
compared to the second quarter of 2003. Operating income in the third quarter of
2003, which includes $1.0 million of transition costs related to the integration
of ReedHycalog, was $13.1 million, and operating income margin was 19%. This
compares to operating income in the second quarter of 2003 of $12.9 million,
which includes $0.5 million of transition costs, and operating income margin of
23%. The increase in revenues is driven by a 13% increase in worldwide drilling
activity; continued successful market penetration of the new TReX(TM)
fixed-cutter drill bit technology introduced earlier this year; and seasonal
increases in Canada. The decrease in operating income margins is due primarily
to increased sales and marketing expenses associated with new marketing
programs; higher than normal distribution expenses to reposition inventory
acquired in the acquisition in December 2002 into different markets; and higher
incentive compensation expense due to stronger than anticipated performance at
ReedHycalog during 2003.

TUBULAR TECHNOLOGY AND SERVICES SEGMENT

Our Tubular Technology and Services segment revenues decreased $12.8
million, or 22%, in the third quarter of 2003 as compared to the same period in
2002. Operating income decreased $0.8 million, or 53%, in the third quarter of
2003 as compared to the same period in 2002. These decreases reflect the impact
of exiting the tubing product lines, starting in the first quarter of 2003, as
well as decreased premium threading and tubular processing activities. The third
quarter of 2003 includes incremental revenues related to Grey-Mak Pipe, Inc.
(Grey-Mak), which we acquired in September 2002.

MARINE PRODUCTS AND SERVICES SEGMENT

Our Marine Products and Services segment revenues increased $0.9 million, or
5%, in the third quarter of 2003 as compared to the same period in 2002.
Operating income was $0.6 million in the third quarter of 2003 as compared to
$0.8 million in the third quarter of 2002. The increase in revenues represents
increased contract pipe sales at XL Systems, partially offset by decreased
revenues at the Rotator control value business that was sold September 2, 2003.
The decrease in operating income is due to a shift in product mix towards lower
margin products, coupled with the sale of Rotator in the third quarter of 2003.

22

OTHER OPERATIONS

Our Other operations revenues decreased $6.3 million, or 89%, in the third
quarter of 2003 as compared to the same period in 2002. Operating income
decreased $1.6 million, from operating income of $0.4 million in the third
quarter of 2002 to an operating loss of $1.3 million in the same period of 2003.

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 in the second quarter of 2003. In March 2003, we exited the
construction casing and water well business with the sale of Star Iron Works,
Inc. (Star). This segment now only includes the remaining industrial product
inventories, which are being liquidated.

OTHER ITEMS

Our interest expense increased $5.0 million in the third 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 $2.2 million in the third quarter of 2003 as compared
to the same period in 2002. This increase relates to a $2.2 million gain from
the sale of our Rotator control value business, coupled with favorable foreign
exchange fluctuations. These increases were partially offset by transition costs
in the third quarter of 2003 of $0.5 million associated with the ReedHycalog
integration.

Our effective tax rate for the third quarter of 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.

23

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2002

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

- ----------

(a) Includes other charges of $2.6 million, $2.4 million in Drilling Products
and Services and $0.2 million in Tubular Technology and Services, related to
fixed asset write-downs.

(b) Includes transition costs of $5.8 million, $3.0 million in Operating Income
(Loss) and $2.7 million in Other Income (Expense), related to the
ReedHycalog acquisition in December 2002.

(c) Includes other charges of $6.4 million, $0.4 million in Tubular Technology
and Services and $6.0 million in Other, related to inventory reserves for
exited product lines which were classified as cost of sales.

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

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

(f) Includes a gain on sale of businesses of $3.5 million.

(g) Includes a gain of $6.6 million from favorably renegotiating a liability
with the Company's former parent.

CONSOLIDATED RESULTS

Net income was $15.3 million ($0.12 per share) on revenues of $601.9 million
for the nine months ended September 30, 2003, compared to net income of $7.0
million ($0.06 per share) on revenues of $482.9 million for the same period in
2002. For the nine months ended September 30, 2003, earnings include 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 exited product lines (primarily industrial drilling products); a
gain on sale of businesses of $2.2 million; and transition costs of $3.7 million
related to the ReedHycalog acquisition completed in December 2002. For the nine
months ended September 30, 2002, earnings include 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 nine months
ended September 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.

24

Consolidated operating income was $49.9 million for the nine months ended
September 30, 2003, compared to $41.5 million for the same period in 2002,
including certain items mentioned above.

SEGMENT RESULTS

DRILLING PRODUCTS AND SERVICES SEGMENT

Our Drilling Products and Services segment revenues decreased $24.9 million,
or 10%, for the nine months ended September 30, 2003 as compared to the same
period in 2002. Operating income decreased $21.5 million, or 40%, for the nine
months ended September 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 14% for the nine months ended
September 30, 2003 are down from 22% for the same period in 2002. For the nine
months ended September 30, 2003, drill pipe footage sold increased 0.2 million
feet, from 4.8 million feet sold to 5.0 million feet sold when compared to the
same period in 2002, and average sales price per foot decreased by 10%. These
decreases reflect the 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 in
2003. These decreases are partially offset by incremental revenues for the nine
months ended September 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 our investment in Voest-Alpine due to lower sales volumes
and pricing of their OCTG products in 2003.

REEDHYCALOG(TM)

ReedHycalog, which was acquired on December 20, 2002, reported revenues of
$178.1 million for the nine months ended September 30, 2003. Operating income
was $35.7 million, which includes $3.0 million of transition costs related to
the integration of ReedHycalog, and the operating income margin was 20%.
ReedHycalog's results reflect successful market penetration of the new TReX(TM)
fixed-cutter bit.

TUBULAR TECHNOLOGY AND SERVICES SEGMENT

Our Tubular Technology and Services segment revenues decreased $26.3
million, or 16%, for the nine months ended September 30, 2003 as compared to the
same period in 2002. Operating income decreased $3.5 million, or 37%, for the
nine months ended September 30, 2003 (including a $0.4 million charge in the
second quarter of 2003 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 in the second quarter of 2002 related to idled fixed
assets). These decreases reflect the impact of exiting the tubing product lines,
starting in the first quarter of 2003, as well as decreased premium threading
and tubular processing activities. The nine months ended September 30, 2003 also
includes incremental revenues related Grey-Mak, which we acquired in September
2002.

MARINE PRODUCTS AND SERVICES SEGMENT

Our Marine Products and Services segment revenues increased $5.6 million, or
12%, for the nine months ended September 30, 2003 as compared to the same period
in 2002. Operating loss was $0.2 million for the nine months ended September 30,
2003 as compared to a loss of $0.1 million for the nine months ended September
30, 2002. The increase in revenues is due to a 14% increase in sales at XL
Systems. The slight increase in operating loss is due to a shift in product mix
towards smaller-diameter, lower margin products at XL Systems.

OTHER OPERATIONS

Our Other operations revenues decreased $13.4 million, or 63%, for the nine
months ended September 30, 2003 as compared to the same period in 2002, and
operating loss increased $7.2 million, which includes a charge of $6.0 million
in 2003 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 in the second quarter of 2003. Our Drilling Products and Services
segment will now be managing this facility, as the plant can provide

25

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. This
segment now only includes the remaining industrial product inventories, which
are being liquidated.

CORPORATE

Our corporate overhead decreased $5.0 million, or 25%, for the nine months
ended September 30, 2003 as compared to the same period in 2002. This decrease
primarily relates to an executive severance charge of $4.5 million in 2002.

OTHER ITEMS

Our interest expense increased $14.6 million for the nine months ended
September 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 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 $10.7 million for the nine months ended September 30,
2003 as compared to the same period in 2002. This increase relates to a $6.6
million gain from favorably renegotiating a liability to our former parent, a
gain on the sale of businesses of $3.5 million, coupled with favorable foreign
exchange fluctuation. These increases were partially offset by transition costs
for the nine months ended September 30, 2003 of $2.7 million associated with the
ReedHycalog integration.

Our effective tax rate for the nine months ended September 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 September 30, 2003, we had cash and cash equivalents of $15.1 million and
net working capital of $335.8 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 $46.8 million
for the nine months ended September 30, 2003 as compared to the same period in
2002. The decrease in operating cash flows is attributable primarily to an
increase in accounts receivable, due to increased activity during the third
quarter of 2003, and increased inventories in anticipation of increased activity
during the latter part of 2003 and into 2004.

INVESTING ACTIVITIES

Net cash used in investing activities decreased by $24.4 million for the
nine months ended September 30, 2003 as compared to the same period in 2002. The
decrease primarily relates to proceeds from the sale of businesses of $24.1
million during the nine months ended September 30, 2003. In March 2003, we sold
Star for $11 million in cash and a note receivable valued at $0.9 million, and
in September 2003 we sold our Rotator control valve business for net cash
proceeds of $13.1 million.

26

FINANCING ACTIVITIES

Net cash used in financing activities decreased $9.9 million for the nine
months ended September 30, 2003 as compared to the same period in 2002. This
decrease reflects lower repayments on our debt when compared to the same period
in 2002.

Capital Expenditures

Our capital expenditures for property, plant, and equipment totaled $34.5
million and $28.4 million for the nine months ended September 30, 2002 and 2003,
respectively. We currently expect to expend approximately $10 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 our 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 September 30, 2003, we had outstanding borrowings of $62.0 million under
the Senior Credit Facility, of which $17.4 million related to the revolving
credit facility borrowings, and $44.6 million related to the term loan. Also,
$6.2 million had been used to support outstanding letters of credit. Net
committed remaining availability was $121.7 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.

We estimate our required principal and interest payments for our outstanding
debt to be approximately $21.6 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
for at least a three-year period from April 2000 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. In the second quarter of 2003, we renegotiated this
contract with Weatherford,

27

which extended this contract until March 2005 and reduced the unused preferred
supplier credit balance by $6.6 million. At September 30, 2003, the remaining
credit balance was $8.8 million.

RECENT ACCOUNTING PRONOUNCEMENTS

For recent accounting pronouncements, see Note 12 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.

28

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 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. In addition, demand for
premium connection products can be affected by distributor inventory levels.

Our forward-looking statements assume that rig counts, particularly in North
America, will remain stable throughout the remainder of 2003 and will increase
somewhat during 2004, in particular offshore where premium tubulars are more
likely to be utilized, and that these increases will drive increases in demand
for our drill stem products, tubular technology products, and drill bit
operations. A decline, or even a leveling off or stagnation of drilling
activity, in particular in the Gulf of Mexico, would cause our actual results to
be significantly less than those currently expected.

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

The U.S. and worldwide economies have been very volatile, and their future
directions are uncertain. If North American or international economies 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 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 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.

29

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.

Demand for our products and services can be very cyclical, causing us to
rapidly increase and decrease manufacturing capacity to meet demand changes. Our
ability to make such changes without material disruption is subject to great
uncertainty, including availability of equipment and skilled labor.

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, OR COULD INCUR UNEXPECTED COSTS, WHICH
COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

During the first nine months of 2003, we derived approximately 41% 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 can be materially affected by significant changes to exchange
rates, in particular, the Euro-dollar exchange rate. Our expectations for the
remainder 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 production; the movement of funds and
assets; or increases in operating costs could materially adversely affect our
results of operations and financial condition.

30

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.

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

31

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.

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 outlined under our critical accounting policies in our
Annual Report on Form 10-K, 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 September 30, 2003, we reported goodwill totaling $392.3 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 as of October 1st 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 FOR DRILL PIPE AND RELATED PRODUCTS 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 for
drill pipe related products at numerous locations around the world. We are
conducting company-wide assessments of all of our related manufacturing
strategies and practices to determine possible improvements which could allow us
to improve manufacturing efficiencies, reduce costs, and improve future
profitability. Management expects preliminary assessments will be completed in
early 2004. Our forward-looking statements assume that none of the results of
the reviews will adversely affect our results of operations in any period.

32

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. At September 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 September 30, 2003, were as follows (in
millions):

Currently, we have variable interest rate debts totaling approximately $63.4
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 rates were to increase by 1% from September 2003 levels, our combined
interest expense would increase by approximately $0.6 million annually.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's principal
executive officer and principal financial officer, evaluated the effectiveness
of the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) as of the end of the fiscal quarter ended
September 30, 2003. Based on this evaluation, the Company's principal executive
officer and principal financial officer have concluded that the Company's
disclosure controls and procedures were effective as of the end of the fiscal
quarter ended September 30, 2003 to ensure that information that is required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the time
periods specified in the SEC's rules and forms.

33

CHANGES IN INTERNAL CONTROLS

There were no changes in the Company's internal control over financial
reporting that occurred during the fiscal quarter ended September 30, 2003 that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

PART II

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

1. Exhibits:

EXHIBIT
NUMBER DESCRIPTION
------- -----------
31.1 Certification of Michael McShane, President and Chief Executive
Officer of the Registrant, dated November 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 November 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
November 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 September 30,
2003 -

1. Report on Form 8-K, dated August 6, 2003, filing the Company's press
release related to its second quarter 2003 results of operations.

2. Report on Form 8-K, dated September 3, 2003, filing the Company's
presentation to investors at the Lehman Brothers CEO Energy
Conference.

34

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: November 14, 2003

35

EXHIBIT INDEX