<PAGE>

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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

<Table>
<C>          <S>
    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM           TO
</Table>

                       COMMISSION FILE NUMBER: 001-15423

                              GRANT PRIDECO, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      76-0312499
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)

             1330 POST OAK BLVD.                                   77056
                  SUITE 2700                                     (Zip code)
                HOUSTON, TEXAS
   (Address of principal executive offices)
</Table>

                                 (832) 681-8500
              (Registrant's telephone number, including area code)

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

<Table>
<Caption>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<S>                                            <C>
   Common Stock, par value $0.01 per share                New York Stock Exchange
</Table>

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

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]     No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     Aggregate market value of Common Stock held by nonaffiliates as of March
20, 2002: $1,397,349,915

     Number of shares of Common Stock outstanding as of March 20, 2002:
109,401,756

                      DOCUMENTS INCORPORATED BY REFERENCE

     Listed below are document parts of which are incorporated herein by
reference and the part of this report into which the document is
incorporated:  NONE

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--------------------------------------------------------------------------------
<PAGE>

                        TABLE OF ADDITIONAL REGISTRANTS

<Table>
<Caption>
                                                              JURISDICTION OF
NAME**                                                           FORMATION      EMPLOYER ID
------                                                        ---------------   -----------
<S>                                                           <C>               <C>
GP Expatriate Services, Inc. ...............................     Delaware       76-0632330
Grant Prideco Holding, LLC..................................     Delaware       76-0635560
Grant Prideco, L.P..........................................     Delaware       76-0635557
Grant Prideco USA, LLC......................................     Delaware       51-0397748
Star Operating Company......................................     Delaware       76-0655528
TA Industries, Inc. ........................................     Delaware       76-0497435
Texas Arai, Inc. ...........................................     Delaware       74-2150314
Tube-Alloy Capital Corporation..............................      Texas         76-0012315
Tube-Alloy Corporation......................................    Louisiana       72-0714357
XL Systems International, Inc. .............................     Delaware       76-0602808
XL Systems, L.P.............................................      Texas         76-0324868
</Table>

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

** Except for Grant Prideco USA, LLC, the address, telephone number, and zip
   code for each of the additional Registrants is the same as for Grant Prideco,
   Inc. The address, telephone number, and zip code for Grant Prideco USA, LLC
   is 500 Delaware Avenue, Suite 900, Wilmington, DE 19801.

     Grant Prideco, Inc. (the "Company") owns directly or indirectly all of the
outstanding capital stock of each of the additional Registrants listed above.
Each of the additional Registrants is a guarantor of the Company's obligations
under its 9 5/8% Senior Notes Due 2007 (the "Senior Notes"). No separate
financial statements for the additional Registrants has been provided or
incorporated because: (1) the financial statements of the Company included in
this report include the operations of each of the additional Registrants and (2)
Note 22 to the Company's accompanying audited financial statements includes
audited condensed consolidating financial statements of the Company separating
the financial results for the additional Registrants from the Company and any
subsidiaries that are not guarantors of the Company's obligations under the
Senior Notes.
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    2
          General.....................................................    2
          Drilling Products and Services Segment......................    2
          Premium Connections and Tubular Products Segment............    3
          Marine Products and Services Segment........................    3
          Other.......................................................    3
          Other Business Data.........................................   12
          Employees...................................................   13
Item 2.   Properties..................................................   13
Item 3.   Legal Proceedings...........................................   14
Item 4.   Submission of Matters to a Vote of Security Holders.........   15

                                  PART II
Item 5.   Market For Registrant's Common Equity and Related
          Stockholder Matters.........................................   15
Item 6.   Selected Financial Data.....................................   16
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   18
          General.....................................................   18
          Market Trends and Outlook...................................   19
          Results of Operations.......................................   27
          Liquidity and Capital Resources.............................   42
          Forward-Looking Statements and Exposures....................   48
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   54
Item 8.   Financial Statements and Supplementary Data.................   56
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................  102

                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........  102
Item 11.  Executive Compensation......................................  105
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................  108
Item 13.  Certain Relationships and Related Transactions..............  109

                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................  110
          Signatures..................................................  113
</Table>

                                        1
<PAGE>

                                   FORM 10-K

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Grant Prideco, Inc. (the "Company") is the world's largest manufacturer and
supplier of oilfield drill pipe and other drill stem products and one of the
leading North American providers of high-performance premium connections and
tubular products. We also provide a variety of products and services to the
growing world-wide offshore and deepwater market through our newly-created
marine products and services segment. Our drill stem products are used to drill
oil and gas wells while our premium connections and tubular products are used to
complete oil and gas wells once they have been successfully drilled. Our marine
products and services are used for subsea construction, installation, and
production. Our customers include major, independent and state-owned oil
companies, drilling contractors, oilfield service companies, and North American
oil country tubular goods (OCTG) distributors. We operate 22 manufacturing
facilities located in the United States, Mexico, Canada, Europe, and Asia and 30
sales, service, and repair locations globally.

     We conduct our operations through three primary business segments: Drilling
Products and Services, Premium Connections and Tubular Products, and Marine
Products and Services. Revenues attributable to each of these segments, along
with our other operations, in 1999, 2000, and 2001 are set forth in the
following charts:

                              REVENUES BY SEGMENT

                                  [PIE CHART]

<Table>
<Caption>
                                                          1999       2000       2001
                                                         ------     ------     ------
<S>                                                      <C>        <C>        <C>

Drilling Products and Services.........................     47%        42%        51%
Premium Connections and Tubular Products...............     47%        45%        37%
Marine Products and Services...........................      6%         7%         6%
Other (principally industrial drill pipe)..............      0%         6%         6%

Total Revenues By Segment..............................  $286,370   $498,481   $740,127
</Table>

     Drilling Products and Services.  Our drilling products and services segment
manufactures and sells a full range of proprietary and American Petroleum
Institute (API) drill pipe, drill collars, heavy weight drill pipe, and
accessories. These drill stem products make up the principal tools (other than
the rig) used for the drilling of an oil or gas well that are located between
the rig floor and the bit. Our drilling products primarily include highly
engineered tools specifically designed for today's difficult and harsh drilling
environments and include a wide variety of sizes, designs, and metallurgy.

     In recent years, the depth and complexity of the wells our customers drill,
as well as the specifications and requirements of the drill pipe they purchase,
has substantially increased. Today, approximately 95% of the drill

                                        2
<PAGE>

pipe we sell is required to exceed minimum API specifications. In response to
this trend, we have introduced a variety of premium drill pipe products,
including our eXtreme(R) drilling product line that includes some of the most
advanced drilling tools available in the marketplace today. We design and
manufacture specialty grades of premium drill pipe for use in highly corrosive
and harsh environments and to withstand extreme operating conditions such as
those that exist offshore and in deep wells. We estimate that anywhere from 25%
to 30% of our drill pipe sales during a normal market is for our premium grade
products with special sizes, connections, or chemistries. When activity levels
are low in the North American land market and the international and offshore
markets represent a higher percentage of our sales, our premium drill pipe
products will generally represent a majority of our drill pipe sales due to the
higher specifications necessary for the international and offshore markets that
we serve.

     Premium Connections and Tubular Products.  Our premium connections and
tubular products segment designs, manufactures, and sells a complete line of
premium connections and associated premium tubular products and accessories. The
term "premium" connections refer to threaded connections with a gas-tight seal
and the ability to handle high torque, tension, and pressure. Premium tubulars
are seamless casing and tubing (as opposed to rolled welded) with high-alloy
chemistry and superior burst and collapse-resistance characteristics under harsh
conditions. Our connections and premium products are used primarily for the
completion of gas wells and offshore and other wells that are drilled in harsh
high-temperature or high-pressure environments or in environmentally sensitive
areas.

     Our premium connections and tubular products segment offerings include
Atlas Bradford(R) premium engineered connections and tubing, TCA(TM) premium
casing, and Tube-Alloy(TM) vacuum-insulated tubing and tubular accessories. We
also provide premium and API threaded couplings and third-party connections on
specialty, completion, and other products. We have been involved in the design
and development of premium oilfield connections for over 40 years and are
recognized in the industry as one of the leading providers of premium connection
technology.

     Marine Products and Services.  Our marine products and services segment
provides proprietary connections and installation services for offshore
conductors, subsea structures, and top tension production risers as well as
proprietary wellheads for jack-up, exploration, and subsea wells through our
recently acquired Plexus POS-GRIP(TM) product line. We also are in the process
of adding subsea control and production systems to our product offering through
our proposed acquisition of Scana Rotator in Norway.

     Other.  In addition to the products and services provided through our three
primary segments, we manufacture drill pipe and other products used in the
industrial markets for fiber optic cable installation, construction, and water
well drilling. We also are involved in joint ventures for the development of
technologies for the oil and gas industry.

  BUSINESS STRATEGY

     Our business and growth strategy is to maximize the productivity and value
of our existing assets and business and seek new growth opportunities outside
our historical core business where we believe we can add value. Internally, we
are currently focused on increasing the efficiencies and flexibility of our
existing drilling products and premium connection businesses and making sure
that we are positioned to take full advantage of the expected recovery in the
North American drilling market when it occurs. Our objective is to be able to
manufacture in normal markets 1.5 to 2.5 million feet of drill pipe per quarter
(outside China), with little disruption to our operations. We are also
maintaining the ability to increase our production to approximately 3.0 million
feet per quarter (outside China) when market conditions require. Our marine
products and services segment is focused on increasing our market share and
efficiencies for our existing product lines as well as identifying and acquiring
complementary businesses, products, and services.

     To achieve our strategic goals, we intend to:

     - Expand the geographic scope and product breadth of our drilling products
       and premium connections businesses.  We are pursuing opportunities to
       expand the geographic and product breadth of these key product lines. We
       are currently in the process of acquiring a controlling interest in our
       Chinese drill

                                        3
<PAGE>

       pipe manufacturing affiliate and have entered into a joint venture with a
       Chinese tubular mill for the manufacture of unfinished drill pipe in
       China. These steps will expand our market share and product strength in
       this important oil and gas producing region, and provide us with a
       high-quality, low-cost manufacturer to service the Asian market.

     - Continue investing in and developing new technologies.  We believe we
       must continue to be the leader in developing new technologies in each of
       our product lines and to add new technologies that are complementary to
       our existing products and services. In this regard, we recently licensed
       from a third-party a multi-faceted engineered connection, which we
       believe will expand the scope and performance characteristics of our
       premium connections product line. We also recently added our proprietary
       Plexus POS-GRIP(TM) wellhead and marine connection product line to our
       marine products and services operations. In addition, we are developing
       new technologies for the oil and gas industry through joint ventures with
       third-parties to use drill pipe as a downhole communication medium for
       downhole drilling and reservoir evaluation and for composite motors and
       pumps. We currently expect to introduce one or more of these products in
       the market by 2003.

     - Improve our manufacturing efficiencies.  We will continue to pursue
       manufacturing efficiencies that will increase our profitability as well
       as the quality and reliability of our products and services. We are in
       the process of installing a state-of-the-art, automated drill pipe line
       in our Navasota, Texas drill pipe facility as well as modern tool joint
       manufacturing equipment in Mexico, which we believe will help us achieve
       these operating goals.

     - Rapidly develop our Marine Products and Services Segment.  We formed our
       marine products and services segment during the fourth quarter of 2001 to
       position the Company to capitalize on what we believe are significant
       growth opportunities in this market. We plan to leverage off our existing
       marine products and services to acquire complementary businesses,
       products and technologies to increase our exposure. Since forming this
       separate segment, we have added our proprietary POS-GRIP(TM) wellhead
       product line and are in the process of acquiring a line of control valves
       for the offshore and deepwater markets.

  THE SPINOFF

     Until April 14, 2000, we were a wholly-owned subsidiary of Weatherford
International, Inc. (Weatherford). We were spun off from Weatherford on April
14, 2000, through a distribution by Weatherford of all of our common stock to
its stockholders, to allow both companies to focus on growth strategies and
capital structures appropriate for their respective businesses. As a result of
the spinoff, Weatherford no longer has an ownership interest in us.

DRILLING PRODUCTS AND SERVICES SEGMENT

     Our drilling products and services segment manufactures and sells a variety
of drill stem products used for the drilling of oil and gas wells. The principal
products sold by this segment are: (1) drill pipe products (including tool
joints), (2) drill collars and heavy weight drill pipe, and (3) drill stem
accessories and other. The following chart sets forth revenue by principal
product line in our drilling products and services segment for 1999, 2000, and
2001:

                                        4
<PAGE>

                     DRILLING PRODUCTS AND SERVICES REVENUE
                                BY PRODUCT LINE

                                [PIE CHART TWO]

<Table>
<Caption>
                                                          1999       2000       2001
                                                         ------     ------     ------
<S>                                                      <C>        <C>        <C>
Drill Pipe Products....................................     64%        75%        80%
Drill Collars and Heavy Weight Drill Pipe..............     13%        16%        16%
Drill Stem Accessories and Other.......................     23%         9%         4%

Total Revenues.........................................  $134,275   $208,347   $382,579
</Table>

     Our drilling products and services segment is materially dependent on both
domestic and international drilling activity. Generally, demand for our drill
stem products closely follows the domestic and international rig count. Domestic
rig counts are mostly affected by changes in North American natural gas prices
and demand, while international rig counts are affected primarily by changes in
crude oil prices. Prices of oil and natural gas historically have been very
volatile, creating sharp increases and decreases in the demand for our drilling
products and services. Natural gas prices have recently been low in the United
States compared with highs during the last two years due primarily to high
levels of gas storage. This trend has resulted in a slowdown in drilling
activity in the United States and North America, which has in turn impacted
demand for drill pipe.

     We are seeing increasing intensity of use of our drill stem products, which
causes them to wear out faster. This increased intensity of use results from:
more wells being drilled either directionally or horizontally, which creates far
higher abrasion and bending loads than in vertical wells; more gas wells being
drilled, which typically are drilled to greater depths than oil wells; and the
increasing prevalence of top drive rigs, which place more torsional stress on
drill pipe than traditional rotary table rigs. We believe these trends will
favorably impact long-term demand for our drill stem products going forward.

     With the increased complexity of drilling activity, demand for our
proprietary line of eXtreme(R) drilling and other premium drilling products has
grown. This value-added product line is specifically designed for extreme
drilling conditions such as extended reach, directional, horizontal, deep gas,
offshore, and ultra-deepwater drilling, as well as high-temperature,
high-pressure, and corrosive well conditions. Operators and drilling contractors
have embraced this product line as a way to improve their efficiency and assure
performance when drilling under extreme conditions. We believe that our
eXtreme(R) product line offers some of the highest-performance drilling products
ever brought to market and provides our customers with engineered solutions for
some of their most challenging drilling applications. In addition or our
eXtreme(R) product line, our premium drill pipe products include our
High-Torque(R) connections, proprietary sour-service grades, SmoothX(R) hard
facing line, and other proprietary products.

     Our drilling products are sold to a variety of customers, including oil and
gas drilling contractors, rental tool companies, and major, independent, and
state-owned oil and gas companies. Our customers purchasing decisions are
generally based on operational requirements, quality, price, and delivery.

                                        5
<PAGE>

     The following is a description of our principal drilling products:

  DRILL PIPE PRODUCTS

     Drill pipe is the principal mechanical tool, other than the rig, required
for the drilling of an oil or gas well. Its primary purpose is to connect the
above-surface drilling rig to the drill bit. A drilling rig will typically have
an inventory of 10,000 to 25,000 feet of drill pipe depending on the size and
service of the rig. Joints of drill pipe are connected to each other with a
welded-on tool joint to form what is commonly referred to as the drill string or
drill stem.

     When a drilling rig is operating, motors mounted on the rig rotate the
drill pipe and drill bit. In addition to connecting the drilling rig to the
drill bit, drill pipe provides a mechanism to steer the drill bit and serves as
a conduit for drilling fluids and cuttings. Drill pipe is a consumable capital
good that can be used for the drilling of multiple wells. Once a well is
completed, the drill pipe may be used again in drilling another well until the
drill pipe becomes damaged or wears out. We estimate that the average life of a
string of drill pipe is three to five years, depending on usage and that an
average rig will consume between 125 and 175 joints (3,875 to 5,425 feet) per
year under normal conditions.

     In recent years, the depth and complexity of the wells our customers drill,
as well as the specifications and requirements of the drill pipe they purchase,
has substantially increased. Today we estimate that around 95% of the drill pipe
we sell is required to meet specifications exceeding minimum API standards. Our
products are designed to meet or exceed these standards. We offer a broad line
of premium drilling products designed for the offshore, international, and
domestic drilling markets. Our premium drilling products include our proprietary
lines of XT(R) connections and our patented 5 7/8 inches drill pipe that
delivers hydraulic performance superior to standard 5 1/2 inches pipe, and
economic benefits comparable to standard 6 5/8 inches pipe.

     Our principal competitors in drill pipe are OMSCO Industries (a subsidiary
of ShawCor Ltd.), IDPA (a subsidiary of Vallourec & Mannesmann Tubes (V&M
Tubes)), and various smaller local manufacturers in the United States and in
foreign countries. We typically compete on quality, technology, price, and
delivery. We are, however, the technological leader in our industry.

  DRILL COLLARS

     Drill collars are used in the drilling process to place weight on the drill
bit for better control and penetration. Drill collars are located directly above
the drill bit and are manufactured from a solid steel bar to provide necessary
weight.

     Our principal competitors for drill collars are OMSCO, SMFI (a privately
owned company in France), Drilco Group (a subsidiary of Smith International,
Inc.), and numerous other smaller manufacturers in the United States and foreign
countries.

  HEAVY WEIGHT DRILL PIPE AND OTHER DRILL STEM PRODUCTS

     Heavy weight drill pipe is a thick-walled seamless tubular product that is
less rigid than a drill collar. Heavy weight drill pipe provides a gradual
transition zone between the heavier drill collar and the relatively lighter
drill pipe.

     We also provide kellys, subs, pup joints (short and odd-sized tubular
products), and other drill stem accessories. These products all perform special
functions within the drill string as part of the drilling process.

     Our principal competitors for heavy weight drill pipe and other drill stem
products are Drilco Group, SMFI, OMSCO, and numerous other smaller manufacturers
in the United States and foreign countries.

  OPERATIONS

     Our drilling products are manufactured in the United States, Canada, China,
Italy, Mexico, Singapore, Austria, and Indonesia. These products are sold and
serviced through over 16 sales and service facilities located around the world.
As of the beginning of 2002, our manufacturing operations had the ability to
                                        6
<PAGE>

produce around 10 to 12 million feet of drill pipe a year. This excludes our
Chinese operations, which have capacity of around 1.5 to 2.0 million feet and
primarily serve the Chinese market. We are in the process of implementing a
capital improvement program with the objective of automating much of our
manufacturing process, reducing our costs and allowing us to respond quicker to
changes in demand. Our operating plan is to be able to manufacture from 1.5 to
2.5 million feet of drill pipe per quarter outside China with little or no
disruption to our operations and to be able to increase our production to 3.0
million feet per quarter if favorable market conditions exist. Overall, our goal
is to be able to profitably manufacture at much lower production levels than we
have in the past and improve our full cycle returns.

     We are the only fully vertically integrated drill pipe manufacturer in the
world, controlling each facet of the drill pipe manufacturing process. We
believe this unique manufacturing strategy provides us with significant
competitive advantages over other drill pipe manufacturers, including those
located outside the United States that may have labor and other cost advantages
over our U.S.-based manufacturing operations. By controlling each facet of the
drill pipe manufacturing process, we are able to tailor our processes and
techniques to meet our customers' demanding product specifications, particularly
with respect to green drill pipe tubes with body wall thicknesses, wall
uniformity, and other features that exceed minimum API standards and are not
readily available from third-party mills.

     The following picture illustrates the principal components of a joint of
drill pipe and the locations where these products are manufactured and processed
by us:

                             DRILL PIPE COMPONENTS

                             GREEN DRILL PIPE TUBE
                             VOEST-ALPINE (AUSTRIA)

<Table>
<Caption>
<S>                  <C>

                     [GRAPHIC]
    TOOL JOINT
  (MEXICO/ITALY)
</Table>

                              FINISHED DRILL PIPE

                               (NAVASOTA, TEXAS;
                    BRYAN, TEXAS; CANADA; INDONESIA; CHINA)

                                   [GRAPHIC]

     Seamless Green Drill Pipe.  The seamless green drill pipe tubes utilized by
us to manufacture drill pipe are manufactured primarily by our 50.01% owned
subsidiary, Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG (Voest-Alpine),
located in Kindberg, Austria. Our Voest-Alpine mill has the ability to produce
around 300,000 metric tons of seamless tubular products of 7 inches or less in
diameter a year. We have committed to purchase 60,000 metric tons a year for our
own use. Voest-Alpine provided us with most of the tubular raw material used to
manufacture drill pipe in 2001. In addition to manufacturing green drill pipe
for us, Voest-Alpine also sells finished tubing and casing products, primarily
to the Russian, North American, Middle East, and Chinese markets.

     Tool Joints.  We manufacture all of our tool joints at our wholly-owned
subsidiaries located in Veracruz, Mexico and Turin, Italy. Tool joints, which
are forged, threaded devices, are welded with an inertia or friction welder to
each end of a section of seamless pipe to create a joint of finished drill pipe.
We manufacture our tool joints from steel billets. We pre-heat the billets and
forge them into tool joint blanks. We then heat treat, inspect, thread, and coat
the tool joint blanks and perform make-and-break and hard banding operations
which are required by the majority of our customers.

     Finished Drill Pipe Manufacturing.  We conduct our drill stem manufacturing
operations at our primary drill pipe manufacturing facility in Navasota, Texas
as well as our other manufacturing locations in Bryan, Texas, Edmonton, Canada,
China, and Indonesia. Manufacturing of drill stem products involves several
highly complex processes. There are about 20 steps required to manufacture and
process the seamless tubular

                                        7
<PAGE>

component into a joint of drill pipe. Each seamless tube must be upset (the ends
are reshaped), heat treated (including austenitizing, quenching, and tempering),
inspected, straightened and the tool joints welded to the end of the pipe to
create the finished product.

PREMIUM CONNECTIONS AND TUBULAR PRODUCTS SEGMENT

     Our premium connections and tubular products segment provides a full range
of premium threaded connections for casing, production tubing, and other
accessory equipment. This segment also manufactures and sells premium casing and
tubing for use with our connections as well as third-party connections.

     Our principal premium connection line is our Atlas Bradford(R) product
line. We offer this product line primarily in the United States and Canada due
to a licensing arrangement previously entered into by us in which the
international rights to our Atlas Bradford(R) connection line were licensed to a
third-party. We also offer worldwide proprietary connections for specialty
products such as expandable casing and related completion products.

     The demand for our premium connections and tubular products is heavily
dependent upon North American drilling activity, as we generally do not sell
these products and services outside of North America. In addition, because many
of our premium connections are used for gas and offshore wells, the demand for
our premium connections will fluctuate directly with drilling activity in those
markets. Demand for these products on a short-term basis is also affected by the
level of inventory held by OCTG distributors.

     The following charts set forth the revenues in 1999, 2000, and 2001 from
our (1) Atlas Bradford(R) and other premium connections and tubing, (2) TCA(TM)
casing product line, (3) Tube-Alloy(TM) vacuum-insulated tubing and tubular
accessories business, and (4) Texas Arai line of API and premium couplings.

                    PREMIUM CONNECTIONS AND TUBULAR PRODUCTS
                        SEGMENT REVENUE BY PRODUCT LINE

                               [PIE CHART THREE]

<Table>
<Caption>
                                                          1999       2000       2001
                                                         ------     ------     ------
<S>                                                      <C>        <C>        <C>
Atlas Bradford Threading and Service...................     32%        29%        33%
TCA....................................................     29%        35%        30%
Tube-Alloy.............................................     16%        15%        18%
Texas Arai.............................................     23%        21%        19%

Total Revenues.........................................  $133,491   $225,628   $272,283
</Table>

     The following is a description of our principal premium connections and
tubular products offered by us:

  ATLAS BRADFORD(R) THREADING AND SERVICE

     We market our premium engineered connections primarily through our Atlas
Bradford(R) product line. Through this line, we offer proprietary connections
designed for all types and sizes of premium tubing and casing. We thread these
connections on tubing and casing provided by third-parties as well as on our own
Atlas
                                        8
<PAGE>

Bradford(R) and TCA(TM) tubing and casing. Our customers use premium connections
when they need a connection that maintains a gas-tight seal while subjected to
extreme tension, pressure, and compression forces or while drilling near
environmentally sensitive areas. The failure of a premium connection can be a
catastrophic event, leading to the loss of a well or a blowout. Therefore,
operators and oil and gas companies generally purchase the best available
connection, with price as a secondary factor.

     Our Atlas Bradford(R) line of premium connections has been recognized as
one of the industry's leading connections for more than 40 years and is one of
the most comprehensive product line offerings in the industry. We are
continually developing new connections and improvements to existing connections
to meet the requirements of today's harsh drilling environments. We recently
introduced our Advanced NJO(TM) connection, an integral joint connection with
enhanced compression and bending strength, torsion capability, and external
pressure sealing. We recently developed a patented premium connection for
expandable tubular applications in conjunction with Enventure Global Technology,
LLC, a joint venture between Shell Oil Company and Halliburton. We are also a
licensee of various other connections that we offer in North America and
elsewhere.

     We generally sell our premium connections and tubular products through
major distributors in the United States and Canada. We also sell our premium
connections on tubular products directly to operators of oil and gas wells. Our
Atlas Bradford(R) premium tubing is manufactured and designed to customer
specifications for quick delivery or distributor inventory. Our premium tubing
is generally sold only with our Atlas Bradford(R) premium connections.

     Our principal competitors for this product line are Hydril Company, V&M
Tube, Sumitomo, Kawasaki Steel, Nippon Steel, Hunting Interlock, Inc., the
Tenaris Group and numerous other smaller competitors domestically and
internationally. Our Atlas Bradford(R) line is offered internationally outside
of North America by other parties through license arrangements. As a result, our
market for premium connections is currently primarily limited to North America.
Sales of our Atlas Bradford(R) premium and other connections and tubulars in
1999, 2000 and 2001 were $43.3 million, $65.1 million and $88.4 million,
respectively.

  TCA(TM)

     Our premium casing products are offered through our TCA(TM) product line.
These product offerings are designed to address that segment of the oilfield
tubular casing market that requires special product characteristics not
generally offered by the tubular steel mills. Our TCA(TM) product line also
provides tubular processing services for major tubular steel mills.

     We manufacture and sell premium casing, which includes high-performance,
proprietary, and custom-designed seamless OCTG from 5 to 17 inches in diameter
as well as API casing. Our premium casing is designed for critical applications.
To capitalize on the high value spot market, we maintain common and high-alloy
green tubular inventories to provide quick delivery of custom-finished casing
and coupling stock. To further meet specific customer specifications and
delivery requirements, we offer our specialized Premium Pipe Pak(TM) product
line. Premium Pipe Pak(TM) is an innovative bundling of proprietary premium
casing, premium engineered connections, and inspection services offered in
conjunction with an independent third-party inspection company. This product
line allows the customer the option of having threaded and inspected
critical-service casing shipped "rig-ready" directly to the customer's well
site, and reduces costs and delivery times. Our TCA(TM) products are sold with
or without our proprietary Atlas Bradford(R) connections. Sales of TCA(TM)
premium casing products in 1999, 2000 and 2001 were $38.5 million, $80.7 million
and $81.8 million, respectively.

  TUBE-ALLOY(TM) ACCESSORIES

     Tubular accessories are manufactured and sold through our Tube-Alloy(TM)
product line and include flow control equipment, such as vacuum-insulated
tubing, pup joints, and landing nipples. Our vacuum-insulated tubing represents
an advanced flow-control solution used in the Gulf of Mexico to minimize
paraffin deposits, gas hydrate formation, and annular pressure buildup in
deepwater production environments. Through our Tube-Alloy(TM) product line, we
thread third-party tubular products with our Atlas Bradford(R) connections as
                                        9
<PAGE>

well as with third-party connections licensed to us. Sales of Tube-Alloy(TM)
accessories and services in 1999, 2000 and 2001 were $21.5 million, $33.1
million and $50.1 million, respectively.

     The tubular accessories market is highly fragmented, and our Tube-Alloy(TM)
product line competes with numerous smaller companies in each geographic market,
as well as larger companies such as Hydril, Hunting Interlock, Benoit, Inc., and
Steel Tubulars, Inc. Customers include operators and various service companies,
including Schlumberger, Halliburton, Baker Hughes, and Weatherford.

  TEXAS ARAI COUPLINGS

     We manufacture and sell couplings through our Texas Arai product line.
Couplings are used to connect joints of premium and API casing and tubing. Texas
Arai is one of the world's largest providers of couplings for oilfield
applications. Texas Arai's couplings are provided to mills, distributors of
tubular products, and end-users. Sales of our Texas Arai couplings in 1999, 2000
and 2001 were $30.2 million, $46.8 million and $52.1 million, respectively.

     Our primary competitors for couplings are Amtex, Western Canada, Wheeling
Machine, and Hunting Interlock as well as numerous other smaller manufacturers.

  OPERATIONS

     Our manufacturing processes for premium tubing and casing are generally
similar to the processes used to manufacture the tubular component of a joint of
drill pipe, with the exception that tubing, once manufactured, will have a
threaded connection cut into each end rather than a welded on tool joint. Except
for sales of finished tubing and casing by Voest-Alpine, we do not manufacture
the green tubes used for tubing and casing. Rather, we provide threading and
processing services to our customers or further process the purchased green tube
into finished tubing or casing that we sell. In addition, due to the fact that
tubing and casing are not subject to the same extreme operational stresses as
drill pipe, the standards and specifications for casing and tubing are for most
applications significantly less than for the tubular component of a joint of
drill pipe. At present, U.S. Steel supplies a majority of our seamless tubular
material requirements for premium casing and tubing, although other tubular
sources are available to us. Manufacturing operations for this segment are
conducted at various locations in Texas, Louisiana, and Oklahoma.

MARINE PRODUCTS AND SERVICES SEGMENT

     Our marine products and services segment provides a variety of products and
services for the offshore oil and gas construction and completion business. Our
products and services in this segment consist of our proprietary XL Systems(TM)
marine connections for large bore tubulars, including drive pipe, jet strings,
conductor casing and tendons, hammer and installation services, and top tension
production risers. Also, we recently added a newly patented line of innovative
wellheads for jack-up drilling using the Plexus POS-GRIP(TM) system, and we are
currently designing a line of marine connectors and subsea wellheads using this
system. In addition, we are in the process of adding subsea control systems to
our product offerings through our pending acquisition of Scana Rotator in
Norway. We are currently reviewing other product lines for possible additions to
our marine package and intend to pursue acquisitions of various products and
services in these markets over the next year.

     The demand for our marine products and services is heavily dependent on the
level of offshore and deepwater drilling activity in North America (primarily in
the Gulf of Mexico and Eastern Canada) as well as other international locations.
While this activity is dependent upon oil and gas prices, deepwater projects are
generally long-term and capital intensive in nature and less likely to be
influenced by short-term (less than 6 to 9 months) changes in prices. The marine
products and services segment is therefore generally less cyclical as compared
to our other business segments. The deepwater marine market is expected to grow
at an annual rate of around 20% a year over the next three to five years.
Accordingly, we believe this is a market that should provide us a greater
portion of our revenues and earnings in the future as we add to our capabilities
to serve this growing market.

                                        10
<PAGE>

  XL SYSTEMS(TM) AND OTHER MARINE CONNECTIONS

     Our XL Systems(TM) product line offers the customer an integrated package
of large bore tubular products and services for offshore completions and
production. This product line includes our proprietary line of wedge thread
marine connections on large bore tubulars and related engineering and design
services. We provide this product line for drive pipe, jet strings, conductor
casing, and tendons. We also offer weld-on connections and service personnel in
connection with the installation of these products.

  HAMMER AND OTHER INSTALLATION SERVICES

     We offer various hammer and related installation services. Our hammer
services are used in connection with the installation of our XL Systems(TM)
drive pipe as well as drive pipe provided by third-parties. Our welding and
caisson installation services are provided utilizing weld-on marine connectors.
We currently own the largest fleet of hydraulic hammers operating in the Gulf of
Mexico. Hydraulic hammers provide a higher energy source, and are safer and more
environmentally efficient than diesel-powered mechanical hammers.

  RISERS

     Risers generally come in sizes ranging from 9 3/8 inches to 13 inches and
represent that section of the offshore production system ranging from the
wellhead and mudline up to the offshore production platform, which is typically
either a floating platform, tension leg platform or SPAR. We currently offer top
tension production risers and have begun to bundle our riser products with other
third-party technology to offer a complete line of riser products. Our risers
are sold with our various marine riser connectors. The tubular and coupling
components of our riser products are manufactured for our marine products and
services segment by our TCA(TM) and Texas Arai product lines.

  POS-GRIP (TM) WELLHEADS

     We recently introduced a new proprietary wellhead used for jack-up drilling
which utilizes the patented POS-GRIP(TM) system. The POS-GRIP(TM) system is a
unique method for gripping tubulars in wellheads and subsea components using a
hydraulic gripping process. We estimate that our wellhead system saves anywhere
from 12 to 17 hours of rig time compared to a traditional system. We currently
have five rental wellheads in the field and expect to have between 15 and 20 by
the end of the year. We are also working closely with major operators on
applying our POS-GRIP(TM) technology to subsea applications for wellheads and
risers as well as other applications for deepwater drilling and completions. Our
revenues in this product line in 2002 will primarily be for rental wellheads and
engineering and design services.

  SCANA ROTATOR

     Our pending acquisition of a majority interest in Scana Rotator will expand
our manufacturing capabilities into the area of control valves. Scana Rotator is
a leading provider of hydraulic control and production valves to the offshore
industry, with strong market positions in the North Sea. Subsea control systems
are used to control production and other subsea equipment.

  OPERATIONS

     Manufacturing of our XL Systems(TM) marine connections and large bore
tubulars occurs at our manufacturing locations in Beaumont, Texas, the
Netherlands, and Singapore. We purchase the large-diameter welded tubulars
utilized in these manufacturing processes from various mills around the world.
Manufacturing of our riser products for our marine products and services segment
occurs at our TCA(TM) and Texas Arai operations located in Muskogee, Oklahoma
and Houston, Texas.

OTHER

     In 1999, we entered into the industrial drill pipe and construction casing
market. Sales of this product line primarily began in 2000. The industrial
market consists of horizontal directional drilling tools for laying fiber

                                        11
<PAGE>

optic cables and other utility lines, drill pipe for water well drilling, and
other pipe used in construction. To date we have not made any significant income
from this business and are evaluating the best method to market and benefit from
the industrial drill pipe business.

     We also own 50% interests in two joint ventures involved in the development
of new technologies. One joint venture is developing technology to use drill
pipe as a communication medium for downhole drilling and reservoir evaluation.
The other joint venture is focused on technology to develop composite motors and
pumps for the oil and gas industry. Although we expect to introduce products in
the market from these joint ventures sometime in 2003, these technologies are
still in the development stage and are not expected to generate any material
revenues or earnings in 2002.

OTHER BUSINESS DATA

  PATENTS

     Many areas of our business rely on patents and proprietary technologies. We
currently have numerous patents issued or pending. Many of our patents provide
us with competitive advantages in our markets. Although we consider our patents
and our patent protection to be important for our existing business and for the
development of new technologies and businesses, we do not believe that the loss
of one or more of our patents would have a material adverse effect on our
business as a whole.

  BACKLOG

     As of December 31, 2001, we had a product backlog of $144.8 million,
representing 20% of our total revenues for 2001. We had a product backlog as of
December 31, 1999 and 2000 of $60.4 million and $161.2 million, respectively.
These year-end backlogs represented 21% and 32% of our total revenues for those
years, respectively. The decrease in product backlog from 2000 to 2001 reflects
current weak North American market conditions. We estimate that around 90% of
our drilling products backlog is for the international and offshore market,
which has favorably impacted our average sale prices due to the premium nature
of the products we generally sell in these markets. As of February 28, 2002 we
had a total product backlog of $134.5 million, of which $89.9 million, $35.5
million, $6.3 million, and $2.8 million related to drilling products, premium
connections and tubulars, marine products, and other, respectively.

  INSURANCE

     We believe that we maintain insurance coverage that is adequate for the
risks involved. However, there is always a risk that our insurance may not be
sufficient to cover any particular loss or that our insurance may not cover all
losses. For example, while we maintain product liability insurance, this type of
insurance is limited in coverage, and it is possible that an adverse claim could
arise that exceeds our coverage. Further, insurance rates have in the past been
subject to wide fluctuations, and changes in coverage could result in increases
in our cost or higher deductibles and retentions.

     We do not maintain political risk insurance (generally designed to cover
expropriation and nationalization exposures), but do maintain all-risk property
insurance that covers losses from insurrection, civil commotion, and uprising.
This insurance does not cover losses resulting from a declared state of war and
provides a limited range of coverage from terrorist attacks.

  FEDERAL REGULATION AND ENVIRONMENTAL MATTERS

     Our operations are subject to federal, state and local laws and regulations
relating to the energy industry in general and the environment in particular.
Environmental laws have over the years become more stringent, and compliance
with such laws increases our overall cost of operations. In addition to
affecting our ongoing operations, applicable environmental laws can require us
to remediate contamination at our properties, at properties formerly owned or
operated by us, and at facilities to which we sent waste materials for treatment
or disposal. While we are not currently aware of any situation involving an
environmental claim that would likely have a material adverse effect on our
business, it is always possible that an environmental claim could arise

                                        12
<PAGE>

with respect to one or more of our current businesses or a business or property
that one of our predecessors owned or used that could have a material adverse
effect.

     Our expenditures during 2001 to comply with environmental laws and
regulations were not material. We also believe that our costs for compliance
with environmental laws and regulations are generally within the same range as
those of our competitors. However, we can offer no assurance that our costs to
comply with environmental laws will not be material in the future.

     Our operations are also affected by trade laws affecting the import of
OCTG, drill pipe, and other products into the United States. Although the
majority of our manufacturing operations, including the capital investment,
employees, and costs and expenses associated therewith, are located in the
United States, we have key manufacturing facilities located outside the United
States, including our Voest-Alpine subsidiary located in Austria, our drill pipe
manufacturing facility located in Canada, and our tool joint manufacturing
operations in Mexico and Italy, that support our domestic operations. Our
premium tubular business also is affected by the level of foreign imports of
tubular products into the United States.

     Imports of products from our foreign locations that are utilized by our
domestic manufacturing operations can be the subject of investigations,
including antidumping and countervailing duty orders into whether such products
are unfairly priced at low levels (i.e., dumping) and causing material damage to
the domestic industry, as well as investigations under Section 201 of the trade
laws into whether such imports have seriously damaged the domestic industry.
Although we believe we are the clear price leader for drill pipe and other drill
stem products and do not utilize imports from our foreign facilities to "dump"
our products, our products have been and may in the future be the subject of
such investigations. In this regard, the green drill pipe tubes and tool joints
imported by us from our foreign locations to support our United States
operations were included in the recent Section 201 investigation into steel
imports conducted by the President and the International Trade Commission during
the second half of 2001. However, during this process, all products manufactured
at our foreign locations were excluded from any tariffs being imposed.

EMPLOYEES

     As of December 31, 2001, we had 3,827 employees. Certain of our operations
are subject to union contracts. These contracts, however, cover only
approximately 19% of our total employees. We believe our relationship with our
employees is good.

ITEM 2.  PROPERTIES

     The following table describes the material manufacturing and other
facilities and principal offices we currently own or lease.

<Table>
<Caption>
                       FACILITY    PROPERTY
                         SIZE        SIZE
LOCATION               (SQ. FT.)   (ACRES)    TENURE                UTILIZATION
--------               ---------   --------   ------                -----------
<S>                    <C>         <C>        <C>      <C>
Navasota, Texas......    347,000    195.87    Owned    Manufacture of drill stem products
                                                       and premium threaded casing, liners,
                                                       and tubing
Veracruz, Mexico.....    303,400     42.00    Owned    Manufacture of tool joints
Muskogee, Oklahoma...    195,900    114.50    Leased   Manufacture of TCA(TM) premium casing
</Table>

                                        13
<PAGE>
<Table>
<Caption>
                          FACILITY    PROPERTY
                            SIZE        SIZE
LOCATION                  (SQ. FT.)   (ACRES)    TENURE                UTILIZATION
--------                  ---------   --------   ------                -----------
<S>                       <C>         <C>        <C>      <C>
Houston, Texas.......        30,253        --    Leased   Corporate headquarters
                            148,500     20.00    Leased   Manufacture of Atlas Bradford(R)
                                                          connectors
                            114,200     22.00    Owned    Manufacture of API and premium
                                                          threaded couplings
                             54,500      7.00    Owned    Premium threading services and
                                                          manufacture of tubular accessories
                             23,150     10.00    Owned    Manufacture of drill collars, heavy
                                                          weights, and kellys
                             31,800     10.00    Owned    Heat-treat of drill collars and
                                                          kellys

The Woodlands, Texas....     44,528        --    Leased   Sales and administrative offices

Bryan, Texas............    160,000     55.30    Owned    Manufacture of premium tubulars,
                                                          industrial drill pipe, and oilfield
                                                          drill pipe

Kindberg, Austria.......  1,614,600    101.27    Leased   Manufacture of green drill pipe and
                                                          finished casing

Baimi Town, Jiangyan,
  Jiangsu China.........     49,428      7.25    Leased   Manufacture of drill pipe and
                                                          pipeline accessories
Edmonton, Alberta,
  Canada................    203,900      8.31    Owned    Manufacture of drill stem products,
                                                          premium threaded casing, liners, and
                                                          tubing

Turin, Italy............     60,400     10.00    Owned    Manufacturer of tool joints

Lafayette,
  Louisiana.............     18,300      2.00    Leased   Premium threading of downhole and
                                                          specialty equipment

Houma, Louisiana........    101,150     17.63    Owned    Manufacture and threading of downhole
                                                          accessories

Broussard, Louisiana....     24,600      5.64    Owned    Provider of drivers for conductor
                                                          installation services

Jurong, Singapore.......     33,600      2.67    Leased   Manufacture of drill collars,
                                                          accessories, and threading services

Big Run, Pennsylvania...    136,000     28.22    Owned    Manufacture of industrial drill pipe

Beaumont, Texas.........     12,300     29.00    Owned    Premium threading services and
                                                          manufacturer of conductors
</Table>

ITEM 3.  LEGAL PROCEEDINGS

     In the ordinary course of business, we are the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses and
we are subject to various self-retentions and deductibles with respect to our
insurance. See Item 1. Business -- Other Business Data -- Federal Regulation and
Environmental Matters in this report, which is incorporated by reference into
this item. Although we are subject to various ongoing items of litigation, we do
not believe that any of the items of litigation that we are currently subject to
will result in any material uninsured losses to us. It is possible, however,
that an unexpected judgment could be rendered against us in the cases in which
we are involved that could be uninsured and beyond the amounts that we currently
have reserved or anticipate incurring for that matter.

     In May 1997, Mr. John D. Watts filed suit in the United States District
Court for the Eastern District of Texas, Beaumont Division, against XL
Systems(TM) for infringement of Patent No. 5,247,418 (the "418 Patent") and
trade secret misappropriation, breach of contract, and unjust enrichment. The
claims of trade secret misappropriation, breach of contract and unjust
enrichment were subsequently dismissed by the trial court upon XL Systems'(TM)
motion for summary judgment.
                                        14
<PAGE>

     On March 2, 2001, a jury found that XL Systems'(TM) XLC connection
infringed Claim 1 of the 418 Patent and awarded the plaintiff approximately $2.0
million in damages, including prejudgment interest. On September 28, 2001, the
United States District Court for the Eastern District of Texas Court entered a
judgment in the case. In connection with this order, the Court took the
following actions: (1) reduced the jury award from $1,675,450 to $1,048,680; (2)
awarded prejudgment interest of $172,697; and (3) denied enhanced damages and
attorney's fees. In addition, the Court stayed any injunction preventing XL
Systems(TM) from making and selling its XLC connection in its current
configuration, so long as XL Systems(TM) escrows a royalty in the sum of 3% of
gross revenue from sales of XLC connections and 7% of gross revenue from sales
of XLC threading services. We have appealed the decision to the federal circuit,
and Mr. Watts has appealed the decision of the court, denying enhanced damages
and attorney's fees and granting of summary judgment on his trade secret
misappropriation and other claims. We do not expect a decision on any appeal for
at least the next 12 months. We also believe that our XLC connections can be
manufactured and applied without infringing the patent claims in question if the
lower court decision is upheld. Based upon the reduction in damages, denial of
enhanced damages, and the stay on the injunction, we believe we are fully
accrued for our potential liability, including escrowed royalties, in this case.

     Additional charges of $3.5 million and $4.5 million, could be necessary in
the event of reversal on appeal of enhanced damages and attorney's fees.

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

     No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of 2001.

                                    PART II

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

     Our common stock has a par value of $0.01 per share and is listed and
traded on the New York Stock Exchange (NYSE) under the symbol "GRP." Our common
stock began "regular way" trading on the NYSE on April 17, 2000 (the business
day immediately following our spinoff from Weatherford).

     The following table sets forth for the periods indicated the high and low
sales prices of our common stock as reported on the NYSE. Because our shares
were not publicly traded until April 17, 2000, we have presented share
information only for the periods ending after such date.

<Table>
<Caption>
                                                               HIGH       LOW
                                                              -------   -------
<S>                                                           <C>       <C>
2000
  Second quarter............................................  $26.250   $13.125
  Third quarter.............................................   25.875    18.250
  Fourth quarter............................................   25.500    13.750
2001
  First quarter.............................................  $22.938   $15.800
  Second quarter............................................   24.200    15.100
  Third quarter.............................................   17.590     5.250
  Fourth quarter............................................   11.500     5.300
</Table>

     We have not paid cash dividends on our common stock since becoming a public
company. We currently intend to retain any earnings for use in our business and
do not anticipate paying cash dividends in the foreseeable future. In addition,
our credit facility and indenture governing our 9 5/8% Senior Notes Due 2007
contain restrictions on our ability to pay dividends. Refer to Part II -- Item
7 -- "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for further information.

     At March 20, 2002, we had 3,345 record holders of our common stock.

                                        15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth certain of our historical financial data.
Until we were spun off on April 14, 2000, we were a wholly-owned subsidiary of
Weatherford. This information has been prepared as if we had been a stand-alone
company for the periods presented. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements included elsewhere in
this Annual Report on Form 10-K. The following information may not be indicative
of our future operating results.

<Table>
<Caption>
                                                    YEAR ENDED DECEMBER 31,
                                 -------------------------------------------------------------
                                   1997       1998         1999         2000            2001
                                 --------   --------     --------     --------        --------
                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>        <C>          <C>          <C>             <C>
OPERATING DATA
Revenues.......................  $630,021   $646,454     $286,370     $498,481        $740,127
Operating Income (Loss)........   115,436    112,884(a)   (33,014)(b)   (4,736)(c)      73,055(e)
Net Income (Loss) Before
  Cumulative Effect of
  Accounting Change............    61,514     65,720(a)   (33,511)(b)  (14,696)(c)      28,090(e)
Net Income (Loss)..............    61,514     65,720(a)   (33,511)(b)  (16,485)(c)(d)   28,090(e)
EARNINGS (LOSS) PER SHARE(F)
(Pro forma prior to effective
  date of spinoff)
Before Cumulative Effect of
  Accounting Change:
     Basic.....................      0.64       0.68        (0.33)       (0.13)           0.26
     Diluted...................      0.63       0.67        (0.33)       (0.13)           0.25
Net Income (Loss):
     Basic.....................      0.64       0.68        (0.33)       (0.15)           0.26
     Diluted...................      0.63       0.67        (0.33)       (0.15)           0.25
BALANCE SHEET DATA (AT END OF
  PERIOD)
Total Assets...................  $662,598   $738,314     $734,575     $892,564        $915,598
Long-Term Debt.................    27,387      9,265       24,276      219,104         205,024
Subordinated Note to
  Weatherford..................   100,000    100,000      100,000           --              --
Stockholders' Equity...........   332,722    445,211      453,856      431,503         468,967
</Table>

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

(a)  Includes $35.0 million, $22.8 million net of tax, of other charges relating
     to a reorganization and rationalization of our business in light of our
     industry conditions for the year ended December 31, 1998.

(b)  Includes a charge of $9.5 million, $6.1 million net of tax, relating to the
     decision to terminate our manufacturing arrangement in India, of which $7.8
     million involved a purchase deposit that we will not be able to use and
     $1.7 million in equipment in India that we do not believe we will be able
     to recover.

(c)  We incurred $41.3 million of other charges, $26.9 million net of tax,
     during the year ended December 31, 2000. This includes $11.0 million, $7.2
     million net of tax, related to inventory write-offs, which have been
     classified in cost of sales, $11.1 million, $7.2 million net of tax,
     related to asset impairments and other reductions, and $19.2 million $12.5
     million net of tax, of adjustments to capitalized manufacturing cost, which
     have been classified in cost of sales. Refer to "Management's Discussion
     and Analysis of Financial Condition and Results of Operations" and Notes 4
     and 20 to the Financial Statements included elsewhere in this Annual Report
     on Form 10-K for additional information on the charges taken.

(d)  Includes a cumulative effect of accounting change related to SEC Staff
     Accounting Bulletin (SAB) No. 101 of $1.8 million, net of tax. Refer to
     Note 1 to the Financial Statements included elsewhere in the Annual Report
     on Form 10-K for further discussion of the effect of SAB No. 101.

                                        16
<PAGE>

(e)  We incurred $44.8 million of other charges, $29.1 million net of tax,
     during the year ended December 31, 2001. This includes a charge of $11.2
     million, $7.3 million net of tax, related to inventory write-offs and
     capitalized manufacturing variance write-offs which were classified as cost
     of sales, and $33.6 million, $21.8 million net of tax, related to the
     write-off of assets related to our manufacturing arrangement with OCTL in
     India of $17.7 million, fixed asset impairment of $1.5 million and
     severance and related expenses of $14.4 million.

(f)  We have calculated our pro forma earnings per share using our pro forma
     basic and diluted weighted average shares outstanding for each of the
     periods presented. In calculating our pro forma basic weighted average
     shares, we have adjusted Weatherford's historical basic weighted average
     shares outstanding for the applicable period to reflect the number of
     shares that would have been outstanding at the time assuming a distribution
     of one share of our common stock for each share of Weatherford common
     stock. Our pro forma diluted weighted average shares reflect an estimate of
     the potential dilutive effect of common stock equivalents. This estimate is
     calculated based on Weatherford's dilutive effect of stock options and
     restricted stock. The effect of stock options and restricted stock is not
     included in the diluted weighted average shares computation for periods in
     which a loss occurs because to do so would have been anti-dilutive.

                                        17
<PAGE>

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

     The following discussion is intended to assist you in understanding our
financial position as of December 31, 2000 and 2001, and our results of
operations for each of the years in the three-year period ended December 31,
2001. This discussion should be read with our financial statements and their
notes included elsewhere in this 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

     Grant Prideco is the world's largest manufacturer and supplier of oilfield
drill pipe and other drill stem products and one of the leading North American
providers of high-performance premium connections and tubular products. We also
provide a variety of products and services to the growing world-wide offshore
and deepwater market through our newly-created marine products and services
segment. Our drill stem products are used to drill oil and gas wells, while our
premium connections and tubular products are used to complete oil and gas wells
once they have been successfully drilled. Our marine products and services are
used for subsea construction, installation, and production. Our customers
include major, independent, and state-owned oil companies, drilling contractors,
oilfield service companies, and North American oil country tubular goods (OCTG)
distributors. We operate 22 manufacturing facilities located in the United
States, Mexico, Canada, Europe, and Asia, and 30 sales, service, and repair
locations globally.

     We operate through three primary business segments: (1) drilling products
and services, (2) premium connections and tubular products and (3) marine
products and services. We also provide drill pipe and casing used in the fiber
optic, construction, and water well industries and are involved in several joint
ventures to develop various technologies.

     For the year ended December 31, 2001, 51% of our revenues were derived from
our drilling products and services segment, 37% from our premium connections and
tubular products segment, 6% from our marine products and services segment, and
6% from our other operations. Substantially all of our revenues in our premium
connections and tubular products segment are generated in North America.
Although most of our drilling product sales are made from our North American
locations, we estimate that around 30% to 40% of our oilfield drill stem
revenues in 2001 were for use in the international and offshore markets. With
the expected continued slowdown in North American land drilling during the first
half of 2002, a majority of our new orders of drill stem products will continue
to be for use offshore or in the international markets.

     Until April 14, 2000, we were a wholly-owned subsidiary of Weatherford. We
were spun off from Weatherford on April 14, 2000, through a distribution by
Weatherford to its stockholders of all of our common stock. As a result of the
spinoff, Weatherford no longer has an ownership interest in us.

  CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our significant accounting policies are more fully described in Note 1 to
our consolidated financial statements. Certain of our accounting policies
require the application of significant judgment by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty. These
judgments are based on our historical experience, terms of existing contracts,
our observance of trends in the industry, information provided by our customers,

                                        18
<PAGE>

and information available from other outside sources, as appropriate. Actual
results may differ from these judgments under different assumptions or
conditions.

     We record revenue at the time our manufacturing process is complete, the
customer has been provided with all proper inspection and other required
documentation, and title and risk of loss has passed to the customer. This can
include revenue on bill and hold transactions where the product has been
completed and is ready to be shipped, however at the customer's request we are
storing the product on the customer's behalf for a brief period of time,
typically less than one year. Customer advances or deposits are deferred and
recognized as revenue when we have completed all of our performance obligations
related to the sale. We also recognize revenue as services are performed.
Allowances for bad debt are provided based on a specific customer collection
issues. If actual future allowances differ from what has been identified,
additional allowances may be required.

     Inventory costs are determined principally by the use of first-in,
first-out (FIFO) method, and are stated at the lower of such cost or realizable
value. We value our inventories primarily using standard costs, which
approximate actual costs, that include raw materials, direct labor, and
manufacturing overhead allocations. We also periodically perform obsolescence
reviews on our slow-moving inventories and establish reserves based on current
assessments about future demands, market conditions, and related management
initiatives. If market conditions are less favorable than those projected by
management, additional inventory reserves may be required.

     The cost of business acquisitions is allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition using third party appraisals and management judgments.

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

     We have contingent liabilities and future claims for which we have made
estimates of the amount of the actual cost of these liabilities or claims. These
liabilities and claims sometimes involve threatened or actual litigation where
damages have been quantified and we have made an assessment of the Company's
exposure and recorded a provision to cover an expected loss based on our
experience in these matters and, when appropriate, the advice of outside counsel
or other outside experts. Upon the ultimate resolution of these uncertainties,
our future reported financial results will be impacted by the difference between
our estimates and the actual amounts paid to settle a liability. Examples of
areas where we have made important estimates of future liabilities primarily
include litigation, warranty claims and contract claims.

MARKET TRENDS AND OUTLOOK

  RECENT AND HISTORICAL TRENDS

     Our business is materially dependent on drilling and production activity
and the associated demand for our drilling products, premium connections and
tubulars, and marine products and services. Generally, demand for our products
is a function of drilling and completion activity. Demand for our drill stem
products closely follows the domestic and international rig counts, which in
turn closely follow the prices of oil and gas. Demand for our premium
connections and tubulars closely follows the United States gas rig count and
Gulf of Mexico rig count. Demand for our marine products and services follows
the level of offshore and deepwater drilling activity, which, although dependent
upon prices of oil and natural gas, is less likely to follow short-term changes
in oil and natural gas prices as these projects are very capital intensive and
are more often based upon long-term forecasts for oil and gas prices.

     Our drill stem products are consumable capital goods and wear out through a
combination of friction and metal fatigue. Demand for our drill pipe and related
drilling products is particularly impacted by changes in
                                        19
<PAGE>

drilling activity, in particular changes in North America, which represents over
60% of the available drilling rigs outside of the former Soviet Union and China.
Changes in the North American rig count affect demand in two ways. First,
activity levels affect ongoing demand positively or negatively depending on the
level. Second, drill pipe associated with idle rigs owned by a drilling
contractor becomes available for use on the active rigs of that contractor. As a
result, rig contractors will generally fully utilize their inventory on these
idle rigs until their inventory drops to a level that would limit their ability
to reactivate their rig fleet to meet demand that they expect to see in the next
three to six months. Accordingly, in a declining rig count environment, demand
for drill pipe declines faster than the rig count. Conversely, in an increasing
rig count environment, demand will generally exceed the basic or normalized
demand associated with that rig count due to the need to add drill pipe on
reactivated rigs.

     In recent years, we have seen increasing intensity of use of drill pipe and
other drill stem products, which causes these products to wear out faster. This
increased intensity of use results from more wells being drilled directionally,
horizontally, deeper or in more extreme downhole environments. We believe these
trends will favorably impact long-term demand for our drill stem products going
forward.

     The demand for our premium connections and tubular products is heavily
dependent upon North American natural gas drilling activity. Demand for these
products on a short-term basis is affected by the level of inventory held by
distributors of OCTG. Distributors often reduce purchases in a down market until
their inventory positions are brought in line with then-prevailing market
conditions. Over the long-term, a key factor impacting demand for our premium
connections and tubular products is the United States dependence on natural gas
as a fuel. We believe that domestic demand for natural gas will substantially
increase over the next 5 to 10 years. This increased natural gas demand should
increase the level of natural gas drilling and completions, and the demand for
our premium connections and tubulars.

     We believe that as well depths increase, it is more likely that premium
connections and tubulars, such as those we manufacture, will be used as opposed
to API standard products. Gas wells also generally encounter higher reservoir
pressures and require larger diameter tubulars with thicker walls and higher
strength steel grades than oil wells, and thus usually require premium
connections and tubular products as opposed to API-standard products. These
wells also are more likely to be drilled utilizing higher-end drill stem
products such as our eXtreme(R) product line. Natural gas drilling represented
over 65% of the wells drilled in North America during 2001.

     The demand for our marine products and services is a function of the level
of offshore and deepwater drilling occurring in North America (primarily in the
Gulf of Mexico) as well as international locations. The level of offshore and
deepwater activity is a function of oil and gas prices and demand. Our riser,
conductor and drive pipe product lines generate a large portion of their
revenues from activity in the shelf and shallow waters and are therefore
impacted by changes in activity in those markets. These products, however, are
also used for deepwater projects, which are generally long-term and capital
intensive in nature. Accordingly, demand in the deeper waters is generally less
cyclical in nature and less likely to be influenced by short (less than 6 to 9
months) changes in prices.

                                        20
<PAGE>

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

<Table>
<Caption>
                                                               DECEMBER 31,
                                                     ---------------------------------
                                                      1998     1999     2000     2001
                                                     ------   ------   ------   ------
<S>                                                  <C>      <C>      <C>      <C>
WTI Oil(a)
  Average(d).......................................  $14.38   $19.30   $30.37   $25.96
  Ending...........................................   12.14    24.79    26.72    20.42
Henry Hub Gas(b)
  Average(d).......................................  $ 2.08   $ 2.72   $ 4.30   $ 3.96
  Ending...........................................    1.88     2.29    10.53     2.75
North American Rig Count(c)
  Average(d).......................................   1,089      854    1,260    1,497
  Ending...........................................     895    1,183    1,507    1,165
International Rig Count(c)
  Average(d).......................................     755      588      652      745
  Ending...........................................     671      574      705      752
</Table>

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

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

(b)  Price per MMBtu as of the dates presented above. Source: U.S. Energy
     Information Administration.

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

(d)  Average prices and rig counts are for the 12-month period ended.

  MARKET TRENDS DURING 1999 AND 2000

     In 1999, the price of oil hit an historical low (taking into account
inflation) of $11.68 per barrel, and the North American and international rig
counts reached historical lows of 558 and 556, respectively. The downturn in the
industry in 1999 led our customers to substantially curtail their drilling and
exploration activity at that time. This decline in activity resulted in
substantially lower purchases of capital equipment used for the exploration and
drilling of oil, in particular drill pipe and other drill stem products we
manufacture. We were also impacted by customers and distributors reducing their
inventories of premium tubular products in light of market conditions, and by
customers canceling and delaying orders to reduce costs. Indicative of the
impact of the downturn, we estimate that worldwide demand for new drill pipe for
1999 was less than 5 million feet compared to over 16 million feet in 1997. As
of December 31, 1999, our product backlog had declined to approximately $60.4
million and our manufacturing facilities were operating at less than 30%
utilization.

     In light of the adverse market conditions facing us, we reduced
substantially the operations at our manufacturing facilities. This decision
impacted our 1999 results by creating large unabsorbed costs for the operation
of our manufacturing facilities at extremely low utilization levels. These
unabsorbed costs combined with lower sales resulted in an operating loss for
1999.

     During the latter part of 1999, WTI crude oil prices began to increase,
which continued during 2000, moving above $30 per barrel during the first
quarter of 2000. During 2000, WTI crude oil prices reached a high of $37.20 per
barrel and a low of $23.85 per barrel. Similarly, natural gas prices increased
significantly during 2000, to a high of $10.53 per MMBtu from a low of $2.15 per
MMBtu. These improved market conditions affected our operating segments
differently.

     Our drilling products and services segment benefited from stronger market
conditions in 2000, but to a much lesser extent than our premium connections and
tubular products segment. Our drilling products are
                                        21
<PAGE>

sold worldwide and international sales in 2000 lagged the increase in North
America. Demand for our drill stem products was also affected by customer
inventories. Because the North American rig count fell to such low levels in
1999 from their highs in 1998, our customers primarily utilized their own
inventory in 1999 and early 2000. As the rig count began to increase in 2000 and
expectations of a higher rig count in 2001 began to be realized, we began to see
increasing orders at the end of 2000. Although drill stem purchases were
relatively low in 2000, our revenues and gross profit from drill stem sales
increased substantially in 2000 over 1999 levels.

     Our premium connections and tubular products segment benefited
significantly from stronger market conditions in 2000 as the North American gas
rig count began to increase. Unlike our drilling products segment, the increase
in the 2000 rig count resulted in a rapid recovery in this segment. This segment
saw both its volumes and prices increase in 2000 and reported a record year as
natural gas drilling levels began to exceed the prior recent peak.

     Our marine products and services segment benefited from the upturn in oil
and gas prices from 1999 levels, although not as quickly as our premium
connections and tubular products segment. This slower recovery was because
offshore projects are more capital intensive in nature and respond slower to
changes in demand.

  2001 OPERATIONAL RESTRUCTURING

     Our 2000 results were below our expectations due to our slow response to
the up cycle in our drilling products segment in 2000 and losses incurred in two
of our other business units. In light of these results, we engaged in a full
review of our businesses and operations with the view of enhancing our ability
to better realize the benefits of favorable market conditions. This review
identified the following major areas of concerns and actions that needed to be
taken:

     - Pricing.  The pricing of our drill stem products had not kept up with the
       market, and we had in backlog approximately six months of production at
       prices that were only marginally profitable based on our existing costs.
       As a result, we immediately enacted price increases across the board for
       all of our drill stem products effective for sales booked in February. As
       a result of these actions, the average price of drill pipe sold by us
       during the second half of 2001 was approximately $32.32 per foot, and the
       average pricing in our drill pipe backlog at December 31, 2001 was $39.32
       per foot. On an equivalent basis, we estimate that our average pricing
       increased during 2001 by around 20% to 25%. The higher priced backlog at
       year-end also reflected a much higher mix of premium drill pipe sales.

     - Manufacturing Capacity.  Our drill pipe actual manufacturing capacity was
       around 1.4 to 1.5 million feet per quarter at the end of 2000 against a
       potential capacity of around 3.0 million feet per quarter outside of our
       Chinese operations. We immediately implemented a plan to increase this
       capacity. By the fourth quarter of 2001, we had available worldwide
       manufacturing capacity of approximately 3.0 million feet per quarter. We
       have reduced the available capacity to around 2.5 million feet a quarter
       in light of the current market, but have assets in place to produce
       approximately 3.0 million feet a quarter within a period of four to six
       months, outside of the Chinese market, when the market improves.

     - Manufacturing Costs.  Our manufacturing costs for drill stem products
       were too high, we were not yet benefiting from higher absorption rates,
       and our manufacturing capacity was not allocated in the most efficient
       manner. In response, we implemented a capital improvement program for
       2001 and 2002 with the objective of reducing costs and improving
       efficiencies. We also reallocated manufacturing facilities to increase
       our manufacturing absorption rates, increase production volumes, and
       improve processes to focus on gaining efficiencies. These activities
       resulted in lower costs during the year.

     - Industrial Drill Pipe.  We had committed in 2000 to our industrial drill
       pipe product lines a number of resources, including the allocation of
       needed oilfield drill stem manufacturing capacity. The Industrial product
       line generated approximately $2.5 million in operating losses during
       2000, excluding $2.3 million of other charges, in the fourth quarter of
       2000. In the first quarter of 2001, we instituted an operational
       reorganization in which we reallocated production among our facilities to
       improve

                                        22
<PAGE>

       efficiencies, reduced industrial head count, refocused marketing, and
       concentrated on lowering costs. As a result, we were able to reduce the
       operating loss for this product line during the remainder of 2001. This
       business now is reported in the "Other" segment. We are currently
       reviewing our options as to how to maximize the value and return on
       assets of this business to us.

     - Marine Products and Services.  Our marine connection business operated at
       a loss in 2000 due to weak market conditions, slow market penetration,
       and high selling, general, and administrative expenses in light of its
       revenue base. During 2001, we strengthened our management and sales force
       in this segment and improved penetration in our target markets.

2001 MARKET DECLINE AND CURRENT EXPECTATIONS

     The high level of drilling activity that we saw in the later part of 2000
and first half of 2001 began to slow in the third quarter of 2001. This
slow-down was primarily a function of falling natural gas prices in the United
States. This decline was the result of a number of factors, including a
slow-down in the United States economy, fuel switching that occurred as gas
prices were reaching their high range, and mild weather. Additional natural gas
supplies also came to market in late 2000 and early 2001. All these factors
contributed to near record natural gas storage levels during this last winter
and have created an overhang in the market as we enter the spring with
short-term uncertainty on natural gas prices and North American drilling
activity.

     The decline in activity and uncertainty in natural gas prices is evidenced
by a decline in average natural gas prices and in the United States gas rig
count from the first half of 2001. Natural gas prices averaged $2.60 per MMBtu
during the second half of 2001 compared to $5.32 per MMBtu during the first half
of 2001. The United States gas rig count similarly fell from a high of 1,068
rigs on July 13, 2001, to a low of 741 rigs on December 21, 2001. Lower natural
gas prices and North American drilling has continued into 2002, with natural gas
prices averaging $2.28 per MMBtu and WTI crude prices averaging $20.18 per
barrel during the first two months of 2002. The United States natural gas rig
count is currently around 605. On the other hand, natural gas prices are
currently over $3.00 per MMBtu.

     Although we saw weakness in the North American markets in the second half
of 2001, international activity continued to grow during the year. The strength
in international activity reflects a more stable outlook on oil pricing and
demand and supply restraints by the members of OPEC and other producing
countries. International drilling activity is also generally focused on larger,
longer-term projects that are less sensitive to current changes in oil prices as
long as prices remain within a reasonable range. Most of our current drill stem
business is being derived from the international markets or domestic offshore
markets, which have stabilized. We currently expect that international drilling
activity will continue to increase during 2002 absent a material decline in oil
prices or decline in demand.

     As we entered 2002, we expected that the United States rig count would
reach a bottom of around 800 rigs during the first quarter or early in the
second quarter and begin increasing through the remainder of the year. The rig
count is currently around 750 and still falling, with market expectations of a
low anywhere from 600 rigs to the low 700s. We currently expect that the bottom
will occur sometime late in the first quarter or in the second quarter, and that
the low will likely be somewhere around 700 to 725 rigs. Once we reach a bottom
in the United States rig count, we expect that the rig count will stabilize and
then steadily increase. As we look toward 2003, we currently expect that the
activity levels will be similar to those seen in late 2000 and the first half of
2001. There are a number of factors that will determine the timing and extent of
an expected recovery in our operations, including:

     - Rig count.  Although North American rig counts have decreased from early
       2001, the rig count is still around 30% to 40% higher than it was at the
       last trough in 1999, and we do not expect it to fall to 1999 levels. We
       also believe that factors in North America relating to long-term natural
       gas demand indicate that the North American rig count should increase for
       natural gas production to meet expected future domestic demand.

                                        23
<PAGE>

     - Rig Count Expectations.  Expectations for the rig count in the second
       half of 2002 and in 2003 will have a material impact on the drill stem
       order rates by our customers in North America in the third and fourth
       quarters of 2002 as they position their fleets for the projected drilling
       activity levels in 2003.

     - Declining Production Rates.  Production from new wells is declining at
       steeper rates compared to historical levels. These increasing decline
       rates combined with a slow-down in drilling activity have contributed to
       a fall in natural gas production over the last six months of 2001. We
       believe that this production decline will continue throughout 2002 due to
       decline rates and the sharp fall in North American natural gas drilling
       that has occurred since the second quarter of last year. If these
       production declines continue, and demand improves modestly with an
       improved economy, natural gas prices will likely continue to improve,
       which should result in increased drilling activity.

     - Economic Conditions.  Drilling activity will be affected by the strength
       of the United States economy and the related impact that it has on demand
       for oil and natural gas. Although we believe that current economic data
       indicates the United States is beginning to see a recovery in its
       economy, the strength and breadth of that recovery is still too early to
       predict. A further decline in the United States economy or slow recovery
       could delay any recovery in drilling activity beyond the time period we
       currently expect.

     Based on our assumptions of lower natural gas drilling activity in North
America during the first half of 2002 and an expectation of substantially higher
drilling activity by the end of the year, we expect our segments and product
lines will likely perform as follows:

  DRILLING PRODUCTS AND SERVICES

     - Demand will be down for the first and second quarters of 2002 with a
       gradual recovery during the second half of the year led by an improvement
       in North American demand. We do not, however, expect to see strong market
       conditions in North America until late 2002 or early 2003.

     - We currently expect to sell between 4.8 million to 6.0 million feet of
       drill pipe during 2002, assuming the rig count bottoms early in the
       second quarter. Based on our current backlog and the continuing falling
       rig count, we expect to sell around 1.5 million feet in the first quarter
       of 2002 and around 850,000 feet to 1.1 million feet during the second
       quarter of 2002. The level of sales in the third and fourth quarter of
       2002 will depend entirely upon the timing of the recovery of the North
       American markets. The longer it takes the rig count to recover, the
       longer the recovery time will be for this segment. Accordingly, if the
       rig count does not begin to improve in the second quarter, third quarter
       sales would likely be similar to the second quarter. Assuming the North
       American rig count begins to increase early in the second quarter, we
       estimate that third quarter sales would be between 1.0 and 1.5 million
       feet, depending on customer expectations, and fourth quarter sales would
       be between 1.5 to 2.0 million feet. We expect to be at the lower end of
       these ranges unless expectations for a higher rig count increase from
       where they are today. The above volumes exclude our Chinese sales, which
       we expect to be around 200,000 to 250,000 feet per quarter.

     - Until the expected recovery in North American demand and activity occurs,
       we expect sales and orders in North America to be primarily for specialty
       and premium drill pipe. The timing of the recovery of demand for our
       other drill stem products will be affected by the timing of idle rigs
       being placed back into service, and by the amount of inventory on these
       rigs.

     - We currently expect that our drill stem pricing will remain stable in
       2002 for our premium drill stem products and be slightly down for our
       commodity-based products used in the North American land markets. Our
       current backlog reflects an average price of around $39.32 per foot. This
       backlog, however, will be primarily produced in the first half of the
       year. We would expect average pricing for most of 2002 (excluding China)
       to be around the $35 per foot range, with variations being dependent on
       mix and improvements in the North American land markets. Our average
       price could also be negatively affected to the extent we enter into
       international sales of commodity type drill pipe pursuant to tenders that
       are currently outstanding.

                                        24
<PAGE>

     - Earnings from our interest in Voest-Alpine will decline as its sales of
       green drill pipe to us and premium tubulars to others in the United
       States fall due to lower demand. Depending on demand and Voest-Alpine's
       ability to replace these sales with equivalent non-United States sales,
       this decline could be down by 20% to 30% from 2001. A decline in these
       sales would reduce our overall margins in our drill stem segment.

     - Although we expect to continue to realize benefits from the operational
       restructuring and production efficiencies we achieved during 2001 and are
       continuing to implement, we expect our average costs per foot will likely
       increase during the first three quarters of 2002 due to expected lower
       production volumes and lower fixed-cost absorption rates. We are
       currently managing our facilities on the assumption that market
       conditions and demand for our products will improve during the second
       half of 2002, and that 2003 will be a year of strong demand for our drill
       stem products. Accordingly, although we are reducing our cost and making
       employee reductions through attrition and layoffs, we currently do not
       intend to reduce our staffing or production capacity in a manner that
       would materially impair our ability to quickly realize the benefits of
       the expected market upturns. We will continue to monitor this and may
       make greater reductions to the extent the recovery is slower in coming
       than expected. We estimate that the cash costs (in addition to other
       unabsorbed manufacturing overhead) of maintaining a staffing level for
       our United States capacity will range between $2.0 to $3.0 million per
       quarter when our production is below 1.5 million feet, representing a
       cost of between $1.00 to $3.00 per foot in unabsorbed costs depending
       upon volumes. Additional unabsorbed costs relating to maintaining
       staffing levels can be expected to be incurred to the extent production
       falls below 1 million to 1.25 million feet in any quarter.

  PREMIUM CONNECTIONS AND TUBULAR PRODUCTS

     - Sales and margins for our premium tubulars and connections are expected
       to decline significantly in the first quarter of 2002 in light of the
       continuing falling rig count in the United States. First quarter
       operating earnings for this business will likely be down by 20% or more
       from the fourth quarter of 2001. Second quarter earnings for 2002 is
       expected to improve slightly over the first quarter as long as the rig
       count begins to increase. With a flat or declining rig count, second
       quarter would likely be flat or down against the first quarter. Assuming
       an ongoing improvement in the North American rig count in the third and
       fourth quarters, we would expect that results in this segment would
       improve quickly and significantly. In addition, once the rig count has
       stabilized, we would expect an improvement in results because of what we
       believe are too low distributor inventories relative to tubular
       consumption and current activity levels.

     - We expect our Atlas Bradford(R) premium threading operations to remain at
       a slightly lower level during the first half of 2002, as compared to the
       fourth quarter of 2001. We believe operations will improve somewhat
       during the second quarter of 2002 as rig counts and activity begin
       improving and distributors begin building higher inventory levels. We
       believe operations during the third and fourth quarters of 2002 will
       improve significantly assuming our rig count, and distributor inventory
       assumptions are accurate.

     - Our Tube-Alloy(TM) premium accessory product line continues to operate
       profitably, but at lower margins due to unabsorbed overhead costs and
       lower activity levels. Revenues in the first quarter of 2002 are likely
       to be down by around 20% from the fourth quarter of 2001. As activity
       levels improve, by the second half of 2002, margins and revenues should
       also begin to improve.

     - We expect our TCA(TM) premium casing operations will continue to operate
       at substantially reduced levels during the first half of 2002. This
       business is currently operating at a loss due to low activity levels and
       is expected to do so through at least sometime in the second quarter. As
       activity and volume levels improve, results should improve. The
       improvement will be a function of the increase in the rig count and
       completions.

                                        25
<PAGE>

     - Our tubing operations are currently operating at a loss given the current
       level of activity. We expect that this business will continue to operate
       at a loss during the first half of 2002, or until market conditions
       improve and distributors eliminate sales of low-priced excess inventory
       into the market.

     - Our couplings product line is expected to operate at or around break-even
       levels during the first half of 2002, and then slowly improve as activity
       levels improve. Margins, however, will be depressed until volumes
       increase to over $10 million to $12 million a quarter.

     - We currently expect that pricing for our premium connections and tubular
       products segment during the first half of 2002 will be relatively flat
       compared to the fourth quarter of 2001. Prices should improve during the
       second half of 2002.

     - We expect that distributor inventories will continue to be reduced and
       rationalized until sometime during the second quarter. We do not expect
       distributor inventory levels to have an adverse affect on demand during
       the second half of 2002.

  MARINE PRODUCTS AND SERVICES

     - Our XL Systems(TM) marine connector product line, which serves the Gulf
       of Mexico and the international offshore markets, is not expected to be
       materially affected by the depressed North American activity in the first
       half of 2002, as we do not expect the offshore Gulf of Mexico markets
       served by these operations to decline further.

     - We expect revenues during the first quarter of 2002 will be between $10
       million to $13 million, with revenues for subsequent quarters increasing
       as we increase our market share. We currently expect that our marine
       connections business will have 2002 revenues between $55 million and $65
       million, depending on this segment expanding its market share. Margins
       are expected to continue to be low for the first half of the year as we
       finalize our expansion program, with a targeted operating income margin
       by the end of the year of around 10% due to improved efficiencies and
       higher sales.

     - We have recently added a new jack-up drilling and subsea wellhead line to
       our marine group using our patented Plexus POS-GRIP(TM) system. This
       wellhead line initially will be focused on the rental of wellheads for
       the jack-up drilling market. We expect that this product line will see
       increasing revenues throughout the year as we add additional wellheads to
       our fleet. We currently have four rental wellheads and have a target of
       15 to 20 wellheads by the end of the year. We also are in the process of
       developing a subsea wellhead incorporating the Plexus POS-GRIP(TM)
       system. We currently expect that all income from our wellhead product
       line will be offset during the year by research and development
       expenditures for the development of a subsea product for this technology.
       We have assumed that research and development expenses not offset by
       income from the rental wellhead business will be less than $1 million in
       2002.

  OVERALL OUTLOOK

     Overall, we are positive on the prospects of our businesses and industry
for 2002 and beyond. We believe that oil and gas production decline rates in the
United States are increasing, and the trends towards offshore, deeper, and more
complex wells are positive indicators for our products and services. In the
short-term, we expect our earnings to be down for the first half of 2002 and to
improve as the rig count in the United States improves. Our results, however,
will be dependent on when the North American rig count hits bottom, the rate of
improvement in the second half of the year and customer expectations for the rig
count in 2003, which will be affected by natural gas prices, gas storage levels,
weather, and the rate of economic recovery.

     Based on the assumptions described above, and below under "Forward-Looking
Statements," we currently expect that we will earn between $0.06 to $0.10 per
share range in the first quarter of 2002 and be anywhere from around break-even
to $0.06 per share in the second quarter, with our current expectation being
that we will be in the mid-point of this range. The largest variables for our
earnings for the first quarter will be the results of our tubing and casing
product lines and the timing of completions for orders in progress at the end of
the quarter. Our results in the second quarter will be heavily dependent on our
backlog entering into
                                        26
<PAGE>

that quarter and to the extent to which there is an improvement in activity
levels in our premium connections and tubular products segment. We currently
expect improvements in revenue and income in the third and fourth quarters as
activity levels improve. Depending on how activity levels increase and assuming
the international markets maintain at or near their current levels, we would
expect that our third quarter earnings per share will be between $0.07 and $0.12
per share and that our fourth quarter earnings per share will be in the
mid-teens. A delay in the assumed increase in the rig count could push out our
expected improvements.

     The above forward-looking information with respect to our outlook for
fiscal 2002 is subject to various assumptions that are more specifically set
forth below under "Forward-Looking Statements" and "Risk Factors and Exposures."
There can be no assurance that our expectations for future results will in fact
occur or that our results will not be materially different. We do, however,
believe that our current expectations are reasonable.

RESULTS OF OPERATIONS

  2001 OTHER CHARGES

     During 2001, we incurred approximately $44.8 million of pre-tax charges,
$29.1 million net of tax. These charges include $11.2 million, $7.3 million net
of tax, related to inventory write-offs and capitalized manufacturing variance
write-offs which were classified as cost of sales. These charges also included
$33.6 million, $21.8 million net of tax, related to the write-off of assets
pertaining to our manufacturing arrangement with OCTL in India of $17.7 million
and fixed asset impairment of $1.5 million related to the decision to
discontinue the manufacturing of industrial flanges. This charge also included
severance payments and related expenses of approximately $14.4 million. These
charges are summarized in the following chart:

<Table>
<Caption>
                           DRILLING     PREMIUM      MARINE
                           PRODUCTS   CONNECTIONS   PRODUCTS                                             LIABILITY
                             AND      AND TUBULAR     AND                                       CASH      BALANCE
                           SERVICES    PRODUCTS     SERVICES   OTHER    CORPORATE    TOTAL    PAYMENTS   12/31/01
                           --------   -----------   --------   ------   ---------   -------   --------   ---------
                                                               (IN THOUSANDS)
<S>                        <C>        <C>           <C>        <C>      <C>         <C>       <C>        <C>
OCTL Write-Off(a)........  $17,727       $ --        $   --    $   --    $    --    $17,727   $    --      $  --
Inventory Write-Off(b)...    3,657         --         1,692     1,125         --      6,474        --         --
Fixed Asset
  Impairment(c)..........    1,475         --            --        --         --      1,475        --         --
Write-Off of Capitalized
  Manufacturing
  Variances(d)...........    1,024        509           272     2,767         --      4,572        --         --
Severance(e).............      108         --           205        75     14,165     14,553    14,553         --
                           -------       ----        ------    ------    -------    -------   -------      -----
         Total...........  $23,991       $509        $2,169    $3,967    $14,165    $44,801   $14,553      $  --
                           =======       ====        ======    ======    =======    =======   =======      =====
</Table>

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

(a)  In connection with our operational review conducted in 2001, we reassessed
     the viability of restructuring our relationship with Oil Country Tubular
     Limited (OCTL) in India and determined that a continued relationship was no
     longer viable. As a result of this determination, we wrote-off the
     remaining $17.7 million ($11.5 million after-tax) of unpaid receivables and
     advances owed to us by OCTL.

(b)  The inventory write-off was reported as cost of sales and was made pursuant
     to a review of our planned dispositions of inventory in an effort to reduce
     inventory levels of older, slow-moving products and also included
     write-offs pursuant to the Company's decision to discontinue manufacturing
     of industrial flanges. The amount was determined by use of internal
     appraisals and evaluations to assess the estimated net realizable value
     upon disposal and also included a charge related to certain inventory
     purchase contract obligations with above market prices.

(c)  The flange machinery and equipment impairment was reported as other charges
     and relates to our decision to discontinue the manufacturing of industrial
     flanges. The amount was determined by use of internal appraisals and
     evaluations to assess the net realizable value upon disposal. The flange
     machinery and equipment, which has a carrying value of $0.2 million at
     December 31, 2001, is expected to be disposed of during 2002.

                                        27
<PAGE>

(d)  Certain capitalized manufacturing cost variances were expensed as cost of
     sales in connection with our operational review and revisions of
     manufacturing standards and costing during 2001.

(e)  The severance charge was reported as other charges and relates to
     executive, manufacturing, and marketing employees terminated in connection
     with our restructuring plan that was implemented in 2001. The total number
     of employees severed was 24, and the amount accrued for severance was based
     upon the positions eliminated and our severance policy.

  2000 OTHER CHARGES

     We incurred $41.3 million of pre-tax charges, $26.9 million net of tax, in
2000 relating primarily to inventory write-offs and other asset impairments and
reductions. Inventory adjustments of $19.2 million were made pursuant to a
review of our capitalized manufacturing variances in excess of standard costs
and were recorded as cost of sales. The remaining $22.1 million of the 2000
pre-tax charges are summarized in the chart below. We estimate that all of the
remaining accrued balances at December 31, 2001 will be paid during 2002. The
categories of the charge incurred, the actual cash payments, and the accrued
balances at December 31, 2001 are summarized below:

<Table>
<Caption>
                        DRILLING     PREMIUM      MARINE
                        PRODUCTS   CONNECTIONS   PRODUCTS                      LIABILITY              LIABILITY
                          AND      AND TUBULAR     AND                          BALANCE      CASH      BALANCE
                        SERVICES    PRODUCTS     SERVICES   OTHER     TOTAL    12/31/00    PAYMENTS   12/31/01
                        --------   -----------   --------   ------   -------   ---------   --------   ---------
                                                            (IN THOUSANDS)
<S>                     <C>        <C>           <C>        <C>      <C>       <C>         <C>        <C>
Inventory
  Write-Off(a)........  $ 8,137       $572        $   --    $2,287   $10,996    $   --      $   --     $   --
Write-Down of
  Assets(b)...........    3,270         --            --        --     3,270        --          --         --
Litigation
  Accrual(c)..........       --         --         2,500        --     2,500     2,500         398      2,102
Contingent Liability
  Accrual(d)..........    4,650         --            --        --     4,650     4,650          --      4,650
Other Accrued
  Liabilities(e)......      594        115            --        --       709       709         679         30
                        -------       ----        ------    ------   -------    ------      ------     ------
         Total........  $16,651       $687        $2,500    $2,287   $22,125    $7,859      $1,077     $6,782
                        =======       ====        ======    ======   =======    ======      ======     ======
</Table>

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

(a)  The inventory write-off was reported as cost of sales and was made pursuant
     to a review of our planned dispositions of inventory in an effort to reduce
     inventory levels of older, slow-moving products. The amount was determined
     by use of internal appraisals and evaluations to assess the estimated net
     realizable value upon disposal.

(b)  The write-down of assets was reported as other charges and relates to fixed
     assets held for sale. The amount was determined by use of internal
     appraisals and evaluations to assess the net realizable value upon
     disposal.

(c)  The litigation accrual was reported as other charges and relates to an
     event subsequent to December 31, 2000 on an outstanding lawsuit filed
     against us in May 1997 for patent infringement. On March 2, 2001, a jury
     found that we had infringed on the patent and awarded the plaintiff
     approximately $2.0 million in damages, including prejudgment interest.
     Pursuant to the jury award, we reevaluated the estimated range of loss on
     the lawsuit and concluded that an additional charge of $2.5 million was
     necessary to increase the accrued liability balance at December 31, 2000.

(d)  The contingent liability accrual was reported as other charges and
     represents the probable estimated settlement under the terms of a contract
     relating to purchase commitments.

(e)  The other accrued liabilities charge was reported as other charges and
     represents primarily accruals for product warranties.

                                        28
<PAGE>

  YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

  General

     CONSOLIDATED RESULTS

     Net income for the year ended December 31, 2001 was $28.1 million ($0.25
per share), compared to a net loss of $16.5 million ($0.15 per share) for the
year ended December 31, 2000. During both 2000 and 2001, our results of
operations and earnings were affected by the various other charges discussed
above. Excluding other charges described above, net income for the year ended
December 31, 2001 was $57.2 million ($0.52 per share), compared to a net loss of
$2.1 million ($0.02 per share) during 2000. Revenues of $740.1 million in 2001
increased 48% over the prior year and were 14% above the previous record
achieved in 1998. Operating income before other charges of $117.9 million in
2001 increased $100.5 million over the prior year. For 2001, EBITDA before other
charges was $154.3 million as compared to $49.2 million in the prior year.

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                                  ----------------------------------
                                                      2000                  2001
                                                  ------------          ------------
                                                  (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                               <C>                   <C>
Revenues........................................    $498,481              $740,127
Gross Profit....................................      58,966(a)            169,009(d)
Gross Profit %..................................        11.8%(a)              22.8%(d)
Selling, General, and Administrative............    $ 58,068              $ 70,946
Selling, General, and Administrative %..........        11.6%(a)               9.6%(d)
Operating Income (Loss).........................    $ (4,736)(a)(b)       $ 73,055(d)(e)(f)
Operating Income (Loss) %.......................        (1.0%)(a)(b)           9.9%(d)(e)(f)
Operating Income, Before Other Charges..........    $ 17,389(c)           $117,856(g)
Operating Income %, Before Other Charges........         3.5%(c)              15.9%(g)
Net Income (Loss)...............................    $(16,485)             $ 28,090
EBITDA, Before Other Charges(h).................      49,231(c)            154,309(g)
</Table>

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

(a)  Includes other charges of $11.0 million relating to inventory write-offs
     and capitalized manufacturing variances, which were classified as cost of
     sales.

(b)  Includes other charges of $11.1 million related to a write-down of assets
     of $3.2 million, contingent liability accrual of $4.7 million, litigation
     accrual of $2.5 million, and other accrued liabilities of $0.7 million.

(c)  Excludes $22.1 million of other charges discussed in (a) and (b) above.

(d)  Includes other charges of $11.2 million related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(e)  Includes other charges of $14.1 million related to severance of executive,
     manufacturing, and marketing employees terminated in connection with our
     restructuring plan that was implemented in the first quarter of 2001.

(f)  Includes other charges of $19.5 million to write-off our assets related to
     our manufacturing arrangement with OCTL in India of $17.7 million, fixed
     asset impairment of $1.5 million, and severance and related expenses of
     $0.3 million.

(g)  Excludes $44.8 million of other charges discussed in (d), (e), and (f)
     above.

(h)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

                                        29
<PAGE>

     SEGMENT RESULTS

     Drilling Products and Services Segment

     The following table sets forth certain data regarding the results of our
drilling products and services segment for the years ended December 31, 2000 and
2001:

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                                  ----------------------------------
                                                      2000                  2001
                                                  ------------          ------------
                                                  (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                               <C>                   <C>
Revenues........................................    $208,347              $382,579
Gross Profit....................................       9,765(a)             99,236(d)
Gross Profit %..................................         4.7%(a)              25.9%(d)
Selling, General, and Administrative............    $ 13,949              $ 19,239
Selling, General, and Administrative %..........         6.7%                  5.0%
Operating Income (Loss).........................    $ (7,203)(a)(b)       $ 69,907(d)(e)
Operating Income (Loss) %.......................        (3.5)%(a)(b)          18.3%(d)(e)
Operating Income, Before Other Charges..........    $  9,448(c)           $ 93,898(f)
Operating Income %, Before Other Charges........         4.5%(c)              24.5%(f)
EBITDA, Before Other Charges(g).................    $ 22,007(c)           $109,141(f)
</Table>

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

(a)  Includes other charges of $8.1 million relating to inventory write-offs,
     which were classified as cost of sales.

(b)  Includes other charges of $8.5 million related to a write-down of assets of
     $3.2 million, contingent liability accrual of $4.7 million, and other
     accrued liabilities of $0.6 million.

(c)  Excludes $16.6 million of other charges discussed in (a) and (b) above.

(d)  Includes other charges of $4.7 million related to inventory write-offs and
     capitalized manufacturing variance write-offs which were classified as cost
     of sales.

(e)  Includes other charges of $19.3 million to write-off our assets related to
     our manufacturing arrangement with OCTL in India of $17.7 million, fixed
     asset impairment of $1.5 million, and severance and related expenses of
     $0.1 million.

(f)  Excludes $24.0 million of other charges discussed in (d) and (e) above.

(g)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

                                        30
<PAGE>

     Our drilling products and services segment consists of our oilfield drill
stem products for the oil and gas industry, including drill pipe (including tool
joints), drill collars, heavy weight drill pipe, and accessories. The following
table sets forth certain additional product line revenue data for the years
ended December 31, 2000 and 2001:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                               -------------------------------------------
                                                       2000                   2001
                                               --------------------   --------------------
                                                          % OF REV.              % OF REV.
                                                          ---------              ---------
                                                   (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                            <C>        <C>         <C>        <C>
REVENUES
Oilfield Drilling Products
  Drill Pipe Products........................  $157,118       75%     $305,786       80%
  Drill Collars and Heavy Weight Drill
     Pipe....................................    32,957       16%       59,822       16%
  Drill Stem Accessories and Other...........    18,272        9%       16,971        4%
                                               --------      ---      --------      ---
                                               $208,347      100%     $382,579      100%
                                               ========      ===      ========      ===
</Table>

     Revenues.  Our drilling products and services revenues for 2001 increased
$174.2 million, or 84%, as compared to 2000 due primarily to significant
increases in oil and gas drilling activity earlier in the year. Sales of
oilfield drill pipe for 2001 were 8.9 million feet compared to 4.8 million feet
in 2000. The average North American and international rig counts increased by
19% and 14%, respectively, during 2001 as compared to 2000. Our fourth quarter
of 2000 purchase of CMA Canavera S.p.A. (CMA), an Italian tool joint
manufacturer, also contributed incremental revenues in 2001.

     Gross Profit.  Our drilling products and services gross profit increased
$89.5 million in 2001 as compared to 2000. Excluding the effects of other
charges, our drilling products and services segment reported gross profit of
$103.9 million in 2001 as compared to $17.9 million in the prior year. This
increase was due to increased sales reflecting stronger demand for our drilling
products in North America and internationally, increased prices, and reduced
average U.S. oilfield drill pipe manufacturing cost due primarily to improved
manufacturing efficiencies from higher production levels, process improvements,
and lower actual cost, including energy costs. Although in February 2001 we
implemented a plan to improve our average pricing of drill stem products, our
average sales price for drill pipe in 2001 of $30.32 per foot was relatively
flat when compared to the prior year due primarily to lower priced prior
commitments sold during the first half of 2001. Our February 2001 backlog was
priced at an average price of $28.50 per foot, while our average sales price for
the last six months of 2001 was $32.32 per foot.

     Selling, General, and Administrative.  Selling, general, and administrative
expenses in our drilling products and services segment decreased as a percentage
of revenues from 7% in 2000 to 5% in 2001. The decrease was due primarily to a
higher revenue base related to increased oil and gas drilling activity,
partially offset by increased staffing levels and by our purchase of CMA during
the fourth quarter of 2000, which contributed incremental selling, general, and
administrative expense in 2001 compared to the prior year.

     Operating Income (Loss).  Our drilling products and services segment
reported operating income of $69.9 million in 2001 as compared to an operating
loss of $7.2 million in 2000. Excluding the effects of other charges, our
drilling products and services segment reported operating income of $93.9
million in 2001 compared to $9.4 million in the prior year. This increase
reflects the stronger demand for our drilling products in North America and
internationally, coupled with reduced average United States oilfield drill pipe
manufacturing costs resulting from improved manufacturing efficiencies due to
higher production levels, process improvements, and lower actual cost, including
energy costs. Our purchase of CMA during the fourth quarter of 2000 also
contributed incremental operating income in 2001. Equity earnings related to our
investment in Voest-Alpine for 2001 of $9.4 million increased over 100% when
compared to the prior year.

                                        31
<PAGE>

     Premium Connections and Tubular Products Segment

     The following table sets forth certain data regarding the results of our
premium connections and tubular products segment for the years ended December
31, 2000 and 2001:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                           ------------------------
                                                             2000           2001
                                                           ---------      ---------
                                                            (IN THOUSANDS, EXCEPT
                                                                 PERCENTAGES)
<S>                                                        <C>            <C>
Revenues.................................................  $225,628       $272,283
Gross Profit.............................................    48,251(a)      63,658(c)
Gross Profit %...........................................      21.4%(a)       23.4%(c)
Selling, General, and Administrative.....................  $ 14,457       $ 17,254
Selling, General, and Administrative %...................       6.4%           6.3%
Operating Income.........................................  $ 33,679(a)    $ 46,404(c)
Operating Income %.......................................      14.9%(a)       17.0%(c)
Operating Income, Before Other Charges...................  $ 34,366(b)    $ 46,913(d)
Operating Income %, Before Other Charges.................      15.2%(b)       17.2%(d)
EBITDA, Before Other Charges(e)..........................  $ 46,184(b)    $ 60,101(d)
</Table>

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

(a)  Includes other charges of $0.7 million ($0.5 million for Texas Arai and
     $0.2 million for Tube-Alloy(TM)) related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(b)  Excludes $0.7 million of other charges discussed in (a) above.

(c)  Includes other charges of $0.5 million ($0.3 million for Texas Arai and
     $0.2 million for Tube-Alloy(TM)) related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(d)  Excludes $0.5 million of other charges discussed in (c) above.

(e)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income, and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

     Our premium connections and tubular products segment consists of four
principal product lines: (1) Atlas Bradford(R) premium threading and tubing, (2)
TCA(TM) critical-service casing and processing, (3) Tube-Alloy(TM) premium
accessories, and (4) Texas Arai couplings. The following table sets forth
certain additional data regarding these product lines for the years ended
December 31, 2000 and 2001:

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------
                                                    2000                     2001
                                           ----------------------   ----------------------
                                                        % OF REV.                % OF REV.
                                                        ---------                ---------
                                                 (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                        <C>          <C>         <C>          <C>
REVENUES
  Atlas Bradford(R) Threading and
     Service.............................  $ 65,056        29%      $ 88,384        33%
  TCA(TM)................................    80,683        35%        81,774        30%
  Tube-Alloy(TM).........................    33,067        15%        50,054        18%
                                           --------       ----      --------       ----
                                            178,806        79%       220,212        81%
                                           --------       ----      --------       ----
  Texas Arai.............................    46,822        21%        52,071        19%
                                           --------       ----      --------       ----
                                           $225,628       100%      $272,283       100%
                                           ========       ====      ========       ====
</Table>

                                        32
<PAGE>

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------
                                                    2000                     2001
                                           ----------------------   ----------------------
                                                        % OF REV.                % OF REV.
                                                        ---------                ---------
                                                 (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                        <C>          <C>         <C>          <C>
GROSS PROFIT
  Atlas Bradford(R) Threading and
     Service.............................  $ 15,976        25%      $ 23,117        26%
  TCA(TM)................................    17,823        22%        16,522        20%
  Tube-Alloy(TM).........................    10,038        30%        15,821        32%
                                           --------                 --------
                                             43,837        25%        55,460        33%
                                           --------                 --------
  Texas Arai.............................     4,414         9%         8,198        16%
                                           --------                 --------
                                           $ 48,251(a)     21%      $ 63,658(c)     23%
                                           ========                 ========
SELLING, GENERAL, AND ADMINISTRATIVE
  Atlas Bradford(R) Threading and
     Service.............................  $  4,707         7%      $  6,520         7%
  TCA(TM)................................     1,739         2%         1,709         2%
  Tube-Alloy(TM).........................     4,480        14%         5,346        11%
                                           --------                 --------
                                             10,926         6%        13,575         8%
                                           --------                 --------
  Texas Arai.............................     3,531         8%         3,679         7%
                                           --------                 --------
                                           $ 14,457         6%      $ 17,254         6%
                                           ========                 ========
OPERATING INCOME
  Atlas Bradford(R) Threading and
     Service.............................  $ 11,269        17%      $ 16,597        19%
  TCA(TM)................................    16,084        20%        14,813        18%
  Tube-Alloy(TM).........................     5,528        17%        10,475        21%
                                           --------                 --------
                                             32,881        18%        41,885        25%
                                           --------                 --------
  Texas Arai.............................       798         2%         4,519         9%
                                           --------                 --------
                                           $ 33,679(a)     15%      $ 46,404(c)     17%
                                           ========                 ========
OPERATING INCOME, BEFORE OTHER CHARGES
  Atlas Bradford(R) Threading and
     Service.............................  $ 11,269        17%      $ 16,597        19%
  TCA(TM)................................    16,084        20%        14,813        18%
  Tube-Alloy(TM).........................     5,704        17%        10,727        21%
  Texas Arai.............................     1,309         3%         4,776         9%
                                           --------                 --------
                                           $ 34,366(b)     15%      $ 46,913(d)     17%
                                           ========                 ========
</Table>

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

(a)  Includes other charges of $0.7 million ($0.5 million for Texas Arai and
     $0.2 million for Tube-Alloy(TM)) related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(b)  Excludes $0.7 million of other charges discussed in (a) above.

(c)  Includes other charges of $0.5 million ($0.3 million for Texas Arai and
     $0.2 million for Tube-Alloy(TM)) related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(d)  Excludes $0.5 million of other charges discussed in (c) above.

     Revenues.  Our premium connections and tubular products revenues increased
$46.7 million, or 21%, in 2001 as compared to 2000. This growth in revenues
reflects the increased demand for our premium connections, tubing, and casing
products due to the significant increase in gas drilling and completion
activity.

                                        33
<PAGE>

The average U.S. gas rig count increased 30% in 2001 as compared to 2000.
Combined sales of our TCA(TM) critical-service casing, Tube-Alloy(TM) premium
accessories, and Atlas Bradford(R) premium threading and tubing product lines in
2001 were 23% higher than in 2000 and collectively comprised 81% of total
revenue for this segment. Our Texas Arai coupling product lines' revenues in
2001 were 11% higher than 2000 and reflect price increases implemented in the
first quarter of 2001.

     Gross Profit.  Our premium connections and tubular products gross profit
increased $15.4 million, or 32%, in 2001 as compared to 2000. This increase
reflects growth in demand for our premium connections, tubing, and casing
products that resulted in increased utilization of our manufacturing facilities
and higher fixed cost absorption during 2001, coupled with price increases that
we initiated during the first part of 2001. Combined gross profit of our TCA(TM)
critical-service casing, Tube-Alloy(TM) premium accessories, and Atlas
Bradford(R) premium threading and tubing product lines in 2001 were 27% higher
than in 2000 and collectively comprised 87% of the gross profit for this
segment. Gross profit for 2001 benefited from a favorable product mix, which
included sales of Tube-Alloy's(TM) higher-margin, vacuum-insulated tubing
product line. Texas Arai, our coupling product line, had a $3.8 million increase
in gross profit when compared to last year due to price increases implemented in
the first quarter of 2001. Partially offsetting these improvements was a decline
in average margins for our casing sales due to higher commodity sales and lower
processing associated with declining distributor purchases during the second
half of 2001.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our premium connections and tubular products segment
remained flat at 6% of revenues for 2000 and 2001.

     Operating Income (Loss).  Our premium connections and tubular products
operating income increased $12.7 million, or 38%, in 2001 as compared to 2000.
This increase reflects the strong demand for our premium connections, tubing,
and casing products, driven by increased gas drilling and completion activity
earlier in the year. Combined operating income of our TCA(TM) critical-service
casing, Tube-Alloy(TM) premium accessories and Atlas Bradford(R) premium
threading and tubing product lines for 2001 were 27% higher than in 2000 and
collectively comprised 90% of the operating income for this segment. Operating
income for 2001 benefited from a favorable product mix, which included sales of
Tube-Alloy's(TM) higher-margin vacuum-insulated tubing product line. Texas Arai
had an increase in operating income in 2001 of $3.7 million when compared to
2000 due to price increases implemented in the first quarter of 2001. Partially
offsetting these improvements was a decline in average margins for our casing
sales due to higher commodity sales and lower processing associated with
declining distributor purchases.

    Marine Products and Services Segment

     The following table sets forth certain data regarding the results of our
marine products and services segment for the years ended December 31, 2000 and
2001:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                         ------------------------
                                                           2000            2001
                                                         --------        --------
                                                          (IN THOUSANDS, EXCEPT
                                                               PERCENTAGES)
<S>                                                      <C>             <C>
Revenues...............................................  $36,646         $44,085
Gross Profit...........................................    2,666           7,047(c)
Gross Profit %.........................................      7.3%           16.0%(c)
Selling, General, and Administrative...................  $ 5,324         $ 7,472
Selling, General, and Administrative %.................     14.5%           16.9%
Operating Loss.........................................  $(5,158)(a)     $  (630)(c)(d)
Operating Loss %.......................................    (14.1)%(a)       (1.4)%(c)(d)
Operating Income (Loss), Before Other Charges..........  $(2,658)(b)     $ 1,539(e)
Operating Income (Loss) %, Before Other Charges........     (7.3)%(b)        3.5%(e)
EBITDA, Before Other Charges(f)........................  $ 1,294(b)      $ 5,263(e)
</Table>

                                        34
<PAGE>

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

(a)  Includes other charges of $2.5 million related to a litigation accrual.

(b)  Excludes $2.5 million of other charges discussed in (a) above.

(c)  Includes other charges of $2.0 million related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(d)  Includes other charges of $0.2 million for severance and related expenses.

(e)  Excludes $2.2 million of other charges discussed in (c) and (d) above.

(f)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

     Revenues.  Our marine products and services revenues increased $7.4
million, or 20%, in 2001 as compared to 2000. In the first quarter of 2001 we
began to strengthen our marine products and services sales force, consolidated
certain offshore selling activities, and began to build a broader product line.
These actions coupled with an increase in deepwater projects during 2001
resulted in increased revenues for this segment.

     Gross Profit.  Our marine products and services gross profit increased $4.4
million in 2001 as compared to 2000. Excluding the effects of other charges in
2001, our marine products and services segment reported gross profit of $9.0
million. This improvement reflects the additional focus initiated in 2001 for
this segment coupled with the increase in drilling and completion activity for
offshore natural gas wells.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our marine products and services segment increased
as a percentage of revenues from 15% in 2000 to 17% in 2001. The increase was
due to increased costs associated with the strengthening of our management and
sales force to improve market penetration and profitability and due to costs
related to the start-up of a separate marine products and services segment in
the fourth quarter of 2001.

     Operating Loss.  Our marine products and services operating loss decreased
$4.5 million in 2001, from an operating loss of $5.1 million in 2000 to an
operating loss of $0.6 million in 2001. Excluding the effects of other charges,
our marine products and services segment reported operating income of $1.5
million in 2001 as compared to an operating loss of $2.7 million in the prior
year. This increase reflects the increased focus initiated in 2001 for this
segment coupled with the increase in drilling and completion activity for
deepwater wells.

    Other Segment

     The following table sets forth certain data regarding the results of our
other segment for the years ended December 31, 2000 and 2001:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                         ------------------------
                                                           2000            2001
                                                         --------        --------
                                                          (IN THOUSANDS, EXCEPT
                                                               PERCENTAGES)
<S>                                                      <C>             <C>
Revenues...............................................  $27,860         $41,180
Gross Loss.............................................   (1,716)(a)        (932)(c)
Gross Loss %...........................................     (6.2)%(a)       (2.3)%(c)
Selling, General, and Administrative...................  $ 3,029         $ 5,579
Selling, General, and Administrative %.................     10.9%           13.5%
Operating Loss.........................................  $(4,745)(a)     $(7,059)(c)
Operating Loss %.......................................    (17.0)%(a)      (17.1)%(c)
Operating Loss, Before Other Charges...................  $(2,458)(b)     $(3,092)(d)
Operating Loss %, Before Other Charges.................     (8.8)%(b)       (7.5)%(d)
EBITDA, Before Other Charges(e)........................  $   624(b)      $   740(d)
</Table>

                                        35
<PAGE>

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

(a)  Includes other charges of $2.3 million related to inventory write-offs and
     capitalized manufacturing variance write-offs which were classified as cost
     of sales.

(b)  Excludes $2.3 million of other charges discussed in (a) above.

(c)  Includes other charges of $4.0 million related to inventory write-offs and
     capitalized manufacturing variance write-offs which were classified as cost
     of sales.

(d)  Excludes $4.0 million of other charges discussed in (c) above.

(e)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

     Revenues.  Our other segment's revenues increased $13.3 million, or 48%, in
2001 compared to 2000 due to the purchases of Star Iron Works, Inc. (Star), and
Seam-Mac Tube, Ltd. (Seam-Mac) in the fourth quarter of 2000, which contributed
approximately $21.1 million of incremental revenues in 2001. This increase was
partially offset by a decrease in revenues from our historical industrial drill
pipe operations due to decreased activity levels related to declining fiber
optic installation and construction markets.

     Gross Loss.  Our gross loss in our other segment decreased $0.8 million in
2001 as compared to 2000, from a gross loss of $1.7 million in 2000 to a gross
loss of $0.9 million in 2001. Excluding the effects of other charges, gross
profit for this segment was $3.0 million for 2001 as compared to $0.6 million in
the prior year. This increase primarily reflects the purchases of Star and
Seam-Mac in the fourth quarter of 2000, which contributed approximately $3.6
million of incremental gross profit in 2001.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our other segment increased as a percentage of
revenues from 11% in 2000 to 14% in 2001. The increase was due primarily to
increased marketing efforts in 2001 for our industrial product lines partially
offset by cost reduction efforts implemented in February 2001.

     Operating Loss.  Our other segment's operating loss increased $2.3 million
in 2001, from an operating loss of $4.7 million in 2000 to an operating loss of
$7.0 million in 2001. Excluding the effects of other charges, our other segment
reported an operating loss of $3.1 million in 2001 as compared to $2.5 million
in the prior year. This operating loss reflects the decreased activity levels
with our industrial product line coupled with inefficiencies associated with the
winding down of our operations at our Stephenville, Texas facility. Also
included in our other segment operating loss in 2001 is approximately $0.5
million of costs associated with several new technologies under development.

OTHER ITEMS

     Corporate General and Administrative.  Our corporate selling, general and
administrative expenses decreased as a percentage of revenues from 4% in 2000 to
3% in 2001. The decrease was due primarily to a higher revenue base related to
increased oil and gas drilling activity.

     Interest Expense.  Our interest expense increased $10.1 million in 2001 due
to higher levels of borrowings as compared to 2000. In December 2000 we issued
$200 million 9 5/8% Senior Notes Due 2007, of which a portion of the proceeds
were used to payoff our $100 million subordinated note to Weatherford.

     Tax (Provision) Benefit.  Our effective tax rate in 2001 was 35% as
compared to 34% in 2000.

                                        36
<PAGE>

 YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

  General

     CONSOLIDATED RESULTS

     Net loss for the year ended December 31, 2000 was $16.5 million ($0.15 per
share) as compared to $33.5 million ($0.33 per share) for the year ended
December 31, 1999. During both 1999 and 2000, our results of operations and
earnings were affected by the various other charges discussed earlier. Excluding
these other charges, net loss for the year ended December 31, 2000 was $2.1
million ($0.02 per share), compared to a net loss of $27.4 million ($0.27 per
share) in the prior year. Revenues of $498.5 million in 2000 increased 74% over
the prior year. Operating income before other charges of $17.4 million in 2000
increased $40.9 million over the prior year. For 2000, EBITDA before other
charges was $49.2 million as compared to $7.0 million in the prior year.

<Table>
<Caption>
                                                     YEAR ENDED DECEMBER 31,
                                                     ------------------------
                                                       1999            2000
                                                     --------        --------
                                                      (IN THOUSANDS, EXCEPT
                                                           PERCENTAGES)
<S>                                                  <C>             <C>
Revenues...........................................  $286,370        $498,481
Gross Profit.......................................    24,101          58,966(c)
Gross Profit %.....................................       8.4%           11.8%(c)
Selling, General, and Administrative...............  $ 47,242        $ 58,068
Selling, General, and Administrative %.............      16.5%           11.6%(c)
Operating Income (Loss)............................  $(33,014)(a)    $ (4,736)(c)(d)
Operating Income (Loss) %..........................     (11.5)%(a)       (1.0)%(c)(d)
Operating Income (Loss), Before Other Charges......  $(23,560)(b)    $ 17,389(e)
Operating Income (Loss) %, Before Other Charges....      (8.2)%(b)        3.5%(e)
Net Income (Loss)..................................  $(33,511)       $(16,485)
EBITDA, Before Other Charges(f)....................     6,954(b)       49,231(e)
</Table>

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

(a)  Includes other charges of $9.5 million, $6.1 million net of tax, relating
     to the decision to terminate our manufacturing arrangement in India, of
     which $7.8 million involved a purchase deposit that we will not be able to
     use and $1.7 million in equipment in India that we do not believe we will
     be able to recover.

(b)  Excludes $9.5 million of other charges discussed in (a) above.

(c)  Includes other charges of $11.0 million relating to inventory write-offs
     and capitalized manufacturing variances, which were classified as cost of
     sales.

(d)  Includes other charges of $11.1 million related to a write-down of assets
     of $3.2 million, contingent liability accrual of $4.7 million, litigation
     accrual of $2.5 million, and other accrued liabilities of $0.7 million.

(e)  Excludes $22.1 million of other charges discussed in (c) and (d) above.

(f)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

                                        37
<PAGE>

     Drilling Products and Services Segment

     The following table sets forth certain data for our drilling products and
services segment for the years ended December 31, 1999 and 2000:

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                                        -----------------------
                                                          1999           2000
                                                        --------       --------
                                                         (IN THOUSANDS, EXCEPT
                                                             PERCENTAGES)
<S>                                                     <C>            <C>
Revenues..............................................  $134,275       $208,347
Gross Profit..........................................    15,799          9,765(c)
Gross Profit %........................................      11.8%           4.7%(c)
Selling, General, and Administrative..................  $ 13,860       $ 13,949
Selling, General, and Administrative %................      10.3%           6.7%
Operating Income (Loss)...............................  $ (7,934)(a)   $ (7,203)(c)(d)
Operating Income (Loss) %.............................      (5.9)%(a)      (3.5)%(c)(d)
Operating Income, Before Other Charges................  $  1,520(b)    $  9,448(e)
Operating Income %, Before Other Charges..............       1.1%(b)        4.5%(e)
EBITDA, Before Other Charges(f).......................  $ 16,639(b)    $ 22,007(e)
</Table>

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

(a)  Includes other charges of $9.5 million, $6.1 million net of tax, relating
     to the decision to terminate our manufacturing arrangement in India, of
     which $7.8 million involved a purchase deposit that we will not be able to
     use and $1.7 million in equipment in India that we do not believe we will
     be able to recover.

(b)  Excludes $9.5 million of other charges discussed in (a) above.

(c)  Includes other charges of $8.1 million relating to inventory write-offs,
     which were classified as cost of sales.

(d)  Includes other charges of $8.5 million related to a write-down of assets of
     $3.2 million, contingent liability accrual of $4.7 million, and other
     accrued liabilities of $0.6 million.

(e)  Excludes $16.6 million of other charges discussed in (c) and (d) above.

(f)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

     Our drilling products and services segment consists of our oilfield drill
stem products for the oil and gas industry, including drill collars, heavy
weight drill pipe, and accessories. The following table sets forth certain
additional product line revenue data for the years ended December 31, 1999 and
2000:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                               -------------------------------------------
                                                       1999                   2000
                                               --------------------   --------------------
                                                          % OF REV.              % OF REV.
                                                          ---------              ---------
                                                   (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                            <C>        <C>         <C>        <C>
REVENUES
Oilfield Drilling Products
  Drill Pipe Products........................  $ 85,922       64%     $157,118       75%
  Drill Collars and Heavy Weight Drill
     Pipe....................................    17,331       13%       32,957       16%
  Drill Stem Accessories and Other...........    31,022       23%       18,272        9%
                                               --------      ---      --------      ---
                                               $134,275      100%     $208,347      100%
                                               ========      ===      ========      ===
</Table>

     Revenues.  Our drilling products and services revenues for 2000 increased
$74.1 million, or 55%, as compared to 1999 due primarily to significant
increases in oil and gas drilling and completion activity coupled with an
increase in average pricing received during 2000 as compared to 1999. Sales of
drill stem products for

                                        38
<PAGE>

2000 were 4.8 million feet compared to 2.6 million feet in 1999. The average
North American and international rig counts increased by 48% and 11%,
respectively, during 2000 as compared to 1999.

     Gross Profit.  Our drilling products and services gross profit decreased
$6.0 million, or 38%, in 2000 as compared to 1999. The decrease was primarily
due to the $8.1 million in other charges taken by us in 2000 relating to
inventory write-offs. Excluding the effects of the other charges, our drilling
products and services segment reported gross profit of $17.9 million in 2000 as
compared to $15.8 million in the prior year. Our 2000 results benefited from
increased sales as well as reduced raw material costs as a result of our
investment in Voest-Alpine. Results for 1999 benefited from favorable
manufacturing absorption related to significant production for our prior parent
company coupled with reduced staffing levels. During 2000, we significantly
increased our staffing levels to meet our customers' growing demand for our
products.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses in our drilling products and services segment decreased
as a percentage of revenues from 10% in 1999 to 7% in 2000. The decrease was due
primarily to a higher revenue base related to increased oil and gas drilling
activity. The decrease was partially offset by increased staffing levels.

     Operating Loss.  Our drilling products and services segment reported an
operating loss of $7.2 million in 2000 as compared to an operating loss of $7.9
million in 1999. Excluding the effects of other charges, our drilling products
and services segment reported operating income of $9.4 million in 2000 as
compared to $1.5 million in the prior year. This increase primarily reflects the
strengthening demand for our products as oil and gas production activity
recovered from the low levels in 1999, reduced raw material costs, and increased
equity earnings related to our investment in Voest-Alpine. The contribution from
our interest in the equity earnings of Voest-Alpine was $4.6 million in 2000
compared to a loss of $0.4 million in 1999.

 Premium Connections and Tubular Products Segment

     The following table sets forth certain data regarding the results of our
premium connections and tubular products segment for the years ended December
31, 1999 and 2000:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                           ------------------------
                                                             1999           2000
                                                           ---------      ---------
                                                            (IN THOUSANDS, EXCEPT
                                                                 PERCENTAGES)
<S>                                                        <C>            <C>
Revenues.................................................  $133,491       $225,628
Gross Profit.............................................     8,532         48,251(a)
Gross Profit %...........................................       6.4%          21.4%(a)
Selling, General and Administrative......................  $ 13,099       $ 14,457
Selling, General and Administrative %....................       9.8%           6.4%(a)
Operating Income (Loss)..................................  $ (4,567)      $ 33,679(a)
Operating Income (Loss) %................................      (3.4)%         14.9%(a)
Operating Income (Loss), Before Other Charges............  $ (4,567)      $ 34,366(b)
Operating Income (Loss) %, Before Other Charges..........      (3.4)%         15.2%(b)
EBITDA, Before Other Charges(c)..........................  $  7,051       $ 46,184(b)
</Table>

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

(a)  Includes other charges of $0.7 million ($0.5 million for Texas Arai and
     $0.2 million for Tube-Alloy(TM)) related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(b)  Excludes $0.7 million of other charges discussed in (a) above.

(c)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute to calculations
     under GAAP, in particular operating income and net income. In addition,
     EBITDA calculations by one company may not be comparable to another
     company.

                                        39
<PAGE>

     Our premium connections and tubular products segment consists of four
principal product lines: (1) Atlas Bradford(R) premium threading and tubing, (2)
TCA(TM) critical-service casing and processing, (3) Tube-Alloy(TM) premium
accessories, and (4) Texas Arai couplings. The following table sets forth
certain additional data regarding these product lines for the years ended
December 31, 1999 and 2000:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                               -------------------------------------------
                                                       1999                   2000
                                               --------------------   --------------------
                                                          % OF REV.              % OF REV.
                                                          ---------              ---------
                                                   (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                            <C>        <C>         <C>        <C>
REVENUES
  Atlas Bradford(R) Threading and Service....  $ 43,291       32%     $ 65,056       29%
  TCA(TM)....................................    38,469       29%       80,683       35%
  Tube-Alloy(TM).............................    21,538       16%       33,067       15%
                                               --------      ---      --------      ---
                                                103,298       77%      178,806       79%
                                               --------      ---      --------      ---
  Texas Arai.................................    30,193       23%       46,822       21%
                                               --------      ---      --------      ---
                                               $133,491      100%     $225,628      100%
                                               ========      ===      ========      ===
GROSS PROFIT
  Atlas Bradford(R) Threading and Service....  $  2,341        5%     $ 15,976       25%
  TCA(TM)....................................       652        2%       17,823       22%
  Tube-Alloy(TM).............................     4,838       22%       10,038       30%
                                               --------               --------
                                                  7,831        8%       43,837       25%
                                               --------               --------
  Texas Arai.................................       701        2%        4,414        9%
                                               --------               --------
                                               $  8,532        6%     $ 48,251(a)     21%
                                               ========               ========
SELLING, GENERAL, AND ADMINISTRATIVE
  Atlas Bradford(R) Threading and Service....  $  4,198       10%     $  4,707        7%
  TCA(TM)....................................     1,727        4%        1,739        2%
  Tube-Alloy(TM).............................     3,882       18%        4,480       14%
                                               --------               --------
                                                  9,807        9%       10,926        6%
                                               --------               --------
  Texas Arai.................................     3,292       11%        3,531        8%
                                               --------               --------
                                               $ 13,099       10%     $ 14,457        6%
                                               ========               ========
OPERATING INCOME (LOSS)
  Atlas Bradford(R) Threading and Service....  $ (1,857)      (4)%    $ 11,269       17%
  TCA(TM)....................................    (1,075)      (3)%      16,084       20%
  Tube-Alloy(TM).............................       956        4%        5,528       17%
                                               --------               --------
                                                 (1,976)      (2)%      32,881       18%
                                               --------               --------
  Texas Arai.................................    (2,591)      (9)%         798        2%
                                               --------               --------
                                               $ (4,567)      (3)%    $ 33,679(a)     15%
                                               ========               ========
OPERATING INCOME (LOSS), BEFORE OTHER CHARGES
  Atlas Bradford(R) Threading and Service....  $ (1,857)      (4)%    $ 11,269       17%
  TCA(TM)....................................    (1,075)      (3)%      16,084       20%
  Tube-Alloy(TM).............................       956        4%        5,704       17%
  Texas Arai.................................    (2,591)      (9)%       1,309        3%
                                               --------               --------
                                               $ (4,567)      (3)%    $ 34,366(b)     15%
                                               ========               ========
</Table>

                                        40
<PAGE>

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

(a)  Includes other charges of $0.7 million ($0.5 million for Texas Arai and
     $0.2 million for Tube-Alloy(TM)) related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(b)  Excludes $0.7 million of other charges discussed in (a) above.

     Revenues.  Our premium connections and tubular products revenues in 2000
increased $92.1 million, or 69%, in 2000 compared to 1999 due primarily to
strong U.S. drilling and completion activity, in particular for natural gas. The
average North American and international rig counts increased by 48% and 11%,
respectively, during 2000 as compared to 1999. Sales of our TCA(TM) high
collapse casing and Atlas Bradford(R) premium threading were the largest
contributors in this segment with $80.7 million and $65.1 million in revenues,
respectively. Sales of our premium tubulars, couplings, and accessories also
provided strong contributions in 2000.

     Gross Profit.  Our premium connections and tubular products gross profit
increased $39.7 million in 2000 as compared to 1999. Our TCA(TM) high collapse
casing and Atlas Bradford(R) premium threading were the largest contributors
with $17.8 million and $16.0 million in gross profit, respectively, during the
year. Our production volume also increased, which provided increased utilization
of manufacturing facilities and higher fixed cost absorption.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our premium connections and tubular products segment
decreased as a percentage of revenues from 10% in 1999 to 6% in 2000. The
decrease was due primarily to cost reduction efforts implemented in 1999 coupled
with a higher revenue base in 2000.

     Operating Income (Loss).  Our premium connections and tubular products
reported operating income in 2000 of $33.7 million as compared to an operating
loss of $4.6 million in 1999. Excluding the effect of other charges in 2000,
operating income was $34.4 million. The significant improvement in operating
income primarily reflected the increase in demand for our premium connections
and tubular products driven by the increased oil and gas drilling and completion
activity.

     Marine Products and Services Segment

     The following table sets forth certain data regarding the results of our
marine products and services segment for the years ended December 31, 1999 and
2000:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                                             ------------------------
                                                               1999           2000
                                                             ---------      ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                   PERCENTAGES)
<S>                                                          <C>            <C>
Revenues...................................................   $18,604        $36,646
Gross Profit (Loss)........................................      (230)         2,666
Gross Profit (Loss) %......................................      (1.2)%          7.3%
Selling, General, and Administrative.......................   $ 4,145        $ 5,324
Selling, General, and Administrative %.....................      22.3%          14.5%
Operating Loss.............................................   $(4,375)       $(5,158)(a)
Operating Loss %...........................................     (23.5)%        (14.1)%(a)
Operating Loss, Before Other Charges.......................   $(4,375)       $(2,658)(b)
Operating Loss %, Before Other Charges.....................     (23.5)%         (7.3)%(b)
EBITDA, Before Other Charges(c)............................   $(1,692)       $ 1,294(b)
</Table>

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

(a)  Includes other charges of $2.5 million related to a litigation accrual.

(b)  Excludes $2.5 million of other charges discussed in (a) above.

(c)  We calculate EBITDA by taking operating income (loss) and adding back
     depreciation and amortization, excluding the impact of other charges.
     Calculations of EBITDA should not be viewed as a substitute

                                        41
<PAGE>

     to calculations under GAAP, in particular operating income and net income.
     In addition, EBITDA calculations by one company may not be comparable to
     another company.

     Revenues.  Our marine products and services revenues increased $18.0
million in 2000 as compared to 1999 due primarily to strong U.S. drilling and
completion activity in 2000, in particular deepwater natural gas wells. The
average offshore Gulf of Mexico rig count increased 46% during 2000 as compared
to 1999.

     Gross Profit (Loss).  Our marine products and services gross profit
increased $2.9 million in 2000 as compared to 1999 due primarily to strong U.S.
drilling and completion activity in 2000, in particular deepwater natural gas
wells.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our marine products and services segment decreased
as a percentage of revenues from 22% in 1999 to 15% in 2000. The decrease was
primarily due to a higher revenue base related to the increased oil and gas
drilling activity.

     Operating Loss.  Our marine products and services operating loss decreased
$0.8 million in 2000, from an operating loss of $4.4 million in 1999 to an
operating loss of $5.2 million in 2000. Excluding the effects of other charges
in 2000, our marine products and services segment reported an operating loss of
$2.7 million. This decrease is primarily attributable to strong U.S. drilling
and completion activity in 2000, in particular natural gas wells.

    Other Segment

     We did not begin operating our industrial product line included in our
Other segment until 2000; therefore, no financial data was reported for this
segment in 1999.

OTHER ITEMS

     Corporate General and Administrative.  Our corporate general and
administrative expenses increased $5.2 million in 2000 as compared to 1999. The
increase was primarily due to overhead costs for additional financial,
accounting, legal, marketing, and other administrative expenses required by us
as a separate public entity following our spinoff from Weatherford in April
2000.

     Interest Expense.  Our interest expense increased $5.7 million in 2000 due
to higher levels of borrowings as compared to 1999. Increased borrowings
included the revolving credit facility agreement, which we entered into in April
2000 coupled with the $200 million 9 5/8% Senior Notes Due 2007 which were
issued in December 2000.

     Tax (Provision) Benefit.  Our effective tax rate in 2000 was 34%, as
compared to 25% for 1999. The higher effective tax rate for 2000 reflects the
unfavorable impact of certain nondeductible expenses.

LIQUIDITY AND CAPITAL RESOURCES

     As a wholly-owned subsidiary of Weatherford prior to our spinoff in April
2000, our liquidity and capital resources historically were provided from cash
flow from operations and cash provided to us by Weatherford. As a separate
public entity following the spinoff, our liquidity and capital resources now
depends on our cash flow from operations and our ability to raise capital from
third-parties.

     At June 30, 2001, we had unused borrowing capacity of approximately $32.3
million under our $100 million revolving credit facility (Credit Facility). In
anticipation of a declining market during the remainder of 2001 and part of
2002, we instituted a working capital management program focused on reducing our
borrowings under our Credit Facility and increased our borrowing capacity under
our Credit Facility. We currently have unused committed borrowing capacity of
approximately $80 million.

     As a result of our efforts, we believe we have significantly improved our
liquidity position and that we are well positioned to not only take full
advantage of the expected upturn in the market for our products and services,
but to maintain our businesses and take advantage of opportunities even in the
event of any delay in the expected recovery in our markets.

                                        42
<PAGE>

     At December 31, 2001, we had cash and cash equivalents of $10.4 million and
net working capital of $206.2 million. At December 31, 2001, we also had $5.4
million in restricted cash related to our 54% interest in P.T. H-Tech Oilfield
Equipment (H-Tech) that is subject to dividend and distribution restrictions.

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

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1999       2000       2001
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Net Cash Provided (Used) by Operating Activities.....  $ 65,240   $(32,615)  $ 40,490
Net Cash Used by Investing Activities................   (34,118)   (86,769)   (42,134)
Net Cash (Used) Provided by Financing Activities.....   (30,988)   121,495      3,713
</Table>

  OPERATING ACTIVITIES

     Our net cash flow provided by operating activities increased by $73.1
million in 2001 as compared to 2000. The improvement in 2001 was generated by an
increase in our net income as adjusted for other charges, depreciation, and
deferred income taxes of $73.4 million, coupled with increased cash flow of $8.0
million attributable to dividends from our equity investment in Voest-Alpine,
partially offset by a net incremental use of cash of $8.2 million related
primarily to an increase in working capital associated with an approximately
$240 million increase in total revenue in 2001 over 2000. To address the
slow-down in our primary markets, during the second half of 2001 we implemented
a working capital management program, which focuses on minimizing the cash
conversion cycle related to inventory, accounts receivable, and accounts
payable. Net cash flow provided by operating activities decreased by $97.9
million in 2000 as compared to 1999 due to increased working capital
requirements to support the significant increase in demand for our products.

  INVESTING ACTIVITIES

     Our net cash used by investing activities decreased by $44.6 million in
2001 as compared to 2000 due primarily to decreased business acquisitions
activity, partially offset by increased capital expenditures for property,
plant, and equipment. In the fourth quarter of 2000, we consummated four
acquisitions for approximately $66.0 million in cash. Net cash used by investing
activities increased by $52.7 million in 2000 as compared to 1999 due primarily
to increased business acquisitions activity in 2000.

  Capital Expenditures

     Our capital expenditures for property, plant, and equipment totaled $19.0
million, $20.9 million, and $37.2 million for the years ended December 31, 1999,
2000, and 2001, respectively. We currently expect to expend approximately $40
million to $50 million for capital expenditures for property, plant, and
equipment during 2002 related to our capital improvement program to reduce
production costs and improve efficiencies, our manufacturing consolidation
projects, and maintaining our existing equipment base. Because of weak market
conditions, approximately $15 million in capital expenditures that were
scheduled to be made in late 2001 and early 2002 have been deferred to mid to
late 2002. If market conditions do not improve as we currently expect, we will
consider further deferring certain discretionary expenditures to 2003.

  Acquisitions

     We have entered into an agreement to acquire 65% of Scana Rotator, a
Norwegian company that manufactures control valves for the offshore and
deepwater markets. We expect to issue approximately 408,000 shares of Grant
Prideco common stock and assume approximately $2.5 million in debt for the
initial 65% interest.

     We have entered into agreements to acquire a 70% controlling 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. We
currently own approximately 21% of this entity. We will pay approximately

                                        43
<PAGE>

$2.1 million in cash and issue 1.3 million shares of Grant Prideco common stock
for the additional interest. We also have entered into a joint venture with
Tianjin Pipe Company (TPCO) for the manufacture of unfinished upset to grade
pipe in China, with the intent of this joint venture to supply JSG with all of
its tubular requirements. We currently own a 60% interest in the joint venture
with TPCO and plan to invest approximately $5 million for machinery and
equipment as part of our contribution to the joint venture.

     On November 6, 2001, we acquired a license to Plexus's patented
POS-GRIP(TM) wellhead and related technology for subsea well applications and
certain exploration and development wells. We also acquired the assets and
customer base for the associated wellhead rental business. The purchase price
was $2 million in cash and we have agreed to fund an additional $4 million in
working capital to support the POS-GRIP(TM) technology and the wellhead rental
business. Additional consideration will be paid based on a multiple of Plexus'
actual earnings for the annual period ending December 31, 2002, not to exceed
$5.5 million.

     In September 2001, we entered into a joint venture for the development of
composite motor and pump technology. We have a 50% interest in this joint
venture. As of December 31, 2001, our total investment was less than $500,000.
This investment is accounted for under the equity method of accounting.

     On May 1, 2001, we purchased all of the outstanding shares of Intellipipe,
Inc. common stock for 0.6 million shares of Grant Prideco common stock with a
fair value of approximately $12 million. Intellipipe, Inc. owns a 50% interest
in Intelliserv, Inc. Intelliserv, Inc. is currently developing and
commercializing a smart drill pipe telemetry system. Pursuant to the acquisition
of Intellipipe, Inc, we are providing materials and capital for the development
of the system. Our investment in Intelliserve, Inc. is accounted for under the
equity method of accounting.

     On November 26, 2000, we purchased CMA, a state-of-the-art tool joint
manufacturer located in Turin, Italy, for approximately $30.6 million in cash,
and assumed debt of approximately $1.2 million. This acquisition secured a
high-quality source of tool joints and decreased our dependence on our Veracruz,
Mexico operations.

     On November 16, 2000, we acquired the assets of Seam-Mac Tube, LTD.
(Seam-Mac), a manufacturer of small diameter macaroni tubing for OCTG markets
and horizontal directional drilling (HDD) products for the water well,
construction and utility boring industries for approximately $20.0 million in
cash and assumed debt of approximately $4.4 million. Effective October 1, 2001,
we closed the Stephenville, Texas manufacturing plant. In connection with the
plant closing, we incurred certain liabilities as part of the plan, which began
to be formulated on the acquisition date, to combine the operations of Seam-Mac
with those of the Company. These liabilities relate to the Seam-Mac operations
and include severance and termination costs for redundant manufacturing and
administrative personnel and environmental remediation costs for redundant
property and facilities that will be sold. The liabilities incurred in
connection with the plant closing were approximately $3.9 million. Of this
amount, approximately $1.0 million was recorded as part of the Seam-Mac purchase
price, of which approximately $0.5 million remained as of December 31, 2001. The
remaining costs of $2.9 million were either capitalized or expensed in
accordance with our accounting policies. We expect to save around $750,000 to $1
million a quarter due to the plant closing. We incurred approximately $900,000
in operating losses during the third quarter of 2001 due to inefficiencies
associated with the winding down of its operations.

     On October 19, 2000, we acquired the assets of Star Iron Works, Inc.
(Star), a manufacturer of drilling tools for the water well, construction and
utility boring industries, for approximately $12.3 million in cash and assumed
debt of approximately $1.1 million.

     On October 1, 2000, we acquired Ideal Machine and Supply, Inc. (Ideal) a
tubular accessories producer, for approximately $2.5 million in cash and $1.9
million in deferred and contingent payments, which were settled in October 2001.

     On October 27, 1999, we acquired an additional 27% interest in H-Tech, an
Indonesia-based drill pipe manufacturer with facilities located on Batam Island.
We previously held a 27% interest in H-Tech, and with this purchase, we own a
controlling 54% interest in H-Tech. The purchase price for the acquisition of
this additional interest was $6.0 million in cash.
                                        44
<PAGE>

     On July 23, 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co. KG (Voest-Alpine) in Austria, for approximately
$32.6 million, of which we paid approximately $8.0 million in cash, with the
remainder payable over a period of up to 7 1/2 years. As of December 31, 2001,
the remaining debt balance was $5.5 million. Our investment in Voest-Alpine is
reported on the equity method of accounting. Voest-Alpine owns a tubular mill in
Austria with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the United States.
In addition, we entered into a long-term green tube supply contract with
Voest-Alpine. The impact of this investment and supply contract benefits us by
providing a reliable source of raw materials and provides us a 50% profit
participation in Voest-Alpine's business.

     During 1999 we consummated five other acquisitions for $5.2 million in
cash, $6.6 million in notes payable and assumed debt, and 0.45 million shares of
Weatherford common stock.

  FINANCING ACTIVITIES

     Our net cash provided by financing activities decreased by $117.8 million
in 2001 as compared to 2000. In 2001, we had net borrowings related to our
Credit Facility of $22.0 as compared to $30.8 million in 2000. In 2000, we
received net proceeds of $193.3 million from the issuance of $200 million 9 5/8%
Senior Notes Due 2007, offset partially by debt repayments of $120.3 million. In
2001, there were no issuances of long-term debt and debt principal repayments
totaled $17.3 million.

  CREDIT FACILITY AND OTHER LONG-TERM DEBT

     Currently, our outstanding debt balances are primarily comprised of our
Credit Facility, Senior Notes, and debt incurred in our acquisition of our
interest in Voest-Alpine. We estimate our required principal and interest
payments for our outstanding debt to be approximately $29 million for 2002.

  Credit Facility

     In April 2000, we entered into a revolving credit facility with a syndicate
of U.S. banks (the "Credit Facility"), through April 14, 2003, with automatic
one-year renewals thereafter, unless either party terminates the agreement.
Originally, the committed amount was $100 million. As of February 2002, we have
increased this committed amount to $135 million. The Credit Facility is secured
by our U.S. and Canadian inventories, equipment, and receivables and is
guaranteed by our domestic subsidiaries. Borrowings under the Credit Facility
are based on the lender's determination of the collateral value of the
inventories and receivables securing the Credit Facility. Amounts outstanding
under the Credit Facility accrue interest at a variable rate based on either the
U.S. prime rate (plus 0.00% to 0.75% depending on our leverage ratio) or LIBOR
(plus 1.50% to 2.50% depending on our leverage ratio) for the U.S. denominated
advances or either the reference rate of the Royal Bank of Canada or CDOR for
Canadian denominated advances. Interest on outstanding borrowings is payable
monthly. The Credit Facility also provides us with availability for stand-by
letters of credit and bid and performance bonds. We are required to comply with
various affirmative and negative covenants which limit our ability to incur new
debt, make certain investments and acquisitions, sell assets, grant liens, and
other related items. We are also subject to financial covenants which require us
to maintain a certain tangible net worth and fixed charge coverage ratio. As of
December 31, 2001, and as of the date of this reporting, we were in compliance
with the various covenants under the Credit Facility agreement.

     As of December 31, 2001, we had borrowed $54.3 million under the Credit
Facility, $4.8 million had been used to support outstanding letters of credit,
and $65.9 million was available for borrowing under the Credit Facility, which
reflects an increase in the committed amount of the Credit Facility from $100
million to $125 million in December 2001. Additionally, at December 31, 2001,
there were outstanding borrowings of $0.4 million under a miscellaneous credit
facility and $0.7 million of outstanding letters of credit, which had been
supported under various available letter of credit facilities that are not
related to the Credit Facility. In February 2002, we increased the committed
amount an additional $10 million to $135 million.

                                        45
<PAGE>

  9 5/8% Senior Notes Due 2007

     On December 5, 2000, we issued $200 million principal amount of 9 5/8%
Senior Notes Due 2007 (Senior Notes). The Senior Notes were issued at a discount
to yield an effective interest rate of 9 3/4%. Net proceeds from the issuance of
$193.3 million were utilized to repay the $100 million subordinated note to
Weatherford and to repay outstanding borrowings under our Credit Facility of
approximately $80.3 million. Interest is payable June 1 and December 1 of each
year. We may redeem all or part of the Senior Notes at any time at a price of
100% of their principal amount plus an applicable premium and accrued and unpaid
interest to the redemption date. The Senior Notes are guaranteed by all of our
domestic subsidiaries. The indenture governing the Senior Notes contains various
covenants customary in such instruments, including restrictions to incur new
debt, pay dividends, sell assets, grant liens, and other related items. As of
December 31, 2001, and as of the date of this reporting, we were in compliance
with the various covenants under the Senior Notes agreement.

     In the event there is a payment default under our Credit Facility, the
Senior Notes could come due.

  Voest-Alpine

     Debt.  In connection with the July 1999 acquisition of a 50.01% interest in
Voest-Alpine, we incurred debt, denominated in Euros, in the amount of $24.6
million (the "Voest-Alpine Debt"). Principal of $9.2 million is payable over
three years in six equal installments beginning January 2000 with the remaining
balance of $15.4 million due over a 7 1/2 year period and paid out of the annual
dividend payable to us as a shareholder of Voest-Alpine. Any remaining 7 1/2
year principal balance that has not been repaid by July 2004 is payable in five
equal semi-annual installments beginning on December 1, 2004. As of December 31,
2001, principal related to the 3 1/2 year debt was $2.6 million (based on
December 31, 2001 exchange rates) and will be paid during 2002. In June 2000 and
2001, a dividend from Voest-Alpine of approximately $0.4 million and $11.5
million, respectively, was applied as a principal payment on the 7 1/2 year
Voest-Alpine Debt. As of December 31, 2001, the balance related to the 7 1/2
year debt is $2.9 million (based on December 31, 2001 exchange rates). Interest
on the Voest-Alpine debt is payable every six months beginning January 2000. The
interest rate as of December 31, 2001 was 4.4% per annum.

     Purchase Commitments.  As part of our arrangement to invest in
Voest-Alpine, we entered into a four-year supply contract with Voest-Alpine.
Under this agreement, we agreed to purchase a minimum of 60,000 metric tons of
seamless green drill pipe per year through September 2003 at a benchmark
third-party price. The volume requirements represent between 60% to 75% of our
normal worldwide requirements for this type of tubular for drill pipe and could
be resold by us in the international markets. Because this agreement requires us
to purchase tubulars regardless of our needs, some purchases under this
agreement could be made for inventory during periods of low 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 use
or sell all of the tubular products we are required to purchase from
Voest-Alpine.

LIQUIDITY OUTLOOK

     As of March 1, 2002, we had outstanding borrowings and letters of credit
totaling $47.9 million under our $135 million Credit Facility. Based on our
current projected capital expenditures and required principal and interest
payments, our operating cash flows, existing cash balances, and remaining
availability under the Credit Facility are expected to satisfy all of our
expected commitments during the next twelve months. We believe that our recent
$35 million increase in the committed amount under our Credit Facility provides
additional liquidity in the event of a prolonged market downturn and the ability
to take advantage of strategic opportunities that may present themselves during
this period of reduced activity. Acquisitions and expansions will be financed
from cash flow from operations, borrowings under our Credit Facility, or through
a combination of the issuance of additional equity and debt 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.

                                        46
<PAGE>

     The following table summarizes our contractual obligations and commercial
commitments at December 31, 2001 (in thousands):

<Table>
<Caption>
                                                LESS THAN                            AFTER
CONTRACTUAL OBLIGATIONS               TOTAL      1 YEAR     1-3 YEARS   4-5 YEARS   5 YEARS
-----------------------              --------   ---------   ---------   ---------   -------
<S>                                  <C>        <C>         <C>         <C>         <C>
Long-Term Debt.....................  $207,987    $ 5,307     $   428    $201,995    $  257
Capital Lease Obligations..........     3,493      1,149       2,344          --        --
Operating Leases...................    35,079      5,754      13,549       6,628     9,148
Purchase Commitments --
  Open-Ended.......................    10,082      8,300       1,782          --        --
  Closed-Ended.....................       388        388          --          --        --
                                     --------    -------     -------    --------    ------
Total Contractual Obligations......  $257,029    $20,898     $18,103    $208,623    $9,405
                                     ========    =======     =======    ========    ======
</Table>

<Table>
<Caption>
                                                LESS THAN                            AFTER
COMMERCIAL COMMITMENTS                TOTAL      1 YEAR     1-3 YEARS   4-5 YEARS   5 YEARS
----------------------               --------   ---------   ---------   ---------   -------
<S>                                  <C>        <C>         <C>         <C>         <C>
Lines of Credit(a).................  $ 54,700    $54,700     $    --    $     --    $   --
Standby Letters of Credit..........     5,422      2,150       3,272          --        --
                                     --------    -------     -------    --------    ------
Total Commercial Commitments.......  $ 60,122    $56,850     $ 3,272    $     --    $   --
                                     ========    =======     =======    ========    ======
</Table>

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

(a)  For reporting purposes we classify our Credit Facility as current, however,
     we have the ability under the terms of the Credit Facility agreement to
     maintain these obligations for longer than one year.

TAX MATTERS

     As a result of our spinoff from Weatherford, subsequent to April 14, 2000
we are no longer able to combine the results of our operations with those of
Weatherford in reporting income for United States federal income tax purposes
and for income tax purposes in some states and foreign countries. Under the
terms of a tax allocation agreement with Weatherford, we will not have the
future benefit of any prior tax losses or benefits incurred as part of a
consolidated return with Weatherford. Moreover, we will be liable to Weatherford
for any corporate-level taxes incurred by Weatherford as a result of the
spinoff, except to the extent the taxes arise solely as a result of a change of
control of Weatherford. We believe these matters will not have a material
adverse effect on our earnings.

RELATED-PARTY TRANSACTIONS

     A majority of our current board of directors appointed at the time of our
spinoff are also directors of Weatherford. Prior to the Company's spinoff from
Weatherford, Weatherford provided various administrative services on behalf of
the Company. Weatherford no longer provides these services. In addition, in
connection with the spinoff, we entered into a preferred supplier agreement with
Weatherford and issued to them a $100 million subordinated note and a $30
million drill stem purchase price credit in partial payment of intercompany debt
being forgiven by them at the time of the spinoff. We subsequently repaid the
$100 million subordinated note utilizing a portion of the proceeds from our sale
of Senior Notes. Weatherford has utilized approximately $10.4 million of the
drill stem credit as of December 31, 2001. Prior to and since the spinoff,
Weatherford has remained a customer for our drill stem and other products. We
believe that the prices we charge Weatherford for these products under our
preferred supplier agreement are arms-length prices and consistent with market
prices charged to similarly situated rental tool companies. Our transactions
with Weatherford are more fully described in Note 18 to our financial
statements.

OFF-BALANCE SHEET FINANCING

     As of December 31, 2001 we own interests in four companies that are not
consolidated in our financial statements, including Voest-Alpine. Included in
our financial statements in Note 6 is financial data, including

                                        47
<PAGE>

total assets and liabilities for Voest-Alpine. One of the ventures is engaged in
the manufacture and sale of drill pipe to the Chinese and related markets and
has short-term debt of approximately $4.0 million at December 31, 2001. The two
other joint ventures relate to technologies we are currently developing. These
companies do not have any debt, other than trade payables relating primarily to
research and development expenses.

     We do not have any off-balance sheet hedging, financing arrangements,
contracts, or operations that rely upon credit or similar ratings.

RECENT ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2001, we adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended. SFAS No. 133 requires us to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through earnings. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of the derivative are
either offset against the change in the fair value of assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
(loss) until the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value is immediately recognized in earnings.
The adoption of SFAS No. 133 on January 1, 2001 did not have a material impact
on our results of operations, but resulted in the cumulative effect of an
accounting change of $0.3 million pre-tax being recognized as a loss in
"Accumulated Other Comprehensive Loss" in the accompanying Balance Sheets.

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 eliminates pooling-of-interest accounting and
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. The adoption of SFAS No. 141 had no impact on our
consolidated results of operations and financial position. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. We will adopt the
statement effective January 1, 2002. Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Application of the nonamortization
provisions of SFAS No. 142 is expected to result in an increase in net income of
approximately $4.0 million ($0.04 per share) per year. Other intangible assets
will continue to be amortized over their useful lives. In 2002, we will perform
the first of the required impairment tests of goodwill and indefinite-lived
intangible assets as of January 1, 2002. If the first test indicates potential
goodwill impairment, we will perform the second test to determine the potential
impairment impact. We have not yet determined what the effect, if any, of these
tests will be on our consolidated results of operations and financial position.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of
Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". This
statement retains the fundamental provisions of SFAS No. 121 and the basic
requirements of APB No. 30; however, it establishes a single accounting model to
be used for long-lived assets to be disposed of by sale and it expands the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. We do not anticipate that
the statement will have a material impact on our financial position or results
of operations.

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

                                        48
<PAGE>

investor conference calls open to all investors and encourage all investors to
listen in on these calls. We anticipate that we will publicly announce the
call-in information in a press release before such calls. We are providing this
information to assist our stockholders in better understanding our business.
These expectations reflect only our current view on these matters 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.

  EXPECTATIONS FOR FIRST QUARTER 2002 AND FISCAL 2002

     As previously noted, as we look forward at our projected results for 2002,
we currently expect to report earnings of approximately $0.06 to $0.10 per share
during the first quarter. Looking beyond the first quarter of 2002, we currently
expect to report earnings in the second quarter of anywhere from around
break-even to $0.06 per share, with our current expectation being that we will
be in the mid-point of this range, and report earnings per share in the third
and fourth quarter between $0.07 and $0.12 per share and the mid-teens,
respectively. A delay in the assumed increase in the rig count could push out
our expected improvement.

     Investors should be cautioned that our actual earnings for 2002 will be
highly dependent upon a variety of market factors outside of our control, in
particular the strength and timing of the recovery in drilling in North America.
Based upon available data, we expect that market conditions in North America
will continue to remain depressed during the first and second quarters of 2002,
with increased activity occurring during the third and fourth quarters of 2002,
when we expect natural gas prices and rig counts to increase. We expect
international demand for our drill pipe and marine products and services to
continue to be strong, but not to offset these North American declines.

     In addition to changes in market forces, our results of operations will be
dependent upon a variety of other factors, including our ability to maintain our
production capacity to quickly react to positive changes in demand when they
occur, our ability to maintain pricing increases we implemented during 2002, our
ability to maintain our current market shares in our various businesses, our
ability to generate revenue and income from our marine products and services,
our ability to reduce our manufacturing costs, and general world economic
trends. Any material change in the markets or changes that affect the
assumptions used in modeling our 2002 results will affect our actual results.

     In modeling our earnings for 2002, we have made numerous assumptions
regarding our operations. Although we believe, as of the date this report is
filed, that these assumptions are reasonable, there can be no assurance that
they will be correct in the future. In addition to the numerous assumptions
described above under "2001 Market Decline and Current Expectations", our
forward-looking statements are based upon the following assumptions:

     - The average North American rig count for 2002 will be around 850 to 900.
       We have not projected that the United States rig count will fall below
       700 rigs. We have also assumed a recovery beginning in the second
       quarter, and an average United States rig count of around 900 to 950 rigs
       during the second half of 2002.

     - Natural gas prices will average around $2.50 per MMBtu during the first
       quarter of 2002, will begin recovering during the second quarter of 2002,
       and will average over $3.00 per MMBtu during the second half of 2002. We
       have also assumed that natural gas prices will not fall below $2.00 per
       MMBtu for any period of time that would affect demand for our products or
       potential purchasing decisions.

     - International drilling activity and rig counts will continue to increase
       and international demand for our drill stem products will continue to be
       relatively strong throughout 2002.

     - We expect our effective tax rate to be 34% to 35% for each quarter during
       2002.

                                        49
<PAGE>

     - There will be no changes in domestic or worldwide political events that
       would have an adverse consequence upon the domestic or worldwide
       economies and the demand for our products and services. In particular, we
       assume that OPEC and other oil exporting countries and organizations will
       take reasonable actions to insure that worldwide oil prices remain within
       our assumptions of the mid-$20 per barrel range, not falling below $20
       per barrel for any prolonged period of time that would adversely affect
       demand, and that United States military actions in Afghanistan or
       elsewhere will not disrupt any of our operations or demand for our
       products.

     - Our industrial drill pipe product line will be profitable and not operate
       at a loss during any quarter during 2002.

     - We will expend approximately 2% of revenues on research and development
       activities during 2002.

     - We will not experience any material unusual losses, expenses, or charges
       associated with litigation, warranty claims, environmental matters or
       property losses.

     - Our marine connection product lines will not be materially affected by
       the impact of the Watts litigation described in Item 3. Legal
       Proceedings.

     - Our utility costs, labor costs, and other expenses will not increase
       substantially from their current levels.

     - Our manufacturing operations will not experience any material disruptions
       in production, supply or efficiencies.

     - There will be no material geo-political events that disrupt energy
       markets.

     - We will not incur any material currency remeasurement or transactional
       losses.

     - There will not be any material acquisitions or divestments during the
       year. Although we have made this assumption for modeling purposes, we do
       expect that some acquisitions and divestments will be made during the
       year that will affect our projections.

     - We are currently reviewing our capital expenditure program for 2002 in
       light of the market. We currently expect to spend around $40 million to
       $50 million in capital expenditures during the year. A large portion of
       these expenditures (approximately $15 million) will be for the completion
       of phase one of our automation plan in Navasota. The first phase is now
       scheduled to be completed and on line in the third quarter. Ongoing
       maintenance capital expenditures is expected to be around $15 million to
       $20 million, with the balance dedicated to new projects to improve
       efficiencies and capabilities. Depreciation for 2002 is expected to be
       around $30 million and amortization around $1 million to $2 million for
       the year. We are still reviewing the potential impact of the accounting
       change on the carrying values of goodwill for our businesses in light of
       market and other factors and will be addressing that by the end of the
       second quarter.

     - There will be no material adverse affect on our operations as a result of
       United States trade laws during 2002. Our operations and costs will not
       be adversely affected by any other actions under the trade laws relating
       to products imported by us from our foreign locations.

RISK FACTORS AND EXPOSURES

     This report and our other filings with the SEC and our public releases
contain statements relating to our future results, including our projections and
business trends. We believe these statements constitute "Forward-Looking
Statements" as defined in the Private Securities Litigation Reform Act of 1995.
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

                                        50
<PAGE>

company and the forward-looking statements that we make. These risks and
uncertainties include, but are not limited to, the following:

  A FURTHER DECLINE IN DOMESTIC AND WORLDWIDE DRILLING ACTIVITY WOULD ADVERSELY
  AFFECT OUR RESULTS OF OPERATIONS.

     Our business is materially dependent on the level of drilling activity in
North America and worldwide, which in turn depends primarily on prices for oil
and gas. Lower drilling activity not only decreases demand for our products, but
following rapid declines in drilling, the resulting customer inventory
associated with idle rigs can generally be used to some extent on active rigs in
lieu of new purchases. The time period for which this inventory is used will be
a function of where the rig count is (the lower the rig count the more inventory
there is) and where the rig count is expected to go (in a down market purchases
are generally held off, and in an up market purchasing begins to occur when
expected rig utilization over the next two quarters approaches the number of
rigs for which customers have available drill pipe).

     Our projections and forward-looking statements regarding our premium
connection and tubular businesses are very dependent upon our assumption that
the domestic rig count will reach its bottom late in the first quarter or in the
second quarter and begin a gradual rise. We have also assumed that because
distributor inventories are generally low, purchasing and activity in this
segment will increase relatively quickly once the rig count begins to turn. Our
second, third and fourth quarter of 2002 projections assume positive and
increasing contributions from this segment. If our assumptions on the market are
incorrect, our projected second, third, and fourth quarter results will be
affected.

     As noted above, declines in North American drilling activity that occurred
during the second half of 2001 have created uncertainty regarding our future
results of operations. Our forward-looking statements and earnings estimates
relating to 2002 assume that domestic rig counts do not fall below 700; begin
increasing sometime during the second quarter of 2002, and continue to increase
throughout the third and fourth quarters of 2002. Our forward-looking statements
and earnings estimates assume that international activity and demand will
continue to remain strong throughout 2002. If our assumptions are incorrect in
this regard, our results of operations as well as our financial condition for
2002 could be materially adversely affected.

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

     Demand for oil and natural gas is influenced by numerous factors, including
the North American and worldwide economies as well as activities of OPEC. The
United States and worldwide economies (particularly Europe and Japan) slowed
during 2001, in particular following the September 11th terrorist attacks. The
decline in the United States economy has impacted demand for natural gas and
resulted in a softening in gas prices and projected natural gas drilling
activity. To date, slow downs in international economies have not adversely
affected international demand for our products and our forward-looking
statements and earnings estimates assume that this will continue. Our
forward-looking statements and earnings also assume that recent improvements in
the domestic economy will continue so that the United States economy will
improve during the year, that natural gas inventory levels rationalize, and
demand and prices improve, which will positively impact demand for our products
during the second half of 2002. If this expected economic improvement does not
occur or international markets decline unexpectantly, our projections, results
of operations, and financial condition could be materially adversely affected.
In addition, if actions by OPEC to increase its production of oil adversely
affect world oil prices, additional declines in rig counts could result beyond
our assumptions, particularly internationally, and our projections, results of
operations, and financial condition could be materially adversely affected.

                                        51
<PAGE>

  OUR ABILITY TO MEET EARNINGS AND REVENUE GOALS FOR 2002 AND 2003 ARE BASED IN
  PART UPON OUR ABILITY TO SUCCESSFULLY INCREASE AND DECREASE OUR MANUFACTURING
  CAPACITY IN RESPONSE TO CHANGES IN DEMAND WITHOUT MATERIAL DISRUPTION.

     We have recently taken steps to increase our manufacturing capacity and
reduce manufacturing costs in all of our manufacturing operations. These
activities are ongoing and will continue through 2002. Our manufacturing goal is
to be able to produce between 1.5 million and 2.5 million feet of drill pipe
during a quarter (outside of China) with little operational changes or
disruption. We also intend to be able to increase our production to up to 3.0
million feet a quarter (outside of China) without significant operational
disruptions and process inefficiencies. Our forward-looking statements regarding
our results of operations during 2002 assume that we will be able to increase
our production during the second half of the year with minimal operational
disruption and inefficiency in order to meet the increased demand that we
currently assume will occur during that period. If there are any material
disruptions or excess costs associated with the manufacturing changes and our
ability to reduce and increase production with minimal disruption, our results
of operations during 2002 could be materially adversely affected.

  OUR ABILITY TO MEET EARNINGS AND REVENUE GOALS FOR 2002 IS BASED UPON OUR
  ABILITY TO MAINTAIN PRICES FOR OUR DRILL STEM PRODUCTS, WHICH CAN BE ADVERSELY
  AFFECTED BY CHANGES IN INDUSTRY CONDITIONS AND COMPETITIVE FORCES.

     Beginning in 2001, we initiated substantial price increases for our drill
stem products, which began benefiting revenues and operating profit during the
third quarter of 2001. Our ability to maintain these price increases are subject
to various risks, including adverse changes in industry conditions and
regulations, as well as unexpected actions by our competitors. Although we
project a slowdown in North American demand, we believe our prices are now at
realistic market levels, and we do not expect to see any material price declines
during 2002. If market conditions or other factors cause us to decrease prices,
our projections and results could be materially adversely affected.

  OUR ABILITY TO MEET EARNINGS AND REVENUE GOALS FOR 2002 IS BASED UPON OUR
  ABILITY TO INCREASE OUR MARKET SHARE AND EFFICIENCIES FROM OUR MARINE PRODUCTS
  AND SERVICES PRODUCT LINES.

     We recently reorganized our marine division with the objective of
increasing market share and profitability of our current product lines and
growing the division through the acquisition of complementary businesses,
products, and services. Our projections and forward-looking statements assume
that we will increase this division's revenues and operating efficiencies. Any
failure to do so could have a material adverse affect upon our projects and
results of operations.

  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.

     During the fourth quarter of 2001, we derived approximately 15% of our
total revenues from our facilities outside the United States. In addition, a
large part of our sales from our domestic locations were for use in foreign
countries. We expect this percentage to increase substantially as demand for our
drill stem products improve internationally. Our expectations for 2002 depend on
our ability to maintain our international sales while domestic demand remains
depressed. In addition, many of our key manufacturing operations are outside of
the United States. Our operations in certain international locations, including
Mexico, Austria, Italy, China, and Indonesia, are subject to various political
and economic conditions existing in those countries that could disrupt
operations. These risks include:

     - currency fluctuations and devaluations,

     - currency restrictions and limitations on repatriation of profits, and

     - political instability.

     Our foreign operations may suffer disruptions and we may incur losses that
will not be covered by insurance. In particular, the September 11th terrorist
attacks and resulting U.S. military activity in
                                        52
<PAGE>

Afghanistan or elsewhere increase the possibility that our operations could be
interrupted or adversely affected. Such disruption could include our inability
to timely and cost effectively ship product, an inability to place contractors
and employees in various countries or regions, evacuations, or similar
disruptions.

     Any material currency fluctuations or devaluations or political events that
disrupt oil and gas exploration and production or the movement of funds and
assets could materially adversely affect our results of operations and financial
position.

     Our long-term supply contract may obligate us to purchase unneeded
materials, and an increase in the cost of Euros would make those materials more
expensive to us.

     We have entered into an agreement with Voest-Alpine, an entity of which we
own 50.01%, to purchase 60,000 metric tons of raw materials per year through
September 2003. Our future results could be adversely affected if we are unable
to use or resell these tubulars. In addition, we have agreed to be responsible
for paying any "anti-dumping" duties in the United States on the resale of these
tubulars, which could affect our ability to resell the tubulars in the United
States. Further, our long-term supply contract with Voest-Alpine is denominated
in Euros. We have no significant offsetting revenues in Euros, and we have not
hedged against this contract for its entire term. Our manufacturing of tool
joints in Italy has benefited from a weak Euro against the dollar. Thus, a
material long-term strengthening of the Euro versus the U.S. dollar could
materially adversely affect our results of operations.

  WE COULD BE SUBJECT TO SUBSTANTIAL LIABILITY CLAIMS, WHICH WOULD ADVERSELY
  AFFECT OUR RESULTS OF OPERATIONS.

     Many of our products are used in hazardous drilling and production
applications where an accident or a failure of a product can cause personal
injury, loss of life, damage to property, equipment, or the environment, as well
as the suspension of the end-user's operations. If our products were to be
involved in any of these difficulties, we could face litigation and may be held
liable for those losses. Our insurance coverage may not be adequate in risk
coverage or policy limits to cover all losses or liabilities that we may incur.
Moreover, we may not be able in the future to maintain insurance at levels of
risk coverage or policy limits that we deem adequate. Any claims made under our
policies likely will cause our premiums to increase. Any future damages deemed
to be caused by our products or services 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. Compliance with these
environmental laws is a major consideration in the manufacturing of our
products, as we use and generate hazardous substances and wastes in our
manufacturing operations, and we may be subject to material financial liability
for any investigation and clean-up of such hazardous materials. 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 also 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.

                                        53
<PAGE>

  OUR PROJECTIONS AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY
  ACTIONS UNDER U.S. TRADE LAWS.

     Although we are a U.S.-based manufacturing company, we do own and operate
international manufacturing operations that support our U.S.-based business. 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. Our forward-looking statements assume there will
be no adverse effects on our ability to import from our foreign subsidiaries.
Any result to the contrary could have a material adverse affect on our
projections and results of operations.

  WE COULD BE SUBJECT TO ADDITIONAL EXPENSES FROM THE WATTS LITIGATION.

     As noted under Item 3. Legal Proceedings, we have recorded an additional
reserve as a result of a jury verdict in litigation involving Mr. John D. Watts
and our XL Systems(TM) subsidiary. The trial judge has the discretion to award
additional damages and attorney's fees that could increase our liability by an
additional $3.5 million to $4.5 million which could reduce our net income. The
trial judge also has the discretion to permanently enjoin us from utilizing the
premium connection that was the subject of the litigation in its current
configuration in the United States. We have identified and currently are testing
a redesign of this connection that will be outside the scope of the trial court
and jury's decision. If successful, we would not expect any injunction to have a
material effect on our operations. If unsuccessful, we could be precluded from
manufacturing and selling this connection in the United States, which we
estimate could reduce our forecasted net income in 2002 or 2003 by $1.0 million
to $3.0 million.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.
We do not believe these risks are material. Refer to Note 10 to the financial
statements included elsewhere in this Annual Report on Form 10-K for additional
information on financial instruments.

FOREIGN CURRENCY RISK

     The functional currency for most 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 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 counterparties to our foreign
exchange contracts are creditworthy multinational commercial banks. We believe
that the risk of counterparty nonperformance is immaterial.

     Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. See Note 10 in the
financial statements.

     At December 31, 2001, we had open forward contracts and call options to
exchange U.S. dollars for Euros at a fair value of approximately $0.2 million. A
10% change in the forward rate of Euros subsequent to December 31, 2001 would
have a minimal effect on the fair value of the open forward contracts and call
options. For the year ended December 31, 2001, we have recognized hedging losses
of $0.6 million.

                                        54
<PAGE>

     At December 31, 2000, we had open forward contracts to exchange U.S.
dollars for Euros at a fair value of approximately $29.1 million. If a 10%
devaluation in the Euro compared to the U.S. dollar were to occur subsequent to
December 31, 2000, the exchange value of the open forward contracts would be
$26.2 million.

INTEREST RATES

     We are and will be subject to market risk for changes in interest rates
related primarily to our long-term debt. The following tables summarize our debt
obligations at December 31, 2000 and 2001 that are sensitive to changes in
interest rates. The tables present principal cash flows by expected maturity
dates and weighted average interest rates:

<Table>
<Caption>
                                   2001     2002     2003     2004     2005    THEREAFTER
                                  ------   ------   ------   ------   ------   ----------
<S>                               <C>      <C>      <C>      <C>      <C>      <C>
2000
Long-term debt:
  Fixed rate....................  $1,304   $1,033   $  955   $1,158   $  194    $199,113
  Average interest rate.........    9.50%    9.53%    9.55%    9.59%    9.61%       9.61%
  Variable rate.................  $4,000   $3,190   $  205   $2,651   $5,302    $  5,303
  Average interest rate.........    4.96%    4.91%    4.90%    4.90%    4.90%       4.90%
</Table>

<Table>
<Caption>
                                   2002     2003     2004     2005     2006    THEREAFTER
                                  ------   ------   ------   ------   ------   ----------
<S>                               <C>      <C>      <C>      <C>      <C>      <C>
2001
Long-term debt:
  Fixed rate....................  $1,193   $1,163   $1,320   $  197   $   84    $199,290
  Average interest rate.........    9.52%    9.55%    9.58%    9.60%    9.61%       9.61%
  Variable rate.................  $5,263   $   92   $  576   $1,151   $1,151    $     --
  Average interest rate.........    5.06%    4.69%    4.65%    4.65%    4.65%         --
</Table>

     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. Based upon these balances, an
immediate change of one percent in the interest rate would not cause a material
change in interest expense on an annual basis. The fair value of financial
instruments which differed from their carrying value at December 31, 2000 and
2001 was as follows:

<Table>
<Caption>
                                                                DECEMBER 31,
                                                    -------------------------------------
                                                          2000                2001
                                                    -----------------   -----------------
                                                    CARRYING    FAIR    CARRYING    FAIR
                                                     VALUE     VALUE     VALUE     VALUE
                                                    --------   ------   --------   ------
<S>                                                 <C>        <C>      <C>        <C>
Senior Notes......................................   $198.8    $206.5    $199.0    $198.0
</Table>

     Currently, we have variable interest rate debt totaling approximately $54.7
million for amounts borrowed under our Credit Facility and other miscellaneous
short-term credit facilities. 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 December 2001
levels, our interest expense would increase by a total of approximately $547,000
annually. The carrying value of the Credit Facility and other miscellaneous
credit facilities approximates fair value as they bear interest at current
market rates.

                                        55
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following financial statements are filed in this Item 8:

          Report of Independent Auditors

          Report of Independent Public Accountants

          Balance Sheets at December 31, 2000 and 2001

          Statements of Operations for each of the three years in the period
     ended December 31, 2001

          Statements of Cash Flows for each of the three years in the period
     ended December 31, 2001

          Statements of Stockholders' Equity for each of the three years in the
     period ended December 31, 2001

          Notes to Financial Statements

                                        56
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Grant Prideco, Inc.

     We have audited the accompanying consolidated balance sheet of Grant
Prideco, Inc. as of December 31, 2001, and the related consolidated statement of
operations, cash flows, and stockholders' equity for the year then ended. Our
audit also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Grant Prideco,
Inc. at December 31, 2001, and the consolidated results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                                    ERNST & YOUNG LLP

Houston, Texas
February 1, 2002

                                        57
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Grant Prideco, Inc.:

     We have audited the accompanying consolidated balance sheet of Grant
Prideco, Inc., (a Delaware corporation), and subsidiaries (the "Company"), as of
December 31, 2000 and the related statements of operations, cash flows and
stockholders' equity for the year ended December 31, 2000 and the combined
statements of operations, cash flows and stockholders' equity of the drilling
products businesses of Weatherford International, Inc. for the year ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated and combined financial position of
Grant Prideco, Inc. and subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

     As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for revenue recognition pursuant to the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101 which was adopted in the
fourth quarter of 2000, effective January 1, 2000.

                                                   ARTHUR ANDERSEN LLP

Houston, Texas
March 19, 2001

                                        58
<PAGE>

                              GRANT PRIDECO, INC.

                                 BALANCE SHEETS

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2000        2001
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                PAR VALUE AMOUNT)
<S>                                                           <C>         <C>
                                      ASSETS
CURRENT ASSETS:
  Cash and Cash Equivalents.................................  $  8,315    $ 10,384
  Restricted Cash...........................................     4,000       5,383
  Accounts Receivable, Net of Allowance for Uncollectible
    Accounts of $1,897 and $1,407 for 2000 and 2001,
    respectively............................................   132,067     148,223
  Inventories...............................................   200,252     198,814
  Current Deferred Tax Asset................................    23,995      16,275
  Other Current Assets......................................     8,404      13,284
                                                              --------    --------
                                                               377,033     392,363
                                                              --------    --------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
  Machinery and Equipment...................................   234,597     249,023
  Land, Buildings, and Other Property.......................    96,831     110,072
                                                              --------    --------
                                                               331,428     359,095
  Less: Accumulated Depreciation............................   118,647     134,588
                                                              --------    --------
                                                               212,781     224,507
                                                              --------    --------
GOODWILL, NET...............................................   232,140     231,521
INVESTMENTS IN UNCONSOLIDATED AFFILIATES....................    38,952      55,289
DEFERRED TAX ASSET..........................................       336         108
OTHER ASSETS................................................    31,322      11,810
                                                              --------    --------
                                                              $892,564    $915,598
                                                              ========    ========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-Term Borrowings and Current Portion of Long-Term
    Debt....................................................  $ 38,160    $ 61,154
  Accounts Payable..........................................    84,451      62,689
  Current Deferred Tax Liability............................     2,278       5,051
  Customer Advances.........................................     2,275       1,469
  Accrued Labor and Benefits................................    14,101      15,927
  Other Accrued Liabilities.................................    37,320      39,891
                                                              --------    --------
                                                               178,585     186,181
                                                              --------    --------
LONG-TERM DEBT..............................................   219,104     205,024
DEFERRED INCOME TAXES.......................................    40,378      40,948
MINORITY INTEREST...........................................     1,098       1,615
OTHER LONG-TERM LIABILITIES.................................    21,896      12,863
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Common Stock, $0.01 Par Value, Authorized 300,000
    Shares, Issued 108,542 and 109,293 in 2000 and 2001,
     respectively...........................................     1,085       1,093
  Capital in Excess of Par Value............................   349,436     361,699
  Treasury Stock, at Cost...................................    (1,046)     (2,551)
  Retained Earnings.........................................    97,109     125,199
  Deferred Compensation Obligation..........................     4,973       6,078
  Accumulated Other Comprehensive Loss......................   (20,054)    (22,551)
                                                              --------    --------
                                                               431,503     468,967
                                                              --------    --------
                                                              $892,564    $915,598
                                                              ========    ========
</Table>

   The accompanying notes are an integral part of these financial statements.
                                        59
<PAGE>

                              GRANT PRIDECO, INC.

                            STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 1999          2000          2001
                                                              -----------   -----------   -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
REVENUES....................................................   $286,370      $498,481      $740,127
                                                               --------      --------      --------
COSTS AND EXPENSES:
  Cost of Sales.............................................    262,269       439,515       571,118
  Selling, General, and Administrative Attributable to
     Segments...............................................     31,104        36,759        49,544
  Corporate General and Administrative......................     14,638        20,809        21,402
  Equity (Income) Loss in Unconsolidated Affiliates.........        419        (5,495)       (8,747)
  Weatherford Charges.......................................      1,500           500            --
  Other Charges.............................................      9,454        11,129        33,755
                                                               --------      --------      --------
                                                                319,384       503,217       667,072
                                                               --------      --------      --------
OPERATING INCOME (LOSS).....................................    (33,014)       (4,736)       73,055
                                                               --------      --------      --------
OTHER INCOME (EXPENSE):
  Interest Expense..........................................    (11,343)      (17,005)      (27,067)
  Other, Net................................................       (138)         (109)       (1,270)
                                                               --------      --------      --------
                                                                (11,481)      (17,114)      (28,337)
                                                               --------      --------      --------
INCOME (LOSS) BEFORE INCOME TAXES...........................    (44,495)      (21,850)       44,718
(PROVISION) BENEFIT FOR INCOME TAXES........................     11,199         7,365       (15,651)
                                                               --------      --------      --------
NET INCOME (LOSS) BEFORE MINORITY INTEREST..................    (33,296)      (14,485)       29,067
MINORITY INTEREST...........................................       (215)         (211)         (977)
                                                               --------      --------      --------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE....................................................    (33,511)      (14,696)       28,090
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX..........         --        (1,789)           --
                                                               --------      --------      --------
NET INCOME (LOSS)...........................................   $(33,511)     $(16,485)     $ 28,090
                                                               ========      ========      ========
BASIC NET INCOME (LOSS) PER SHARE
  (Pro forma prior to effective date of spinoff)
  Basic net income (loss) before cumulative effect of
     accounting change......................................   $  (0.33)     $  (0.13)     $   0.26
  Cumulative effect of accounting change....................         --         (0.02)           --
                                                               --------      --------      --------
  Net income (loss).........................................   $  (0.33)     $  (0.15)     $   0.26
                                                               ========      ========      ========
  Basic weighted average shares outstanding.................    101,245       109,000       109,486
                                                               ========      ========      ========
DILUTED NET INCOME (LOSS) PER SHARE
  (Pro forma prior to effective date of spinoff)
  Diluted net income (loss) before cumulative effect of
     accounting change......................................   $  (0.33)     $  (0.13)     $   0.25
  Cumulative effect of accounting change....................         --         (0.02)           --
                                                               --------      --------      --------
  Net income (loss).........................................   $  (0.33)     $  (0.15)     $   0.25
                                                               ========      ========      ========
  Diluted weighted average shares outstanding...............    101,245       109,000       110,884
                                                               ========      ========      ========
</Table>

   The accompanying notes are an integral part of these financial statements.
                                        60
<PAGE>

                              GRANT PRIDECO, INC.

                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                1999       2000        2001
                                                              --------   ---------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (Loss).........................................  $(33,511)  $ (16,485)  $ 28,090
  Adjustments to Reconcile Net Income (Loss) to Net Cash
     Provided (Used) By Operating Activities:
  Non-Cash Portion of Other Charges.........................     9,454      22,125     30,248
  Depreciation and Amortization.............................    30,514      31,842     36,453
  Deferred Income Tax.......................................     9,531     (11,662)     4,476
  Equity (Income) Loss in Unconsolidated Affiliates, Net of
     Dividends..............................................       419      (4,939)     3,019
  Change in Assets and Liabilities, Net of Effects of
     Businesses Acquired:
     Accounts Receivable, Net...............................    41,072     (45,466)   (25,158)
     Inventories............................................    10,944     (28,000)   (10,406)
     Other Current Assets...................................     8,919      (1,582)    (3,881)
     Other Assets...........................................      (703)         --       (238)
     Accounts Payable.......................................     2,501      28,654    (23,125)
     Other Accrued Liabilities..............................   (15,865)      8,942     (2,293)
     Customer Advances......................................    13,255     (16,228)      (806)
     Purchase Credit........................................    (8,000)     (1,638)        --
     Other, Net.............................................    (3,290)      1,822      4,111
                                                              --------   ---------   --------
       Net Cash Provided (Used) by Operating Activities.....    65,240     (32,615)    40,490
                                                              --------   ---------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions, Net of Cash Acquired........................   (15,072)    (66,027)    (5,008)
  Capital Expenditures for Property, Plant, and Equipment...   (19,046)    (20,891)   (37,212)
  Other, Net................................................        --         149         86
                                                              --------   ---------   --------
       Net Cash Used by Investing Activities................   (34,118)    (86,769)   (42,134)
                                                              --------   ---------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowing on Revolving Credit Facility, Net...............        --      30,850     22,030
  Issuance of Long-Term Debt, Net...........................        --     193,324         --
  Repayments on Debt, Net...................................   (54,225)   (120,339)   (17,334)
  Purchase of Treasury Stock................................        --      (1,046)    (1,637)
  Proceeds from Stock Option Exercises......................        --       1,502        654
  Predecessor Stockholder's Investment......................    23,237      17,204         --
                                                              --------   ---------   --------
       Net Cash (Used) Provided by Financing Activities.....   (30,988)    121,495      3,713
                                                              --------   ---------   --------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................       134       2,111      2,069
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............     6,070       6,204      8,315
                                                              --------   ---------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $  6,204   $   8,315   $ 10,384
                                                              ========   =========   ========
</Table>

   The accompanying notes are an integral part of these financial statements.
                                        61
<PAGE>

                              GRANT PRIDECO, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
                                      COMMON STOCK                              ACCUMULATED
                                       $0.01 PAR       CAPITAL IN                  OTHER       TREASURY STOCK      DEFERRED
                                    ----------------   EXCESS OF    RETAINED   COMPREHENSIVE   ---------------   COMPENSATION
                                     SHARE    AMOUNT   PAR VALUE    EARNINGS       LOSS        SHARE   AMOUNT     OBLIGATION
                                    -------   ------   ----------   --------   -------------   -----   -------   ------------
                                                                         (IN THOUSANDS)
<S>                                 <C>       <C>      <C>          <C>        <C>             <C>     <C>       <C>
Balance at December 31, 1998......       --   $   --    $     --    $147,105     $(13,338)       --    $    --      $   --
  Total Comprehensive Loss........       --       --          --     (33,511)         (17)       --         --          --
  Stockholder's Contribution......       --       --          --          --           --        --         --          --
                                    -------   ------    --------    --------     --------      ----    -------      ------
Balance at December 31, 1999......       --       --          --     113,594      (13,355)       --         --          --
  Total Comprehensive Loss........                                   (16,485)      (6,699)       --         --          --
  Shares Issued in Distribution...  108,391    1,084     347,325          --           --        --         --          --
  Predecessor Stockholder's
    Investment....................       --       --          --          --           --        --         --          --
  Stock Grant and Options
    Exercised.....................      151        1       1,501          --           --        --         --          --
  Tax Benefit of Options
    Exercised.....................       --       --         610          --           --        --         --          --
  Deferred Compensation
    Obligation....................       --       --          --          --           --        --         --       4,973
  Purchase of Treasury Stock for
    Executive Deferred
    Compensation Plan.............       --       --          --          --           --       (50)    (1,046)         --
                                    -------   ------    --------    --------     --------      ----    -------      ------
Balance at December 31, 2000......  108,542    1,085     349,436      97,109      (20,054)      (50)    (1,046)      4,973
  Total Comprehensive Income
    (Loss)........................       --       --          --      28,090       (2,443)       --         --          --
  Stock Grant and Options
    Exercised.....................      119        2         652          --           --        --         --          --
  Tax Benefit of Options
    Exercised.....................       --       --         130          --           --        --         --          --
  Deferred Compensation
    Obligation....................       --       --          --          --           --         6        132       1,105
  Issuance of Stock for
    Acquisition...................      632        6      11,994          --           --        --         --          --
  Unrealized Loss on Marketable
    Securities....................       --       --          --          --          (54)       --         --          --
  Issuance of Restricted Stock....       --       --       2,499          --           --        --         --          --
  Unamortized Restricted Stock....       --       --      (2,328)         --           --        --         --          --
  Purchase of Treasury Stock for
    Executive Deferred
    Compensation Plan.............       --       --          --          --           --      (124)    (1,637)         --
  Other...........................       --       --        (684)         --           --        --         --          --
                                    -------   ------    --------    --------     --------      ----    -------      ------
Balance at December 31, 2001......  109,293   $1,093    $361,699    $125,199     $(22,551)     (168)   $(2,551)     $6,078
                                    =======   ======    ========    ========     ========      ====    =======      ======

<Caption>

                                     PREDECESSOR        TOTAL
                                    STOCKHOLDER'S   STOCKHOLDERS'
                                     INVESTMENT        EQUITY
                                    -------------   -------------
                                           (IN THOUSANDS)
<S>                                 <C>             <C>
Balance at December 31, 1998......    $ 311,444       $ 445,211
  Total Comprehensive Loss........                      (33,528)
  Stockholder's Contribution......       42,173          42,173
                                      ---------       ---------
Balance at December 31, 1999......      353,617         453,856
  Total Comprehensive Loss........           --         (23,184)
  Shares Issued in Distribution...           --         348,409
  Predecessor Stockholder's
    Investment....................     (353,617)       (353,617)
  Stock Grant and Options
    Exercised.....................           --           1,502
  Tax Benefit of Options
    Exercised.....................           --             610
  Deferred Compensation
    Obligation....................           --           4,973
  Purchase of Treasury Stock for
    Executive Deferred
    Compensation Plan.............           --          (1,046)
                                      ---------       ---------
Balance at December 31, 2000......           --         431,503
  Total Comprehensive Income
    (Loss)........................           --          25,647
  Stock Grant and Options
    Exercised.....................           --             654
  Tax Benefit of Options
    Exercised.....................           --             130
  Deferred Compensation
    Obligation....................           --           1,237
  Issuance of Stock for
    Acquisition...................           --          12,000
  Unrealized Loss on Marketable
    Securities....................           --             (54)
  Issuance of Restricted Stock....           --           2,499
  Unamortized Restricted Stock....           --          (2,328)
  Purchase of Treasury Stock for
    Executive Deferred
    Compensation Plan.............           --          (1,637)
  Other...........................           --            (684)
                                      ---------       ---------
Balance at December 31, 2001......    $      --       $ 468,967
                                      =========       =========
</Table>

   The accompanying notes are an integral part of these financial statements.
                                        62
<PAGE>

                              GRANT PRIDECO, INC.

                         NOTES TO FINANCIAL STATEMENTS

1.  GENERAL

  WEATHERFORD INTERNATIONAL SPINOFF OF ITS DRILLING PRODUCTS DIVISION

     On October 22, 1999, the Board of Directors of Weatherford International,
Inc. (Weatherford) authorized the spinoff of its drilling products businesses
(the "Company" or "Grant Prideco") to its stockholders as an independent,
publicly traded company (the "Distribution"). The Internal Revenue Service
issued a favorable tax ruling stating that the Distribution should be tax-free
to the stockholders of Weatherford for U.S. federal income tax purposes.
Weatherford consummated the spinoff through a distribution to its stockholders
of one share of Grant Prideco common stock for each share of Weatherford common
stock held by the Weatherford stockholders on March 23, 2000, the record date
for the Distribution. The Distribution was completed on April 14, 2000.

  BASIS OF PRESENTATION

     The combined statements of operations and cash flows for the periods prior
to April 14, 2000 reflect Weatherford's drilling products businesses that were
transferred to Grant Prideco from Weatherford in the Distribution. All activity
subsequent to April 14, 2000 reflects Grant Prideco as distributed. The
financial statements have been prepared using the historical bases in the assets
and liabilities and historical results of operations related to Grant Prideco.
The financial statements include allocations (carve-outs) of general and
administrative corporate overhead costs of Weatherford to Grant Prideco and
direct costs of services provided by Weatherford for the benefit of Grant
Prideco prior to the Distribution. Management believes such allocations are
reasonable; however, the costs of these services charged to Grant Prideco are
not necessarily indicative of the costs that would have been incurred if Grant
Prideco had performed these functions as a stand-alone entity. Subsequent to the
Distribution, Grant Prideco has performed these functions using its own
resources or purchased services and is responsible for the costs and expenses
associated with the management of a public corporation. The financial statements
included herein may not necessarily reflect the results of operations, financial
position and cash flows of Grant Prideco in the future or what they would have
been had it been a separate, stand-alone entity during all the periods
presented.

     Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 2001 classifications. These reclassifications had
no impact on net income (loss).

  NATURE OF OPERATIONS

     The Company is a manufacturer and supplier of oilfield drill pipe and other
drill stem products and one of the leading North American providers of
high-performance premium connections and tubular products. The Company also
provides a variety of products and services to the growing world-wide offshore
and deepwater market through its newly-created marine products and services
segment. The Company's drilling products are used to drill oil and gas wells
while our premium connections and tubular products are used to complete oil and
gas wells once they have been successfully drilled. The Company's marine
products and services are used for subsea construction, installation, and
production. The Company's customers include major, independent, and state-owned
oil companies, drilling contractors, oilfield service companies, and North
American oil country tubular goods (OCTG) distributors. The Company operates 22
manufacturing facilities located in the United States, Mexico, Canada, Europe,
and Asia, and 30 sales, service, and repair locations globally.

     The Company's business is materially dependent on drilling and production
activity and the associated demand for its drilling products, premium
connections and tubulars, and marine products and services. Generally, demand
for the Company's products is a function of drilling and completion activity.
Demand for its drill stem products closely follows the domestic and
international rig count, which in turn closely follows the prices of oil and
gas. Demand for its premium connections and tubulars closely follows the United
States gas rig count and Gulf of Mexico rig count. Demand for its marine
products and services follows the level of

                                        63
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

offshore and deepwater drilling activity, which, although dependent upon prices
of oil and natural gas, is less likely to follow short-term changes in oil and
natural gas prices as these projects are very capital intensive and are more
often based upon long-term forecasts for oil and gas prices.

  PRINCIPLES OF CONSOLIDATION

     The financial statements include the accounts of Grant Prideco, its wholly
owned subsidiaries, and the Company's 54% interest in the assets, liabilities
and operations of H-Tech. The minority interest in H-Tech (46%) is included in
the balance sheets and statements of operations as "Minority Interest."
Intercompany transactions and balances between Grant Prideco's businesses have
been eliminated. The Company accounts for its 50% or less-owned affiliates using
the equity method, as the Company has a significant influence but not a
controlling interest (see Note 6).

  USE OF ESTIMATES

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

  CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

     The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 2000
and 2001, the Company had $4.0 million and $5.4 million of restricted cash
related to its 54% interest in H-Tech that is subject to dividend and
distribution restrictions.

  INVENTORIES

     Inventory costs are determined principally by the use of first-in,
first-out (FIFO) method, and are stated at the lower of such cost or realizable
value. The Company values its inventory primarily using standard costs, which
approximate actual costs, that include raw materials, direct labor, and
manufacturing overhead allocations. The Company also periodically performs
obsolescence reviews on its slow-moving inventories and establishes reserves
based on current assessments about future demands, market conditions, and
related management initiatives (see Note 3).

  PROPERTY, PLANT, AND EQUIPMENT

     Property, plant, and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of renewals, replacements, and betterments
are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. Depreciation expense was $24.4 million, $25.7 million, and $29.1
million for the years ended December 31, 1999, 2000, and 2001, which includes
depreciation of assets related to capital leases. The Company evaluates
potential impairment of property, plant, and equipment and other long-lived
assets on an ongoing basis and reduces the carrying value to estimated fair
value whenever events or circumstances affecting the carrying amounts indicate
that amounts may not be fully recoverable (see Note 4). The useful lives of the
major classes of property, plant, and equipment are as follows:

<Table>
<Caption>
                                                                  LIFE
                                                               ----------
<S>                                                            <C>
Machinery and equipment.....................................   3-20 years
Buildings and other property................................   5-40 years
</Table>

                                        64
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of
Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". This
statement retains the fundamental provisions of SFAS No. 121 and the basic
requirements of APB No. 30; however, it establishes a single accounting model to
be used for long-lived assets to be disposed of by sale and it expands the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company does not
anticipate that the statement will have a material impact on its financial
position or results of operations.

  INTANGIBLE ASSETS AND AMORTIZATION

     The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, principally patents and technology licenses.
Periodically or when events or circumstance indicate that the carrying amount of
intangible assets may not be recoverable, the Company evaluates such assets for
impairment based on the undiscounted cash flows associated with the asset
compared to the carrying amount of that asset. Management believes that there
have been no events or circumstances which warrant revision to the remaining
useful life or which affect the recoverability of any intangible assets. Other
identifiable intangible assets, included as a component of "Other Assets", are
amortized on a straight-line basis over the years expected to be benefited,
ranging from 5 to 15 years. Goodwill is amortized on a straight-line basis over
the lesser of the estimated useful life or 40 years for acquisitions prior to
June 30, 2001.

     In June 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 eliminates
pooling-of-interest accounting and requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. The adoption
of SFAS No. 141 had no impact on the Company's consolidated results of
operations and financial position. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company will adopt the statement
effective January 1, 2002. Under SFAS No. 142, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests. Application of the nonamortization provisions of
SFAS No. 142 is expected to result in an increase in net income of approximately
$4.0 million ($0.04 per share) per year. Other intangible assets will continue
to be amortized over their useful lives. In 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite-lived
intangible assets as of January 1, 2002. If the first test indicates potential
goodwill impairment, the Company will perform the second test to determine the
potential impairment impact. The Company has not yet determined what the effect,
if any, of these tests will be on its consolidated results of operations and
financial position.

     Amortization expense for goodwill and other intangible assets was
approximately $6.1 million, $6.1 million, and $7.4 million for the years ended
December 31, 1999, 2000, and 2001, respectively. Accumulated amortization for
goodwill at December 31, 2000 and 2001 was $16.8 million and $23.1 million,
respectively.

  STOCK-BASED COMPENSATION

     The Company accounts for its stock-based compensation programs using the
intrinsic value method of accounting established by 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. Nonemployee stock-

                                        65
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

based compensation is accounted for using the fair value method in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation" (see Note 13).

  FOREIGN CURRENCY TRANSLATION

     The functional currency for most of the Company's 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. Net foreign currency
transaction gains (losses) for the years ended December 31, 1999, 2000, and 2001
were not material.

  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Company uses foreign currency forward contracts and call options to
hedge certain of its exposures to changes in foreign exchange rates, primarily
related to the Euro. Fair value is calculated based on current forward rates for
the forward contracts and call options. The Company has forward contracts and
call options designated as cash flow hedges of anticipated Euro-denominated
expenditures through August 2002 at its Italian subsidiary. These cash flow
hedges have been deemed "highly effective" and are reviewed quarterly for
effectiveness. Gains and losses attributable to the translation of the 7 1/2
year Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG (Voest-Alpine) debt are
included in other comprehensive income as the debt is designated as, and is
effective as, a net investment hedge of the equity investment in Voest-Alpine
(see Notes 6 and 10). The Company does not engage in derivative activity for
speculative or trading purposes. Management believes that the risk of
counterparty nonperformance is minimal.

     Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133
requires the Company to recognize all derivatives on the balance sheet at fair
value. All derivative instruments are recognized in the balance sheet at their
fair values and changes in fair value are recognized immediately in earnings,
unless the derivatives are designated as hedges of future cash flows, fair
values or net investments. For derivatives treated as hedges of future cash
flows, the effective portion of changes in fair value is recorded in other
comprehensive income until the related hedge items impact earnings. Any
ineffective portion of a hedge is reported in earnings immediately. For
derivatives treated as fair value hedges, changes in the fair value of the
derivative and changes in the fair value of the related asset or liability are
recorded in current period earnings. For derivatives treated as hedges of net
investment in foreign operations, the effective portion of changes in the fair
value of the derivative is recorded in the foreign currency translation
adjustment. The adoption of SFAS No. 133 on January 1, 2001 did not have a
material impact on results of operations but resulted in the cumulative effect
of an accounting change of $0.3 million pre-tax being recognized as a loss in
"Accumulated Other Comprehensive Loss" in the accompanying Balance Sheets (see
Note 10).

     The Company does not have any off-balance sheet hedging or financing
arrangements or contracts, other than operating leases described in Note 17.

  ACCOUNTING FOR INCOME TAXES

     The accompanying financial statements have been prepared under SFAS No.
109, "Accounting for Income Taxes", assuming Grant Prideco was a separate entity
for all periods prior to the Distribution. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases using tax rates
in effect for the years in which the differences are expected to reverse. A

                                        66
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

valuation allowance will be provided to offset any net deferred tax assets if,
based upon the available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.

     In connection with the Distribution, Grant Prideco and Weatherford entered
into a tax allocation agreement (the "Tax Allocation Agreement"). Under the
terms of the Tax Allocation Agreement, Grant Prideco will be responsible for all
taxes and associated liabilities relating to the historical businesses of Grant
Prideco. The Tax Allocation Agreement also provides that any tax liabilities
associated with the spinoff shall be assumed and paid by Grant Prideco subject
to certain exceptions relating to changes in control of Weatherford. The Tax
Allocation Agreement further provides that in the event there is a tax liability
associated with the historical operations of the Company that is offset by a tax
benefit of Weatherford, Weatherford will apply the tax benefit against such tax
liability and will be reimbursed for the value of such tax benefit when and as
Weatherford would have been able to otherwise utilize that tax benefit for its
own businesses. Also, the Tax Allocation Agreement provides that Weatherford
will have the future benefit of any tax losses incurred by Grant Prideco prior,
as a part of a consolidated return with Weatherford, to the spinoff, and Grant
Prideco will be required to pay Weatherford an amount of cash equal to any such
benefit utilized by Grant Prideco or which expires unused by Grant Prideco to
the extent those benefits are not utilized by Weatherford.

  REVENUE RECOGNITION

     The Company records revenue at the time its manufacturing process is
complete, the customer has been provided with all proper inspection and other
required documentation, and title and risk of loss has passed to the customer.
The Company also recognizes revenue on bill-and-hold transactions where the
product has been completed and is ready to be shipped, however at the customer's
request, the Company is storing the product on the customers' behalf for a brief
period of time, typically less than one year. Customer advances or deposits are
deferred and recognized as revenue when the Company has completed all of its
performance obligations related to the sale. The Company also recognizes revenue
as services are performed. Allowances for bad debt are provided based on
specific customer collection issues.

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarized the SEC's views in applying generally
accepted accounting principles to selected revenue recognition issues. Based on
guidance in SAB No. 101, the Company changed its accounting policy to recognize
revenue upon completion of all third-party specific performance obligations as
specified in the sales arrangement. Such third-party performance obligations had
been considered inconsequential or perfunctory prior to the issuance of SAB No.
101. The Company adopted SAB No. 101 in the fourth quarter of 2000, effective
January 1, 2000. The cumulative effect of the accounting change was $1.8
million, net of income taxes of $1.0 million. Except for the 2000 Quarterly
Financial Data presented in Note 20 herein, the Company has not presented pro
forma results for prior years as the impact of SAB No. 101 was not material.

  NET INCOME (LOSS) PER SHARE

     Basic net income (loss) per share is computed by dividing net income or
loss by the weighted average number of common shares outstanding during the
year. Diluted net income (loss) per share reflects 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 is
antidilutive. The effect of stock options is not included in the diluted
computation for periods in which a loss occurs because to do so would have been
anti-dilutive. At December 31, 1999 and 2000, stock options to purchase 1.6
million and 1.7 million shares, respectively, were excluded from the computation
of diluted earnings per share due to their antidilutive effect. The computation
of diluted earnings per share for 2001 did not include options to purchase 5.0
million shares

                                        67
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

of common stock because their exercise prices were greater than the average
market price of the common stock.

     The following table reconciles basic and diluted weighted average shares:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                          ---------------------------
                                                           1999      2000      2001
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Basic weighted average number of shares outstanding.....  101,245   109,000   109,486
Dilutive effect of stock options........................       --        --     1,398
                                                          -------   -------   -------
Diluted weighted average number of shares outstanding...  101,245   109,000   110,884
                                                          =======   =======   =======
</Table>

     The Company did not have a separate capital structure prior to the
Distribution from Weatherford. Accordingly, pro forma basic and weighted average
shares for the year ended December 31, 1999 and for the period through April 14,
2000 have been calculated by adjusting Weatherford's historical basic weighted
average shares outstanding for the applicable period to reflect the number of
Grant Prideco shares that would have been outstanding at the time, assuming the
distribution of one share of Grant Prideco common stock for each share of
Weatherford common stock.

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:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                          1999       2000      2001
                                                        --------   --------   -------
                                                               (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Net Income (Loss).....................................  $(33,511)  $(16,485)  $28,090
Foreign Currency Translation Adjustments, net of tax
  of $9, $3,607 and $1,227 for 1999, 2000 and 2001,
  respectively........................................       (17)    (6,699)   (2,279)
Unrealized Loss on Derivative Instruments, net of tax
  of $92 (see Note 10)................................        --         --      (164)
Unrealized Loss on Marketable Securities, net of tax
  of $29..............................................        --         --       (54)
                                                        --------   --------   -------
Total Comprehensive Income (Loss).....................  $(33,528)  $(23,184)  $25,593
                                                        ========   ========   =======
</Table>

3.  INVENTORIES

     Inventories by category are as follows:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Raw materials, components, and supplies.....................  $149,628   $130,166
Work in process.............................................    23,829     24,038
Finished goods..............................................    26,795     44,610
                                                              --------   --------
                                                              $200,252   $198,814
                                                              ========   ========
</Table>

     Work in process and finished goods inventories include the cost of
materials, labor, and plant overhead.

                                        68
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4.  OTHER CHARGES

  2001 OTHER CHARGES

     During 2001, the Company incurred approximately $44.8 million of pre-tax
charges, $29.1 million net of tax. These charges include $11.2 million, $7.3
million net of tax, related to inventory write-offs and capitalized
manufacturing variance write-offs which were classified as cost of sales. These
charges also included $33.6 million, $21.8 million net of tax, pertaining to the
write-off of assets related to the Company's manufacturing arrangement with OCTL
in India of $17.7 million and fixed asset impairment of $1.5 million related to
the decision to discontinue the manufacturing of industrial flanges. This charge
also included severance payments and related expenses of approximately $14.4
million. These charges are summarized in the following chart:

<Table>
<Caption>
                              DRILLING     PREMIUM      MARINE
                              PRODUCTS   CONNECTIONS   PRODUCTS                                             LIABILITY
                                AND      AND TUBULAR     AND                                       CASH      BALANCE
                              SERVICES    PRODUCTS     SERVICES   OTHER    CORPORATE    TOTAL    PAYMENTS   12/31/01
                              --------   -----------   --------   ------   ---------   -------   --------   ---------
                                                                  (IN THOUSANDS)
<S>                           <C>        <C>           <C>        <C>      <C>         <C>       <C>        <C>
OCTL Write-Off(a)...........  $17,727       $ --        $   --    $   --    $    --    $17,727   $    --     $   --
Inventory Write-Off(b)......    3,657         --         1,692     1,125         --      6,474        --         --
Fixed Asset Impairment(c)...    1,475         --            --        --         --      1,475        --         --
Write-Off of Capitalized
  Manufacturing Variances
  (d).......................    1,024        509           272     2,767         --      4,572        --         --
Severance(e)................      108         --           205        75     14,165     14,553    14,553         --
                              -------       ----        ------    ------    -------    -------   -------     ------
    Total...................  $23,991       $509        $2,169    $3,967    $14,165    $44,801   $14,553     $   --
                              =======       ====        ======    ======    =======    =======   =======     ======
</Table>

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

(a)  In connection with the Company's operational review conducted in 2001, the
     Company reassessed the viability of restructuring its relationship with
     OCTL in India and determined that a continued relationship was no longer
     viable. As a result of this determination, the Company wrote-off the
     remaining $17.7 million ($11.5 million after-tax) of unpaid receivables and
     advances owed to it by OCTL.

(b)  The inventory write-off was reported as cost of sales and was made pursuant
     to a review of the Company's planned dispositions of inventory in an effort
     to reduce inventory levels of older, slow-moving products and also included
     write-offs pursuant to the Company's decision to discontinue manufacturing
     of industrial flanges. The amount was determined by use of internal
     appraisals and evaluations to assess the estimated net realizable value
     upon disposal and also included a charge related to certain inventory
     purchase contract obligations with above market prices.

(c)  The flange machinery and equipment impairment was reported as other charges
     and relates to the Company's decision to discontinue the manufacturing of
     industrial flanges. The amount was determined by use of internal appraisals
     and evaluations to assess the net realizable value upon disposal. The
     flange machinery and equipment, which has a carrying value of $0.2 million
     at December 31, 2001, is expected to be disposed of during 2002.

(d)  Certain capitalized manufacturing cost variances were expensed as cost of
     sales in connection with the Company's operational review and revisions of
     manufacturing standards and costing during 2001.

(e)  The severance charge relates to executive, manufacturing, and marketing
     employees terminated in connection with the Company's restructuring plan
     that was implemented in 2001. The total number of employees severed was 24,
     and the amount accrued for severance was based upon the positions
     eliminated and the Company's severance policy.

                                        69
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  2000 OTHER CHARGES

     The Company incurred $41.3 million of pre-tax charges, $26.9 million net of
tax, in 2000 relating primarily to inventory write-offs and other asset
impairments and reductions. Inventory adjustments of $19.2 million were made
pursuant to a review of the Company's capitalized manufacturing variances in
excess of standard costs and were recorded as cost of sales. The remaining $22.1
million of the 2000 pre-tax charges are summarized in the chart below. The
Company estimates that all of the remaining accrued balances at December 31,
2001 will be paid during 2002. The categories of the charge incurred, the actual
cash payments, and the accrued balances at December 31, 2001 are summarized
below:

<Table>
<Caption>
                              DRILLING     PREMIUM      MARINE
                              PRODUCTS   CONNECTIONS   PRODUCTS                      LIABILITY              LIABILITY
                                AND      AND TUBULAR     AND                          BALANCE      CASH      BALANCE
                              SERVICES    PRODUCTS     SERVICES   OTHER     TOTAL    12/31/00    PAYMENTS   12/31/01
                              --------   -----------   --------   ------   -------   ---------   --------   ---------
                                                                  (IN THOUSANDS)
<S>                           <C>        <C>           <C>        <C>      <C>       <C>         <C>        <C>
Inventory Write-Off(a)......  $ 8,137       $572        $   --    $2,287   $10,996    $   --      $   --     $   --
Write-Down of Assets(b).....    3,270         --            --        --     3,270        --          --         --
Litigation Accrual(c).......       --         --         2,500        --     2,500     2,500         398      2,102
Contingent Liability
  Accrual(d)................    4,650         --            --        --     4,650     4,650          --      4,650
Other Accrued
  Liabilities(e)............      594        115            --        --       709       709         679         30
                              -------       ----        ------    ------   -------    ------      ------     ------
  Total.....................  $16,651       $687        $2,500    $2,287   $22,125    $7,859      $1,077     $6,782
                              =======       ====        ======    ======   =======    ======      ======     ======
</Table>

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

(a)  The inventory write-off was reported as cost of sales and was made pursuant
     to a review of the Company's planned dispositions of inventory in an effort
     to reduce inventory levels of older, slow-moving products. The amount was
     determined by use of internal appraisals and evaluations to assess the
     estimated net realizable value upon disposal.

(b)  The write-down of assets was reported as other charges and relates to fixed
     assets held for sale. The amount was determined by use of internal
     appraisals and evaluations to assess the net realizable value upon
     disposal.

(c)  The litigation accrual was reported as other charges and relates to an
     event subsequent to December 31, 2000 on an outstanding lawsuit filed
     against the Company in May 1997 for patent infringement. On March 2, 2001,
     a jury found that the Company had infringed on the patent and awarded the
     plaintiff approximately $2.0 million in damages, including prejudgment
     interest. Pursuant to the jury award, the Company reevaluated the estimated
     range of loss on the lawsuit and concluded that an additional charge of
     $2.5 million was necessary to increase the accrued liability balance at
     December 31, 2000.

(d)  The contingent liability accrual was reported as other charges and
     represents the probable estimated settlement under the terms of a contract
     relating to purchase commitments.

(e)  The other accrued liabilities charge was reported as other charges and
     represents primarily accruals for product warranties.

  1999 OTHER CHARGES

     In 1999, the Company decided to terminate its manufacturing arrangement
with Oil Country Tubular Limited (OCTL) in India. The Company made this decision
in light of the existing market and difficulties arising from the political
situation between India and countries where OCTL's principal customers reside.
This decision resulted in the need to write-off a $7.8 million deposit
previously paid to OCTL for future products and $1.7 million of the Company's
equipment located in India in the fourth quarter of 1999.

                                        70
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5.  ACQUISITIONS

     On November 6, 2001, the Company acquired a license to Plexus
International's patented POS-GRIP(TM) wellhead and related technology for subsea
well applications and certain exploration and development wells. The Company
also acquired the assets and customer base for the associated wellhead rental
business. The purchase price was $2 million in cash and the Company has agreed
to fund an additional $4 million in working capital to support the POS-GRIP(TM)
technology and the wellhead rental business. Additional consideration will be
paid based on a multiple of Plexus' actual earnings for the annual period ending
December 31, 2002, not to exceed $5.5 million.

     In September 2001, the Company entered into a joint venture for the
development of composite motor and pump technology. The Company has a 50%
interest in this joint venture. As of December 31, 2001, the Company's total
investment was less than $500,000. This investment is accounted for under the
equity method of accounting.

     On May 1, 2001, the Company purchased all of the outstanding shares of
Intellipipe, Inc. common stock for 0.6 million shares of Grant Prideco common
stock with a fair value of approximately $12 million. Intellipipe, Inc. owns a
50% interest in Intelliserv, Inc. Intelliserv, Inc. is currently developing and
commercializing a smart drill pipe telemetry system. Pursuant to the acquisition
of Intellipipe, Inc, the Company is providing materials and capital for the
development of the system. The Company's investment in Intelliserve, Inc. is
reported under the equity method of accounting.

     On November 26, 2000, the Company purchased CMA, a state-of-the-art tool
joint manufacturer, located in Turin, Italy for approximately $30.6 million in
cash and assumed debt of approximately $1.2 million. This acquisition secured
for the Company a high-quality source of tool joints and decreased its
dependence on its Veracruz, Mexico operations.

     On November 16, 2000, the Company acquired the assets of Seam-Mac Tube,
LTD. (Seam-Mac), a manufacturer of small diameter macaroni tubing for OCTG
markets and horizontal directional drilling (HDD) products for the water well,
construction and utility boring industries for approximately $20.0 million in
cash and assumed debt of approximately $4.4 million. Effective October 1, 2001,
the Company closed the Stephenville, Texas manufacturing plant. In connection
with the plant closing, the Company incurred certain liabilities as part of the
plan, which began to be formulated on the acquisition date, to combine the
operations of Seam-Mac with those of the Company. These liabilities relate to
the Seam-Mac operations and include severance and termination costs for
redundant manufacturing and administrative personnel and environmental
remediation costs for redundant property and facilities that will be sold. The
liabilities incurred in connection with the plant closing were approximately
$3.9 million. Of this amount, approximately $1.0 million was recorded as part of
the Seam-Mac purchase price, of which approximately $0.5 million remained as of
December 31, 2001. The remaining costs of $2.9 million were either capitalized
or expensed in accordance with the Company's accounting policies. The Company
expects to save around $750,000 to $1 million a quarter due to the plant
closing. The Company incurred approximately $900,000 in operating losses during
the third quarter of 2001 due to inefficiencies associated with the winding down
of its operations.

     On October 19, 2000, the Company acquired the assets of Star Iron Works,
Inc. (Star), a manufacturer of drilling tools for the water well, construction
and utility boring industries, for approximately $12.3 million in cash and
assumed debt of approximately $1.1 million.

     On October 1, 2000, the Company acquired Ideal Machine and Supply, Inc.
(Ideal) a tubular accessories producer, for approximately $2.5 million in cash
and $1.9 million in deferred and contingent payments, which were settled in
October 2001.

     On October 27, 1999, the Company acquired an additional 27% interest in
P.T. H-Tech Oilfield Equipment (H-Tech), an Indonesia-based drill pipe
manufacturer with facilities located on Batam Island, for

                                        71
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

$6.0 million in cash. The Company previously held a 27% interest in H-Tech and
with this purchase owns a controlling 54% interest in H-Tech. The results of
operations of H-Tech have been consolidated in the Company's results of
operations from November 1, 1999. Prior to November 1, 1999, the Company's
investment in H-Tech was accounted for under the equity method of accounting.
The results of operations of H-Tech prior to November 1, 1999 were not material
to the Company's results of operations; therefore, pro forma financial
information is not presented.

     On October 1, 1999, the Company acquired Drill Pipe Industries, Inc., a
manufacturer of drill stem products, for $1.4 million in cash and a $1.4 million
non-interest bearing note which was repaid in January 2000.

     On August 25, 1999, the Company acquired Louisiana-based Petro-Drive, Inc.
(Petro-Drive), for 0.3 million shares of Weatherford common stock and assumed
debt of approximately $3.5 million. Petro-Drive's offerings included conductors,
connections and installation services and equipment. In January 2000, the
Company exercised its option to acquire the facility leased by Petro-Drive for
approximately $1.6 million.

     On July 23, 1999, the Company acquired a 50.01% interest in Voest-Alpine
for approximately $32.6 million, of which approximately $8.0 million was paid in
cash and the remainder to be paid over a period of up to 7 1/2 years. As of
December 31, 2001, the remaining debt balance was $5.5 million. Voest-Alpine is
a manufacturer of high-quality seamless tubulars in Austria. The Company's
investment in Voest-Alpine is reported under the equity method of accounting.

     On July 7, 1999, the Company acquired Texas Pup, Inc., a manufacturer of
premium and American Petroleum Institute (API) pup joints (odd-sized tubular
products) and utility boring drill pipe, for 0.1 million shares of common stock
of Weatherford and assumed debt of approximately $1.7 million.

     On May 31, 1999, the Company acquired Texas Pipe Works, Inc., a
manufacturer of API couplings, for approximately $1.7 million in cash and 50,000
shares of Weatherford common stock.

     On May 31, 1999, the Company acquired InterOffshore Services, Pte., a
manufacturer of drilling tool accessories, for approximately $2.1 million in
cash.

     The acquisitions discussed above were accounted for using the purchase
method of accounting. The results of operations of all acquisitions are included
in the Statements of Operations from their respective dates of acquisition. The
purchase price was allocated to the net assets acquired based upon their
estimated fair market values at the date of acquisition. The 1999, 2000 and 2001
acquisitions are not material to the Company individually or in the aggregate
for each applicable year, therefore pro forma information is not presented. See
Note 11 for supplemental cash flow information concerning acquisitions.

                                        72
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6.  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. The investment in Voest-Alpine was $32.9
million and $37.3 million at December 31, 2000 and 2001, respectively.
Summarized financial information for Voest-Alpine is as follows (in thousands):

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                2000         2001
                                                              --------   ------------
<S>                                                           <C>        <C>
Current Assets..............................................  $ 82,962     $ 84,289
Other Assets................................................    33,118       35,572
                                                              --------     --------
  Total Assets..............................................  $116,080     $119,861
                                                              ========     ========
Current Liabilities.........................................  $ 37,918     $ 32,168
Other Liabilities...........................................    22,162       31,506
Stockholders' Equity........................................    56,000       56,187
                                                              --------     --------
                                                              $116,080     $119,861
                                                              ========     ========
</Table>

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1999       2000       2001
                                                        -------   --------   --------
<S>                                                     <C>       <C>        <C>
Net Sales.............................................  $49,077   $182,572   $237,742
                                                        -------   --------   --------
Gross Profit..........................................    2,277     21,385     38,083
                                                        -------   --------   --------
Net Income (Loss).....................................  $  (747)  $  9,555   $ 20,149
                                                        =======   ========   ========
Company's Equity Income (Loss)........................  $  (419)  $  4,578   $  9,422
                                                        =======   ========   ========
Dividends Received....................................  $    --   $    427   $ 11,487
                                                        =======   ========   ========
</Table>

     The Company's equity in earnings differs from its proportionate share of
net income (loss) due to equity method amortization of goodwill related to the
investment and the elimination of intercompany profit on Voest-Alpine sales to
the Company. At December 31, 2000 and 2001, the Company's investment in Voest-
Alpine exceeded its equity in its net assets by approximately $4.9 million and
$9.2 million, respectively. The difference is attributable to goodwill, deferred
foreign taxes payable on the Company's proportionate share of Voest-Alpine's
income, and the elimination of intercompany profit on Voest-Alpine sales to the
Company. Amortization of the goodwill related to the investment totaling $0.2
million and $0.3 million is included in Equity Income in Unconsolidated
Affiliates for the years ended December 31, 2000 and 2001, respectively.

     As of December 31, 2001, the Company had a 21.5% investment in a Chinese
drill pipe manufacturer which is accounted for under the equity method. The
investment balance was $6.1 million and $5.8 million at December 31, 2000 and
2001, respectively. Equity earnings (loss) related to this investment were $0
million, $0.9 million and ($0.2) million for 1999, 2000 and 2001, respectively.

     In October 1999, the Company purchased an additional 27% interest in H-Tech
for a total of 54% interest. Prior to the purchase, the Company accounted for
the H-Tech investment under the equity method of accounting.

7.  CREDIT FACILITY AND SHORT-TERM DEBT

     On April 14, 2000, the Company entered into a $100 million revolving credit
facility with a syndicate of U.S. banks (the "Credit Facility"), through April
14, 2003, with automatic one-year renewals thereafter,

                                        73
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

unless the agreement is terminated by either party. The Credit Facility is
secured by the Company's U.S. and Canadian inventories, equipment and
receivables and is guaranteed by Grant Prideco's domestic subsidiaries.
Borrowings under the Credit Facility are based on the lender's determination of
the collateral value of the inventories and receivables securing the Credit
Facility. Amounts outstanding under the Credit Facility accrue interest at a
variable rate based on either the U.S. prime rate (plus 0.00% to 0.75% depending
on the Company's leverage ratio) or LIBOR (plus 1.50% to 2.50% depending on the
Company's leverage ratio) for U.S. denominated advances or either the reference
rate of the Royal Bank of Canada or CDOR for Canadian denominated advances.
Interest on outstanding borrowings is payable monthly. The Credit Facility also
provides the Company with availability for stand-by letters of credit and bid
and performance bonds. The Company is required to comply with various
affirmative and negative covenants which limit the Company's ability to incur
new debt, make certain investments and acquisitions, sell assets, grant liens
and other related items. The Company is also subject to financial covenants
which requires the Company to maintain a certain tangible net worth and fixed
charge coverage ratio. As of December 31, 2001, the Company is in compliance
with the various covenants under the Credit Facility agreement.

     As of December 31, 2001, the Company had borrowed $54.3 million under the
Credit Facility, $4.8 million had been used to support outstanding letters of
credit, and $65.9 million was available for borrowing under the Credit Facility,
which reflects an increase in the committed amount of the Credit Facility from
$100 million to $125 million in December 2001. As of December 31, 2000, the
Company had borrowed $32.1 million under the Credit Facility, $5.3 million had
been used to support outstanding letters of credit, and $62.6 million was
available for borrowing under the Credit Facility. In the event there is a
payment default under the indenture governing the Company's 9 5/8% Senior Notes
Due 2007 (see Note 8), outstanding balances under the Credit Facility would come
due.

     Additionally, at December 31, 2000 and 2001, there were outstanding
borrowings of $0.5 million and $0.4 million under a miscellaneous credit
facility and $0.9 million $0.7 million of outstanding letters of credit, which
had been supported under various available letter of credit facilities that are
not related to the Credit Facility, respectively.

8.  LONG-TERM DEBT

     Long-term debt consists of the following:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
9 5/8% Senior Notes due 2007, net of unamortized discount of
  $1,227 and $1,050 in 2000 and 2001, respectively..........  $198,773   $198,950
Long-term loan, interest at 6 month EURIBOR, due 2002.......     5,381      2,590
Long-term loan, interest at 6 month EURIBOR, due 2007.......    13,256      2,877
Capital lease obligations under various agreements..........     4,041      3,493
Other.......................................................     2,957      3,570
                                                              --------   --------
                                                               224,408    211,480
Less: amounts due in one year...............................     5,304      6,456
                                                              --------   --------
                                                              $219,104   $205,024
                                                              ========   ========
</Table>

                                        74
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a summary of scheduled long-term debt maturities by year
(in thousands):

<Table>
<S>                                                           <C>
2002........................................................  $  6,456
2003........................................................     1,255
2004........................................................     1,896
2005........................................................     1,348
2006........................................................     1,235
Thereafter..................................................   199,290
                                                              --------
                                                              $211,480
                                                              ========
</Table>

  9 5/8% SENIOR NOTES DUE 2007

     In December 2000, the Company issued a private placement offering of $200
million Senior Unsecured Notes (Senior Notes). The Senior Notes have a coupon
rate of 9 5/8% priced to yield 9 3/4% and mature on December 1, 2007. Interest
is payable June 1 and December 1 of each year. The Company may redeem all or
part of the Senior Notes at any time at a price of 100% of their principal
amount plus an applicable premium and accrued and unpaid interest to the
redemption date. The Senior Notes will be senior unsecured obligations of Grant
Prideco and will be guaranteed by the Company's present and future U.S.
subsidiaries. The Company used the proceeds to repay the $100 million note to
Weatherford, to repay outstanding indebtedness under its Credit Facility, and
for general corporate purposes. The indenture governing the Senior Notes
contains various covenants customary in such instruments, including restrictions
to incur new debt, pay dividends, sell assets, grant liens, and other related
items. As of December 31, 2001, the Company is in compliance with the various
covenants under the Senior Notes agreement.

     In the event there is a payment default under the Credit Facility, the
Senior Notes could come due.

  VOEST-ALPINE DEBT

     In connection with the July 1999 acquisition of a 50.01% interest in
Voest-Alpine, the Company incurred debt, denominated in Euros, in the amount of
$24.6 million (the "Voest-Alpine Debt"). Principal of $9.2 million is payable
over three years in six equal installments beginning January 2000 with the
remaining balance of $15.4 million due over a 7 1/2 year period and paid out of
the annual dividend payable to the Company as a shareholder of Voest-Alpine. Any
remaining 7 1/2 year principal balance that has not been repaid by July 2004 is
payable in five equal semi-annual installments beginning on December 1, 2004. As
of December 31, 2000 and 2001, principal related to the 3 1/2 year debt was $5.4
million $2.6 million, respectively, (based on December 31, 2000 and 2001
exchange rates) and will be paid during 2002. In June 2000 and 2001, a dividend
from Voest-Alpine of approximately $0.4 million and $11.5 million, respectively,
was applied as a principal payment on the 7 1/2 year Voest-Alpine Debt. As of
December 31, 2000 and 2001, the balance related to the 7 1/2 year debt was $13.3
million and $2.9 million, respectively, (based on December 31, 2000 and 2001
exchange rates). Interest on the Voest-Alpine debt is payable every six months
beginning January 2000. The interest rate as of December 31, 2000 and 2001 was
4.9% and 4.4% per annum, respectively.

9.  SUBORDINATED NOTE TO WEATHERFORD

     In connection with the Distribution, the Company issued to Weatherford an
unsecured subordinated note in the amount of $100 million. Interest expense on
the Weatherford note prior to January 1, 2000 shown in the financial statements
includes the interest expense associated with the $100 million indebtedness
based on Weatherford's average long-term debt rates, or 7.25%, for the year
ended December 31, 1999. Beginning January 1, 2000, interest expense on the
Weatherford note was based on the stated annual rate of 10%.

                                        75
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     In December 2000, the outstanding balance of the Weatherford note,
including accrued interest, was paid with the proceeds from the issuance of
Senior Notes.

10.  FINANCIAL INSTRUMENTS

     The Company uses foreign currency forwards and call options to hedge
certain of its exposures to changes in foreign exchange rates. The forwards and
call options have only nominal value at the time of purchase. The counterparties
to these derivative foreign exchange contracts are creditworthy multinational
commercial banks. Management believes that the risk of counterparty
nonperformance is minimal. The Company does not engage in derivative activity
for speculative or trading purposes.

  CASH FLOW HEDGES

     At December 31, 2001, the Company's Italian subsidiary had U.S. Dollar/Euro
forward contracts and call options with notional amounts totaling $15.3 million
U.S. Dollars. These contracts are designated as cash flow hedges of anticipated
Euro-denominated expenditures through August 2002.

     The contracts are marked to market based on the forward rate (fair value
was ($0.2) million at December 31, 2001) and recorded as "Other Accrued
Liabilities" in the accompanying Balance Sheets, with the offset recorded as
other comprehensive income (loss), net of applicable hedge ineffectiveness
(which is measured based on the forward price and was not material, other than
the overhedge position discussed below) and income taxes, and then subsequently
recognized as a component of cost of sales or selling, general, and
administrative expenses when the underlying hedged transaction is recognized in
the Statement of Operations. The Company anticipates that approximately $0.2
million in net losses (after tax) existing as of December 31, 2001, will be
reclassified into earnings over the next 12 months. The Company recognized
losses of $0.6 million in "Other, Net" in the accompanying Statements of
Operations related to foreign currency forward contracts that resulted from an
overhedge position with respect to the anticipated Euro-denominated purchases of
inventory during the first quarter of 2001.

     The following table summarizes activity in other comprehensive income
(loss) related to derivatives classified as cash flow hedges held by the Company
during the period January 1 through December 31, 2001 (in thousands):

<Table>
<Caption>
                                                              FOR THE YEAR
                                                                 ENDED
                                                              DECEMBER 31,
                                                                  2001
                                                              ------------
<S>                                                           <C>
Cumulative effect of adopting SFAS No. 133 as of January 1,
  2001 (net of tax of $119).................................     $ 216
Net deferred loss reclassified into earnings from other
  comprehensive income (loss) (net of tax of $481)..........      (892)
Change in fair value of derivatives (net of tax of $454)....       840
                                                                 -----
Accumulated derivative loss included in other comprehensive
  income (loss) as of December 31, 2001 (net of tax of
  $92)......................................................     $ 164
                                                                 =====
</Table>

  FAIR VALUE HEDGES

     The Company had forward contracts in place to purchase 2.9 million Euros
for a notional amount of $2.9 million U.S. Dollars at December 31, 2001. These
contracts are designated as fair value hedges related to payments on the 3 1/2
year Voest-Alpine Debt. The fair value of these instruments was ($0.3) million
as of December 31, 2001, which was recorded as "Other Accrued Liabilities" in
the accompanying Balance Sheets with the income effect recorded to "Other, Net"
in the accompanying Statements of Operations. Changes in

                                        76
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the fair value of the underlying hedged debt are recorded as adjustments to the
debt with the income effect recorded to "Other, Net" in the Statements of
Operations. Hedge ineffectiveness is measured using the forward price and was
zero as of December 31, 2001.

  NET INVESTMENT HEDGE

     Gains and losses attributable to the translation of the 7 1/2 year
Voest-Alpine Debt are included in other comprehensive income as the debt is
designated as, and is effective as, a net investment hedge of the Company's
equity investment in Voest-Alpine. For the years ended December 31, 1999, 2000
and 2001, $1.3 million, $1.6 million and $0.5 million related to the net
investment hedge was included in the foreign currency translation adjustment.

  FAIR VALUE OF FINANCIAL INSTRUMENTS OTHER THAN DERIVATIVES

     The Company's financial instruments other than derivative instruments,
consist primarily of cash and cash equivalents, trade receivables, trade
payables and long-term debt. The book values of cash and cash equivalents, trade
receivables and trade payables are considered to be representative of their
respective fair values due to the short-term maturity of those instruments. The
Company determined fair value for the long-term debt based on current market
rates. The Company had approximately $224.4 million and $211.5 million of
long-term debt at December 31, 2000 and 2001, respectively. The fair value of
the long-term debt at December 31, 2000 and 2001 was $232.1 million and $210.5
million, respectively.

11.  SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest and income taxes (net of refunds) was as follows:

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                           --------------------------
                                                            1999     2000      2001
                                                           ------   -------   -------
                                                                 (IN THOUSANDS)
<S>                                                        <C>      <C>       <C>
Interest paid............................................  $4,565   $15,024   $27,170
Income taxes paid, net of refunds........................   2,294     2,182     2,449
</Table>

     The following summarizes investing activities relating to acquisitions:

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1999       2000       2001
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Fair value of assets, net of cash acquired...........  $ 46,539   $ 33,728   $ 14,790
Goodwill.............................................    29,073     52,164      4,996
Fair value of liabilities assumed....................   (42,892)   (19,865)    (2,778)
Grant Prideco common stock issued....................        --         --    (12,000)
Weatherford common stock issued......................   (17,648)        --         --
                                                       --------   --------   --------
Cash consideration, net of cash acquired.............  $ 15,072   $ 66,027   $  5,008
                                                       ========   ========   ========
</Table>

12.  STOCKHOLDERS' EQUITY

     At December 31, 2000, the authorized capital structure of Grant Prideco was
composed of 300 million shares of common stock, $0.01 par value (the "Common
Stock"), and 10 million shares of preferred stock, $0.01 par value. In
connection with the Distribution, on April 14, 2000, the Company issued
approximately 108.4 million shares, one share of Common Stock for each share of
Weatherford common stock held by the Weatherford stockholders on March 23, 2000,
the record date of the Distribution. At December 31, 2001, there were
approximately 109.3 million shares of Common Stock outstanding.
                                        77
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13.  STOCK-BASED COMPENSATION

  STOCK OPTION AND RESTRICTED STOCK PLANS

     The Company has a number of stock option plans pursuant to which directors,
officers, and other key employees may be granted restricted stock and options to
purchase shares of Common Stock at the fair market value on the date of grant.

     The Company has in effect a 2000 Employee Stock Option and Restricted Stock
Plan (2000 Plan) and a 2001 Stock Option and Restricted Stock Plan (2001 Plan).
Under these plans, restricted stock or options to purchase up to an aggregate of
15 million shares of Common Stock may be granted. Stock options and restricted
stock vest only after one to four years after the date of grant and expire after
ten to fourteen years from the date of grant. Restricted shares are subject to
certain restrictions on ownership and transferability when granted. At December
31, 2001, approximately 3.6 million shares were available for granting under
such plans.

     Compensation expense of $8.8 million was recognized during 2001 for stock
options surrendered by an executive employee who was terminated in February
2001. This amount was included in 2001 Other Charges under severance (see Note
4). Under the terms of his employment contract, the executive exercised his
right to surrender all vested stock options for cash. Subsequently, all
employment contracts have been revised to exclude the ability to surrender stock
options for cash, therefore the Company does not anticipate the recognition of
compensation expense in the future related to the surrender of stock options.

     In October 2001, an award was granted to a director replacing 750,000
options issued under the 2000 Plan for 350,000 shares of restricted stock under
the 2001 Plan. Total compensation expense of $2.5 million, based on the market
price of $7.14 per share at the grant date, is being amortized over the vesting
period of three years. Compensation expense recognized in 2001 was $0.2 million.

     Various employees of the Company were granted stock options under
Weatherford's 1998 Employee Stock Option Plan (the "1998 Plan"). Under the terms
of the Distribution, all of Weatherford's stock options granted to Grant Prideco
employees before the spinoff were converted into options to purchase the
Company's Common Stock. A total of 2,514,153 stock options were granted to the
employees of Grant Prideco related to the 1998 Plan in connection with the
Distribution. Such options were granted pursuant to Grant Prideco's 2000 Plan.

     Employees and directors of Weatherford also held various options to
purchase shares of Weatherford that were granted prior to September 1998. Under
the terms of the Distribution, these employees and directors were granted an
equal number of options to purchase Common Stock. The Company granted a total of
1,247,255 stock options related to the Weatherford grants prior to September
1998.

     There was no compensation expense recognized in connection with the
substitution of Grant Prideco stock options for Weatherford stock options. There
were no accounting consequences for changes made to the exercise price and
number of shares of the outstanding stock options as the aggregate intrinsic
value of the stock options immediately after the substitution was not greater
than the aggregate intrinsic value of the stock options immediately before the
substitution, and the ratio of the exercise price per share to the market value
per share was not reduced.

                                        78
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Information about the Company's stock option plans for the year ended
December 31, 2000 and 2001, is set forth below:

<Table>
<Caption>
                                                   2000                                     2001
                                  --------------------------------------   ---------------------------------------
                                                                WEIGHTED                                  WEIGHTED
                                                                AVERAGE                                   AVERAGE
                                  NUMBER OF      RANGE OF       EXERCISE   NUMBER OF       RANGE OF       EXERCISE
                                   SHARES     EXERCISE PRICES    PRICE       SHARES     EXERCISE PRICES    PRICE
                                  ---------   ---------------   --------   ----------   ---------------   --------
<S>                               <C>         <C>               <C>        <C>          <C>               <C>
Outstanding at the beginning of
  the year......................         --    $         --      $   --     8,778,055     $1.68-19.56      $14.41
                                  ---------    ------------      ------    ----------     -----------      ------
  Weatherford options converted
    to Grant Prideco options....  3,761,408      1.68-18.14        7.62            --              --          --
  Options granted during the
    period......................  5,266,500     14.19-19.56       19.00     5,469,900      5.88-18.51        9.44
  Options exercised.............   (146,362)     4.69-14.64       10.44      (123,905)     1.68-19.50        5.65
  Options canceled..............   (103,491)     6.51-14.64        6.55    (1,818,187)     2.90-19.50       17.72
                                  ---------    ------------      ------    ----------     -----------      ------
Outstanding at the end of the
  year..........................  8,778,055    $ 1.68-19.56      $14.41    12,305,863     $2.47-19.56      $11.80
                                  =========    ============      ======    ==========     ===========      ======
Exercisable at the end of the
  year..........................    929,174    $ 1.68-14.64      $ 6.25     2,653,833     $2.47-18.14      $ 7.03
                                  =========    ============      ======    ==========     ===========      ======
</Table>

     The following table summarizes information about stock options outstanding
at December 31, 2001:

<Table>
<Caption>
                                           OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                  -------------------------------------   ----------------------
                                                  WEIGHTED     WEIGHTED                 WEIGHTED
                                                  AVERAGE      AVERAGE                  AVERAGE
                                    NUMBER       REMAINING     EXERCISE     NUMBER      EXERCISE
RANGE OF EXERCISE PRICE           OUTSTANDING   LIFE (YEARS)    PRICE     EXERCISABLE    PRICE
-----------------------           -----------   ------------   --------   -----------   --------
<S>                               <C>           <C>            <C>        <C>           <C>
$2.47-$7.65.....................   6,137,772       11.76        $ 6.72     2,269,372     $ 5.98
$8.65-$14.19....................   1,560,505       10.95         11.44       224,375      11.92
$14.64-$19.56...................   4,607,586       11.38         18.69       160,086      15.08
                                  ----------       -----        ------     ---------     ------
                                  12,305,863       11.51        $11.80     2,653,833     $ 7.03
                                  ==========       =====        ======     =========     ======
</Table>

  PRO FORMA COMPENSATION EXPENSE

     Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS No. 123 and has been determined as if the Company had
accounted for its stock options under the fair value method as provided therein.
The fair value of stock options granted by the Company during 2000 and 2001 was
estimated using the Black-Scholes option-pricing model, with the following
weighted average assumptions.

<Table>
<Caption>
                                                                YEAR ENDED
                                                               DECEMBER 31,
                                                              ---------------
                                                               2000     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Weighted average fair value per option granted..............  $15.87   $ 4.08
Valuation assumptions:
  Expected option term (years)..............................    12.4      7.4
  Expected volatility.......................................   63.12%   43.50%
  Expected dividend rate....................................      --       --
  Risk free interest rate...................................    6.18%    3.53%
</Table>

     The following is a summary of the Company's net income (loss) and net
income (loss) per share as reported and pro forma as if the fair value-based
method of accounting defined in SFAS No. 123 had been applied. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense

                                        79
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

over the options' vesting period. Pro forma compensation expense for periods
prior to the Distribution was determined using the historical Weatherford fair
values for pre-Distribution grants to Company employees. The pro forma effects
of applying SFAS No. 123 may not be representative of the effects on reported
net income for future years since options vest over several years and additional
awards are made each year.

<Table>
<Caption>
                                                    YEAR ENDED DECEMBER 31,
                          ---------------------------------------------------------------------------
                                   1999                      2000                      2001
                          -----------------------   -----------------------   -----------------------
                          AS REPORTED   PRO FORMA   AS REPORTED   PRO FORMA   AS REPORTED   PRO FORMA
                          -----------   ---------   -----------   ---------   -----------   ---------
                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                       <C>           <C>         <C>           <C>         <C>           <C>
Net income (loss).......   $(33,511)    $(40,297)    $(16,485)    $(34,695)     $28,090      $8,342
Basic earnings (loss)
  per share.............      (0.33)       (0.40)       (0.15)       (0.32)        0.26        0.08
Diluted earnings (loss)
  per share.............      (0.33)       (0.40)       (0.15)       (0.32)        0.25        0.08
</Table>

  EXECUTIVE DEFERRED COMPENSATION PLANS

     Weatherford maintains various Executive Deferred Compensation Stock
Ownership Plans (the "Weatherford EDC Plans"). Prior to the Distribution,
participants in the Weatherford EDC Plans had a right to receive shares of
Weatherford common stock upon termination of their employment based on the
deferred amounts placed in their individual accounts. Under the Weatherford EDC
Plans, in the event of a dividend or special distribution to the shareholders of
Weatherford, the accounts of the employees are to represent a right to receive
the consideration provided through the dividend or special distribution. As a
result, upon the Distribution, participants in the Weatherford EDC Plans were
entitled to receive shares of both Weatherford common stock and Common Stock in
respect of amounts deferred by the participants prior to the Distribution.
Accordingly, in connection with the Distribution, a portion of the deferred
compensation liability recorded by Weatherford was allocated to Grant Prideco
based on the relative market value of the Common Stock to the relative market
value of the Weatherford common stock on the date of Distribution. The liability
transferred to Grant Prideco was approximately $4.2 million and is included in
"Deferred Compensation Obligation in Stockholders' Equity." The Company has
reserved 519,000 shares of Common Stock in settlement of this obligation.
Settlements under the Weatherford EDC Plans will be solely in Weatherford common
stock and Common Stock.

     At the time of the Distribution, Grant Prideco established separate
Executive Deferred Compensation Stock Ownership Plans (the "Grant EDC Plans") in
which certain Grant Prideco employees and directors participate. The terms of
the Grant EDC Plans are substantially similar to the Weatherford EDC Plans. A
separate trust (the "Trust") has been established by Grant Prideco following the
Distribution to fund the benefits under the Grant EDC Plans. The funds provided
to the Trust are invested in Common Stock through open market purchases by a
trustee independent of the Company. The assets of the Trust are available to
satisfy the claims of all general creditors of Grant Prideco in the event of a
bankruptcy or insolvency. Settlements under the Grant EDC Plans will be in
Common Stock. Accordingly, the Common Stock held by the Trust is included in
Stockholders' Equity as "Treasury Stock, at Cost."

14.  RETIREMENT AND EMPLOYEE BENEFIT PLANS

     The Company has defined contribution plans covering certain of its
employees. The Company's expenses related to these plans totaled $0.7 million,
$0.8 million, and $0.9 million in 1999, 2000, and 2001, respectively.

                                        80
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

15.  INCOME TAXES

     The domestic and foreign components of income (loss) before income taxes
consist of the following:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                          1999       2000      2001
                                                        --------   --------   -------
                                                               (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Domestic..............................................  $(40,690)  $(22,084)  $20,861
Foreign...............................................    (3,805)       234    23,857
                                                        --------   --------   -------
  Total income (loss) before income taxes.............  $(44,495)  $(21,850)  $44,718
                                                        ========   ========   =======
</Table>

     The components of the (provision) benefit for income taxes are as follows:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          1999      2000       2001
                                                         -------   -------   --------
                                                                (IN THOUSANDS)
<S>                                                      <C>       <C>       <C>
Current
  U.S. federal and state income taxes..................  $14,030   $  (246)  $   (708)
  Foreign..............................................    6,700    (4,051)   (10,467)
                                                         -------   -------   --------
                                                          20,730    (4,297)   (11,175)
                                                         -------   -------   --------
Deferred
  U.S. federal and state income taxes..................   (4,099)    9,284     (3,511)
  Foreign..............................................   (5,432)    2,378       (965)
                                                         -------   -------   --------
                                                          (9,531)   11,662     (4,476)
                                                         -------   -------   --------
          Total income tax (provision) benefit(a)......  $11,199   $ 7,365   $(15,651)
                                                         =======   =======   ========
</Table>

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

(a)  Excludes the deferred tax benefit totaling $1.0 million relating to the
     2000 cumulative effect of the accounting change (see Note 1).

     The following is a reconciliation of income taxes at the U.S. federal
income tax rate of 35% to the effective provision for income taxes reflected in
the Statements of Operations:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          1999      2000       2001
                                                         -------   -------   --------
                                                                (IN THOUSANDS)
<S>                                                      <C>       <C>       <C>
(Provision) benefit for income taxes at statutory
  rates................................................  $15,573   $ 7,648   $(15,651)
Effect of foreign income tax, net......................      (65)     (293)    (1,659)
Extraterritorial income benefit........................       --        --        732
Foreign loss not benefited.............................   (1,014)     (502)       (43)
Equity in earnings of unconsolidated affiliates........       --     1,983        947
State and local income taxes net of U.S. federal income
  tax benefit..........................................   (1,214)     (159)      (431)
Other permanent items..................................   (2,081)   (1,312)       454
                                                         -------   -------   --------
          (Provision) benefit for income taxes.........  $11,199   $ 7,365   $(15,651)
                                                         =======   =======   ========
</Table>

     Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect

                                        81
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

in each of the jurisdictions which the Company has operations. Additionally,
applicable U.S. income and foreign withholding taxes have been provided on
undistributed earnings of the Company's international subsidiaries.

     Deferred tax assets and liabilities are classified as current or noncurrent
according to the classification of the related asset or liability for financial
reporting. The components of the net deferred tax asset (liability) were as
follows:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Deferred tax assets:
  Foreign tax credits.......................................  $  2,557   $     --
  Domestic and foreign operating losses.....................     2,661         --
  Accrued liabilities and reserves..........................    10,015      9,853
  Inventory basis differences...............................     4,581      3,677
  Goodwill and other intangibles............................     6,255      4,949
                                                              --------   --------
          Total deferred tax asset..........................    26,069     18,479
                                                              --------   --------
Deferred tax liabilities:
  Property and equipment and other..........................   (44,394)   (48,095)
                                                              --------   --------
          Total deferred tax liability......................   (44,394)   (48,095)
                                                              --------   --------
  Net deferred tax liability................................  $(18,325)  $(29,616)
                                                              ========   ========
</Table>

     At December 31, 2000, the Company had net operating loss (NOL)
carryforwards for tax purposes of approximately $7.8 million. The NOL
carryforward at December 31, 2000 included $7.4 million in the United States
that would expire after the year 2020; $0.1 million in Canada that would expire
after the year 2007; $0.2 million in Mexico that would expire after the year
2008; and $0.1 million in the UK with an indefinite life. The UK amount was
offset by a full valuation allowance. During the year ended December 31, 2001
the NOL's in the United States, Canada and Mexico were utilized and the UK
operation was closed, relinquishing the NOL. As a result of relinquishing any
benefit of the UK loss, the valuation reserve has been reversed. At December 31,
2000, the Company had foreign tax credit carryforwards of $2.6 million. During
2001 all foreign tax credits generated in prior years were deducted for U.S.
income tax purposes.

16.  DISPUTES, LITIGATION, AND CONTINGENCIES

  LITIGATION AND OTHER DISPUTES

     In May 1997, John D. Watts filed suit in the United States District Court
for the Eastern District of Texas, Beaumont Division, against XL Systems(TM) for
infringement of Patent No. 5,247,418 (the "418 Patent") and trade secret
misappropriation, breach of contract and unjust enrichment. The claims of trade
secret misappropriation, breach of contract, and unjust enrichment were
subsequently dismissed by the trial court upon XL Systems(TM) motion for summary
judgment.

     On March 2, 2001, a jury found that XL Systems(TM) XLC Connection infringed
Claim 1 of the 418 Patent and awarded the plaintiff approximately $2.0 million
in damages, including prejudgment interest. On September 28, 2001, the United
States District Court for the Eastern District Court of Texas entered a judgment
in the case. In connection with this order, the Court took the following
actions: (1) reduced the jury award from $1,675,450 to $1,048,680; (2) awarded
prejudgment interest of $172,697; and (3) denied enhanced damages and attorney's
fees. In addition, the Court stayed any injunction preventing XL Systems(TM)
from making and selling its XLC connection in its current configuration, so long
as XL Systems(TM) escrows a
                                        82
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

royalty in the sum of 3% of gross revenue from sales of XLC connections and 7%
of gross revenue from sales of XLC threading services. Grant Prideco has
appealed the decision to the federal circuit, and Mr. Watts has appealed the
decision of the court, denying enhanced damages and attorneys fees and granting
of summary judgment on his trade secret misappropriation and other claims. Grant
Prideco does not expect a decision on any appeal for at least the next 12
months. The Company also believes that its XLC connections can be manufactured
and applied without infringing the patent claims in question if the lower court
decision is upheld. Based upon the reduction in damages, denial of enhanced
damages, and the stay on the injunction, Grant Prideco believes it has fully
accrued for its potential liability, including escrowed royalties, in this case.

     Additional charges of $3.5 million to $4.5 million, could be necessary in
the event of reversal on appeal of enhanced damages and attorney's fees.

     The Company is aware of other various disputes and potential claims and is
a party in various litigation involving claims against the Company, some of
which are covered by insurance. Based on facts currently known, the Company
believes that the ultimate liability, if any, which may result from known
claims, disputes, and pending litigation would not have a material adverse
effect on the Company's financial position or its results of operations with or
without consideration of insurance coverage.

  INSURANCE

     The Company is predominantly self-insured through an insurance policy for
employee health insurance claims and is self-insured for workers' compensation
claims for certain of its employees. The amounts in excess of the self-insured
levels are fully insured. Self-insurance accruals are based on claims filed and
an estimate for significant claims incurred but not reported. Although the
Company believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is reasonably possible
that management's estimates of these liabilities will change over the near term
as circumstances develop.

     Weatherford will remain liable on certain existing contingent liabilities
relating to Grant Prideco's businesses which were not able to be released,
terminated, or replaced prior to the Distribution date. However, Grant Prideco
fully indemnified Weatherford for any payments made under the unreleased
contingent liabilities.

17.  COMMITMENTS

  OPERATING LEASES

     The Company is committed under various operating leases, which primarily
relate to office space and equipment. Total lease expense incurred under
operating leases was approximately $7.2 million, $4.7 million, and $5.3 million
for the years ended December 31, 1999, 2000, and 2001, respectively. Future
minimum rental commitments under these operating leases are as follows (in
thousands):

<Table>
<S>                                                            <C>
2002........................................................   $ 5,754
2003........................................................     4,953
2004........................................................     4,410
2005........................................................     4,186
2006........................................................     3,434
Thereafter..................................................    12,342
                                                               -------
                                                               $35,079
                                                               =======
</Table>

                                        83
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  OTHER COMMITMENTS

     At the time of the December 1998 acquisition by the Company of 93% of T.F.
de Mexico, the Company entered into a 30-year supply contract with TAMSA. Under
the supply contract, TAMSA has been given the right to supply certain of the
Company's operations as long as the prices are on a competitive basis. This
supply agreement does not obligate the Company to make purchases from TAMSA for
any location other than Mexico and India, nor restrict the Company's right to
make purchases without offering a right to purchase the materials from TAMSA to
the extent those purchases are made from affiliates of the Company such as
Voest-Alpine.

     As part of the arrangement to invest in Voest-Alpine, the Company entered
into a four-year supply contract with Voest-Alpine commencing July 1999. Under
this agreement, the Company agreed to purchase a minimum of 60,000 metric tons
of seamless green drill pipe per year through September 2003 at a benchmark
third-party price.

     Grant Prideco maintains consignment purchase arrangements with various
suppliers whereby suppliers' inventory is held on site at the Company's
manufacturing facilities. Under the terms of these arrangements, the Company
pays to the supplier an inventory stocking fee on the consignment inventory and
has an obligation to purchase the inventory under certain circumstances. As of
December 31, 2001, the Company had closed-ended purchase commitments maturing
within the next three months of approximately $0.4 million and open-ended
purchase commitments of approximately $10.1 million.

18.  RELATED PARTY TRANSACTIONS

  SALES

     Weatherford purchases drill pipe and other related products from Grant
Prideco. Prior to the Distribution, amounts purchased by Weatherford were
recorded at Grant Prideco's cost. The sales to Weatherford prior to the
Distribution have been eliminated from the accompanying financial statements.
The amounts purchased by Weatherford for the year ended December 31, 1999 and
through April 14, 2000 were $9.6 million and $7.0 million, respectively.

     In connection with the Distribution, the Company entered into a preferred
supplier agreement with Weatherford pursuant to which Weatherford agreed for at
least a three-year period from the Distribution date to purchase a minimum of
70% of its requirements of drill stem products from Grant Prideco. The price for
those products will be at a price not greater than that which the Company sells
to its best rental tool customers for similar products. Weatherford is entitled
to apply against its purchases a drill stem credit granted to it in connection
with the Distribution in the aggregate amount of $30 million, subject to a
limitation of the application of the credit to no more than 20% of any purchase.
At December 31, 2001, the current portion of the drill stem credit, $10.0
million, is included in "Other Accrued Liabilities," with the remaining $9.6
million included in "Other Long-Term Liabilities," in the accompanying Balance
Sheets. At December 31, 2000, the balance of the drill stem credit was $28.4
million of which $10.0 million was classified as current.

  WEATHERFORD CHARGES

     Weatherford charges represent corporate overhead costs incurred by
Weatherford in providing services to the Company based on the time devoted to
Grant Prideco prior to the Distribution. These services include accounting,
legal, tax, treasury and risk management services. Such allocations are included
in the accompanying Statements of Operations as Weatherford Charges.

                                        84
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  WEATHERFORD DIRECT SERVICES

     Grant Prideco was allocated $5.6 million of costs related to Weatherford's
information systems function for the year ended December 31, 1999. As of January
1, 2000, Grant Prideco had completed the formation of a separate information
systems department. Information systems charges were allocated based on direct
support provided, equipment usage, and the number of system users, and are
included in "Corporate General and Administrative" expenses in the accompanying
Statements of Operations.

19.  SEGMENT INFORMATION

  BUSINESS SEGMENTS

     The Company operates primarily through three business segments: drilling
products and services, premium connections and tubular products, 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 Company's premium
connections and tubular products segment designs, manufactures, and sells a
complete line of premium connections and associated premium tubular products and
accessories. In the fourth quarter of 2001, the Company created a separate
division to focus specifically on growing its existing XL Systems(TM) product
line and riser products and adding complementary products and services for the
growing offshore and deepwater markets. In addition to the products and services
provided through the Company's three primary segments, they also manufacture
drill pipe and other products used in the industrial markets for fiber optic
cable installation, construction and water well drilling. The Company is also
involved in joint ventures for the development of telemetry drill pipe and
composite motors and pumps.

     The Company's products are used in the exploration and production of oil
and natural gas. Segment information below has been prepared in accordance with
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information." The accounting policies of the segments are the same as those
described in the "Summary of Significant Accounting Policies," except that
income tax (provision) benefit is allocated

                                        85
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

to the segments by an application of the Company-wide effective rate to the net
income (loss) of each segment.

<Table>
<Caption>
                                               PREMIUM        MARINE
                              DRILLING       CONNECTIONS     PRODUCTS
                              PRODUCTS       AND TUBULAR       AND
                            AND SERVICES      PRODUCTS       SERVICES    OTHER    CORPORATE    TOTAL
                            ------------   ---------------   --------   -------   ---------   --------
                                                               (IN THOUSANDS)
<S>                         <C>            <C>               <C>        <C>       <C>         <C>
1999
  Revenues from
     unaffiliated
     customers............    $134,275        $133,491       $18,604    $    --   $     --    $286,370
  EBITDA, before other
     charges(a)...........      16,639           7,051        (1,692)        --    (15,044)      6,954
  Other charges(b)........       9,454              --            --         --         --       9,454
  Depreciation and
     amortization.........      15,119          11,618         2,683         --      1,094      30,514
  Equity loss in
     unconsolidated
     affiliates...........        (419)             --            --         --         --        (419)
  Operating loss..........      (7,934)         (4,567)       (4,375)        --    (16,138)    (33,014)
  Interest Expense........         313           1,583         1,403         --      8,044      11,343
  (Provision) Benefit for
     income taxes.........       2,069           1,528         1,512         --      6,090      11,199
  Capital expenditures for
     property, plant, and
     equipment............      12,127           3,577         3,139         --        203      19,046
  Total assets............     437,281         276,024        18,567         --      2,703     734,575
2000
  Revenues from
     unaffiliated
     customers............    $208,347        $225,628       $36,646    $27,860   $     --    $498,481
  EBITDA, before other
     charges(a)(c)........      22,007          46,184         1,294        624    (20,878)     49,231
  Other charges(b)........      16,651             687         2,500      2,287         --      22,125
  Depreciation and
     amortization.........      12,559          11,818         3,952      3,082        431      31,842
  Equity income in
     unconsolidated
     affiliates...........       5,495              --            --         --         --       5,495
  Operating income
     (loss)...............      (7,203)         33,679        (5,158)    (4,745)   (21,309)     (4,736)
  Interest Expense........         643             857         1,370         --     14,135      17,005
  (Provision) Benefit for
     income taxes.........       2,424         (11,099)        2,260      1,599     12,181       7,365
  Capital expenditures for
     property, plant, and
     equipment............      13,962           4,537         2,182         60        150      20,891
  Total assets............     468,472         294,226        44,659     75,130     10,077     892,564
</Table>

                                        86
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                               PREMIUM        MARINE
                              DRILLING       CONNECTIONS     PRODUCTS
                              PRODUCTS       AND TUBULAR       AND
                            AND SERVICES      PRODUCTS       SERVICES    OTHER    CORPORATE    TOTAL
                            ------------   ---------------   --------   -------   ---------   --------
                                                               (IN THOUSANDS)
<S>                         <C>            <C>               <C>        <C>       <C>         <C>
2001
  Revenues from
     unaffiliated
     customers............    $382,579        $272,283       $44,085    $41,180   $     --    $740,127
  EBITDA, before other
     charges(a)(c)........     109,141          60,101         5,263        740    (20,936)    154,309
  Other charges(b)........      23,991             509         2,169      3,967     14,165      44,801
  Depreciation and
     amortization.........      15,243          13,188         3,724      3,832        466      36,453
  Equity income (loss) in
     unconsolidated
     affiliates...........       9,219              --            --       (472)        --       8,747
  Operating income
     (loss)...............      69,907          46,404          (630)    (7,059)   (35,567)     73,055
  Interest Expense........         354             198           794         14     25,707      27,067
  (Provision) Benefit for
     income taxes.........     (23,478)        (16,355)          596      2,450     21,136     (15,651)
  Capital expenditures for
     property, plant, and
     equipment............      20,341           8,416         1,782      1,591      5,082      37,212
  Total assets............     474,890         294,235        52,494     84,160      9,819     915,598
</Table>

                  See footnotes (a), (b), and (c) on page 88.

  Premium Connections and Tubular Products

     The following table sets forth additional information for the Company's
Premium Connections and Tubular Products segment. The Company has provided this
information for its four principal product lines in this segment: (1) Atlas
Bradford(R) line and other lines of premium threading and tubing, (2) TCA(TM)
critical-service casing and processing, (3) Tube-Alloy(TM) premium accessories
and (4) Texas Arai couplings.

<Table>
<Caption>
                                                ATLAS                  TUBE-
                                             BRADFORD(R)   TCA(TM)   ALLOY(TM)   TEXAS ARAI    TOTAL
                                             -----------   -------   ---------   ----------   --------
                                                                  (IN THOUSANDS)
<S>                                          <C>           <C>       <C>         <C>          <C>
1999
  Revenues from unaffiliated customers.....    $43,291     $38,469    $21,538     $30,193     $133,491
  EBITDA(a)................................      1,594       2,466      2,188         803        7,051
  Depreciation and amortization............      3,451       3,541      1,232       3,394       11,618
  Operating income (loss)..................     (1,857)     (1,075)       956      (2,591)      (4,567)
  Interest Expense.........................         --          --         17       1,566        1,583
  (Provision) Benefit for income taxes.....        460         271       (238)      1,035        1,528
  Capital expenditures for property, plant,
     and Equipment.........................        691         940      1,690         256        3,577
</Table>

                                        87
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                ATLAS                  TUBE-
                                             BRADFORD(R)   TCA(TM)   ALLOY(TM)   TEXAS ARAI    TOTAL
                                             -----------   -------   ---------   ----------   --------
                                                                  (IN THOUSANDS)
<S>                                          <C>           <C>       <C>         <C>          <C>
2000
  Revenues from unaffiliated customers.....    $65,056     $80,683    $33,067     $46,822     $225,628
  EBITDA, before other charges(a)(c).......     14,167      19,902      7,043       5,072       46,184
  Other charges(b).........................         --          --        176         511          687
  Depreciation and amortization............      2,898       3,818      1,339       3,763       11,818
  Operating income (loss)..................     11,269      16,084      5,528         798       33,679
  Interest Expense.........................         13          --         14         171          198
  (Provision) Benefit for income taxes.....     (3,814)     (5,420)    (1,855)        (10)     (11,099)
  Capital expenditures for property, plant,
     and Equipment.........................      1,591         717      1,455         774        4,537
2001
  Revenues from unaffiliated customers.....    $88,384     $81,774    $50,054     $52,071     $272,283
  EBITDA, before other charges(a)(c).......     20,586      18,541     12,440       8,534       60,101
  Other charges(b).........................         --          --        252         257          509
  Depreciation and amortization............      3,989       3,728      1,713       3,758       13,188
  Operating income (loss)..................     16,597      14,813     10,475       4,519       46,404
  Interest Expense.........................         --          --         10         847          857
  (Provision) Benefit for income taxes.....     (5,969)     (5,185)    (3,666)     (1,535)     (16,355)
  Capital expenditures for property, plant,
     and Equipment.........................      4,780       1,490      1,605         541        8,416
</Table>

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

(a)  The Company evaluates performance and allocates resources based on EBITDA,
     which is calculated as operating income (loss) adding back depreciation and
     amortization and excluding the impact of other charges. Calculations of
     EBITDA should not be viewed as a substitute to calculations under GAAP, in
     particular operating income and net income. In addition, EBITDA
     calculations by one company may not be comparable to another company.

(b)  Includes other charges of $9.5 million relating to the decision to
     terminate the Company's manufacturing arrangement in India for the year
     ended December 31, 1999. Includes $22.1 million of other charges relating
     to inventory write-offs, and other asset impairments and reductions for the
     year ended December 31, 2000. Includes $44.8 million of other charges
     relating to inventory write-offs, capitalized manufacturing variances,
     fixed asset impairment, and severance for the year ended December 31, 2001
     (see Note 4).

(c)  Excludes other charges discussed in (b) above.

                                        88
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  FOREIGN OPERATIONS AND EXPORT SALES

     Financial information by geographic segment for each of the three years
ended December 31, 2001 is summarized below. Revenues are attributable to
countries based on the location of the entity selling products rather than
ultimate use. Long-lived assets represent long-term assets excluding deferred
tax assets.

<Table>
<Caption>
                                     UNITED               LATIN
                                     STATES    CANADA    AMERICA    ITALY     OTHER     TOTAL
                                    --------   -------   -------   -------   -------   --------
                                                          (IN THOUSANDS)
<S>                                 <C>        <C>       <C>       <C>       <C>       <C>
1999
  Revenues........................  $247,428   $15,610   $ 6,091   $    --   $17,241   $286,370
  Long-lived assets...............   331,813    17,663    83,269        --    27,085    459,830
2000
  Revenues........................  $449,681   $32,038   $ 5,122   $   721   $10,919   $498,481
  Long-lived assets...............   361,497    16,998    89,922    32,191    14,587    515,195
2001
  Revenues........................  $629,400   $51,530   $10,263   $26,025   $22,909   $740,127
  Long-lived assets...............   363,756    18,208    94,202    32,865    14,096    523,127
</Table>

  MAJOR CUSTOMERS AND CREDIT RISK

     Substantially all of the Company's customers are engaged in the exploration
and development of oil and gas reserves. The Company's drill pipe and related
products are sold primarily to rig contractors, operators, and rental companies.
The Company's premium tubulars and connections are sold primarily to operators
and distributors. This concentration of customers may impact the Company's
overall exposure to credit risk, either positively or negatively, in that
customers may be similarly affected by changes in economic and industry
conditions. The Company performs ongoing credit evaluations of its customers and
does not generally require collateral in support of its trade receivables. The
Company maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances, and governmental
activities that may limit or disrupt markets, restrict the movement of funds, or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by a letter of credit or similar
arrangements.

     In 1999, 2000, and 2001, there were no individual customers who accounted
for 10% or more of total revenues.

                                        89
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following tabulation sets forth unaudited quarterly financial data for
2001 and 2000 (in thousands, except per share amounts).

<Table>
<Caption>
                                                                        2001
                                                -----------------------------------------------------
                                                 FIRST           SECOND       THIRD           FOURTH
                                                QUARTER         QUARTER      QUARTER         QUARTER
                                                --------        --------     --------        --------
<S>                                             <C>             <C>          <C>             <C>
Revenues......................................  $156,651        $192,909     $198,989        $191,578
Gross Profit..................................    22,204(a)       44,061       53,156(c)       49,588
Other Charges.................................    32,280(b)           --        1,475(d)           --
Selling, General and Administrative...........    17,164          18,254       18,564          16,964
Operating Income (Loss).......................   (25,256)(a)(b)   28,655       34,511(c)(d)    35,145
Net Income (Loss).............................   (21,817)(a)(b)   13,997       17,334(c)(d)    18,576
Basic Net Income (Loss) Per Share(e)
  Basic net income (Loss).....................  $  (0.20)       $   0.13     $   0.16        $   0.17
                                                ========        ========     ========        ========
Basic weighted average shares outstanding.....   108,570         109,515      109,738         109,783
                                                ========        ========     ========        ========
Diluted Net Income (Loss) Per Share(e)
  Diluted net income (Loss)...................  $  (0.20)       $   0.13     $   0.16        $   0.17
                                                ========        ========     ========        ========
Diluted weighted average shares outstanding...   108,570         110,979      110,531         110,764
                                                ========        ========     ========        ========
</Table>

                       See footnotes (a)-(e) on page 91.

                                        90
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                                          2000
                                                     -----------------------------------------------
                                                      FIRST        SECOND       THIRD        FOURTH
                                                     QUARTER      QUARTER      QUARTER      QUARTER
                                                     --------     --------     --------     --------
<S>                                                  <C>          <C>          <C>          <C>
Revenues...........................................  $107,291     $115,197     $120,528     $155,465
Gross Profit(f)....................................     4,555       14,977       24,867       14,567(g)
Other Charges......................................        --           --           --       11,129(h)
Selling, General and Administrative................    13,088       13,625       14,033       17,322
Operating Income (Loss)............................    (7,926)       2,835       12,635      (12,280)(g)(h)
Net Income (Loss) Before Cumulative Effect of
  Accounting Change................................    (7,887)        (852)       5,168      (11,125)(g)(h)
Cumulative Effect of Accounting Change(i)..........    (1,789)          --           --           --
Net Income (Loss)..................................    (9,676)        (852)       5,168      (11,125)(g)(h)
Basic Net Income (Loss) Per Share(e)
  (Pro forma prior to effective date of spinoff)
  Basic net income (loss) before cumulative effect
    of accounting change...........................  $  (0.07)    $  (0.01)    $   0.05     $  (0.10)
Cumulative effect of accounting change.............     (0.02)          --           --           --
                                                     --------     --------     --------     --------
  Net income (loss)................................  $  (0.09)    $  (0.01)    $   0.05     $  (0.10)
                                                     ========     ========     ========     ========
Basic weighted average shares outstanding..........   108,752(j)   108,934      109,000      109,059
                                                     ========     ========     ========     ========
Diluted Net Income (Loss) Per Share(e)
  (Pro forma prior to effective date of spinoff)
  Diluted net income (loss) before cumulative
    effect of accounting change....................  $  (0.07)    $  (0.01)    $   0.05     $  (0.10)
Cumulative effect of accounting change.............     (0.02)          --           --           --
                                                     --------     --------     --------     --------
  Net income (loss)................................  $  (0.09)    $  (0.01)    $   0.05     $  (0.10)
                                                     ========     ========     ========     ========
Diluted weighted average shares outstanding........   108,752(j)   108,934      111,114      109,059
                                                     ========     ========     ========     ========
</Table>

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

(a)  Includes $10.7 million of other charges in the first quarter of 2001
     related to inventory write-offs and capitalized manufacturing variance
     write-offs, which were classified as cost of sales.

(b)  Includes $32.3 million of other charges in the first quarter of 2001
     related to the write-off of assets, severance, and related expenses.

(c)  Includes $0.3 million of other charges in the third quarter of 2001 for
     inventory write-offs in connection with the decision to discontinue the
     manufacturing of industrial flanges, which were classified as cost of
     sales.

(d)  Includes $1.5 million of other charges in the third quarter of 2001 for
     fixed asset impairments in connection with the decision to discontinue the
     manufacturing of industrial flanges.

(e)  Earnings per share (EPS) in each quarter is computed using the
     weighted-average number of shares outstanding during that quarter while EPS
     for the full year is computed using the weighted average number of shares
     outstanding during the year. Thus, the sum of the four quarters' EPS may
     not equal the full-year EPS.

(f)  Includes $7.9 million, $4.6 million, $0.9 million and $5.8 million of
     charges in the first, second, third and fourth quarters of 2000,
     respectively, related to adjustments to capitalized manufacturing cost
     variances. Such adjustments were made pursuant to a review of the Company's
     capitalized manufacturing variances in excess of standard costs.

                                        91
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(g)  Includes $11.0 million of other charges in the fourth quarter of 2000
     related to inventory write-offs, which have been classified as cost of
     sales.

(h)  The Company incurred $11.1 million of other charges in the fourth quarter
     of 2000 related to asset impairments and other charges.

(i)  Effective January 1, 2000, the Company adopted SAB No. 101, which was
     accounted for as a change in accounting principle. The cumulative effect of
     adoption of SAB No. 101, for periods prior to 2000, was $1.8 million, net
     of tax, shown as a first quarter cumulative effective of accounting change.

(j)  Pro forma earnings per share has been calculated using Grant Prideco's pro
     forma basic and diluted weighted average shares outstanding for the period
     presented. Grant Prideco's pro forma basic weighted average shares have
     been calculated by adjusting Weatherford's historical basic weighted
     average shares outstanding for the applicable period to reflect the number
     of Grant Prideco shares that would have been outstanding at the time
     assuming the distribution of one share of Grant Prideco common stock for
     each share of Weatherford common stock. The effect of Weatherford's stock
     options and restricted stock is not included in the diluted weighted
     average shares computation for periods in which a loss occurs because to do
     so would have been anti-dilutive.

     See Note 4 for further discussion of 2000 and 2001 other charges.

21.  SUBSEQUENT EVENT (UNAUDITED)

     The Company has entered into an agreement to acquire 65% of Scana Rotator,
a Norwegian company that manufactures control valves for the offshore and
deepwater markets. The Company has the right to acquire the remaining 35% of the
company two years following its purchase, with the purchase price being
determined by Scana Rotator's results of operations during this two-year period.
The Company expects to issue approximately 408,000 shares of Grant Prideco
common stock and assume approximately $2.5 million in debt for the initial 65%
interest.

     On March 25, 2002, the Company entered into agreements to acquire a 70%
controlling 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. The Company currently owns approximately 21.5% of this
entity. The Company will pay approximately $2.1 million in cash and issue 1.3
million shares of Grant Prideco common stock for the additional interest. The
Company also has entered into a joint venture with Tianjin Pipe Company (TPCO)
for the manufacture of unfinished upset to grade pipe in China, with the intent
of this joint venture to supply 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 as part of the
Company's contribution to the joint venture.

22.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

     The following balance sheets as of December 31, 2000 and 2001, and the
related statements of operations and cash flows for each of the three years in
the period ended December 31, 2001, are provided for the Company's domestic
subsidiaries that are guarantors of debt securities issued by the Company.

                                        92
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                            CONDENSED BALANCE SHEET
                            AS OF DECEMBER 31, 2000

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>
                                               ASSETS
CURRENT ASSETS:
  Cash and Cash Equivalents............  $     --    $  4,154     $  4,161     $      --     $  8,315
  Restricted Cash......................        --          --        4,000            --        4,000
  Accounts Receivable, Net.............        --     111,535       20,532            --      132,067
  Inventories..........................        --     174,087       26,165            --      200,252
  Current Deferred Tax Asset...........        --      23,841          154            --       23,995
  Other Current Assets.................        --       3,099        5,305            --        8,404
                                         --------    --------     --------     ---------     --------
                                               --     316,716       60,317            --      377,033
                                         --------    --------     --------     ---------     --------
PROPERTY, PLANT, AND EQUIPMENT.........        --     243,195       88,233            --      331,428
  Less: Accumulated Depreciation.......        --      97,581       21,066            --      118,647
                                         --------    --------     --------     ---------     --------
                                               --     145,614       67,167            --      212,781
                                         --------    --------     --------     ---------     --------
GOODWILL, NET..........................        --     145,322       86,818            --      232,140
INVESTMENT IN AND ADVANCES TO
  SUBSIDIARIES.........................   633,796          --           --      (633,796)          --
INVESTMENT IN UNCONSOLIDATED
  AFFILIATES...........................    38,952          --           --            --       38,952
OTHER ASSETS...........................     6,328      24,681          649            --       31,658
                                         --------    --------     --------     ---------     --------
                                         $679,076    $632,333     $214,951     $(633,796)    $892,564
                                         ========    ========     ========     =========     ========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-Term Borrowings and Current
     Portion of Long-Term Debt.........  $  2,697    $ 34,198     $  1,265     $      --     $ 38,160
  Accounts Payable.....................        --      68,856       15,595            --       84,451
  Current Deferred Tax Liability.......        --          --        2,278            --        2,278
  Customer Advances....................        --       2,275           --            --        2,275
  Other Accrued Liabilities............    11,723      32,085        7,613            --       51,421
                                         --------    --------     --------     ---------     --------
                                           14,420     137,414       26,751            --      178,585
                                         --------    --------     --------     ---------     --------
LONG-TERM DEBT.........................   214,713       3,888          503            --      219,104
DEFERRED INCOME TAXES..................        --      24,870       15,508            --       40,378
MINORITY INTEREST......................        --          --        1,098            --        1,098
OTHER LONG-TERM LIABILITIES............    18,440       3,270          186            --       21,896
COMMITMENTS AND CONTINGENCIES
  STOCKHOLDERS' EQUITY.................   431,503     462,891      170,905      (633,796)     431,503
                                         --------    --------     --------     ---------     --------
                                         $679,076    $632,333     $214,951     $(633,796)    $892,564
                                         ========    ========     ========     =========     ========
</Table>

                                        93
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                            CONDENSED BALANCE SHEET
                            AS OF DECEMBER 31, 2001

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>

                                               ASSETS
CURRENT ASSETS:
  Cash and Cash Equivalents............  $     --    $  1,905     $  8,479     $      --     $ 10,384
  Restricted Cash......................        --          --        5,383            --        5,383
  Accounts Receivable, Net.............        --     116,462       31,761            --      148,223
  Inventories..........................        --     161,285       37,529            --      198,814
  Current Deferred Tax Asset...........        --      13,524        2,751            --       16,275
  Other Current Assets.................        --       8,206        5,078            --       13,284
                                         --------    --------     --------     ---------     --------
                                               --     301,382       90,981            --      392,363
                                         --------    --------     --------     ---------     --------
PROPERTY, PLANT, AND EQUIPMENT.........        --     259,223       99,872            --      359,095
  Less: Accumulated Depreciation.......        --     107,989       26,599            --      134,588
                                         --------    --------     --------     ---------     --------
                                               --     151,234       73,273            --      224,507
                                         --------    --------     --------     ---------     --------
GOODWILL, NET..........................        --     144,830       86,691            --      231,521
INVESTMENT IN AND ADVANCES TO
  SUBSIDIARIES.........................   633,743          --           --      (633,743)          --
INVESTMENT IN UNCONSOLIDATED
  AFFILIATES...........................    55,289          --           --            --       55,289
OTHER ASSETS...........................     5,676       4,383        1,859            --       11,918
                                         --------    --------     --------     ---------     --------
                                         $694,708    $601,829     $252,804     $(633,743)    $915,598
                                         ========    ========     ========     =========     ========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-Term Borrowings and Current
     Portion of Long-Term Debt.........  $  2,590    $ 57,930     $    634     $      --     $ 61,154
  Accounts Payable.....................        --      45,758       16,931            --       62,689
  Current Deferred Tax Liability.......        --          --        5,051            --        5,051
  Customer Advances....................        --       1,469           --            --        1,469
  Other Accrued Liabilities............    11,711      32,230       11,877            --       55,818
                                         --------    --------     --------     ---------     --------
                                           14,301     137,387       34,493            --      186,181
                                         --------    --------     --------     ---------     --------
LONG-TERM DEBT.........................   201,826       2,654          544            --      205,024
DEFERRED INCOME TAXES..................        --      25,847       15,101            --       40,948
MINORITY INTEREST......................        --          --        1,615            --        1,615
OTHER LONG-TERM LIABILITIES............     9,614       3,004          245            --       12,863
COMMITMENTS AND CONTINGENCIES
  STOCKHOLDERS' EQUITY.................   468,967     432,937      200,806      (633,743)     468,967
                                         --------    --------     --------     ---------     --------
                                         $694,708    $601,829     $252,804     $(633,743)    $915,598
                                         ========    ========     ========     =========     ========
</Table>

                                        94
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>
REVENUES...............................  $     --    $239,076     $ 47,294      $    --      $286,370
                                         --------    --------     --------      -------      --------
COSTS AND EXPENSES:
  Cost of Sales........................        --     217,858       44,411           --       262,269
  Selling, General, and
     Administrative....................        --      38,305        7,437           --        45,742
  Equity Loss in Unconsolidated
     Affiliates........................       419          --           --           --           419
  Weatherford Charges..................     1,500          --           --           --         1,500
  Nonrecurring Charges.................        --          --        9,454           --         9,454
                                         --------    --------     --------      -------      --------
                                            1,919     256,163       61,302           --       319,384
                                         --------    --------     --------      -------      --------
OPERATING LOSS.........................    (1,919)    (17,087)     (14,008)          --       (33,014)
                                         --------    --------     --------      -------      --------
OTHER INCOME (EXPENSE):
  Interest Expense.....................      (338)     (3,441)        (314)          --        (4,093)
  Weatherford Interest Expense.........    (7,250)         --           --           --        (7,250)
  Equity in Subsidiaries, Net of
     Taxes.............................   (27,185)         --           --       27,185            --
  Other, Net...........................        --        (172)          34           --          (138)
                                         --------    --------     --------      -------      --------
                                          (34,773)     (3,613)        (280)      27,185       (11,481)
                                         --------    --------     --------      -------      --------
INCOME (LOSS) BEFORE INCOME TAXES......   (36,692)    (20,700)     (14,288)      27,185       (44,495)
INCOME TAX BENEFIT.....................     3,181       2,125        5,893           --        11,199
                                         --------    --------     --------      -------      --------
NET INCOME (LOSS) BEFORE MINORITY
  INTEREST.............................   (33,511)    (18,575)      (8,395)      27,185       (33,296)
MINORITY INTEREST......................        --          --         (215)          --          (215)
                                         --------    --------     --------      -------      --------
NET INCOME (LOSS)......................  $(33,511)   $(18,575)    $ (8,610)     $27,185      $(33,511)
                                         ========    ========     ========      =======      ========
</Table>

                                        95
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2000

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>
REVENUES...............................  $     --    $448,380     $50,101       $    --      $498,481
                                         --------    --------     -------       -------      --------
COSTS AND EXPENSES:
  Cost of Sales........................        --     402,395      37,120            --       439,515
  Selling, General, and
     Administrative....................        --      49,797       7,771            --        57,568
  Equity Income in Unconsolidated
     Affiliates........................    (5,495)         --          --            --        (5,495)
  Weatherford Charges..................       500          --          --            --           500
  Nonrecurring Charges.................        --      11,129          --            --        11,129
                                         --------    --------     -------       -------      --------
                                           (4,995)    463,321      44,891            --       503,217
                                         --------    --------     -------       -------      --------
OPERATING INCOME (LOSS)................     4,995     (14,941)      5,210            --        (4,736)
                                         --------    --------     -------       -------      --------
OTHER INCOME (EXPENSE):
  Interest Expense.....................    (9,905)     (6,455)       (645)           --       (17,005)
  Equity in Subsidiaries, Net of
     Taxes.............................   (18,369)         --          --        18,369            --
  Other, Net...........................        --        (840)        731            --          (109)
                                         --------    --------     -------       -------      --------
                                          (28,274)     (7,295)         86        18,369       (17,114)
                                         --------    --------     -------       -------      --------
INCOME (LOSS) BEFORE INCOME TAXES......   (23,279)    (22,236)      5,296        18,369       (21,850)
INCOME TAX (PROVISION) BENEFIT.........     6,794       2,244      (1,673)           --         7,365
                                         --------    --------     -------       -------      --------
NET INCOME (LOSS) BEFORE MINORITY
  INTEREST.............................   (16,485)    (19,992)      3,623        18,369       (14,485)
MINORITY INTEREST......................        --          --        (211)           --          (211)
                                         --------    --------     -------       -------      --------
NET INCOME (LOSS) BEFORE CUMULATIVE
  EFFECT OF ACCOUNTING CHANGE..........   (16,485)    (19,992)      3,412        18,369       (14,696)
CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE...............................        --      (1,789)         --            --        (1,789)
                                         --------    --------     -------       -------      --------
       NET INCOME (LOSS)...............  $(16,485)   $(21,781)    $ 3,412       $18,369      $(16,485)
                                         ========    ========     =======       =======      ========
</Table>

                                        96
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>
REVENUES...............................  $     --    $624,656     $115,471      $     --     $740,127
                                         --------    --------     --------      --------     --------
COSTS AND EXPENSES:
  Cost of Sales........................        --     501,432       69,686            --      571,118
  Selling, General, and
     Administrative....................        --      56,264       14,682            --       70,946
  Equity Income in Unconsolidated
     Affiliates........................    (8,747)         --           --            --       (8,747)
  Nonrecurring Charges.................        --      32,280        1,475            --       33,755
                                         --------    --------     --------      --------     --------
                                           (8,747)    589,976       85,843            --      667,072
                                         --------    --------     --------      --------     --------
OPERATING INCOME (LOSS)................     8,747      34,680       29,628            --       73,055
                                         --------    --------     --------      --------     --------
OTHER INCOME (EXPENSE):
  Interest Expense.....................   (20,787)     (5,625)        (655)           --      (27,067)
  Equity in Subsidiaries, Net of
     Taxes.............................    35,916          --           --       (35,916)          --
  Other, Net...........................        --       5,493       (6,763)           --       (1,270)
                                         --------    --------     --------      --------     --------
                                           15,129        (132)      (7,418)      (35,916)     (28,337)
                                         --------    --------     --------      --------     --------
INCOME (LOSS) BEFORE INCOME TAXES......    23,876      34,548       22,210       (35,916)      44,718
INCOME TAX (PROVISION) BENEFIT.........     4,214      (8,433)     (11,432)           --      (15,651)
                                         --------    --------     --------      --------     --------
NET INCOME (LOSS) BEFORE MINORITY
  INTEREST.............................    28,090      26,115       10,778       (35,916)      29,067
MINORITY INTEREST......................        --          --         (977)           --         (977)
                                         --------    --------     --------      --------     --------
NET INCOME (LOSS)......................  $ 28,090    $ 26,115     $  9,801      $(35,916)    $ 28,090
                                         ========    ========     ========      ========     ========
</Table>

                                        97
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                          -------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                       <C>       <C>          <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Cash (Used) Provided by Operating
     Activities.........................  $(6,326)   $ 24,364     $ 47,202     $      --     $ 65,240
                                          -------    --------     --------     ---------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of Businesses, Net of Cash
     Acquired...........................   (7,999)     (3,123)      (3,950)           --      (15,072)
Capital Expenditures for Property,
  Plant, and Equipment..................       --     (13,038)      (6,008)           --      (19,046)
                                          -------    --------     --------     ---------     --------
       Net Cash Used by Investing
          Activities....................   (7,999)    (16,161)      (9,958)           --      (34,118)
                                          -------    --------     --------     ---------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments on Debt, Net...............       --      (7,318)     (46,907)           --      (54,225)
  Stockholder's Investment..............   14,325          --        8,912            --       23,237
                                          -------    --------     --------     ---------     --------
       Net Cash Provided (Used) by
          Financing Activities..........   14,325      (7,318)     (37,995)           --      (30,988)
                                          -------    --------     --------     ---------     --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS...........................       --         885         (751)           --          134
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF YEAR...............................       --       4,113        1,957            --        6,070
                                          -------    --------     --------     ---------     --------
CASH AND CASH EQUIVALENTS AT END OF
  YEAR..................................  $    --    $  4,998     $  1,206     $      --     $  6,204
                                          =======    ========     ========     =========     ========
</Table>

                                        98
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2000

<Table>
<Caption>
                                                                   NON-
                                        PARENT     GUARANTORS   GUARANTORS   ELIMINATIONS     TOTAL
                                       ---------   ----------   ----------   ------------   ---------
                                                               (IN THOUSANDS)
<S>                                    <C>         <C>          <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Cash Provided (Used) by
     Operating Activities............  $   8,316    $(68,569)    $ 27,638     $      --     $ (32,615)
                                       ---------    --------     --------     ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions, Net of Cash
     Acquired........................         --     (36,492)     (29,535)           --       (66,027)
  Capital Expenditures for Property,
     Plant, and Equipment............         --     (17,906)      (2,985)           --       (20,891)
  Investment by Parent...............   (102,106)         --           --       102,106            --
  Other, Net.........................         --          48          101            --           149
                                       ---------    --------     --------     ---------     ---------
       Net Cash (Used) Provided by
          Investing Activities.......   (102,106)    (54,350)     (32,419)      102,106       (86,769)
                                       ---------    --------     --------     ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on Revolving Credit
     Facility, Net...................         --      30,193          657            --        30,850
  Issuance of Long-Term Debt, Net....    193,324          --           --            --       193,324
  Repayments on Long-Debt, Net.......   (103,548)    (11,923)      (4,868)           --      (120,339)
  Purchase of Treasury Stock.........     (1,046)         --           --            --        (1,046)
  Proceeds from Stock Option
     Exercises.......................      1,502          --           --            --         1,502
  Investment in Subsidiaries.........         --      70,222       31,884      (102,106)           --
  Stockholder's Investment...........      3,558      33,583      (19,937)           --        17,204
                                       ---------    --------     --------     ---------     ---------
       Net Cash Provided (Used) by
          Financing Activities.......     93,790     122,075        7,736      (102,106)      121,495
                                       ---------    --------     --------     ---------     ---------
NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS...................         --        (844)       2,955            --         2,111
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR..................         --       4,998        1,206            --         6,204
                                       ---------    --------     --------     ---------     ---------
CASH AND CASH EQUIVALENTS AT END OF
  YEAR...............................  $      --    $  4,154     $  4,161     $      --     $   8,315
                                       =========    ========     ========     =========     =========
</Table>

                                        99
<PAGE>
                              GRANT PRIDECO, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Cash Provided by Operating
     Activities........................  $ 15,544    $  8,730     $ 16,216      $     --     $ 40,490
                                         --------    --------     --------      --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions, Net of Cash Acquired...        --      (2,217)      (2,791)           --       (5,008)
  Capital Expenditures for Property,
     Plant,and Equipment...............        --     (28,829)      (8,383)           --      (37,212)
  Other, Net...........................        --           4           82            --           86
                                         --------    --------     --------      --------     --------
       Net Cash Used by Investing
          Activities...................        --     (31,042)     (11,092)           --      (42,134)
                                         --------    --------     --------      --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on Revolving Credit
     Facility, Net.....................        --      22,289         (259)           --       22,030
  Repayments on Long-Debt, Net.........   (14,561)     (2,226)        (547)           --      (17,334)
  Proceeds from Stock Option
     Exercises.........................       654          --           --            --          654
  Purchase of Treasury Stock...........    (1,637)         --           --            --       (1,637)
                                         --------    --------     --------      --------     --------
       Net Cash Provided (Used) by
          Financing Activities.........   (15,544)     20,063         (806)           --        3,713
                                         --------    --------     --------      --------     --------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS.....................        --      (2,249)       4,318            --        2,069
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF YEAR..............................        --       4,154        4,161            --        8,315
                                         --------    --------     --------      --------     --------
CASH AND CASH EQUIVALENTS AT END OF
  YEAR.................................  $     --    $  1,905     $  8,479      $     --     $ 10,384
                                         ========    ========     ========      ========     ========
</Table>

                                       100
<PAGE>

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

     On April 26, 2001, we dismissed Arthur Andersen LLP, the independent
accountants previously engaged as the principal accountants to audit our
financial statements. The decision to change accountants was recommended by the
Audit Committee of our Board of Directors and approved by the entire Board of
Directors.

     The reports of Arthur Andersen LLP on our financial statements for the
fiscal years 1999 and 2000 did not contain any adverse opinion or disclaimer of
opinion, nor were those reports qualified or modified as to uncertainty, audit
scope, or accounting principles (except that Arthur Andersen's report on the
December 31, 2000 consolidated financial statements was modified for the
Company's change in accounting principle, effective January 1, 2000, for revenue
recognition pursuant to the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101). During fiscal years 1999 and 2000 we had no
disagreements with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports on our financial statements.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table lists the individuals who currently serve as a director
or officer of our company:

<Table>
<Caption>
NAME                                     AGE                    TITLE
----                                     ---                    -----
<S>                                      <C>   <C>
Bernard J. Duroc-Danner................  48    Chairman of the Board of Directors
Curtis W. Huff.........................  44    President, Chief Executive Officer and
                                               Director
David J. Butters.......................  60    Director
Eliot M. Fried.........................  67    Director
Sheldon B. Lubar.......................  71    Director
Robert K. Moses, Jr. ..................  61    Director
Robert A. Rayne........................  52    Director
Warren S. Avery........................  55    Vice President Human Resources
Greg L. Boane..........................  38    Corporate Controller
Curtis D. Burton.......................  46    President -- Marine Products and
                                               Services Division
Philip A. Choyce.......................  35    Vice President, General Counsel and
                                               Secretary
William G. Chunn.......................  68    Executive Vice President of Operations
Marshall E. Danby......................  57    President -- Premium Connections and
                                               Tubular Products Division
Dan M. Latham..........................  51    President -- Drilling Products and
                                               Services Division
Louis A. Raspino.......................  49    Vice President, Chief Financial Officer
                                               and Treasurer
</Table>

BIOGRAPHIES

     Bernard J. Duroc-Danner has served as our Chairman of the Board since our
spinoff from Weatherford in April 2000. Mr. Duroc-Danner is the President, Chief
Executive Officer, and Chairman of the Board of Directors of Weatherford
International, Inc. Mr. Duroc-Danner has served as President and CEO of
Weatherford (formerly EVI, Inc.) since May 1990. Mr. Duroc-Danner holds a Ph.D.
in economics from

                                       101
<PAGE>

Wharton (University of Pennsylvania). In prior years, Mr. Duroc-Danner held
positions with Arthur D. Little and Mobil Oil Inc. Mr. Duroc-Danner is a
director of Parker Drilling Company (an oil and gas drilling company), CalDive
International, Inc. (a company engaged in subsea services in the Gulf of Mexico)
and Universal Compression Holdings, Inc. (a company providing compression
services to the oil and gas industry).

     Curtis W. Huff has served as a director and as our President and Chief
Executive Officer since February 2001. Prior to such time, Mr. Huff served as
Executive Vice President, Chief Financial Officer, General Counsel and Secretary
of Weatherford beginning in January, 2000 and Weatherford's Senior Vice
President, General Counsel and Secretary beginning in May, 1998. Prior to
joining Weatherford, Mr. Huff was a partner with the law firm of Fulbright &
Jaworski, L.L.P. in Houston, Texas. In connection with our spinoff from
Weatherford, Mr. Huff served as our Vice President and interim General Counsel
until January 1, 2001. Mr. Huff is a director of Patterson UTI Energy, Inc. (a
contract driller) and Universal Compression Holdings, Inc. (a company providing
compression services to the oil and gas industry). Mr. Huff holds a Master of
Law degree (LLM) from New York University, in addition to J.D. and B.A. degrees
from the University of New Mexico.

     David J. Butters has served as a director of our Company since December
2001. Mr. Butters is a Managing Director of Lehman Brothers, Inc., an investment
banking company, where he has been employed for more than the past five years.
Mr. Butters is currently Chairman of the Board of Directors of GulfMark
Offshore, Inc. (a provider of marine support and transportation services to
companies involved in the exploration and production of oil and natural gas), a
director of Anangel-American Shipholdings, Ltd. (an international ship owning
and operating company), a member of the Board of Advisors of Energy
International, N.V. (an investment fund), and is a director of Weatherford.

     Eliot M. Fried has served as our director since our spinoff from
Weatherford in April 2000. Mr. Fried joined Abner, Herrman & Brock Asset
Management, an independent investment management firm as of February 1, 2000.
Prior to such time, Mr. Fried was a Managing Director of Lehman Brothers, and a
member of Lehman Brothers' Investment and Capital Commitment Committees, as well
as Senior Trustee of Lehman Brothers Holdings Inc. Retirement Plan. Mr. Fried is
a director of Axsys Technologies Inc., L-3 Communications Corporation and Blount
International Inc.

     Sheldon B. Lubar has served as our director since our spinoff from
Weatherford in April 2000. Mr. Lubar has been the Chairman of Lubar & Co., a
private investment company, for more than the past five years. Mr. Lubar is a
director of C2, Inc., Ameritech Corporation, Massachusetts Mutual Life Insurance
Company, Firstar Corporation, MGIC Investment Corporation and Jefferies &
Company, Inc. He also serves on the board of Weatherford.

     Robert K. Moses, Jr. has served as our director since our spinoff from
Weatherford in April 2000. Mr. Moses has been a private investor, principally in
the oil and gas exploration and oilfield services business in Houston, Texas,
for more than the past five years. He served as Chairman of the Board of
Weatherford Enterra, a predecessor to Weatherford, from May 1989 to December
1992. He also serves on the board of Weatherford.

     Robert A. Rayne has served as our director since our spinoff from
Weatherford in April 2000. Mr. Rayne has been an Executive Director of London
Merchant Securities plc (property investment and development with major
investments in leisure enterprises), a United Kingdom-listed public limited
company, for more than the past five years. He also serves on the board of
Weatherford.

     Warren S. Avery has served as Vice President Human Resources since October
1999. Prior to such time, Mr. Avery served as Vice President of Human Resources
for Dailey International beginning in February 1998. Dailey was purchased by
Weatherford in connection with Dailey's Chapter 11 Reorganization in 1999. Prior
to joining Dailey International, Mr. Avery held senior human resource positions
at Baker Hughes, Global Marine and Dresser Industries.

     Greg L. Boane has served as our Corporate Controller since 1999. Prior to
joining us, Mr. Boane was Corporate Controller for Noble Drilling Services, Inc.
from November 1996 to October 1999. Prior to joining Noble Drilling Services,
Inc., Mr. Boane worked for McDonald's Corporation as a Regional Controller and
                                       102
<PAGE>

EVI, Inc. as Assistant Corporate Controller. Mr. Boane has a B.B.A. in Finance
from Texas A&M University and is a Certified Public Accountant.

     Curtis D. Burton has served as our President and CEO -- Marine Products and
Services Division since October 2001. Prior to joining us, Mr. Burton was
President of Total Offshore Production Systems (TOPS), a wholly owned subsidiary
of R&B Falcon, and Vice President of Reading & Bates Development Co., R&B
Falcon's equity ownership division. Prior to joining TOPS, Mr. Burton worked for
Texaco, where he co-founded DeepSTAR. Mr. Burton has a B.S. in Mechanical
Engineering from the University of Texas at Austin.

     Philip A. Choyce has served as our Vice President, General Counsel and
Secretary since January 1, 2001. From December 1999 until January 1, 2001, Mr.
Choyce served as our Vice President and Associate General Counsel. Prior to
joining us, Mr. Choyce was a senior associate with Fulbright & Jaworski L.L.P.'s
corporate law practice in Houston, Texas. Prior to joining Fulbright & Jaworski
L.L.P., Mr. Choyce was a certified public accountant with Ernst & Young LLP in
Houston, Texas. Mr. Choyce has a B.B.A. in Accounting from Texas A&M University
and a J.D. from the University of Texas at Austin.

     William G. Chunn has served as our Corporate Executive Vice President since
October 2001. From 1995 until October 2001, Mr. Chunn served as our Executive
Vice President -- Operations. Mr. Chunn served as President, Chief Executive
Officer, and Director of Prideco beginning in 1985 until our merger with them in
1995. Mr. Chunn has held senior executive positions in the drill stem industry
for over 30 years.

     Marshall E. Danby has served as President -- Premium Connections and
Tubulars Division since October 2001. From November 2000 until such time, Mr.
Danby served as the President of Drill Tube International, a subsidiary of Grant
Prideco. Prior to joining us in November 2000, Mr. Danby served as Director of
Services for Hunting Oilfield Services from 1999 until November 2000 and
President of Hunting-PetroTube from 1996 until 1999. Mr. Danby has a B.S. from
Oregon State University.

     Louis A. Raspino has served as our Vice President, Chief Financial Officer
and Treasurer since July 2001. From December 2000 until April 2001, Mr. Raspino
was employed as Senior Vice President, Chief Financial Officer and Chief
Operating Officer of JRL Enterprises, Inc. From February 1999 until December
2000, Mr. Raspino served as Vice President of Finance for Halliburton Company.
From October 1997 until July 1998, Mr. Raspino was a Senior Vice President at
Burlington Resources, Inc. From 1978 until its merger with Burlington Resources,
Inc. in 1997, Mr. Raspino held a variety of increasingly responsible positions
at Louisiana Land and Exploration Company, most recently as Senior Vice
President, Finance and Administration and Chief Financial Officer. Mr. Raspino
is a certified public accountant with a B.S. from Louisiana State University and
an M.B.A. from Loyola University.

     Dan M. Latham has served as President-Drilling Products Division since
October 2001. Prior to such time, Mr. Latham served as our Vice President Sales
and Marketing. A position he held since 1990. Prior to joining us, Mr. Latham
held a number of progressively responsible management positions at Shell Oil
Company and Baker Hughes.

     All of our executive officers and directors are required to file initial
reports of stock ownership and reports of changes in ownership with the
Securities and Exchange Commission and the New York Stock Exchange pursuant to
Section 16(a) of the Securities Exchange Act of 1934. We have reviewed these
reports, including any amendments, and written representations from the current
executive officers and directors of the Company. Based on this review, we
believe that all transactions by executive officers or directors have been
reported on a timely basis, except that Mr. Chunn reported purchases of shares
of common stock in his 401(k) plan in October 2001 on his annual report on Form
5 in February 2002 and Mr. Butters reported his initial report on Form 3
relating to his becoming a director in December 2001 at the time of the filing
of his annual report on Form 5 in February 2002. The Company also believes that
Mr. Coble and Frances Powell, former executive officers of the Company, have not
yet filed their annual reports on Form 5.

                                       103
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     This table shows the total compensation paid for the years ended December
31, 1999, 2000 and 2001, to Messers Huff and Coble, the two individuals who
served as our Chief Executive Officer during 2001, and our other four most
highly compensated executive officers during 2001:

<Table>
<Caption>
                                                                                   LONG-TERM
                                               ANNUAL COMPENSATION            COMPENSATION AWARDS
                                        ----------------------------------   ----------------------
                                                              OTHER ANNUAL   RESTRICTED                ALL OTHER
                                         SALARY     BONUS     COMPENSATION     STOCK       OPTIONS    COMPENSATION
NAME AND PRINCIPAL POSITION      YEAR    ($)(1)     ($)(1)     ($)(2)(3)        ($)          (4)         ($)(5)
---------------------------      ----   --------   --------   ------------   ----------   ---------   ------------
<S>                              <C>    <C>        <C>        <C>            <C>          <C>         <C>
Curtis W. Huff.................  2001   $448,677   $500,000     $ 66,346          --      1,000,000      $7,531
  President and                  2000     71,538         --        7,450          --        240,000          --
  Chief Executive Officer        1999         --         --           --          --             --          --
Philip A. Choyce...............  2001    192,200     74,443       27,916          --         75,000       2,434
Vice President, General Counsel  2000         --         --           --          --             --          --
  and Secretary                  1999         --         --           --          --             --          --
William E. Chunn...............  2001    248,700    145,565       49,070          --        125,000       8,807
  Executive Vice President       2000    222,800     84,524       34,500          --        150,000       9,957
  of Operations                  1999    202,308         --       25,701          --             --       6,524
Dan M. Latham..................  2001    203,931    118,703       39,651          --        125,000       3,983
  President -- Drilling
    Products                     2000    180,608     66,500       28,171          --        100,000       6,630
  and Services Division          1999         --         --           --          --             --          --
Louis A. Raspino...............  2001    123,654    150,000        9,014          --        375,000         190
  Vice President, Chief          2000         --         --           --          --             --          --
  Financial Officer and          1999         --         --           --          --             --          --
  Treasurer
John C. Coble..................  2001     46,984         --        7,047          --             --       1,423
  Former President,              2000    371,139         --       71,750          --        750,000      12,972
  Chief Executive Officer and    1999    300,000         --       67,500          --             --      10,279
  Director(6)
</Table>

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

(1) Salary and bonus compensation include amounts deferred by each executive
    officer under our Executive Deferred Compensation Stock Ownership Plan (the
    "Executive Deferred Plan") described in Note 2 below. The bonus amounts were
    earned in the year in which they are shown in the table but were paid in the
    first half of the following year. No compensation is shown for Messrs. Huff,
    Avery, or Latham in 1999 because they did not serve as executive officers of
    the Company during 1999. No compensation is shown for Messrs. Choyce or
    Raspino during 1999 or 2000 because they did not serve as an executive
    officer during such years. Mr. Huff's salary for 2000 relates to his
    services as our Vice President and Interim General Counsel.

(2) Other Annual Compensation includes (i) the vested portion of the amount
    contributed by us under the Executive Deferred Plan equal to 7.5% of each
    annual officer's compensation for each year, plus (ii) the vested portion of
    our matching contribution under the Executive Deferred Plan equal to 100% of
    the amount deferred by the officer. Each officer can defer up to 7.5% of his
    total salary and bonus compensation each year. Our contributions vest over a
    five-year period on the basis of 20% per year for each year of service by an
    officer with us. Under the Executive Deferred Plan, the compensation
    deferred by each officer and our contributions are converted into
    non-monetary units equal to the number of shares of common stock that could
    have been purchased by the amounts deferred and contributed at a market-
    based price. Distributions are made under the Executive Deferred Plan after
    an officer retires, terminates his employment or dies. The amount of the
    distribution under the Executive Deferred Plan is based on the number of
    vested units in the officer's account multiplied by the market price of the
    common stock at that time. Distributions under the Executive Deferred Plan
    are required to be made in shares of Grant Prideco common stock. Our
    obligations with respect to the Executive Deferred Plan are unfunded.
    However, we have established a grantor trust that is subject to the claims
    of our creditors, into which

                                       104
<PAGE>

    funds are deposited with an independent trustee that purchases shares of
    common stock for the Executive Deferred Plan. As of December 31, 2001,
    Messrs. Huff, Choyce, Chunn, Latham and Raspino had 8,161, 3,272, 5,313,
    1,553 and 960 units allocated to their respective accounts. In connection
    with Mr. Coble's severance from the Company in February 2001, Mr. Coble
    received a distribution of 2,581 shares from the Executive Deferred Plan.

(3) Excludes the total amount of all perquisites and other benefits that were
    less than the lesser of $50,000 or 10% of the total of annual salary and
    bonus of each executive officer.

(4) Excludes options issued pursuant to the Distribution Agreement dated April
    14, 2000, between the Company and Weatherford, which were issued in exchange
    for, or in connection with, options granted by Weatherford in prior years.

(5) Represents matching contributions under our 401(k) Savings Plan and life
    insurance premiums.

(6) In connection with Mr. Coble's severance from the Company in February 2001,
    the Company paid Mr. Coble a lump sum payment of $11.7 million pursuant to
    the terms of his employment agreement, including $8.8 million relating to
    the surrender and cancellation pursuant to the terms of his employment
    agreement of stock options to purchase 1.1 million shares of common stock.

                            OPTIONS GRANTED IN 2001

<Table>
<Caption>
                                      % OF TOTAL
                                    OPTIONS GRANTED
                          OPTIONS   TO EMPLOYEES IN   EXERCISE PRICE                     GRANT DATE PRESENT
NAME                      GRANTED       2001(%)       (PER SHARE)($)   EXPIRATION DATE      VALUE($)(1)
----                      -------   ---------------   --------------   ---------------   ------------------
<S>                       <C>       <C>               <C>              <C>               <C>
Curtis W. Huff..........  650,000        11.9%            $18.51           3/18/14           $5,126,299
                          350,000         6.4%              7.14          10/18/15           $1,096,039
Philip A. Choyce........   75,000         1.4%              7.14          10/18/15           $  234,866
William G. Chunn........  125,000         2.3%              7.14          10/18/15           $  391,443
Dan M. Latham...........  125,000         2.3%              7.14          10/18/15           $  391,443
Louis Raspino...........  250,000         4.6%             15.47            7/9/14           $1,648,775
                          125,000         2.3%              7.14          10/18/15           $  391,438
John C. Coble...........       --          --                 --                --                   --
</Table>

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

(1) The calculation assumes volatility of 83.2%, a risk free rate of 5.7% to
    6.0%, a 8.4 year expected life, no expected dividends and option grants at
    the fair market value on the date of grant. The actual value, if any, of any
    option will depend on the amount, if any, by which the stock price exceeds
    the exercise price on the date the option is exercised. Thus, this valuation
    may not be a reliable indication as to value and there is no assurance the
    value realized will be at or near the value estimated by the Black-Scholes
    model.

                      AGGREGATED OPTION EXERCISES IN 2001
                      AND DECEMBER 31, 2001 OPTION VALUES

<Table>
<Caption>
                                                         NUMBER OF UNEXERCISED         VALUE OF UNEXERCISED
                                                              OPTIONS AT              IN-THE-MONEY OPTIONS AT
                            SHARES                       DECEMBER 31, 2001(1)         DECEMBER 31, 2001($)(2)
                           ACQUIRED        VALUE      ---------------------------   ---------------------------
NAME                      ON EXERCISE   REALIZED($)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                      -----------   -----------   -----------   -------------   -----------   -------------
<S>                       <C>           <C>           <C>           <C>             <C>           <C>
Curtis W. Huff..........       --            --         390,000       1,000,000            --      $1,526,000
Philip A. Choyce........       --            --              --         244,607            --      $  327,000
William G. Chunn........       --            --          69,607         275,000      $347,838      $  545,000
Dan M. Latham...........       --            --          69,607         225,000      $347,838      $  545,000
Louis Raspino...........       --            --              --         375,000            --      $  545,000
John C. Coble(3)........       --            --              --              --            --              --
</Table>

                                       105
<PAGE>

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

(1) Includes options granted pursuant to the terms of the Distribution Agreement
    dated April 14, 2000, between Weatherford and the Company.

(2) The value is based on the difference in the closing market price of the
    common stock on December 31, 2001 ($11.50), and the exercise price of the
    options. The actual value, if any, of the unexercised options will depend on
    the market price of the common stock at the time of exercise of the options.

(3) Amounts exclude payments of $8.8 million in consideration of options
    surrendered and canceled by Mr. Coble pursuant to the terms of his
    employment agreement and his severance from the Company in February 2001.

EMPLOYMENT CONTRACTS

     We have entered into an employment agreement with Mr. Huff, which has a
term of three years and is renewable annually. The base compensation payable to
Mr. Huff under his employment agreement is $500,000. In connection with his
election as our President and Chief Executive Officer in February 2001, we also
granted to Mr. Huff options to purchase 650,000 shares of common stock, which
options are subject to three-year cliff vesting. Under the terms of his
employment agreement, if we terminate Mr. Huff's employment for any reason other
than "cause" or "disability" or if he terminates his or her employment for "good
reason", as defined in the employment agreement, Mr. Huff will be entitled to
receive an amount equal to the sum of:

     - three times his current annual base compensation plus the highest bonus
       paid to the executive during the three years prior to the year of
       termination,

     - any accrued salary or bonus (pro-rated to the date of termination),

     - an amount payable as if all retirement plans were vested,

     - the amount that would have been contributed as our match under our 401(k)
       plan and our Executive Deferred Plan for three years, and

     - his car allowance for three years.

     Under the employment agreement, "cause" is defined as the willful and
continued failure to perform the executive's job after written demand is made or
the board or the willful engagement in illegal conduct or gross misconduct by
the executive. Termination by Mr. Huff for "good reason" is generally defined
as:

     - a material reduction in title and/or responsibilities of the executive,

     - certain relocations of the executive, or

     - any material reduction in the executive's benefits.

     All health and medical benefits would also be maintained after termination
for a period of three years provided Mr. Huff makes his required contribution.

     Under the Deficit Reduction Act of 1984, certain severance payments that
exceed a certain amount could subject both us and Mr. Huff to adverse U.S.
federal income tax consequences. Mr. Huff's employment agreement provides that
we would be required to pay him a "gross up payment" to insure that he receives
the total benefit intended by the employment agreement.

     In addition, in connection with Mr. Raspino joining us in July 2001, we
entered into an employment agreement with him with similar terms to our
agreement with Mr. Huff, except that the agreement relates to a period of two
years and does not require the Company to pay Mr. Raspino a "gross up payment".
Mr. Raspino, however, is entitled to a gross-up payment pursuant to his Change
of Control Agreement discussed below. In addition to agreements with Messrs.
Huff and Raspino, we have entered into employment arrangements with Messrs.
Choyce and Danby in connection with their initial employment with the Company.
These arrangements generally provide for a severance payment of up to one year
in the event of termination of the executive without cause.

                                       106
<PAGE>

     We have entered into a change of control agreement with Messrs. Avery,
Burton, Chunn, Choyce, Danby, and Latham. Under these agreements, the executives
will be provided with certain benefits if there is both a change of control of
Grant Prideco and the executive is subsequently terminated for any reason other
than for "cause" or elects to terminate his employment for "good reason" within
two years after a change of control. A change of control is defined generally as
an acquisition by a person or group of persons of at least 50% of our
outstanding common stock. Under these agreements, if there is a change of
control of Grant Prideco, we would agree that the executive's base salary would
not decrease unless there was a company-wide salary reduction, the executives
also would continue to be eligible for an annual bonus under our incentive plan
applicable to other key employees and, if we are not the surviving entity in a
change of control, the surviving company would be required to issue
substantially similar options in replacement of any Grant Prideco options held
by the executive. "For cause" will be defined to be the failure by the executive
to perform his/her job after written notice from us, engaging in illegal conduct
or misconduct, a conviction of a crime involving moral turpitude, a
misappropriation of funds, disparagement of us or our management, or other cause
determined by our Board of Directors in good faith. "Good reason" will be
defined as a material reduction in responsibility or benefits. If, following a
change of control, the executive's employment is terminated by us for any reason
other than cause or the executive's employment is terminated by him for good
reason, he would be entitled to two years base salary plus two years bonus.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This table shows the number and percentage of shares of common stock
beneficially owned by our directors, executive officers and other officers as of
March 15, 2002. Each person has sole voting and investment power for the shares
shown below, unless otherwise noted.

      AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF MARCH 15, 2002

<Table>
<Caption>
                                                       NUMBER OF      RIGHT TO        PERCENT OF
NAME                                                  SHARES OWNED   ACQUIRE(1)   OUTSTANDING SHARES
----                                                  ------------   ----------   ------------------
<S>                                                   <C>            <C>          <C>
Bernard J. Duroc-Danner.............................     520,412       550,000             *
Curtis W. Huff......................................      63,500       390,000             *
David L. Butters(2).................................     101,250        10,000             *
Eliot M. Fried......................................      40,000            --             *
Sheldon B. Lubar(3).................................     746,969        30,000             *
Robert K. Moses, Jr. ...............................     381,633        10,000             *
Robert A. Rayne(4)..................................         279        20,000             *
Warren S. Avery.....................................          --            --             *
Greg L. Boane.......................................          --            --             *
Curtis D. Burton....................................          --            --             *
Philip A. Choyce....................................          --            --             *
William G. Chunn(5).................................      55,258        69,607             *
Marshall E. Danby...................................       2,000            --             *
Dan M. Latham.......................................          --        69,607             *
Louis A. Raspino....................................       2,000            --             *
John C. Coble.......................................          --            --             *
                                                       ---------     ---------           ---
All officers and directors as a group (16
  persons)..........................................   1,913,301     1,149,214           2.8%
                                                       =========     =========           ===
</Table>

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

 *  Less than 1%.

(1) Shares of common stock that can be acquired through stock options
    exercisable through May 15, 2002. Excludes options not vested prior to May
    15, 2002 and rights under deferred compensation arrangements.

                                       107
<PAGE>

(2) Includes 14,288 shares held by his wife, for which he disclaims beneficial
    ownership, and 41,160 shares held in trusts for his children for which Mr.
    Butters is the custodian, having voting and dispositive power. Reportings do
    not include holdings by Lehman Brothers for which Mr. Butters does not have
    a beneficial interest.

(3) Includes 292,476 shares held by Mr. Lubar through a general partnership of
    which he is a general partner. Also includes 292,476 shares held by his wife
    through the general partnership, over which he has no voting or dispositive
    power and as to which he disclaims beneficial ownership, and 52,620 shares
    held in trusts for his grandchildren through the general partnership, of
    which he is the trustee and has voting and dispositive power.

(4) Excludes 540,000 shares beneficially owned by London Merchant Securities
    plc, of which Mr. Rayne serves as Executive Director. Mr. Rayne disclaims
    beneficial ownership of all of these shares.

(5) Includes 16,452 shares held through Mr. Chunn's 401(k) account.

                       STOCK OWNED BY BENEFICIAL HOLDERS

     This table shows information for each person known by us to beneficially
own 5% or more of the outstanding shares of Common Stock as of March 15, 2002.

<Table>
<Caption>
                                                                              PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER                NUMBER OF SHARES(1)   OUTSTANDING SHARES
------------------------------------                -------------------   ------------------
<S>                                                 <C>                   <C>
Citigroup Inc.(2).................................      15,424,411              14.10%
  399 Park Avenue
  New York, New York 10043
Massachusetts Financial...........................       8,023,892               7.30%
  Services Company
  500 Bay Iston Street
  Boston, Massachusetts 02116
Mellon Financial Corporation(3)...................       6,666,506               6.09%
  One Mellon Center
  Pittsburgh, Pennsylvania 15258
</Table>

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

(1) This information is based on information furnished by each stockholder or
    contained in filings made with the Securities and Exchange Commission. The
    person listed has sole voting and dispositive power for its shares of common
    stock, unless otherwise noted.

(2) Salomon Smith Barney Holdings, Inc. (SSB Holdings), a wholly owned
    subsidiary of Citicorp, is the beneficial owner of 14,961,246 shares as a
    result of its ownership of various subsidiaries. SSB Holdings address is 388
    Greenwich Street, New York, New York 10013.

(3) Mellon Bank Corporation is the parent company of Mellon Bank, N.A., which
    serves as trustee for various client's ERISA plans. The shares reported
    include all shares held of record by Mellon Bank, N.A. as trustee of such
    plans that have not been allocated to the individual accounts of employee
    participants in such plans.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Until April 14, 2000, we were a wholly owned subsidiary of Weatherford
International, Inc. We were spun off from Weatherford on April 14, 2000, through
a distribution by Weatherford to its stockholders of all of our Common Stock. In
contemplation of the spinoff, we entered into several transactions with
Weatherford. A majority of our Board of Directors also constitutes a majority of
Weatherford's board of directors, and the Chairman of our Board is also the
Chairman of the Board of Weatherford.

     Weatherford Note.  At the time of the spinoff, we owed Weatherford $494.7
million in intercompany debt. Immediately before the spinoff, we issued
Weatherford a $100.0 million note representing a portion of

                                       108
<PAGE>

this debt, and Weatherford contributed the remainder of the intercompany debt to
us. In December 2000, we repaid all outstanding principal and interest under
this note.

     Tax Allocation Agreement.  In connections with the spinoff, we entered into
a tax allocation agreement with Weatherford allocating certain contingent tax
liabilities between us and Weatherford. Under the tax allocation agreement, we
generally will make payments to Weatherford such that, with respect to tax
returns for any taxable period in which we or any of our subsidiaries are
included in the consolidated group or any combined group, the amount of taxes to
be paid by us will be determined, subject to adjustments, as if we and each of
our subsidiaries included in the consolidated group or combined group filed our
own consolidated, combined, or unitary tax return. Weatherford, however, will
have the future benefit of any tax losses incurred by us prior, as a part of a
consolidated return with Weatherford, to the spinoff date, and we will be
required to pay Weatherford an amount of cash equal to any such tax benefit
utilized by us or which expires unused by us to the extent those benefits are
not utilized by Weatherford. We have agreed with Weatherford that we will not
take any action inconsistent with any information, covenant or representation
provided to the IRS in connection with obtaining the tax ruling and have further
agreed to be liable for any taxes arising from a breach of that agreement. In
addition, we have agreed that, during the three-year period following the
spinoff, we will not engage in transactions that could adversely affect the tax
treatment of the spinoff, unless we obtain a supplemental tax ruling from the
IRS or a tax opinion acceptable to Weatherford of nationally recognized tax
counsel to the effect that the proposed transaction would not adversely affect
the tax treatment of the spinoff. Moreover, we will be liable to Weatherford for
any corporate level taxes incurred by Weatherford as a result of the spinoff,
except to the extent the taxes arise as a result of a change of control of
Weatherford.

     Transition Services Agreement.  In connection with the spinoff, we entered
into a transition services agreement with Weatherford pursuant to which
Weatherford provided us certain services for a transition period after the
spinoff. The fee for these services was cost plus 10%. The transition services
provided under this agreement included accounting, tax, treasury services,
insurance and risk management, and management information systems. We no longer
rely on Weatherford to provide us with any of these services and no payments
were made pursuant to this agreement in 2001. During 2000, we made payments to
Weatherford pursuant to this agreement of approximately $7.0 million.

     Preferred Supplier Agreement.  In connection with the spinoff, we entered
into a preferred supplier agreement with Weatherford in which Weatherford agreed
for three years to purchase at least 70% of its requirements of drill stem
products from us, subject to certain exceptions. In return, we agreed to sell
those products at prices not greater than that at which we sell to similarly
situated customers, and we provided Weatherford a $30.0 million credit towards
the purchase of those products. During 2000 and 2001, Weatherford purchased
approximately $1.6 million and $8.8 million respectively, of drill stem products
from us.

     David J. Butters is a Managing Director of Lehman Brothers, an investment
banking firm. We have utilized Lehman Brothers investment banking services in
the past. During 2001, we did not pay Lehman Brothers any compensation for any
investment banking services; however, we may consider utilizing such services in
the future.

                                    PART IV

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

     (a) The following documents are filed as a part of this report or
incorporated herein by reference:

          1. Our consolidated financial statements are listed on page 51 of this
     report.

          2. Financial statement schedule included in Part IV of this report:
     Schedule II -- Valuation and Qualifying Accounts. Other schedules are
     omitted because they are either not applicable or required information is
     shown in the financial statements or notes thereto.

          3. Our exhibits are listed below under Item 14(c).

                                       109
<PAGE>

     (b) Reports on Form 8-K

          None.

     (c) Exhibits

<Table>
<Caption>
 EXHIBIT
 NUMBER                                   DESCRIPTION
 -------                                  -----------
<S>         <C>   <C>
  2.1(b)    --    Distribution Agreement, dated as of March 22, 2000, between
                  Weatherford and Grant
  3.1(b)    --    Restated Certificate of Incorporation of Grant Prideco, Inc.
  3.2(a)    --    Restated Bylaws of Grant Prideco, Inc.
  4.1(g)    --    Amended and Restated Loan and Security Agreement, dated July
                  10, 2000, among Grant Prideco, Inc. and certain of its
                  subsidiaries, the Lenders identified therein and
                  Transamerica Business Credit Corporation, as agent
  4.2(g)    --    Amendment No. 1 to Amended and Restated Loan and Security
                  Agreement;
  4.3(g)    --    Amendment No. 2 to Amended and Restated Loan and Security
                  Agreement;
  4.4(g)    --    Amendment No. 3 to Amended and Restated Loan and Security
                  Agreement;
  4.5(b)    --    Guaranty by Grant Prideco, Inc.'s subsidiaries in favor of
                  Transamerica Business Credit Corporation, as agent
  4.5       --    Amendment No. 4 to Amended and Restated Loan Agreement
  4.6       --    Amendment No. 5 to Amended and Restated Loan Agreement
  4.7(g)    --    Amended and Restated Pledge Agreement, by Grant Prideco,
                  Inc.'s subsidiaries in favor of Transamerica Business Credit
                  Corporation, as agent
  4.8(g)    --    Indenture for 9 5/8% Senior Notes due 2007
  4.9(g)    --    Form of 9 5/8% Senior Notes due 2007 (included as part of
                  Exhibit 4.7)
 10.1       --    See exhibits 2.1 and 4.1 through 4.9 for certain items
                  constituting material contracts.
 10.2(a)    --    Grant Prideco, Inc. 2000 Non-Employee Director Stock Option
                  Plan
 10.3(a)    --    Grant Prideco, Inc. 2000 Employee Stock Option and
                  Restricted Stock Plan
 10.4(a)    --    Grant Prideco, Inc. Executive Deferred Compensation Plan
 10.5(a)    --    Grant Prideco, Inc. Foreign Executive Deferred Compensation
                  Plan
 10.6(a)    --    Grant Prideco, Inc. Deferred Compensation Plan for
                  Non-Employee Directors
 10.7(d)    --    Employment Agreement dated April 14, 2000 with Bernard J.
                  Duroc-Danner
 10.9(f)    --    Employment Agreement dated April 14, 2000 with Louis A.
                  Raspino
 10.10      --    Employment Agreement dated November 9, 2001 with Marshall
                  Danby
 10.11(d)   --    Form of Change of Control Agreement with William Chunn, Dan
                  Latham, Warren Avery and Philip Choyce
 10.12      --    Form of Change of Control Agreement with Louis A. Raspino,
                  Curtis Burton and Marshall Danby
 10.13(e)   --    Preferred Supplier Agreement dated April 14, 2000, between
                  Grant Prideco, Inc. and Weatherford International, Inc.
 10.14(e)   --    Tax Allocation Agreement dated April 14, 2000 between Grant
                  Prideco and Weatherford
 10.15(a)   --    Grant Prideco, Inc. 401(k) Savings Plan
 10.16      --    2001 Stock Option and Restricted Stock Plan
 10.17(a)   --    Investment Agreement, dated as of April 29, 1999, by and
                  between Grant Prideco, Inc. and Voest-Alpine Schienen GmbH &
                  Co KG
 10.18(a)   --    Operating Agreement, dated as of July 23, 1999, by and
                  between Grant Prideco, Inc. and Voest-Alpine Schienen GmbH &
                  Co KG
+10.19(a)   --    Supply Agreement, dated as of July 23, 1999, by and between
                  Voest-Alpine Stahlrohr Kindberg GmbH & Co KG and Grant
                  Prideco, Inc.
</Table>

                                       110
<PAGE>

<Table>
<Caption>
 EXHIBIT
 NUMBER                                   DESCRIPTION
 -------                                  -----------
<S>         <C>   <C>
 10.20(a)   --    Stock Purchase Agreement, dated as of June 19, 1998, by and
                  among Weatherford, Pridecomex Holding, S.A. de C.V., Tubos
                  de Acero de Mexico S.A. and Tamsider S.A. de C.V.
+10.21(a)   --    Master Technology License Agreement, dated as of June 19,
                  1998, by and between Grant Prideco, Inc. and DST
                  Distributors of Steel Tubes Limited
 10.22(a)   --    Agreement, dated as of November 12, 1998, by and between
                  Tubos de Acero de Mexico, Tamsider S.A. de C.V., DST
                  Distributors of Steel Tubes Limited, Techint Engineering
                  Company, Weatherford, Grand Prideco, Pridecomex Holding,
                  S.A. de C.V. and Grant Prideco, S.A. de C.V.
 10.23(a)   --    Agreement, dated as of December 1, 1998, by and between
                  Tubos de Acero de Mexico, Tamsider S.A. de C.V., Weatherford
                  and Pridecomex Holdings, S.A. de C.V.
 10.24(g)   --    Employment Agreement with Curtis W. Huff
 21.1(g)    --    Subsidiaries of Registrant
 23.1       --    Consent of Arthur Andersen LLP
 23.2       --    Consent of Ernst & Young
</Table>

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

 +   Certain portions of these exhibits were intentionally excluded pursuant to
     a request for confidential treatment pursuant to Rule 24b-2 of the
     Securities Exchange Act of 1934.

(a)  Incorporated by reference to Grant Prideco, Inc.'s Registration Statement
     on Form 10 (file No. 00115423).

(b)  Incorporated by reference to Grant Prideco, Inc.'s Registration Statement
     on Form S-3 (Registration No. 333-35272).

(c)  Incorporated by reference to the registrants' Registration Statement on
     Form S-3 (Registration No. 333-48722).

(d)  Incorporated by reference to Grant Prideco, Inc.'s Quarterly Report on Form
     10-Q for the quarter ended March 31, 2000.

(e)  Incorporated by reference from Weatherford International, Inc.'s Quarterly
     Report on Form 10-Q for the three months ended March 31, 2000.

(f)  Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the three months ended June 30, 2001.

(g)  Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 2000.

                                       111
<PAGE>

                                   SIGNATURES

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

                                          GRANT PRIDECO, INC.

                                          By:      /s/ CURTIS W. HUFF
                                            ------------------------------------
                                                      Curtis W. Huff
                                          Chief Executive Officer, President and
                                                         Director

Date: March 26, 2002

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

<Table>
<Caption>
                         SIGNATURE                              CAPACITY IN WHICH SIGNED          DATE
                         ---------                              ------------------------          ----
<C>     <C>                                                   <C>                            <S>

                    /s/ CURTIS W. HUFF                          Chief Executive Officer,     March 26, 2002
  -------------------------------------------------------        President and Director
                      Curtis W. Huff                              (Principal Executive
                                                                        Officer)


                /s/ BERNARD J. DUROC-DANNER                      Chairman of the Board       March 26, 2002
  -------------------------------------------------------
                  Bernard J. Duroc-Danner


                   /s/ LOUIS A. RASPINO                          Vice President, Chief       March 26, 2002
  -------------------------------------------------------        Financial Officer and
                     Louis A. Raspino                             Treasurer (Principal
                                                                   Financial Officer)


                     /s/ GREG L. BOANE                            Corporate Controller       March 26, 2002
  -------------------------------------------------------        (Principal Accounting
                       Greg L. Boane                                    Officer)


                 /s/ ROBERT K. MOSES, JR.                               Director             March 26, 2002
  -------------------------------------------------------
                   Robert K. Moses, Jr.


                    /s/ ROBERT A. RAYNE                                 Director             March 26, 2002
  -------------------------------------------------------
                      Robert A. Rayne


                   /s/ SHELDON B. LUBAR                                 Director             March 26, 2002
  -------------------------------------------------------
                     Sheldon B. Lubar
</Table>

                                       112
<PAGE>

                                   SIGNATURES

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

<Table>
<S>                                                    <C>
GP Expatriate Services, Inc..........................
Grant Prideco Holding, LLC...........................
Grant Prideco, L.P. .................................
Star Operating Company...............................
TA Industries, Inc...................................
Texas Arai, Inc. ....................................
Tube-Alloy Capital Corporation.......................
Tube-Alloy Corporation...............................
XL Systems International, Inc. ......................
XL Systems, L.P. ....................................

By: /s/ CURTIS W. HUFF
                -------------------------------------
                Curtis W. Huff
                President

GRANT PRIDECO USA, LLC

By: /s/ DAVE WEIGEL
-----------------------------------------------------
    Dave Weigel
    President
</Table>

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

<Table>
<Caption>
                         SIGNATURE                              CAPACITY IN WHICH SIGNED          DATE
                         ---------                              ------------------------          ----
<C>     <C>                                                   <C>                            <S>

                    /s/ CURTIS W. HUFF                          Chief Executive Officer,     March 26, 2002
  -------------------------------------------------------        President and Director
                      Curtis W. Huff*                             (Principal Executive
                                                                        Officer)


                   /s/ LOUIS A. RASPINO                          Vice President, Chief       March 26, 2002
  -------------------------------------------------------        Financial Officer and
                     Louis A. Raspino*                            Treasurer (Principal
                                                                   Financial Officer)


                     /s/ GREG L. BOANE                            Corporate Controller       March 26, 2002
  -------------------------------------------------------        (Principal Accounting
                      Greg L. Boane*                                    Officer)


                   /s/ PHILIP A. CHOYCE                       Vice President and Director    March 26, 2002
  -------------------------------------------------------
                     Philip A. Choyce*


                     /s/ LINDA BUBACZ                            Treasurer and Manager       March 26, 2002
  -------------------------------------------------------
                      Linda Bubacz**


                      /s/ DAVE WEIGEL                          Vice President and Manager    March 26, 2002
  -------------------------------------------------------
                       Dave Weigel**


                      /s/ SAL SEGRETO                            President and Manager       March 26, 2002
  -------------------------------------------------------
                       Sal Segreto**
</Table>

-  * Signing solely as an officer or director of Grant Prideco USA, LLC.

- ** Signing as an officer or director of each of the registrants, other than
     Grant Prideco USA, LLC.

                                       113
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<Caption>
 EXHIBIT
 NUMBER                                   DESCRIPTION
 -------                                  -----------
<S>         <C>   <C>
  2.1(b)    --    Distribution Agreement, dated as of March 22, 2000, between
                  Weatherford and Grant
  3.1(b)    --    Restated Certificate of Incorporation of Grant Prideco, Inc.
  3.2(a)    --    Restated Bylaws of Grant Prideco, Inc.
  4.1(g)    --    Amended and Restated Loan and Security Agreement, dated July
                  10, 2000, among Grant Prideco, Inc. and certain of its
                  subsidiaries, the Lenders identified therein and
                  Transamerica Business Credit Corporation, as agent
  4.2(g)    --    Amendment No. 1 to Amended and Restated Loan and Security
                  Agreement;
  4.3(g)    --    Amendment No. 2 to Amended and Restated Loan and Security
                  Agreement;
  4.4(g)    --    Amendment No. 3 to Amended and Restated Loan and Security
                  Agreement;
  4.5(b)    --    Guaranty by Grant Prideco, Inc.'s subsidiaries in favor of
                  Transamerica Business Credit Corporation, as agent
  4.5       --    Amendment No. 4 to Amended and Restated Loan Agreement
  4.6       --    Amendment No. 5 to Amended and Restated Loan Agreement
  4.7(g)    --    Amended and Restated Pledge Agreement, by Grant Prideco,
                  Inc.'s subsidiaries in favor of Transamerica Business Credit
                  Corporation, as agent
  4.8(g)    --    Indenture for 9 5/8% Senior Notes due 2007
  4.9(g)    --    Form of 9 5/8% Senior Notes due 2007 (included as part of
                  Exhibit 4.7)
 10.1       --    See exhibits 2.1 and 4.1 through 4.9 for certain items
                  constituting material contracts.
 10.2(a)    --    Grant Prideco, Inc. 2000 Non-Employee Director Stock Option
                  Plan
 10.3(a)    --    Grant Prideco, Inc. 2000 Employee Stock Option and
                  Restricted Stock Plan
 10.4(a)    --    Grant Prideco, Inc. Executive Deferred Compensation Plan
 10.5(a)    --    Grant Prideco, Inc. Foreign Executive Deferred Compensation
                  Plan
 10.6(a)    --    Grant Prideco, Inc. Deferred Compensation Plan for
                  Non-Employee Directors
 10.7(d)    --    Employment Agreement dated April 14, 2000 with Bernard J.
                  Duroc-Danner
 10.9(f)    --    Employment Agreement dated April 14, 2000 with Louis A.
                  Raspino
 10.10      --    Employment Agreement dated November 9, 2001 with Marshall
                  Danby
 10.11(d)   --    Form of Change of Control Agreement with William Chunn, Dan
                  Latham, Warren Avery and Philip Choyce
 10.12      --    Form of Change of Control Agreement with Louis A. Raspino,
                  Curtis Burton and Marshall Danby
 10.13(e)   --    Preferred Supplier Agreement dated April 14, 2000, between
                  Grant Prideco, Inc. and Weatherford International, Inc.
 10.14(e)   --    Tax Allocation Agreement dated April 14, 2000 between Grant
                  Prideco and Weatherford
 10.15(a)   --    Grant Prideco, Inc. 401(k) Savings Plan
 10.16      --    2001 Stock Option and Restricted Stock Plan
 10.17(a)   --    Investment Agreement, dated as of April 29, 1999, by and
                  between Grant Prideco, Inc. and Voest-Alpine Schienen GmbH &
                  Co KG
 10.18(a)   --    Operating Agreement, dated as of July 23, 1999, by and
                  between Grant Prideco, Inc. and Voest-Alpine Schienen GmbH &
                  Co KG
+10.19(a)   --    Supply Agreement, dated as of July 23, 1999, by and between
                  Voest-Alpine Stahlrohr Kindberg GmbH & Co KG and Grant
                  Prideco, Inc.
 10.20(a)   --    Stock Purchase Agreement, dated as of June 19, 1998, by and
                  among Weatherford, Pridecomex Holding, S.A. de C.V., Tubos
                  de Acero de Mexico S.A. and Tamsider S.A. de C.V.
</Table>
<PAGE>

<Table>
<Caption>
 EXHIBIT
 NUMBER                                   DESCRIPTION
 -------                                  -----------
<S>         <C>   <C>
+10.21(a)   --    Master Technology License Agreement, dated as of June 19,
                  1998, by and between Grant Prideco, Inc. and DST
                  Distributors of Steel Tubes Limited
 10.22(a)   --    Agreement, dated as of November 12, 1998, by and between
                  Tubos de Acero de Mexico, Tamsider S.A. de C.V., DST
                  Distributors of Steel Tubes Limited, Techint Engineering
                  Company, Weatherford, Grand Prideco, Pridecomex Holding,
                  S.A. de C.V. and Grant Prideco, S.A. de C.V.
 10.23(a)   --    Agreement, dated as of December 1, 1998, by and between
                  Tubos de Acero de Mexico, Tamsider S.A. de C.V., Weatherford
                  and Pridecomex Holdings, S.A. de C.V.
 10.24(g)   --    Employment Agreement with Curtis W. Huff
 21.1(g)    --    Subsidiaries of Registrant
 23.1       --    Consent of Arthur Andersen LLP
 23.2       --    Consent of Ernst & Young
</Table>

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

 +   Certain portions of these exhibits were intentionally excluded pursuant to
     a request for confidential treatment pursuant to Rule 24b-2 of the
     Securities Exchange Act of 1934.

(a)  Incorporated by reference to Grant Prideco, Inc.'s Registration Statement
     on Form 10 (file No. 00115423).

(b)  Incorporated by reference to Grant Prideco, Inc.'s Registration Statement
     on Form S-3 (Registration No. 333-35272).

(c)  Incorporated by reference to the registrants' Registration Statement on
     Form S-3 (Registration No. 333-48722).

(d)  Incorporated by reference to Grant Prideco, Inc.'s Quarterly Report on Form
     10-Q for the quarter ended March 31, 2000.

(e)  Incorporated by reference from Weatherford International, Inc.'s Quarterly
     Report on Form 10-Q for the three months ended March 31, 2000.

(f)  Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the three months ended June 30, 2001.

(g)  Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 2000.
<PAGE>
                                                                     SCHEDULE II


                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001

<Table>
<Caption>
                                                                ADDITIONS
                                                    ----------------------------------
                                   BALANCE AT       CHARGES TO COST   CHARGED TO OTHER                BALANCE AT END
DESCRIPTION                     BEGINNING OF YEAR    AND EXPENSES         ACCOUNTS       DEDUCTIONS      OF YEAR
-----------                     -----------------   ---------------   ----------------   ----------   --------------
                                                                   (IN THOUSANDS)
<S>                             <C>                 <C>               <C>                <C>          <C>
1999:
Allowance for Uncollectible
  Accounts....................       $ 2,184            $   134            $   --         $    --        $ 2,318
                                     =======            =======            ======         =======        =======
Inventory Reserves............       $13,764            $ 1,617            $  670         $ 4,528        $11,523
                                     =======            =======            ======         =======        =======
2000:
Allowance for Uncollectible
  Accounts....................       $ 2,318            $   304            $   50         $   775        $ 1,897
                                     =======            =======            ======         =======        =======
Inventory Reserves............       $11,523            $11,123            $1,209         $14,797        $ 9,058
                                     =======            =======            ======         =======        =======
2001:
Allowance for Uncollectible
  Accounts....................       $ 1,897            $   901            $  105         $ 1,496        $ 1,407
                                     =======            =======            ======         =======        =======
Inventory Reserves............       $ 9,058            $ 8,169            $   --         $ 7,906        $ 9,321
                                     =======            =======            ======         =======        =======
</Table>

                                       S-1