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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, 2002




                   [ ]     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                                       (I.R.S. Employer
             of Incorporation or Organization)                                   Identification No.)
               1330 POST OAK BLVD. SUITE 2700                                           77056
                       HOUSTON, TEXAS                                                 (Zip Code)
          (Address of Principal Executive Offices)
</Table>

                                 (832) 681-8000
              (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.  [ ]

    Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).  Yes [X]    No [ ]

    Aggregate market value of Common Stock held by nonaffiliates as of June 28,
2002: $1,496,296,303

    Number of shares of Common Stock outstanding as of March 20,
2003: 121,357,838

                        TABLE OF ADDITIONAL REGISTRANTS

<Table>
<Caption>
                                         JURISDICTION OF
NAME*                                       FORMATION      EMPLOYER ID
-----                                    ---------------   -----------
<S>                                      <C>               <C>
GP Expatriate Services, Inc............     Delaware       76-0632330
GP USA Holding, LLC....................     Delaware       13-4221983
Grant Prideco European Holding, LLC....     Delaware       32-0046544
Grant Prideco Finance, LLC.............     Delaware       13-4221988
Grant Prideco Holding, LLC.............     Delaware       76-0635560
Grant Prideco Marine Products and           Delaware       42-1543911
  Services International, Inc..........
Grant Prideco PC Composites Holdings,       Delaware       76-0694902
  LLC..................................
Grant Prideco USA, LLC.................     Delaware       51-0397748
Grant Prideco, L.P.....................     Delaware       76-0635557
Intellipipe, Inc. .....................     Delaware       87-0663327
Plexus Deepwater Technologies, Ltd.....      Texas         04-3611630
Reed-Hycalog Azerbaijan, LLC...........     Delaware       30-0149347
Reed-Hycalog Colombia, LLC.............     Delaware       16-1641797
</Table>

<Table>
<Caption>
                                         JURISDICTION OF
NAME*                                       FORMATION      EMPLOYER ID
-----                                    ---------------   -----------
<S>                                      <C>               <C>
Reed-Hycalog International Holding,         Delaware       01-0755186
  LLC..................................
Reed-Hycalog Kazakhstan, LLC...........     Delaware       30-0149350
Reed-Hycalog L.L.C.....................     Delaware       47-0898819
Reed-Hycalog Norway, LLC...............     Delaware       16-1641796
Reed-Hycalog Operating, L.P............     Delaware       47-0898821
Reed-Hycalog Russia, LLC...............     Delaware       36-4515184
Reed-Hycalog Thailand, LLC.............     Delaware       30-0149348
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         52-2269528
</Table>

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

* Except for Grant Prideco USA, LLC, Grant Prideco Finance, LLC, GP USA Holding,
  LLC, and Grant Prideco European Holding, LLC, the address, telephone number,
  and zip code for each of the additional Registrants is the same as for Grant
  Prideco, Inc. The address and zip code for Grant Prideco USA, LLC, Grant
  Prideco Finance, LLC, GP USA Holding, LLC, and Grant Prideco European Holding,
  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 (9 5/8% Senior Notes) and 9% Senior Notes
Due 2009 (9% Senior Notes). No separate financial statements for the additional
Registrants have 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 9 5/8% Senior Notes and 9% Senior Notes.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Listed below is the document parts of which are incorporated herein by
reference and the part of this report into which the document is incorporated:
---------------

(1) Proxy Statement for 2003 Annual Meeting of Stockholders -- Part III

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

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    2
          General.....................................................    2
          Industry Overview...........................................    2
          The ReedHycalog(TM) Acquisition.............................    3
          Business Strategy...........................................    4
          Drilling Products and Services Segment......................    5
          ReedHycalog(TM) Segment.....................................    7
          Tubular Technology and Services Segment.....................    8
          Marine Products and Services Segment........................   10
          Other Segment...............................................   11
          Other Business Data.........................................   11
          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.....................................   15
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   17
          General.....................................................   18
          Critical Accounting Policies and Estimates..................   18
          Market Trends and Outlook...................................   20
          Future Market Trends and Expectations.......................   22
          Results of Operations.......................................   22
          Liquidity and Capital Resources.............................   32
          Forward-Looking Statements and Exposures....................   36
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   43
Item 8.   Financial Statements and Supplementary Data.................   45
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   95

                                  PART III
Item 15.  Controls and Procedures.....................................   95

                                  PART IV
Item 16.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   95
          Signatures..................................................   99
</Table>

                                        1
<PAGE>

                                   FORM 10-K

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     We are 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. Our drill stem
products are used to drill oil and gas wells while our premium connections and
tubular products are primarily used in drilling and completing oil and gas
wells. Our strong market positions, particularly in the high-end,
technology-based end of these products, have allowed us to provide innovative
solutions to the drilling and production challenges of our customers in some of
the world's harshest environments and most complex well conditions. We also
provide a variety of products and services to the growing worldwide offshore and
deepwater market through our marine products and services segment. These
products are used for subsea construction, installation, and production of oil
and gas wells.

     We historically have operated through three primary business segments: (1)
drilling products and services, (2) tubular technology and services (previously
premium connections and tubular products) and (3) marine products and services.
On December 20, 2002, we acquired the ReedHycalog(TM) drill bits business from
Schlumberger Technology Corporation and its affiliates, which we are operating
as our fourth primary business segment. We also are involved in joint ventures
to develop and commercialize intelligent drill pipe and composite motors and
pumps.

INDUSTRY OVERVIEW

     Our business is materially dependent on the level of drilling activity
worldwide, which depends on the level of capital spending by major, independent
and state-owned exploration and production companies. This capital spending is
driven by current prices for oil and gas and the perceived stability and
sustainability of those prices. Our drilling products segment's revenues and
ReedHycalog's revenues most closely track worldwide rig counts while our tubular
technology and services business is dependent on the U.S. rig count,
particularly the natural gas rig count, and more specifically, rigs drilling for
deep gas. Over the short-term, this segment can also be affected by changes in
distributor inventory levels and tubular steel mill activity. Our marine
products and services are primarily dependent on domestic and international
offshore rig counts, particularly in the U.S. Gulf of Mexico. Major trends
within our industry which should positively affect our operations include:

     - Increasing prevalence of natural gas wells -- During 2002, rigs drilling
       for natural gas in the United States represented approximately 83% of
       total rigs drilling compared to approximately 54% of total rigs drilling
       in 1995. We believe this trend towards increased drilling for natural gas
       should favorably impact our businesses. Depletion rates for natural gas
       wells in the U.S. have significantly increased during the past ten years,
       which indicates that more wells will need to be drilled to keep
       production levels constant. According to the Energy Information
       Administration, natural gas demand in the United States is expected to
       increase 49% over the next 20 years from 23 trillion cubic feet in 2000
       to 35 trillion cubic feet in 2025, implying a need for increased
       drilling. Gas wells, particularly deep gas wells, 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 such as those
       offered by our tubular technology and services segment, as opposed to
       American Petroleum Institute (API) standard for products.

     - Drilling of increasingly complex wells -- In recent years, there has been
       increasing intensity in the use of drill stem products and drill bits as
       a result of more wells being drilled directionally, horizontally, deeper
       or in more extreme downhole environments. With the increased complexity
       of drilling activity, demand for premium drilling products, such as our
       proprietary line of eXtreme(TM) drill stem products and ReedHycalog's
       recently introduced TReX(TM) drill bit line is growing. We believe these
       trends will

                                        2
<PAGE>

       favorably impact long-term demand for our high-performance drill stem and
       drill bit products, particularly our more profitable, high-end premium
       products.

     - Drilling of deeper wells -- Since 1999, the average number of rigs in the
       U.S. drilling at depths greater than 10,000 feet has increased steadily.
       We believe this trend favorably impacts long-term demand for our
       principal product lines. As well depth increases, completion tubular
       (tubing and casing) requirements increase at a greater rate than well
       depth. For example, a 10,000-foot well utilizes more than twice the
       amount of the tubulars utilized in a 5,000-foot well. Deeper wells also
       typically require larger diameter drill pipe with greater wall
       thicknesses and enhanced performance characteristics, such as our
       patented 5 7/8-inch drill pipe. In addition, as drilling depths reach
       8,000 feet or greater, an increased likelihood exists that a proprietary
       fixed-cutter bit, such as ReedHycalog's TReX(TM) and TuffDuty(TM)
       products, will be utilized.

     - Increasing deepwater drilling -- Deepwater drilling projects, which tend
       to be longer-term and more capital intensive than other types of drilling
       projects, are increasing. As a result, demand for products and services
       for deepwater projects is more stable and less likely to be influenced by
       short-term changes in commodity prices. Demand for our marine products
       and services segment is generally less cyclical than our other segments.
       Deepwater projects also tend to be less price sensitive and are more
       likely to require high-performance drill pipe, premium connections and
       high-end premium drill bits.

     - Rationalized drill pipe inventories -- We estimate that the production of
       drill pipe compared to drilling activity during the period from 1999
       through 2002 decreased compared to the production of drill pipe compared
       to drilling activity during the period from 1996 through 1998. We believe
       this indicates that our drill pipe customers are currently holding less
       drill pipe inventory compared to levels carried in the market downturn
       during 1999. This should favorably impact demand for our drill stem
       products if market conditions improve, particularly in North America.

THE REEDHYCALOG(TM) ACQUISITION

     The purchase price for the ReedHycalog(TM) drill bits business was
approximately $350 million, consisting of approximately $255 million in cash
(subject to adjustment), approximately $90 million in Grant Prideco common stock
and approximately $5 million of assumed non-current liabilities. ReedHycalog(TM)
is a leading designer, manufacturer and distributor of fixed-cutter and
roller-cone drill bits to the global oil and gas industry. ReedHycalog(TM) has
been designing, manufacturing and distributing drill bits for over 80 years.

     We believe that ReedHycalog(TM) provides us with a number of strategic,
financial and operational benefits. ReedHycalog(TM) is a particularly attractive
addition to our existing business for the following reasons:

     - Logical product line extension with strong strategic and industrial
       fit -- Numerous similarities exist between the operational, metallurgical
       and technical challenges facing the research, development, design and
       manufacture of drill pipe and drill bits. We believe logical synergies
       exist that will allow us to assimilate ReedHycalog's manufacturing and
       sales operations into our Company and to expand the technological and
       operational capabilities of the combined product lines.

     - Critical product line -- While the investment in drill bit products and
       services represents a relatively insignificant portion of the total
       exploration and development costs of drilling a well, the selection of
       the appropriate drill bits can have a significant impact on the speed,
       and thus the overall cost, of a drilling project. The ReedHycalog(TM)
       acquisition further expands our ability to provide the industry with
       high-quality, technologically advanced, brand name products that reduce
       overall drilling costs. We believe the relatively low cost and high value
       impact of drill bit products and services will continue to increase in
       importance as drilling programs continue to migrate towards more
       expensive and complex wells in increasingly harsh environments.

     - Diversified existing customer base and strong international market
       presence -- ReedHycalog(TM) markets and sells drill bits in virtually
       every major oil and gas producing region in the world through an
       integrated manufacturing and sales network. ReedHycalog's strong sales
       force and distribution network directly support a diversified customer
       base, with no single significant customer. We believe this strong

                                        3
<PAGE>

       international presence, combined with ReedHycalog's established market
       presence and excellent reputation for superior products, will provide an
       expanded platform for future growth of our products, especially in
       international locations.

     - Financial strength and diversification of earnings and cash flow -- We
       believe the ReedHycalog(TM) acquisition will improve the stability of our
       earnings and cash flow while allowing us to realize overall growth in
       revenues, earnings and cash flow. ReedHycalog(TM) has a history of strong
       profitability and cash flow during both strong and weak market
       conditions, which we believe will provide us with additional cash flow
       and improve margins throughout the market cycle. ReedHycalog's revenues
       and profitability generally follow fluctuations in worldwide rig counts,
       complementing our drilling products and services revenues and
       profitability that have historically lagged changes in rig counts by
       three to six months. In addition, ReedHycalog's exposure to international
       markets should reduce our relative dependence upon domestic markets,
       which historically have been less stable than international markets.

BUSINESS STRATEGY

     Our business strategy is to achieve industry leadership in innovative
drilling and completion technologies. Key elements in implementing our business
strategy include:

     - Continuing to develop new and technologically advanced products that
       increase profitability and expand product offerings -- During the past
       three years, we have successfully introduced new technologically advanced
       products to the industry that have increased our profitability through
       the market cycle and our ability to provide our customers with products
       and solutions that enhance efficiencies and reduce costs. Examples of our
       successes include our eXtreme(TM) product line, our development with
       Enventure Global Technology, L.L.C., a joint venture between Shell
       Technology Ventures, Inc. and Halliburton Energy Services, of the world's
       first connection for expandable tubulars and our development of
       proprietary landing strings. Similarly, ReedHycalog(TM) recently launched
       its TReX(TM) product line and TuffDuty(TM) drill bit technology. We
       currently are investing in, and actively pursuing, additional high
       value-added technologies through internal development or joint ventures
       with industry partners. These technologies include the development and
       planned commercialization of the first intelligent drill pipe system for
       real time, high speed, data transmission along the drill string,
       commercialization of a multi-faceted premium connection and the
       development and commercialization of state-of-the-art composite motors
       and pumps.

     - Expanding the geographic scope of our product offerings -- In March 2002,
       we obtained a controlling interest in our Chinese drill pipe
       manufacturing affiliate and entered into a joint venture with a Chinese
       tubular mill to manufacture unfinished drill pipe in China. We believe
       these investments have secured us the leading drill pipe market share in
       the growing Chinese market. We also believe that our significant presence
       in China will provide us with an avenue through which we can enhance
       ReedHycalog's Chinese market share.

     - Continuing our focus on improving internal processes and operations -- In
       order to enhance our profitability, improve our free cash flow and
       further position us to take advantage of market opportunities, we
       implemented an operational reorganization plan during the first quarter
       of 2001 that we are continuing to focus on. We shifted from a
       manufacturing philosophy focused principally on maximizing plant
       utilization to one focused on producing primarily for order fulfillment
       that minimizes costs and working capital requirements. We implemented a
       capital improvement plan with the objective of reducing costs and
       improving operating efficiencies. We currently are in the final stages of
       installing state-of-the-art, automated pipe handling equipment in our
       Navasota, Texas facility and other automated processes throughout our
       organization. We believe these initiatives allow us to further reduce
       costs, operate more efficiently during poor market conditions and ramp-up
       operations more quickly when market conditions improve. In particular, we
       believe these state-of-the-art improvements have reduced our overall
       reliance on personnel.

                                        4
<PAGE>

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 and
other accessories.

     Our drill stem products are consumable capital goods and wear out through a
combination of friction and metal fatigue. Demand for our drill stem products is
impacted primarily by changes in drilling activity and worldwide rig activity.
Changes in the 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 that are being prepared for reactivation.

     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.

     With the increased complexity of drilling activity, demand for our
proprietary line of eXtreme(TM) drilling and other premium drilling products has
increased. 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(TM) 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
to our eXtreme(TM) product line, our premium drill pipe products include our
High-Torque(R) connections, proprietary sour-service grades, SmoothX(TM) 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. Our
principal competitors for our drill stem products include Drilco Group (a
subsidiary of Smith International), Texas Steel Conversion, OMSCO Industries (a
subsidiary of ShawCor Ltd.), IDPA (a subsidiary of Vallourec & Mannesmann Tubes
(V&M Tubes)) and various smaller local manufacturers in the U.S. and in foreign
countries. We typically compete on quality, technology, price, and delivery and
we believe we are the technological leader in our industry.

     The following is a description of our principal drill stem 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 requirements 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

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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 generally 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-inch
drill pipe that delivers hydraulic performance superior to standard 5 1/2-inch
drill pipe, and weight benefits superior to standard 6 5/8-inch drill pipe.

  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.

  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 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.

  INTELLISERV JOINT VENTURE

     We own 50% of this joint venture partially sponsored by the U.S. Department
of Energy to commercialize intelligent drill pipe that permits real-time
transfer of data through the drill string. This modified drill pipe is embedded
with a telemetry system that permits two-way data transmission along the drill
string at rates of up to two million bits per second, which is exponentially
greater than the data transmission rates for measurement while drilling and
logging systems utilized today. We currently are in the prototype testing and
refinement stage and would not expect to introduce a product commercially until
some time in 2004. Due to the unproven nature of the technology and that it is
still in its development state, we can provide no assurances that it will be
successful or be able to be marketed and sold on a commercial basis. Before the
fourth quarter of 2002, our Intelliserv joint venture was accounted for in our
Other segment.

  OPERATIONS

     Our drilling products are manufactured in the U.S., 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.

     We believe we are the only fully vertically integrated drill pipe
manufacturer in the world, controlling each facet of the drill pipe
manufacturing process. We manufacture the green tube, the total joint and
complete the finishing and welding operations. We believe this unique
manufacturing strategy provides us with significant competitive advantages over
other drill pipe manufacturers, including those located outside the U.S. 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 thickness, wall uniformity, and other features that exceed
minimum API standards and are not readily available from third-party mills. We
are in the process of implementing a capital

                                        6
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improvement program with the objective of automating additional manufacturing
processes, reducing our costs and allowing us to respond quicker to changes in
demand.

REEDHYCALOG(TM) SEGMENT

     Our drill bit products and services business is comprised entirely of the
operations of ReedHycalog(TM), which was acquired from Schlumberger in late
December 2002. ReedHycalog(TM) is a leading global designer, manufacturer, and
distributor of drill bits and related technology to the oil and gas industry.
ReedHycalog(TM) services its customer base through a technical sales and
marketing network in virtually every significant oil and gas producing region in
the world. Drill bits are generally sold directly to drilling rig operators and
to drilling contractors on turnkey and footage contracts. Competition is based
on technical performance, price, and service.

     Drilling through subsurface strata to locate oil and gas requires a drill
bit to be run on drill pipe or conveyed through coiled tubing and rotated by
surface rig equipment or downhole motors and turbines. Selecting the optimal bit
for a particular application represents one of the many challenges faced by oil
and gas companies and drilling contractors in planning a well. Similar to the
drill stem market, the primary market driver is worldwide drilling activity or,
more specifically, total footage drilled. In addition, demand is a function of
well depth and complexity with demand for PDC bits (as described below) tied
more strongly to offshore, directional, or horizontal drilling.

     Continuous drill bit research and development results in improved
reliability, advanced composite designs, enhanced hydraulics, and greater
stability across all drill bit types. While this provides customers a broader
range of capabilities, drill bit selection becomes more challenging. Drill bits
must be durable, drill quickly, and may also need features aimed at the unique
problems encountered with steerable systems, downhole motors, short radius
wells, coiled tubing drilling, re-entry, and extended reach wells. These complex
operations require skilled applications expertise and drill bit knowledge for
proper drill bit selection. A proper combination of expertise from the drill bit
vendor and collaboration with the customer drilling engineers will typically
yield the best result.

     Drill bits constitute a very small percentage of total well costs, but are
a critical component of well-construction economics. The time required to drill
a well is directly related to a drill bit's rate of penetration and footage
drilled prior to becoming dull and requiring replacement. On a cost-per-foot
basis, selecting the appropriate drill bit significantly reduces drilling costs
by decreasing drilling time and the number of trips required in and out of a
well. Typically, roller-cone bits are most appropriate for shallow land rig
operations, while higher performance roller-cone or fixed-cutter bits with
better rates of penetration and longer lives offer the most economic choice for
offshore and deep wells where rig rates and trip costs are high.

     ReedHycalog(TM) provides a complete series of drill bits incorporating
advanced materials technology and a range of performance-enhancing features.
This broad product offering provides customers with maximum flexibility in
selecting drill bits. In addition, ReedHycalog(TM) provides drill bit selection
and well planning services through its field sales organization and bit
optimization engineers.

     The drill bit market consists of two product types: fixed-cutter bits and
roller-cone bits. ReedHycalog(TM) manufactures and sells both product types on a
global basis.

  FIXED-CUTTER BITS

     ReedHycalog(TM) first manufactured natural diamond bits in 1953 and PDC
bits in 1974.

     The predominant fixed-cutter bit used in the oil and gas industry is the
PDC bit. PDC bits have no moving parts and are therefore intrinsically more
reliable than roller-cone bits, but they are generally more sensitive to
geological changes. PDC bits drill with a shearing action to remove rock by
dragging the diamond elements through the formation as the drill bit body
rotates. PDC bits allow faster rates of drilling penetration and can drill
complete well sections without the need for bit replacement. As a result, they
are used in high cost drilling locations (such as offshore or in remote
locations) where their technical advantages reduce drilling time sufficiently to
justify the high unit sales price.

                                        7
<PAGE>

     ReedHycalog(TM) provides many fixed-cutter bit types and technology under
various brand names including TReX(TM), DuraDiamond(TM), DiamondBack(TM), and
many others. One of the most significant recent technologies is the TReX(TM)
cutter technology, which significantly advances long-standing efforts by the PDC
synthesis industry to develop polycrystalline diamond material that increases
abrasion resistance (wear life) without sacrificing impact resistance
(toughness). This technology maintains a sharp, low-wearing, tough cutting edge
that is producing results that exceed conventional standards for PDC bit
performance.

  ROLLER-CONE BITS

     ReedHycalog(TM) has manufactured roller-cone bits since 1916 and produces
roller-cone bits for a wide variety of oil and gas drilling applications.
Roller-cone bits consist of three rotating cones that have cutting teeth, which
destroy the formation through a crushing action as the cones rotate in
conjunction with the rotation of the drill pipe. This cutting mechanism, while
less efficient than fixed-cutter bits, is more versatile in harder formations,
or where the geology is changing. ReedHycalog(TM) manufactures drill bits with
milled teeth and with tungsten carbide insert teeth, which have a longer life in
harder formations.

     ReedHycalog(TM) markets its roller-cone products and technology globally
under various brand names including TuffDuty(TM), Titan(TM), and Mudpick(TM).

  OPERATIONS

     ReedHycalog(TM) manufactures fixed-cutter bits in Stonehouse (U.K.) and in
Houston, Texas and roller-cone bits in Singapore and a separate facility in
Houston, Texas. All facilities are ISO 9001 certified.

     ReedHycalog(TM) markets its drill bits through a global sales and marketing
network. ReedHycalog(TM) sales and marketing employees are strategically
positioned around the world. Sales people are distributed in North and South
America, Europe, CIS, Africa, Middle East and Asia. The sales force is
technologically sophisticated and has developed strong regional expertise.

     ReedHycalog's principal competitors for the sale of drill bits are Hughes
Christensen (a division of Baker Hughes), Security DBS (a division of
Halliburton) and Smith Bits (a division of Smith International), as well as
numerous smaller competitors throughout the world.

TUBULAR TECHNOLOGY AND SERVICES SEGMENT

     Our tubular technology and services 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 U.S. 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.

     The demand for our tubular technology and services is heavily dependent
upon North American natural gas drilling activity, and it is more particularly
dependent upon rigs drilling for deep gas. Demand for these products on a
short-term basis is affected by the level of inventory held by distributors of
oil country tubular goods (OCTG). Distributors often reduce purchases during
periods of decreased drilling activity until their inventory positions are
brought in line with then-prevailing market conditions.

     Over the long-term, a key factor impacting demand for our tubular
technology and services is the U.S. dependence on natural gas as a fuel. Gas
wells 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(TM) product line. Natural gas
drilling represents approximately 83% of the wells drilled in North America
during 2002. Also, depletion rates for natural gas wells in the U.S. have
significantly increased during the past ten years, which indicates

                                        8
<PAGE>

that more wells will need to be drilled to keep production levels constant.
Therefore, we believe that domestic demand for natural gas will substantially
increase over the next 5 to 10 years. This increased demand for natural gas
should increase the number of natural gas wells being drilled and completed,
thus increasing demand for our tubular technology and services.

     Our principal competitors for this division are Hydril Company, V&M Tubes,
the Tenaris Group, Sumitomo, Kawasaki Steel, Nippon Steel, Hunting Interlock,
Inc., Benoit, Inc., Steel Services, Inc., and numerous other competitors
domestically and internationally.

     The following is a description of our principal premium connections and
tubular products and services:

  ATLAS BRADFORD(R) THREADING AND SERVICE

     We market our premium engineered connections primarily through our Atlas
Bradford(R) product line, which has been recognized as one of the industry's
leading connections for more than 40 years. 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 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.

     We also sell our premium connections on tubular products directly to
operators of oil and gas wells. We generally sell our tubular technology and
services through major distributors in the U.S. and Canada. 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.

  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 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 tube inventories to provide quick delivery of custom-finished casing and
coupling stock. To 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 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, which reduces costs
and delivery times.

  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 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 well as with
third-party connections licensed to us.

                                        9
<PAGE>

  TEXAS ARAI(TM) COUPLINGS

     We manufacture and sell couplings through our Texas Arai(TM) product line.
Couplings are used to connect joints of premium and API casing and tubing. Texas
Arai(TM) 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.

  G-PEX JOINT VENTURE

     We own 50% of this joint venture relating to the commercialization of
composite progressive cavity motors and pumps. These composite products are
expected to have lower manufacturing costs and longer operating life than
conventional motors and pumps. We currently expect to introduce our first
composite products from this joint venture during 2003 or thereafter. However,
due to the unproven nature of this technology and the fact that it is still in
its development stage, we can provide no assurances that it will be successful
or that we will be able to market and sell products on a commercial basis.
Before the fourth quarter of 2002, our G-PEX joint venture was accounted for in
our Other segment.

  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. Presently, U.S. Steel and NS Group
supply 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, Oklahoma, Wyoming, and Canada.

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
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.

     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 U.S. 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 longer-term and more capital intensive in nature and less
likely to be influenced by short-term changes in oil and gas prices. The marine
products and services segment is therefore generally less cyclical as compared
to our other business segments.

  XL SYSTEMS AND OTHER MARINE CONNECTIONS

     Our XL Systems 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. We also recently purchased
the rights to a proprietary weld-on connection, which we believe will help us
increase market share in these markets.

                                        10
<PAGE>

  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 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
believe we own the largest fleet of hydraulic hammers operating in the U.S. 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 5/8 inches to 13 3/8 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 often manufactured for our marine products
and services segment by our Atlas Bradford(R), TCA(TM), and Texas Arai(TM)
product lines.

  POS-GRIP(TM) WELLHEADS

     We recently introduced a new proprietary wellhead used for jack-up
exploration drilling which utilizes the patented POS-GRIP(TM) system. The
POS-GRIP(TM) system is a unique method for gripping tubulars in wellheadsystems
using a hydraulic gripping process. We are working closely with major operators
on applying our POS-GRIP(TM) technology for a broad range of applications
involving wellheads and risers as well as other applications for deepwater
drilling and completions. This product line will generate revenues in 2003
primarily from rental wellheads and engineering and design services.

  SUBSEA CONTROL SYSTEMS

     We recently purchased Rotator AS, which expanded our manufacturing
capabilities into the area of control valves. Rotator AS is a leading provider
of hydraulic control and production valves to the offshore industry, with strong
market positions in the North Sea, Brazil and West Africa. Rotator has an
excellent reputation and client following in both the shipboard control system
market and in the subsea production control system market and growth
opportunities exist in both of these areas.

OTHER SEGMENT

     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 (HDD) tools for laying fiber
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 reduce our investment
in these business lines. On March 25, 2003, we sold Star Iron Works, Inc.
(Star), a manufacturer of drilling tools for water well, construction, and
utility boring industries, for $11.0 million in cash. In this regard, we
recently announced the closure of our Bryan, Texas facility, where the majority
of our industrial drill pipe operations have occurred. Future operations will be
conducted at our Navasota, Texas location.

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.

                                        11
<PAGE>

 BACKLOG

     As of December 31, 2002, we had a product backlog of $87.2 million,
representing 14% of our total revenues for the year ended December 31, 2002. We
had a product backlog as of December 31, 2000 and 2001, of $161.2 million, and
$144.8 million, respectively. These year-end backlogs represented 32% and 20% of
our total revenues for those years, respectively. The decrease in product
backlog from 2001 to 2002 reflects current weak North American market
conditions. Due to the nature of the drill bits business, the ReedHycalog(TM)
acquisition did not have any significant change in our backlog levels.

 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 are 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, local, and foreign 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 and impose liability for related damages of natural resources. 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 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 to comply with environmental laws and regulations were not
material in 2002, and are not expected to be material in 2003. We also believe
that we are in material compliance with applicable environmental requirements
and 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. Prior to our acquisition, ReedHycalog(TM) was conducting
remediation of groundwater at certain of its facilities. Based on currently
available information, the indemnification provided by Schlumberger in the
acquisition agreement and contractual indemnities from other third parties, we
do not believe that these matters will result in material expenditures by us.
However, there can be no guarantee that the indemnities will be available to
cover all costs or that material expenditures will not be incurred.

     Our operations are also affected by trade laws affecting the import of
OCTG, drill pipe, and other products into the U.S. Although the majority of our
manufacturing operations, including the capital investment, employees, and costs
and expenses associated therewith, are located in the U.S., we have key
manufacturing facilities located outside the U.S., including our drill bit
operations in the U.K. and Singapore, 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 U.S.

                                        12
<PAGE>

     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.

 EMPLOYEES

     As of December 31, 2002, we had 4,504 employees. Certain of our operations
are subject to union contracts. These contracts, however, cover less than 11% of
our total employees. We believe our relationship with our employees is good.

 AVAILABLE INFORMATION

     We file annual, quarterly, and other reports and other information with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934 (the "Exchange Act"). You may read and copy any materials that we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549. You may obtain additional information about the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site (http://www.sec.gov) that contains reports, proxy information statements,
and other information regarding issuers that file electronically with the SEC,
including us.

     We also make available free of charge on or through our Internet site
(http://www.grantprideco.com) our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, and other information statements and,
if applicable, amendments to those reports filed or furnished pursuant to
Section 13(a) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.

ITEM 2. PROPERTIES

     The following table describes the material manufacturing, 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    195.9     Owned    Manufacture of drill stem
                                                                 products and premium threaded
                                                                 casing, liners, and tubing
Veracruz, Mexico...............    303,400     42.0     Owned    Manufacture of tool joints
Muskogee, Oklahoma.............    195,900    114.5     Owned    Manufacture of TCA premium
                                                                 casing
Houston, Texas.................     30,253       --     Leased   Corporate headquarters
                                   162,108     11.6     Leased   Manufacture of Atlas
                                                                 Bradford(R) connectors
                                   114,200     22.0     Owned    Manufacture of API and premium
                                                                 threaded couplings
                                    54,500      7.0     Owned    Premium threading services and
                                                                 manufacture of tubular
                                                                 accessories
                                    31,800     10.0     Owned    Heat-treat of drill collars and
                                                                 kellys
                                   287,760     31.6     Owned    Roller-cone bit manufacture
                                    50,256      7.3     Owned    Fixed-cutter bit manufacture
</Table>

                                        13
<PAGE>

<Table>
<Caption>
                                 FACILITY    PROPERTY
                                   SIZE        SIZE
LOCATION                         (SQ.FT.)    (ACRES)    TENURE             UTILIZATION
--------                         ---------   --------   ------             -----------
<S>                              <C>         <C>        <C>      <C>
The Woodlands, Texas...........     75,000       --     Leased   Sales and administrative
                                                                 offices
Bryan, Texas...................    160,000     55.3     Owned    Manufacture of premium
                                                                 tubulars, industrial drill
                                                                 pipe, and oilfield drill pipe
Kindberg, Austria..............  1,614,600    101.3     Leased   Manufacture of green drill pipe
                                                                 and finished casing
Stonehouse (U.K.)..............     71,000      3.5     Owned    Fixed-cutter bit manufacture
Baimi Town, Jiangyan, Jiangsu
  China........................     49,428      7.3     Leased   Manufacture of drill pipe and
                                                                 pipeline accessories
Edmonton, Alberta, Canada......    203,900      8.3     Owned    Manufacture of drill stem
                                                                 products, premium threaded
                                                                 casing, liners, and tubing
                                    26,480      1.9     Owned    Administration
Turin, Italy...................     60,400     10.0     Owned    Manufacturer of tool joints
Lafayette, Louisiana...........     18,300      2.0     Leased   Premium threading of downhole
                                                                 and specialty equipment
Houma, Louisiana...............    101,150     17.6     Owned    Manufacture and threading of
                                                                 downhole accessories
Broussard, Louisiana...........     24,600      5.6     Owned    Provider of drivers for
                                                                 conductor installation services
                                    55,920      6.5     Owned    Premium threading of downhole
                                                                 and specialty equipment
Jurong, Singapore..............     33,600      2.7     Leased   Manufacture of drill collars,
                                                                 accessories, and threading
                                                                 services
                                   109,663      5.2     Leased   Manufacturing of drill bits and
                                                                 related down-hole oilfield
                                                                 products
Batam Island, Indonesia........     25,960      2.5     Owned    Manufacture of drill pipe
Big Run, Pennsylvania..........    136,000     28.2     Owned    Manufacture of industrial drill
                                                                 pipe
Beaumont, Texas................     12,300     29.4     Owned    Premium threading services and
                                                                 manufacturer of conductors
Casper, Wyoming................     28,181    214.3     Owned    Premium threading of casing and
                                                                 tubing
</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 "Business -- Other Business Data -- Federal Regulation and
Environmental Matters." 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 U.S. District Court for
the Eastern District of Texas, Beaumont Division, against XL Systems 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' motion for summary
judgment.

                                        14
<PAGE>

     On March 2, 2001, a jury found that XL Systems' 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 U.S.
District Court for the Eastern District of Texas Court (the "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 from making and selling its XLC connection in its current configuration,
so long as XL Systems 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.

     In March 2003, the federal circuit upheld all of the trial court rulings
and decisions on appeal. We believe we are fully accrued for any additional
expenses related to this ruling. We do not expect this claim to have an adverse
impact on our future operations, as we believe we can offer our XLC connection
without the features that were the subject of this litigation. We also recently
purchased a marine weld-on connector that we will offer in lieu of our XLC
connector in various applications.

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 2002.

                                    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." The
following table sets forth for the periods indicated the high and low sales
prices of our common stock as reported on the NYSE:

<Table>
<Caption>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
2001
  First quarter.............................................  $22.94   $15.80
  Second quarter............................................   24.20    15.10
  Third quarter.............................................   17.59     5.25
  Fourth quarter............................................   11.50     5.30
2002
  First quarter.............................................  $14.20   $ 8.30
  Second quarter............................................   16.94    12.95
  Third quarter.............................................   14.25     8.28
  Fourth quarter............................................   12.33     8.14
</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 and
our 9% Senior Notes Due 2009 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, 2003, we had 3,236 record holders of our common stock.

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 International, Inc. This information has been

                                        15
<PAGE>

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 Consolidated
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,
                                     ----------------------------------------------------------------
                                       1998         1999         2000           2001          2002
                                     --------     --------     --------       --------     ----------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>          <C>          <C>            <C>          <C>
OPERATING DATA:
  Revenues.........................  $646,454     $286,370     $498,481       $740,127     $  639,748
  Operating Income (Loss)..........   112,884(a)   (33,014)(b)   (4,736)(c)     73,055(e)      51,426(f)
  Net Income (Loss) Before
    Cumulative Effect of Accounting
    Change.........................    65,720(a)   (33,511)(b)  (14,696)(c)     28,090(e)      13,046(f)
  Net Income (Loss)................    65,720(a)   (33,511)(b)  (16,485)(c)(d)  28,090(e)       6,634(f)(g)
EARNINGS (LOSS) PER SHARE:(h)
(Pro forma prior to effective date
  of spinoff)
Before Cumulative Effect of
  Accounting Change:
  Basic............................      0.68        (0.33)       (0.13)          0.26           0.12
  Diluted..........................      0.67        (0.33)       (0.13)          0.25           0.12
Net Income (Loss):
  Basic............................      0.68        (0.33)       (0.15)          0.26           0.06
  Diluted..........................      0.67        (0.33)       (0.15)          0.25           0.06
OTHER DATA:
EBITDA(i)..........................   179,007        6,954       49,231        154,309         89,618
BALANCE SHEET DATA (AT END OF
  PERIOD):
  Total Assets.....................  $738,314     $734,575     $892,564       $915,598     $1,315,349
  Long-Term Debt...................     9,265       24,276      219,104        205,024        478,846
  Subordinated Note to
    Weatherford....................   100,000      100,000           --             --             --
  Stockholders' Equity.............   445,211      453,856      431,503        468,967        588,872
</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 $22.1 million of other charges, $14.4 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, and $11.1 million, $7.2 million net of tax, related to asset
    impairments and other reductions. This amount excludes certain charges of
    $19.2 million, $12.5 million net of tax, taken during the fourth quarter, of
    which $13.4 million has been restated to prior quarters in 2000. Refer to
    "Management's Discussion and Analysis of Financial Condition and Results of
    Operations" and Note 4 to the Consolidated 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.

(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 $11.1 million,
    $7.2 million net of tax, related to inventory write-offs and

                                        16
<PAGE>

    capitalized manufacturing variance write-offs which were classified as cost
    of sales, and $33.7 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 $14.5 million.

(f) We incurred $7.0 million of other charges, $4.9 million net of tax, during
    the year ended December 31, 2002. This includes a charge of $2.6 million,
    $1.8 million net of tax, related to fixed asset write-downs and a charge of
    $4.4 million, $3.1 million net of tax, for executive severance costs.

(g) Includes a cumulative effect of accounting change related to Financial
    Accounting Standards Board (SFAS) No. 142, "Goodwill and Other Intangible
    Assets" of $6.4 million, net of tax. Refer to "Management's Discussion and
    Analysis of Financial Condition and Results of Operations -- Recent
    Accounting Pronouncements" for further discussion of the effect of SFAS No.
    142.

(h) We have calculated our pro forma earnings per share using our pro forma
    basic and diluted weighted average shares outstanding for the 1998 and 1999
    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.

(i) We calculate EBITDA by taking operating income (loss) and adding back
    depreciation and amortization, excluding the impact of other charges. EBITDA
    is presented herein because it enhances an investor's understanding of our
    ability to satisfy principal and interest obligations with respect to our
    indebtedness and to use cash for other purposes, including capital
    expenditures. EBITDA is also used for internal analysis. Calculations of
    EBITDA should not be viewed as a substitute to calculations under U.S. GAAP,
    in particular operating income and net income. In addition, EBITDA
    calculations by one company may not be comparable to another company. Our
    EBITDA calculation for the periods presented are as follows (in thousands):

<Table>
<Caption>
                                                 YEAR ENDED DECEMBER 31,
                                    --------------------------------------------------
                                      1998       1999      2000       2001      2002
                                    --------   --------   -------   --------   -------
                                                      (IN THOUSANDS)
<S>                                 <C>        <C>        <C>       <C>        <C>
Operating Income (Loss)...........  $112,884   $(33,014)  $(4,736)  $ 73,055   $51,426
Plus:
  Depreciation and Amortization...    31,173     30,514    31,842     36,453    31,147
  Other Charges...................    34,950      9,454    22,125     44,801     7,045
                                    --------   --------   -------   --------   -------
EBITDA, Before Other Charges......  $179,007   $  6,954   $49,231   $154,309   $89,618
                                    ========   ========   =======   ========   =======
</Table>

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, 2001 and 2002, and our results of
operations for each of the years in the three-year period ended December 31,
2002. 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

                                        17
<PAGE>

refer to Grant Prideco and its subsidiaries. The use herein of such terms as
"group," "organization," "we," "us," "our" and "its," or references to specific
entities, are not intended to be a precise description of corporate
relationships.

GENERAL

     We are the world'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 tubular technology and services. Our drill stem products are
used to drill oil and gas wells while our premium connections and tubular
products are primarily used in drilling and completing oil and gas wells. Our
strong market positions, particularly in the premium, technology-based end of
these products, have allowed us to provide innovative solutions to the drilling
and production challenges of our customers in some of the world's harshest
environments and most complex well conditions. We also provide a variety of
products and services to the growing worldwide offshore and deepwater market
through our marine products and services segment. These products are used for
subsea construction, installation, and production of oil and gas wells.

     We historically have operated through three primary business segments: (1)
drilling products and services, (2) tubular technology and services (previously
premium connections and tubular products), and (3) marine products and services.
We also are involved in joint ventures to develop and commercialize intelligent
drill pipe and composite motors and pumps.

     On December 20, 2002, we acquired the ReedHycalog(TM) drill bits business
from Schlumberger Technology Corporation and its affiliates for approximately
$350 million, consisting of $255 million in cash (subject to adjustment),
approximately $90 million in Grant Prideco common stock, and approximately $5
million of assumed non-current liabilities. The addition of ReedHycalog(TM)
provides us with a strong market position in the profitable drill bit market as
well as a revenue, cash flow, and earnings stream that historically has remained
strong throughout the market cycle. In addition, we expect ReedHycalog's strong
international presence will reduce our relative exposure to the domestic markets
which historically have been more volatile and cyclical when compared to
international markets.

     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. 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 fully described in Note 1 to our
consolidated financial statements included in this Annual Report on Form 10-K.
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, and information available from other
outside sources, as appropriate. Actual results may differ from these judgments
and assumptions. For further details relating our accounting policies, see Note
1 to our consolidated financial statements included herein.

  REVENUE RECOGNITION

     Our revenue recognition policies are in accordance with the Securities and
Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements". 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. With respect to ReedHycalog(TM), for consignment
and performance sales, revenue is recognized when the customer runs the bit.
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

                                        18
<PAGE>

services are performed. Allowances for bad debts are provided based on a
specific customer collection issues. If actual future allowances differ from
what has been identified, additional allowances may be required.

  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. We value our inventories primarily using standard costs, which
approximate actual costs, that include raw materials, direct labor, and
manufacturing overhead allocations. We also perform obsolescence reviews on our
slow-moving drill stem and tubular related inventories and establish reserves
based on current assessments about future demands, market conditions, and
related management initiatives. On our drill bits inventory, the inventory
obsolescence policy is to reserve 50% of all finished goods inventory over one
year old and reserve the remaining net book value of inventory after two years.
If market conditions are less favorable than those projected by management,
additional inventory reserves may be required.

  BUSINESS COMBINATIONS

     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. Management's
estimates of fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain. In addition, estimated liabilities to exit
activities of the acquired operations, including the exiting of contractual
obligations and the termination of employees, are subject to change as
management continues its assessment of operations and finalizes its integration
plans.

  LONG-LIVED ASSETS

     A review for impairment of long-lived assets 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 group to future net
cash flows expected to be generated by the asset group. If such asset group is
considered to be impaired, the impairment loss to be recognized is measured by
the amount by which the carrying amount of the asset group exceeds fair value.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value, less selling costs. While we believe no impairment exists at
December 31, 2002 under accounting standards applicable at that date, different
conditions or assumptions, or changes in cash flows or profitability, if
significantly negative or unfavorable, could have a material adverse effect on
the outcome of our impairment evaluation and our financial condition or future
results of operations.

  GOODWILL AND INTANGIBLE ASSETS

     Goodwill and intangible assets that have indefinite useful lives are
subject to annual impairment tests. Goodwill is tested for impairment using a
two-step process that begins with an estimation of the fair value of each of our
reporting units compared with its carrying value. If the carrying amount exceeds
the fair value of a reporting unit, a second step test is completed comparing
the implied fair value of the reporting unit's goodwill to its carrying value to
measure the amount of impairment. Intangible assets that are not amortized will
be tested for impairment at least annually by comparing the fair values of those
assets to their carrying values. Other identifiable intangible assets that are
subject to amortization are amortized on a straight-line basis over the years
expected to be benefited, ranging from 1.5 to 20 years. While we believe no
impairment exists at December 31, 2002 under accounting standards applicable at
that date, different conditions or assumptions, or changes in cash flows or
profitability, if significantly negative or unfavorable, could have a material
adverse effect on the outcome of our impairment evaluation and our financial
condition or future results of operations.

  CONTINGENT LIABILITIES

     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

                                        19
<PAGE>

litigation where damages have been quantified and we have made an assessment of
our 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. While management
believes the recorded liabilities are adequate, inherent limitations in the
estimation process may cause future actual losses to exceed expected losses.

  PENSION PLANS

     The plan obligations and related assets of defined benefit pension plans
are presented in Note 14 of the Notes to Consolidated Financial Statements. Plan
assets, which consist primarily of marketable equity and debt instruments, are
valued using market quotations. Plan obligations and the annual pension expense
are determined by independent actuaries and through the use of a number of
assumptions. Key assumptions in measuring the plan obligations include the
discount rate and the estimated future return on plan assets. In determining the
discount rate, the Company utilizes the yield on high-quality, fixed-income
investments currently available with maturities corresponding to the anticipated
timing of the benefit payments. Asset returns are based upon the anticipated
average rate of earnings expected on the invested funds of the plans. At
December 31, 2002, the actuarial assumption's of the Company's domestic plan
were: discount rate 6.75% and long-term rate of return on plan assets 8.5%; and
for the foreign plan were: discount rate 5.5%; and long-term rate of return on
plan assets 6.8%.

MARKET TRENDS AND OUTLOOK

     Our business is materially dependent on the level of oil and gas drilling
activity worldwide, which, in turn, depends on the level of capital spending by
major, independent, and state-owned exploration and production companies. This
capital spending is driven by current prices for oil and gas and the perceived
stability and sustainability of those prices. All our business segments track
the level of the domestic and international rig counts, however their revenues,
cash flows, and profitability follow the rig count at different stages within
the market cycles. Drill pipe demand is also a function of customer inventory
levels and typically lags changes in the worldwide rig count by approximately
six months. Results from our tubular technology and services segment should
follow changes in North American natural gas rig counts, but short-term demand
can also be affected by inventories held by oil country tubular goods (OCTG)
distributors. Demand for our marine products and services should follow the
level of offshore and deepwater drilling activity which, although dependent upon
prices for oil and gas, is less likely to follow short-term changes in oil and
gas prices as these projects are more capital intensive and are typically based
upon long-term forecasts for oil and gas prices. Historically, drill bit demand
and ReedHycalog's earnings and cash flows have closely tracked the worldwide rig
count, which we believe will offset somewhat the cyclicality and mid-cycle
returns from our drilling products and services segment.

     During the three-year period ended December 31, 2002, the revenues,
profitability, and cash flows from each of our business segments have been
significantly impacted by changes in oil and gas prices and rig counts, which
were highly volatile during this period. The following table sets forth certain
information with respect to

                                        20
<PAGE>

oil and gas prices at the dates indicated and the North American (U.S. and
Canadian) and international rig counts for the periods reflected:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                                             ------------------------
                                                              2000     2001     2002
                                                             ------   ------   ------
<S>                                                          <C>      <C>      <C>
WTI Oil(a)
  Average..................................................  $30.37   $25.96   $26.17
  Ending...................................................   26.72    20.42    31.20
Henry Hub Gas(b)
  Average..................................................  $ 4.30   $ 3.96   $ 3.37
  Ending...................................................   10.53     2.75     4.59
North American Rig Count(c)
  Average..................................................   1,260    1,497    1,097
  Ending...................................................   1,507    1,165    1,204
International Rig Count(c)
  Average..................................................     652      745      732
  Ending...................................................     705      752      753
</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).

     In addition, the historical results of operations from each of our business
segments have been impacted by internal management initiatives and other changes
within Grant Prideco, including our manufacturing and operational reorganization
that began at the beginning of 2001. These significant internal changes and
initiatives included the following:

     - Introduction of new products and services.  In 1999, we introduced our
       proprietary and patented line of eXtreme(TM) drilling products, which
       were specifically designed for harsh and complex 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. We also have improved upon our other premium
       drill stem product lines designed for challenging drilling environments.
       Operators and drilling contractors have embraced these product lines as a
       way to improve their efficiency and ensure performance when drilling
       under extreme conditions. Unlike more commodity type drill stem products,
       demand for and sales of these high-end premium products are less
       susceptible to declines in rig counts and have permitted us to maintain
       higher profitability and cash flow levels during the current reduction in
       drilling activity when compared to prior periods of reduced activity.
       During the year ended December 31, 2002, sales of premium drill stem
       products represented approximately 33% of our drill stem segment's
       revenues.

     - Improved pricing discipline.  During the decline in market conditions
       that occurred in 1999 and the first part of 2000, the average prices for
       our drill stem products eroded, which adversely affected our
       profitability and cash flow during such periods as well as our ability to
       regain favorable pricing when market conditions began to improve during
       2000 and the first half of 2001. As a result, during the first quarter of
       2001, we implemented strict pricing policies for our drill stem products
       that significantly increased the prices we received for these products,
       and we have maintained our pricing policies and discipline during the
       current downturn in market conditions.

     - Capital improvement program.  At the beginning of 2001, we implemented a
       capital improvement plan with the objective of reducing costs and
       improving operating efficiencies. In connection with this plan, we also
       reallocated manufacturing facilities to increase our manufacturing
       absorption rates, increase production volumes, and improve processes to
       focus on gaining efficiencies. We currently are

                                        21
<PAGE>

       in the final stages of installing state-of-the-art pipe handling
       equipment in our Navasota, Texas facility and other automated processes
       throughout our organization. We believe these initiatives will reduce
       costs and allow us to more efficiently operate during poor market
       conditions and ramp-up operations when market conditions improve. In
       particular, we believe these state-of-the-art improvements have reduced
       our overall reliance on personnel.

     - Improved manufacturing processes and working capital management
       strategy.  During 2001, we shifted from a manufacturing mentality focused
       principally upon maximizing plant utilization to a more efficient
       business practice focused on producing almost solely for order
       fulfillment while minimizing costs and working capital requirements. As a
       result of these efforts and initiatives to improve working capital
       policies, procedures and controls, we decreased our working capital,
       defined as accounts receivable and inventory less accounts payable, from
       $284.3 million at December 31, 2001 to $230.9 million, excluding defined
       working capital related to the ReedHycalog(TM) acquisition of $133.8
       million, at December 31, 2002.

FUTURE MARKET TRENDS AND EXPECTATIONS

     Looking forward at our expected results of operations during 2003, our
results will be heavily based upon our customers' perceptions regarding the
sustainability of oil and natural gas prices. Although, commodity prices have
been particularly strong in early 2003, with prices for oil averaging $35.80 per
barrel and North American natural gas prices averaging $7.86 per MMBtu during
February 2003. These strong commodity prices have not resulted in significantly
increased drilling activity or increased demand for our products and services,
particularly in North America. We believe this unusual trend in demand is the
result of numerous factors, including a reduced confidence of oil and gas
companies in the sustainability of commodity prices as a result of current U.S.
economic conditions and worldwide political instability.

     As a result, when planning our operations for 2003, we intend to manage our
operations and cost structures based upon an average rig count assumption of
1,187 in North America (including average U.S. rig count of 889), and 729
internationally, outside of North America. Utilizing our rig count assumptions,
we expect to earn around $0.30 per share during fiscal 2003 (before
consideration of transition expenses associated with the ReedHycalog(TM)
acquisition and costs associated with the shut-down of our Bryan, Texas
facility). All of our forecasts and assumptions are considered forward-looking
statements, and are subject to numerous risks, and uncertainties, including
these highlighted under Forward-Looking Statements and Exposures.

RESULTS OF OPERATIONS

 OTHER CHARGES AFFECTING OUR RESULTS OF OPERATIONS

     During each of the fiscal years ended December 31, 2000, 2001, and 2002,
our results of operations were affected by various charges incurred by us,
relating to such items as write-offs of our investments in India, litigation and
contingency accruals, write-offs of fixed assets, inventory and capitalized
manufacturing variances in connection with our operational and manufacturing
reorganizations that we implemented at the beginning of 2001, and executive
severance. Additional information regarding these charges and how they

                                        22
<PAGE>

impacted the results of operations for each of our operating segments is set
forth in Note 4 to our audited consolidated financial statements contained
herein. These charges are summarized in the following chart:

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                           --------------------------
                                                            2000      2001      2002
                                                           -------   -------   ------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Fixed asset write-downs and impairment(a)................  $ 3,270   $ 1,475   $2,580
Severance charges(b).....................................       --    14,553    4,465
OCTL write-off(c)........................................       --    17,727       --
Inventory write-off(d)...................................   10,996     6,474       --
Write-off of capitalized manufacturing variances(e)......   19,218     4,572       --
Litigation accrual(f)....................................    2,500        --       --
Contingency accrual(g)...................................    4,650        --       --
Other accrued liabilities(h).............................      709        --       --
                                                           -------   -------   ------
  Total..................................................  $41,343   $44,801   $7,045
                                                           =======   =======   ======
</Table>

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

(a)  The write-down in 2000 relates to fixed assets classified as held for sale.
     The write-downs in 2001 relate to our decision to discontinue the
     manufacturing of industrial flanges. The amounts for the write-downs were
     determined by use of internal appraisals and evaluations to assess the net
     realizable value upon disposal. The fixed asset write-downs in 2002 relate
     to idle assets taken out of service pursuant to our ongoing automation and
     efficiency initiatives and are classified as held for sale.

(b)  The severance charge in 2001 relates to executive, manufacturing, and
     marketing employees terminated in connection with our restructuring plan
     that began in the first quarter of 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. The severance charge in 2002
     relates to an executive employee terminated during June 2002.

(c)  In connection with our operational review conducted in 2001, we reassessed
     the viability of restructuring our relationship with 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.

(d)  The inventory write-offs in 2000 and 2001 were reported as cost of sales
     and were made pursuant to a review of our planned dispositions of inventory
     in an effort to reduce inventory levels of older, slow-moving products.
     Also included in 2001 were write-offs pursuant to our decision to
     discontinue manufacturing of industrial flanges.

(e)  Inventory adjustments were made in 2000 pursuant to a review of our
     capitalized manufacturing variances in excess of standard costs and were
     recorded as cost of sales. During 2001, certain capitalized manufacturing
     cost variances were expensed as cost of sales in connection with our
     operational review and revisions of manufacturing standards and costing.

(f)  The litigation accrual was reported as other charges and relates to a
     judgment in a lawsuit filed against us in May 1997 for patent infringement.
     See "Legal Proceedings."

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

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

YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

  GENERAL

  Consolidated Results

     Net income for the year ended December 31, 2002, after cumulative effect of
accounting change of $6.4 million, net of tax, was $6.6 million ($0.06 per
share) on revenues of $639.7 million, compared to $28.1 million ($0.25 per
share) on revenues of $740.1 million for the same period in 2001. During both
2001

                                        23
<PAGE>

and 2002, our results of operations and earnings were affected by the various
other charges previously discussed. In addition, we adopted the new goodwill
accounting standard, which ceased the amortization of goodwill, as of January 1,
2002. Goodwill amortization for the year ended December 31, 2001 was $6.4
million and is included in selling, general, and administrative expense.

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                                            -------------------------
                                                              2001             2002
                                                            --------         --------
                                                                 (IN THOUSANDS)
<S>                                                         <C>              <C>
Revenues..................................................  $740,127         $639,748
Selling, General, and Administrative......................    70,946           82,765
Operating Income..........................................    73,055(a)(b)(c)   51,426(e)
Net Income................................................    28,090            6,634
EBITDA, Before Other Charges (g)..........................   154,309(d)        89,618(f)
</Table>

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

(a) Includes other charges of $11.1 million related to inventory write-offs and
    capitalized manufacturing variance write-offs, which were classified as cost
    of sales.

(b) Includes other charges of $14.5 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.

(c) Includes other charges of $19.2 million to write-off our assets related to
    our manufacturing arrangement with OCTL in India of $17.7 million and fixed
    asset impairment of $1.5 million.

(d) Excludes $44.8 million of other charges discussed in (a), (b), and (c)
    above.

(e) Includes other charges of $7.0 million related to fixed asset write-downs of
    $2.6 million and executive severance payments and related expenses of $4.4
    million.

(f) Excludes $7.0 million of other charges discussed in (e) above.

(g) We calculate EBITDA by taking operating income (loss) and adding back
    depreciation and amortization, excluding the impact of other charges. EBITDA
    is presented herein because it enhances an investor's understanding of our
    ability to satisfy principal and interest obligations with respect to our
    indebtedness and to use cash for other purposes, including capital
    expenditures. EBITDA is also used for internal analysis. Calculations of
    EBITDA should not be viewed as a substitute to calculations under U.S. GAAP,
    in particular operating income and net income. In addition, EBITDA
    calculations by one company may not be comparable to another company. Our
    EBITDA for the years ended December 31, 2001 and 2002 were as follows:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                                            -------------------------
                                                              2001             2002
                                                            --------         --------
                                                                 (IN THOUSANDS)
<S>                                                         <C>              <C>
Operating Income..........................................  $ 73,055         $ 51,426
Plus:
  Depreciation and Amortization...........................    36,453           31,147
  Other Charges...........................................    44,801            7,045
                                                            --------         --------
EBITDA, Before Other Charges..............................  $154,309         $ 89,618
                                                            ========         ========
</Table>

                                        24
<PAGE>

  DRILLING PRODUCTS AND SERVICES

     The following table sets forth certain data for our drilling products and
services segment for the years ended December 31, 2001 and 2002:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2001           2002
                                                              --------       --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>            <C>
Revenues....................................................  $382,579       $317,280
Selling, General, and Administrative........................    19,239         20,854
Operating Income............................................    69,547(a)(b)   67,397(c)
</Table>

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

(a) 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.

(b) 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.

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

     Revenues.  Our drilling products and services revenues decreased $65.3
million, or 17%, in 2002 as compared to 2001 due primarily to a 27% decline in
the average North American rig count, and the resulting overall weak demand for
our drill stem products. However, the decrease in demand was partially offset by
an increase in average pricing for drill pipe in 2002 due to a sales mix
improvement toward international and offshore markets, which tend to purchase
our higher-priced, more technologically advanced products, coupled with an
overall price increase implemented in 2001. Additionally, our Chinese joint
venture, in which we purchased a controlling interest at the end of the first
quarter of 2002, contributed incremental revenues.

     Selling, General, and Administrative.  Selling, general, and administrative
expenses in our drilling products and services segment increased as a percentage
of revenues from 5% in 2001 to 7% in 2002. This increase was due primarily to a
lower revenue base related to decreased oil and gas drilling activity.

     Operating Income.  Our drilling products and services operating income
decreased $2.2 million, or 3%, in 2002 as compared to 2001. Included in 2001
operating income are $24.0 million of non-recurring charges and goodwill
amortization of $3.2 million. Included in 2002 operating income are charges of
$2.4 million related to our efficiency and automation initiatives primarily at
our operations located in Mexico. Excluding charges and goodwill amortization
mentioned above, operating income decreased $27.0 million, or 28%, year over
year. This decrease is attributable to a weak demand for our drill stem
products, partially offset by an increase in average pricing for drill pipe in
2002, incremental operating income contributed by our Chinese joint venture,
decreased equity earnings associated with our investment in Voest-Alpine, and
losses associated with the development of our Intelliserv joint venture.

  REEDHYCALOG(TM)

     The following table sets forth certain data regarding the results of our
ReedHycalog(TM) segment for the year ended December 31, 2002. Since we acquired
ReedHycalog(TM) on December 20, 2002, its contributions were minimal since we
reflect only 10 days of activity in 2002.

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2001           2002
                                                              --------       --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>            <C>
Revenues....................................................  $     --       $  5,270
Selling, General, and Administrative........................        --          2,141
Operating Income............................................        --            796
</Table>

                                        25
<PAGE>

  TUBULAR TECHNOLOGY AND SERVICES

     The following table sets forth certain data regarding the results of our
tubular technology and services segment for the years ended December 31, 2001
and 2002:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2001          2002
                                                              ---------     ---------
                                                                  (IN THOUSANDS)
<S>                                                           <C>           <C>
Revenues....................................................  $272,283      $216,842
Selling, General, and Administrative........................    17,254        15,312
Operating Income............................................    46,292(a)      9,954(b)
</Table>

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

(a) Includes other charges of $0.5 million related to inventory write-offs and
    capitalized manufacturing variance write-offs, which were classified as cost
    of sales.

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

     Revenues.  Our tubular technology and services revenues decreased $55.4
million, or 20%, in 2002 as compared to 2001. Revenues in this segment were
negatively affected by a 19% decline in the U.S. natural gas rig count when
compared to the same period last year. Additionally, OCTG distributors have been
purchasing at low levels in light of the weak and uncertain market conditions.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our tubular technology and services segment
increased as a percentage of revenues from 6% in 2001 to 7% in 2002. This
increase is primarily due to the lower revenue base related to decreased oil and
gas drilling activity.

     Operating Income.  Our tubular technology and services operating income
decreased $36.3 million, or 78%, in 2002 as compared to 2001, which includes
$0.5 million of non-recurring charges in 2001. Included in 2002 operating income
are fixed asset write-downs of $0.2 million related to assets held for sale.
This decrease reflects the 19% decline in the U.S. natural gas rig count when
compared to the same period in 2001, unabsorbed manufacturing costs incurred to
maintain capacity for an expected industry upturn, equity losses associated with
our investment in G-PEX, and unfavorable product mix, particularly at TCA(TM)
and Texas Arai(TM).

  MARINE PRODUCTS AND SERVICES

     The following table sets forth certain data regarding the results of our
marine products and services segment for the years ended December 31, 2001 and
2002:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2001           2002
                                                              --------       --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>            <C>
Revenues....................................................  $44,085        $72,921
Selling, General, and Administrative........................    7,472         15,107
Operating Income (Loss).....................................     (630)(a)(b)   4,452
</Table>

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

(a) 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.

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

     Revenues.  Our marine products and services revenues increased $28.8
million, or 65%, in 2002 as compared to 2001. In the first quarter of 2001, we
began to strengthen our XL Systems products and services sales force,
consolidated certain offshore selling activities, and began to build a broader
product line. Additionally, in the fourth quarter of 2001, we added a new
management team and acquired the Plexus POS-GRIP(TM) wellhead rental product
line. These actions, coupled with the acquisition of Rotator in the second
quarter of 2002, resulted in increased revenues for this segment despite the 26%
decrease in the U.S. offshore rig count.

                                        26
<PAGE>

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our marine products and services segment increased
as a percentage of revenues from 17% in 2001 to 21% in 2002. This increase was
due to increased selling, general, and administrative expenses associated with
the Rotator and Plexus acquisitions coupled with costs incurred to develop
infrastructure for future growth of this segment.

     Operating Income (Loss).  Our marine products and services segment reported
an operating loss of $0.6 million in 2001 as compared to operating income of
$4.5 million in 2002. Included in the results for 2001 is a non-recurring charge
of $2.2 million and goodwill amortization of $0.4 million. Excluding charges and
goodwill amortization in 2001, operating income for this segment increased $2.5
million in 2002 as compared to the same period in 2001 reflecting the
strengthening of the XL Systems products and services sales force and the
incremental contribution from the Rotator acquisition in the second quarter of
2002 partially offset by increased selling, general, and administrative
expenses.

  OTHER

     The following table sets forth certain data regarding the results of our
other segment for the year ended December 31, 2001 and 2002:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2001           2002
                                                              --------       --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>            <C>
Revenues....................................................  $41,180        $27,435
Selling, General, and Administrative........................    5,579          2,924
Operating Loss..............................................   (6,587)(a)(b)    (281)
</Table>

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

(a)  Includes other charges of $3.9 million related to inventory write-offs and
     capitalized manufacturing variance write-offs which were classified as cost
     of sales.

(b)  Includes other charges of $0.1 million for severance and related expenses.

     Revenues.  Our other segment's revenues decreased $13.7 million, or 33%, in
2002 as compared to 2001. This decrease in revenues is from our industrial drill
pipe operations due to decreased activity levels related to depressed fiber
optic installation and construction markets.

     Selling, General, and Administrative.  Our selling, general, and
administrative expenses for our other segment decreased as a percentage of
revenues from 14% in 2001 to 11% in 2002. This decrease is primarily due to the
closing of our Stephenville, Texas plant in the fourth quarter of 2001.

     Operating Loss.  Our other segment's operating loss decreased $6.3 million,
from an operating loss of $6.6 million in 2001 to an operating loss of $0.3
million in 2002. Excluding the effects of non-recurring charges of $4.0 million
and goodwill amortization of $0.3 million in 2001, operating loss decreased $2.0
million. This reflects the decreased activity levels in our industrial product
line, partially offset by efficiencies obtained in our organizational
restructuring that took place in the first quarter of 2001.

OTHER ITEMS

     Corporate General and Administrative.  Our corporate general and
administrative expenses increased as a percentage of revenues from 3% in 2001 to
4% in 2002. This percentage increase was due primarily to decreased revenues and
higher costs associated with us growing into our own public entity.

     Interest Expense.  Our interest expense of $27.1 million in 2002 was flat
when compared to 2001.

     Tax Provision.  Our effective tax rate in 2002 was 31% as compared to 35%
in 2001. This decrease in the effective tax rate for 2002 is due primarily to
the effects of ceasing goodwill amortization effective January 1, 2002.

                                        27
<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. Revenues of $740.1 million in 2001 increased 48% over the prior year and
were 14% above the previous record achieved in 1998.

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                         ------------------------
                                                           2000            2001
                                                         --------        --------
                                                              (IN THOUSANDS)
<S>                                                      <C>             <C>
Revenues...............................................  $498,481        $740,127
Selling, General, and Administrative...................    58,068          70,946
Operating Income (Loss)................................    (4,736)(a)(b)   73,055(d)(e)(f)
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 $11.1 million related to inventory write-offs and
     capitalized manufacturing variance write-offs, which were classified as
     cost of sales.

(e)  Includes other charges of $14.5 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 $19.2 million to write-off our assets related to
     our manufacturing arrangement with OCTL in India of $17.7 million and fixed
     asset impairment of $1.5 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.
     EBITDA is presented herein because it enhances an investor's understanding
     of our ability to satisfy principal and interest obligations with respect
     to our indebtedness and to use cash for other purposes, including capital
     expenditures. EBITDA is also used for internal analysis. Calculations of
     EBITDA should not be viewed as a substitute to calculations under U.S.
     GAAP, in particular operating income and net income. In addition, EBITDA
     calculations by one company may not be comparable to another company. Our
     EBITDA for the years ended December 31, 2001 and 2002 were as follows:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                         ------------------------
                                                           2000            2001
                                                         --------        --------
                                                              (IN THOUSANDS)
<S>                                                      <C>             <C>
Operating Income (Loss)................................  $ (4,736)       $ 73,055
Plus:
  Depreciation and Amortization........................    31,842          36,453
  Other Charges........................................    22,125          44,801
                                                         --------        --------
EBITDA, Before Other Charges...........................  $ 49,231        $154,309
                                                         ========        ========
</Table>

                                        28
<PAGE>

SEGMENT RESULTS

  DRILLING PRODUCTS AND SERVICES

     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)
<S>                                                        <C>             <C>
Revenues.................................................  $208,347        $382,579
Selling, General, and Administrative.....................    13,949          19,239
Operating Income (Loss)..................................    (7,203)(a)(b)   69,547(c)(d)
</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)  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.

(d)  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.

     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.

     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 of $1.7 million in 2001 compared to the prior year.

     Operating Income (Loss).  Our drilling products and services segment
reported operating income of $69.5 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 $93.5
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.

                                        29
<PAGE>

  TUBULAR TECHNOLOGY AND SERVICES

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

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2000          2001
                                                              ---------     ---------
                                                                  (IN THOUSANDS)
<S>                                                           <C>           <C>
Revenues....................................................  $225,628      $272,283
Selling, General, and Administrative........................    14,457        17,254
Operating Income............................................    33,679(a)     46,292(b)
</Table>

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

(a)  Includes other charges of $0.7 million ($0.5 million for Texas Arai(TM) 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)  Includes other charges of $0.5 million ($0.3 million for Texas Arai(TM) 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.

     Revenues.  Our tubular technology and services 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. 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(TM) coupling product lines' revenues in
2001 were 11% higher than 2000 and reflect price increases implemented in the
first quarter of 2001.

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

     Operating Income.  Our tubular technology and services operating income
increased $12.6 million, or 37%, 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 higher-margin vacuum-insulated tubing product line. Texas Arai(TM)
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

     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)
<S>                                                           <C>           <C>
Revenues....................................................   $36,646       $ 44,085
Selling, General, and Administrative........................     5,324          7,472
Operating Loss..............................................    (5,158)(a)       (630)(b)(c)
</Table>

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

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

                                        30
<PAGE>

(b)  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.

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

     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.

     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

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

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2000          2001
                                                              ---------     ---------
                                                                  (IN THOUSANDS)
<S>                                                           <C>           <C>
Revenues....................................................   $27,860       $41,180
Selling, General, and Administrative........................     3,029         5,579
Operating Loss..............................................    (4,745)(a)    (6,587)(b)(c)
</Table>

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

(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)  Includes other charges of $3.9 million related to inventory write-offs and
     capitalized manufacturing variance write-offs which were classified as cost
     of sales.

(c)  Includes other charges of $0.1 million for severance and related expenses.

     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., 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 industrial product line due
to decreased activity levels related to declining fiber optic installation and
construction markets.

     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 $1.8 million,
or 39%, in 2001, from an operating loss of $4.7 million in 2000 to an operating
loss of $6.6 million in 2001. Excluding the effects of other charges, our other
segment reported an operating loss of $2.6 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

                                        31
<PAGE>

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 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
was used to pay off our $100 million subordinated note to Weatherford.

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

LIQUIDITY AND CAPITAL RESOURCES

     Our liquidity depends upon our cash flow from operations, the level of
availability under our senior credit facility and our ability to raise capital
from third-parties. During the third quarter of 2001, and in anticipation of a
declining market during the remainder of 2001 and 2002, we instituted a working
capital management program focused on reducing our borrowings under credit
facilities and increasing our borrowing capacity. As a result of these efforts,
and our financing completed in connection with the ReedHycalog(TM) acquisition,
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.

     At December 31, 2002, we had cash and cash equivalents of $21.9 million,
working capital of $356.9 million, excluding short-term debt, and unused
borrowing availability of $91.0 million under our new senior credit facility, as
compared to cash and cash equivalents of $10.4 million, working capital of
$267.3 million, excluding short-term debt, and unused borrowing availability
under our previous revolving credit facility of $65.9 million at December 31,
2001. This $89.6 million increase in working capital is due to the
ReedHycalog(TM) acquisition in December 2002. Excluding the ReedHycalog(TM)
acquisition, which contributed approximately $129.4 million in working capital
as of December 31, 2002, working capital decreased $39.8 million. This decrease
is primarily due to our efforts to decrease our working capital investment as
well as declining market conditions.

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

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                        2000       2001       2002
                                                      --------   --------   ---------
                                                              (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>
Net Cash Provided by (Used) in Operating
  Activities........................................  $(32,615)  $ 40,490   $ 119,289
Net Cash Used in Investing Activities...............   (86,769)   (42,134)   (313,836)
Net Cash Provided by Financing Activities...........   121,495      3,713     206,041
</Table>

  OPERATING ACTIVITIES

     Our net cash flow provided by operating activities increased by $78.8
million in 2002 as compared to 2001. This increase reflects the working capital
management program we implemented in the fourth quarter of 2001, which focuses
on minimizing the cash conversion cycle related to inventory, accounts
receivable, and accounts payable. The net incremental source of cash, primarily
related to working capital, was $127.2 million, coupled with increased cash flow
of $7.7 million attributable to dividends from our equity investment in Voest-
Alpine. Partially offsetting this increase is a decrease in our net income,
before cumulative effect of accounting change, as adjusted for other charges,
depreciation, amortization, and deferred income taxes of $56.2 million. This
decrease reflects the downturn in the oil and gas drilling markets due to the
decline in rig counts. Our net
                                        32
<PAGE>

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, amortization, and
deferred income taxes of $73.4 million, coupled with increased cash flow of $8
million attributable to dividends from our equity investment in Voest-Alpine,
partially offset by a net incremental use of cash of $8.3 million related
primarily to an increase in working capital.

  INVESTING ACTIVITIES

     Our net cash used in investing activities increased by $271.7 million in
2002 as compared to 2001 due primarily to increased business acquisitions during
2002 coupled with increased capital expenditures for property, plant, and
equipment. In December 2002, we finalized our acquisition of ReedHycalog(TM),
which included approximately $255 million in cash as part of the purchase price.
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.

     Our capital expenditures for property, plant, and equipment totaled $37.2
million and $45.8 million for the years ended December 31, 2001 and 2002,
respectively. We currently expect to expend approximately $40 million (including
expenditures relating to ReedHycalog(TM)) for capital expenditures for property,
plant, and equipment during 2003. This includes capital expenditures related to
our capital improvement program to reduce production costs and improve
efficiencies and the existing equipment base.

  FINANCING ACTIVITIES

     Our net cash provided by financing activities increased by $202.3 million
in 2002 as compared to 2001. In 2002, we received net proceeds of $170.4 million
from the issuance of $175 million 9% Senior Notes Due 2009, coupled with net
borrowings of $36.8 million. 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 previous credit facility of $22 million 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.

 NEW SENIOR CREDIT FACILITY AND OTHER LONG-TERM DEBT

     Our debt balances are primarily comprised of: (1) borrowings under our new
senior credit facility that we entered into contemporaneously with the closing
of the ReedHycalog(TM) acquisition and replaced our prior revolving credit
facility, (2) our 9 5/8% Senior Notes due 2007, and (3) our 9% Senior Notes due
2009. We estimate our required principal and interest payments for our
outstanding debt to be approximately $56.1 million for 2003.

  New Senior Credit Facility

     In connection with the ReedHycalog(TM) acquisition, we entered into a new
four year $240 million senior secured credit facility (Senior Credit Facility)
with a syndicate of U.S. and foreign banks. The Senior Credit Facility replaced
our prior revolving credit facility. The Senior Credit Facility is comprised of
a $50 million term loan consisting of a $47 million U.S. term loan and a $3
million Canadian term loan, and a $190 million revolving credit facility
consisting of a $183 million U.S. revolving facility and a $7 million Canadian
revolving facility.

     The credit facilities are guaranteed by Grant Prideco, Inc. and all
domestic subsidiaries and are secured by substantially all of our U.S. assets,
including U.S. inventories, equipment, receivables, owned real property, and
stock of certain foreign subsidiaries. The Canadian credit facilities are
guaranteed by Grant Prideco, Inc. and all U.S. subsidiaries and are secured by
substantially all of our U.S. assets and certain of our Canadian inventories,
equipment, receivables, and owned real property and 65% of the stock of certain
foreign subsidiaries.

                                        33
<PAGE>

     Availability under the revolving credit facility, which was $91.0 million
as of December 31, 2002, is based on the collateral value of the inventories and
receivables securing the credit facility. The current outstanding principal
balance of the term loans is $50 million. Amounts outstanding under the credit
facilities accrue interest at a variable rate based on either the U.S. prime
rate (plus 0.75% to 2.00% depending on our leverage ratio and the type of loan,
whether revolving or term) or LIBOR (plus 1.75% to 3.00% depending on our
leverage ratio and the type of loan, whether revolving or term) for the U.S.
denominated advances or a variable rate based on the Canadian prime rate (plus
0.75% to 2.00% depending on our leverage ratio and the type of loan, whether
revolving or term) or the applicable rate for Canadian bankers acceptances, for
Canadian denominated advances. Interest on outstanding borrowings is payable
monthly or, with respect to LIBOR borrowings, either quarterly or at the end of
the applicable LIBOR period. The U.S. revolving credit facility also provides us
with availability for stand-by letters of credit. We are required to comply with
various affirmative and negative covenants which will limit our ability to incur
new debt, make certain investments and acquisitions, sell assets, grant liens,
and take other actions. We are subject to financial covenants that require us to
limit our capital expenditures and, under certain circumstances, require us to
maintain a certain minimum fixed charge coverage ratio.

  9% Senior Notes Due 2009

     In December 2002, we issued $175 million principal amount of 9% Senior
Notes Due 2009. Net proceeds from the issuance of approximately $170 million
were used, along with certain other funds, to fund the cash portion of the
ReedHycalog(TM) acquisition. Interest is payable June 15 and December 15 of each
year. After December 15, 2006, we may redeem all or part of the 9% 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 9% Senior
Notes are guaranteed by all of our domestic subsidiaries. The indenture
governing the 9% 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, 2002, we were
in compliance with the various covenants under the 9% Senior Notes indenture.

     In the event there is a payment default under our credit facility, the 9%
Senior Notes could come due.

  9 5/8% Senior Notes Due 2007

     In December 2000, we issued $200 million principal amount of 9 5/8% Senior
Notes Due 2007. The 9 5/8% 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 a $100 million subordinated note to Weatherford
International, Inc. and to repay outstanding borrowings under our existing
revolving 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 9 5/8%
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
9 5/8% Senior Notes are guaranteed by all of our domestic subsidiaries. The
indenture governing the 9 5/8% 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, 2002, we
were in compliance with the various covenants under the 9 5/8% Senior Notes
indenture.

     In the event there is a payment default under our credit facility, the
9 5/8% 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"). As of December 31, 2002, this debt had been
paid in full.

     Purchase Commitments.  As part of our arrangement to invest in
Voest-Alpine, we entered into a four-year supply contract with Voest-Alpine
commencing July 1999. 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
approximately 50% of our normal worldwide

                                        34
<PAGE>

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. We are in
the process of extending the term of this contract, which we would expect to
have similar terms and conditions as our existing contractual arrangement.

LIQUIDITY OUTLOOK

     We estimate our required principal and interest payments for our
outstanding debt to be approximately $56.1 million for 2003 and capital
expenditures for 2003 to be approximately $40 million in the aggregate. This
includes expenditures related to our capital improvement program we began in
2001. We currently expect to satisfy all required capital expenditures and debt
service requirements during 2003 from operating cash flows, existing cash
balances, and the revolver of our new senior credit facility. As of December 31,
2002, we had borrowed $107.3 million under the Senior Credit Facility, of which
$50 million relates to the term loan and $4.2 million had been used to support
outstanding letters of credit. Net borrowing availability was $91.0 million.

     Based on our current projected capital expenditures and required principal
and interest payments, our operating cash flows, existing cash balances, and
estimated availability under the new senior credit facility, we believe we can
satisfy all of our expected commitments during the next 12 months and will have
sufficient liquidity in the event of a prolonged market downturn to not only
maintain our existing operations but to take advantage of strategic
opportunities that may present themselves during any such period. Acquisitions
and expansions will be financed from cash flow from operations, borrowings under
our new senior 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.

     The following table summarizes our contractual obligations and commercial
commitments at December 31, 2002 (in thousands):

<Table>
<Caption>
CONTRACTUAL OBLIGATIONS          TOTAL     LESS THAN 1 YEAR   2-4 YEARS   5-6 YEARS   AFTER 6 YEARS
-----------------------         --------   ----------------   ---------   ---------   -------------
<S>                             <C>        <C>                <C>         <C>         <C>
Long-Term Debt................  $488,029       $10,432        $101,348    $199,592      $176,657
Capital Lease Obligations.....     2,328         1,079           1,249          --            --
Operating Leases..............    48,282         8,432          20,491       8,812        10,547
Purchase Commitments --
  Open-Ended..................     7,950         6,400           1,550          --            --
  Closed-Ended................       758           758              --          --            --
                                --------       -------        --------    --------      --------
Total Contractual
  Obligations.................  $547,347       $27,101        $124,638    $208,404      $187,204
                                ========       =======        ========    ========      ========
</Table>

<Table>
<Caption>
COMMERCIAL COMMITMENTS             TOTAL    LESS THAN 1 YEAR   2-4 YEARS   5-6 YEARS   AFTER 6 YEARS
----------------------             ------   ----------------   ---------   ---------   -------------
<S>                                <C>      <C>                <C>         <C>         <C>
Line of Credit...................  $  231        $  231          $ --        $ --          $ --
Standby Letters of Credit........   7,337         6,421           257         659            --
                                   ------        ------          ----        ----          ----
Total Commercial Commitments.....  $7,568        $6,652          $257        $659          $ --
                                   ======        ======          ====        ====          ====
</Table>

  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 states and foreign countries in which we do
business.

                                        35
<PAGE>

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. In addition, in connection with our
spinoff from Weatherford in April 2000, we entered into a preferred supplier
agreement with Weatherford for a period of up to three years that provided a $30
million drill stem purchase price credit as partial payment of intercompany debt
being forgiven by them at the time of the spinoff. Weatherford has utilized
approximately $13.1 million of the drill stem credit as of December 31, 2002. We
are currently in negotiations with Weatherford to extend the terms of this
agreement. 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, 2002 we own interests in three companies that are not
consolidated in our financial statements, including Voest-Alpine. Such
investments are accounted for under the equity method of accounting. See Note 6
to our audited consolidated financial statements for financial data, including
total assets and liabilities for Voest-Alpine. The two other joint ventures
relate to technologies we are currently developing. These two 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

     For recent accounting pronouncements, see Note 1 in our audited
consolidated financial statements included elsewhere in this report.

FORWARD-LOOKING STATEMENTS AND EXPOSURES

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

     In modeling our earnings for 2003, 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.

                                        36
<PAGE>

GENERAL

     - The average North American rig count (U.S. and Canada) for 2003 will be
       1,187.

     - The average international rig count for 2003 will be 729.

     - Natural gas prices will not fall in a manner that would affect demand for
       our products or potential purchasing decisions or customer perceptions.

     - Domestic demand for our drill stem products will increase during the year
       and result in increased sales during the second half of 2003.

     - International demand for our drill stem products will continue to be
       relatively strong throughout 2003.

     - We expect our effective tax rate to be 37% to 38% during 2003.

     - 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
       relatively stable and not fall for any prolonged period of time that
       would adversely affect demand for our products, and that United States
       current and potential military actions in Afghanistan, Iraq, or elsewhere
       will not disrupt any of our operations or demand for our products.

     - We will expend approximately 2% of revenues on research and development
       activities during 2003.

     - We will expend approximately $40 million on capital expenditures during
       2003.

     - We will reduce our consolidated debt by approximately $100 million during
       2003.

     - 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 supply or efficiencies.

     - We will not incur any material currency remeasurement or transactional
       losses or other foreign currency 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 and assumptions.

     - There will be no material adverse affect on our operations as a result of
       United States trade laws during 2003. 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

     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

                                        37
<PAGE>

evaluating our 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 OIL AND GAS DRILLING ACTIVITY
  WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

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

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

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

     - oil and gas production costs;

     - the expected costs of developing new reserves;

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

     - the price and availability of alternative fuels;

     - environmental regulation; and

     - tax policies.

     Decreased demand for our products results not only from periods of lower
drilling activity, but also from the resulting build up of customer inventory of
drill pipe associated with idle rigs, which can be used on active rigs in lieu
of new purchases. The time period during which drill pipe inventory is used is a
function of the number of rigs actively drilling and the expected level of
drilling activity. A decrease in the number of rigs actively drilling results in
a large amount of unused drill pipe on idle rigs and a decrease in demand for
new drill pipe. In general, customers begin placing orders for new drill pipe
when expected rig utilization over the next two quarters approaches the number
of rigs for which customers have available drill pipe.

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

     The U.S. and worldwide economies slowed during 2002. The decline in the
U.S. economy has negatively impacted natural gas drilling activity. If expected
economic improvement in the U.S. does not occur or international markets decline
unexpectedly, our results of operations and financial condition could be
materially adversely affected.

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

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

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

     The markets for our premium products and services are characterized by
continual developments. Substantial improvements in the scope and quality of
product function and performance can occur over a short

                                        38
<PAGE>

period of time. In order to remain competitive, we must be able to develop
commercially competitive products in a timely manner in response to changes in
technology. Our ability to develop new products and maintain competitive
advantages depends on our ability to design and commercially market products
that meet the needs of our customers, including delivery schedules and product
specifications.

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

     Many of our products and the processes we use to manufacture them have been
granted U.S. and international patent protection, or have patent applications
pending. Nevertheless, patents may not be granted for our applications and, if
patents are issued, the claims allowed may not be sufficient to protect our
technology. If our patents are not enforceable or if any of our products
infringe patents held by others, our financial results may be adversely
affected. Our competitors may be able to independently develop technology that
is similar to ours without infringing on our patents, which is especially true
internationally where the protection of intellectual property rights may not be
as effective. In addition, obtaining and maintaining intellectual property
protection internationally may be significantly more expensive than doing so
domestically. We may have to spend substantial time and money defending our
patents and, after our patents expire, our competitors will not be legally
constrained from developing products substantially similar to ours.

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

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

     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 is subject
to various risks, including adverse changes in industry conditions, as well as
unexpected actions by our competitors. We believe our current prices are
generally at satisfactory levels given the increased quality and premium nature
of our products, but if market conditions or other factors cause us to decrease
prices, our results could be materially adversely affected.

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

     During 2002, we derived approximately 26% of our total revenues from our
facilities outside the U.S. In addition, a large part of sales from our domestic
locations were for use in foreign countries. We expect this percentage to
increase substantially, and our recent acquisition of ReedHycalog(TM) will
further increase our international exposure. In addition, many of our key
manufacturing operations are outside of the U.S. Our operations in certain
international locations, including Mexico, Austria, Italy, China, Indonesia,
United Kingdom, and Singapore are subject to various political and economic
conditions existing in those countries that could disrupt operations. These
risks include:

     - changes in foreign tax laws;

     - changes in regulations and labor practices;

     - currency fluctuations and devaluations;

                                        39
<PAGE>

     - currency restrictions and limitations on repatriation of profits; and

     - political instability or military conflict.

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

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

     We have entered into an agreement with Voest-Alpine, an entity of which we
own 50.01%, to purchase 60,000 metric tons of green tubulars 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 U.S. on the resale of these
tubulars, which could affect our ability to resell the tubulars in the U.S.
Further, our long-term supply contract with Voest-Alpine is denominated in
Euros. We have no significant offset for revenues in Euros and we have not
hedged for currency risk with respect to this contract. In addition, our
manufacturing of tool joints in Italy has benefited from a weak Euro against the
U.S. dollar until recently. Thus, a material long-term strengthening of the Euro
versus the U.S. dollar could materially adversely affect our results of
operations.

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

     Our four year supply contract with Voest-Alpine, under which we have agreed
to purchase a minimum of 60,000 metric tons of tubulars per year, expires in
September 2003. The volume requirements represent approximately one-half of our
normal worldwide requirements for this type of tubulars during normalized market
conditions. If we are unable to successfully renew or replace this supply
contract on terms reasonably acceptable to us, our results of operations would
be adversely affected.

     Similarly, we have entered into a contract with U.S. Steel to provide
processing services for virtually all of its large diameter casing products.
This contract expires on December 31, 2003, and we do not expect that it will be
renewed. During 2002, this contract contributed approximately $10 million in
revenues and earnings per share of approximately $0.02. If we are unable to
adequately replace this business with comparable quantities and sales margins,
our results of operations and financial results could be adversely affected.

  IN CONNECTION WITH OUR BUSINESS OPERATIONS AND THE REEDHYCALOG(TM)
  ACQUISITION, WE COULD BE SUBJECT TO SUBSTANTIAL LIABILITY CLAIMS THAT
  ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

     We have assumed a substantial portion of ReedHycalog's obligations,
responsibilities, liabilities, costs, and expenses arising out of or incurred in
connection with its business. Our products, as well as ReedHycalog's drill bits
and related technologies, are complex, and the failure of this equipment to
operate properly or to meet specifications may greatly increase our customers'
costs of drilling a well. In addition, many of these products are used in
hazardous drilling and production applications where an accident or product
failure can cause personal injury or loss of life; damage to property,
equipment, or the environment; regulatory investigations and penalties; and the
suspension of the end-user's operations. If our products or services fail to
meet specifications or are involved in accidents or failures, we could face
warranty, contract, or other litigation claims for which we may be held
responsible and our reputation for providing quality products may suffer.

     Our insurance may not be adequate in risk coverage or policy limits to
cover all losses or liabilities that we may incur or be responsible for under
the ReedHycalog(TM) purchase agreement. Moreover, in the future we may not be
able to maintain insurance at levels of risk coverage or policy limits that we
deem adequate or at premiums that are reasonable for us, particularly in the
recent environment of significant insurance premium

                                        40
<PAGE>

increases. Further, any claims made under our policies will likely cause our
premiums to increase. Any future damages deemed to be caused by our products or
services, including those of ReedHycalog(TM), that are assessed against us and
that are not covered by insurance, or that are in excess of policy limits or
subject to substantial deductibles, could have a material adverse effect on our
results of operations and financial condition.

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

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

     In addition, many of our current and former properties are or have been
used for industrial purposes. Accordingly, we also may be subject to financial
liabilities relating to the investigation and remediation of hazardous materials
resulting from the action of previous owners or operators of industrial
facilities on those sites. Liability in many instances may be imposed on us
regardless of the legality of the original actions relating to the hazardous or
toxic substances or whether or not we knew of, or were responsible for, the
presence of those substances. Liabilities we have assumed in connection with the
ReedHycalog(TM) acquisition include, subject to certain exceptions, certain
obligations, liabilities, costs, and expenses for violations of health, safety
and environmental laws relating to the assets and include certain unknown, as
well as known, obligations, liabilities, costs, and expenses arising or incurred
prior to, on or after the closing date. Furthermore, with certain exceptions, we
may be required to indemnify Schlumberger against losses incurred in connection
with or related to these assumed liabilities.

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

  WE ARE UNFAMILIAR WITH THE DRILL BITS BUSINESS AND MAY FACE UNEXPECTED
  DIFFICULTIES IN OPERATING THE BUSINESS OR MAY NOT ACHIEVE THE EXPECTED
  BENEFITS OF THE REEDHYCALOG(TM) ACQUISITION.

     Prior to the ReedHycalog(TM) acquisition, we did not own or operate drill
bits businesses. The ReedHycalog(TM) acquisition has resulted in a new drill
bits product line for us. Our overall management team has limited experience in
drill bits development, manufacturing, and distribution operations, so we may
face regulatory and operational matters with which we are unfamiliar. In
addition, we may be operating in unfamiliar markets and be less able to respond
to changes in markets than our more experienced competitors. Therefore, until
the ReedHycalog(TM) assets, product lines, and operations have been transitioned
into our operations, it is difficult to predict accurately the effects of the
ReedHycalog(TM) acquisition. Furthermore, synergies and other benefits we expect
to result from the acquisition of ReedHycalog(TM) may not be achieved or, if
achieved, may not be achieved in the period in which they are expected. In
addition, whether we will actually realize anticipated benefits depends on
future events and circumstances beyond our control, such as economic conditions
in general or in the oil and gas industry in particular, and the other risk
factors discussed elsewhere in this Annual Report.

                                        41
<PAGE>

  WE MAY NOT HAVE THE SAME COMPETITIVE ADVANTAGES IN THE DRILL BITS BUSINESS AS
  WE ENJOY IN THE COMPETITIVE ENVIRONMENT FOR THE MANUFACTURE, SUPPLY, AND
  PROVISION OF OILFIELD DRILL PIPE AND OTHER DRILL STEM PRODUCTS AND PREMIUM
  CONNECTIONS AND TUBULAR PRODUCTS.

     We hold a leading market position and have greater resources than many of
our competitors in the business of manufacturing, supplying, and providing
oilfield drill pipe and other drill stem products and premium connections and
tubular products. The competitive environment for the drill bits business
differs greatly, with Smith International, Baker Hughes, ReedHycalog(TM), and
Halliburton being the largest competitors. Each of Smith International, Baker
Hughes, and Halliburton has greater marketing, financial, and technical
resources than we do and could use those resources to affect our ability to
compete, thereby reducing the sales, profits, and benefits we expect to receive
from the ReedHycalog(TM) acquisition.

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

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

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

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

     Although we are a U.S.-based manufacturing company, we 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. Any adverse effects on our ability to import
products from our foreign subsidiaries could have a material adverse effect on
our results of operations.

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

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

     We currently are implementing a new management ERP system that we believe
will, in the long term, significantly enhance our information systems, internal
processes and controls. This implementation is ongoing

                                        42
<PAGE>

and includes a significant amount of management's time and dedication and may
distract management in unpredictable ways from our core businesses.
Additionally, the ERP system might not result in the anticipated benefits and
may actually cause disruptions and inefficiencies in our businesses which could
result in increases in our operating and other costs that could adversely affect
our results of operations.

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

     Forward contracts designated as hedges of foreign currency transactions are
marked to the forward rate with the resulting gains and losses recognized in
earnings, offsetting losses and gains on the transactions hedged. We enter into
foreign exchange contracts only as a hedge against existing economic exposures
and not for speculative or trading purposes. The counterparties to our foreign
exchange contracts are creditworthy multinational commercial banks. We believe
that the risk of counterparty nonperformance is minimal.

     Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended.

     At December 31, 2002, we had no open forward contracts.

     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.
For the year ended December 31, 2001, we have recognized hedging losses of $0.6
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, 2001 and 2002, that are sensitive to changes in
interest rates. The tables present principal cash flows by expected maturity
dates and weighted average interest rates (in thousands):

<Table>
<Caption>
2001
LONG-TERM DEBT:                    2002     2003     2004     2005     2006    THEREAFTER
---------------                   ------   ------   ------   ------   ------   ----------
<S>                               <C>      <C>      <C>      <C>      <C>      <C>
  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>

                                        43
<PAGE>

<Table>
<Caption>
2002
LONG-TERM DEBT:                 2003     2004     2005     2006       2007     THEREAFTER
---------------                ------   ------   ------   -------   --------   ----------
<S>                            <C>      <C>      <C>      <C>       <C>        <C>
  Fixed rate.................  $4,368   $1,933   $  289   $   216   $199,355    $176,894
  Average interest rate......    9.26%    9.31%    9.33%     9.33%      9.20%       8.96%
  Variable rate..............  $7,143   $7,143   $7,143   $85,873   $     --    $     --
  Average interest rate......    4.09%    4.09%    4.09%     4.09%        --          --
</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, 2001 and 2002, was as follows (in millions):

<Table>
<Caption>
                                                                DECEMBER 31,
                                                    -------------------------------------
                                                          2001                2002
                                                    -----------------   -----------------
                                                    CARRYING    FAIR    CARRYING    FAIR
                                                     VALUE     VALUE     VALUE     VALUE
                                                    --------   ------   --------   ------
<S>                                                 <C>        <C>      <C>        <C>
9 5/8% Senior Notes due 2007......................   $199.0    $198.0    $199.1    $210.7
9% Senior Notes due 2009..........................       --        --     175.0     181.6
</Table>

     Currently, we have variable interest rate debt totaling approximately
$112.4 million. These variable rate debts expose us to the risk of increased
interest expense in the event of increases in short-term interest rates. If the
variable interest rate were to increase by 1% from December 2001 levels, our
combined interest expense would increase by approximately $1.1 million annually.
The carrying value of our variable interest rate debt approximates fair value as
they bear interest at current market rates.

                                        44
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following consolidated financial statements are filed in this Item 8:

        Report of Independent Auditors

        Report of Independent Public Accountants

        Consolidated Balance Sheets at December 31, 2001 and 2002

        Consolidated Statements of Operations for each of the three years in the
        period ended December 31, 2002

        Consolidated Statements of Cash Flows for each of the three years in the
        period ended December 31, 2002

        Consolidated Statements of Stockholders' Equity for each of the three
        years in the period ended December 31, 2002

        Notes to Consolidated Financial Statements

                                        45
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

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

     We have audited the accompanying consolidated balance sheets of Grant
Prideco, Inc. (the "Company") as of December 31, 2002 and 2001, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
the years then ended. 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. The financial statements of Grant
Prideco, Inc. as of December 31, 2000, and for the year then ended, were audited
by other auditors who have ceased operations and whose report dated March 19,
2001 expressed an unqualified opinion on those statements before the
transitional disclosures described in Note 10 and included an explanatory
paragraph that disclosed the change in the Company's 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.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 2002 and 2001 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grant Prideco, Inc. at December 31, 2002 and 2001, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.

     As discussed in Note 10 to the consolidated financial statements, the
Company changed its method of accounting for goodwill effective January 1, 2002.

     As discussed above, the financial statements of Grant Prideco, Inc. as of
December 31, 2000, and for the year then ended, were audited by other auditors
who have ceased operations. As described in Note 10, these financial statements
were revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
which was adopted by the Company effective January 1, 2002. Our audit procedures
with respect to the disclosures in Note 10 for 2000 included (a) agreeing the
previously reported net income to the previously issued financial statements and
the adjustments to reported net income representing amortization expense, net of
tax, recognized in those periods related to goodwill and intangible assets that
are no longer being amortized to the Company's underlying records obtained from
management, and (b) testing the mathematical accuracy of the reconciliation of
adjusted net income to reported net income, and the related earnings-per-share
amounts. In our opinion, the disclosures for 2000 in Note 10 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2000 financial statements of the Company other than with respect to such
transitional disclosures and, accordingly, we do not express an opinion or any
other form of assurance on the 2000 financial statements taken as a whole.

                                          -s- Ernst & Young LLP
                                          ERNST & YOUNG LLP

Houston, Texas
February 7, 2003

                                        46
<PAGE>

          THIS IS A COPY OF A REPORT PREVIOUSLY ISSUED AND THIS REPORT
                   HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN.

                    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. 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 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.

                                          /s/ Arthur Andersen LLP
                                          ARTHUR ANDERSEN LLP

Houston, Texas
March 19, 2001

                                        47
<PAGE>

                              GRANT PRIDECO, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2001        2002
                                                              --------   ----------
                                                              (IN THOUSANDS, EXCEPT
                                                                PAR VALUE AMOUNT)
<S>                                                           <C>        <C>
                                      ASSETS
Current Assets:
  Cash and Cash Equivalents.................................  $ 10,384   $   21,878
  Restricted Cash...........................................     5,383        8,522
  Accounts Receivable, Net of Allowance for Uncollectible
     Accounts of $1,407 and $2,815 for 2001 and 2002,
     respectively...........................................   148,223      191,087
  Inventories...............................................   198,814      247,936
  Current Deferred Tax Assets...............................    16,275       19,964
  Prepaid Expenses..........................................     7,085       18,467
  Other Current Assets......................................     6,199       14,380
                                                              --------   ----------
                                                               392,363      522,234
                                                              --------   ----------
Property, Plant, and Equipment, Net.........................   224,507      292,504
Goodwill....................................................   231,521      394,083
Intangible Assets, Net......................................     3,473       38,953
Investments in and Advances to Unconsolidated Affiliates....    55,289       50,302
Deferred Tax Assets.........................................       108          270
Other Assets................................................     8,337       17,003
                                                              --------   ----------
                                                              $915,598   $1,315,349
                                                              ========   ==========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-Term Borrowings and Current Portion of Long-Term
     Debt...................................................  $ 61,154   $   16,657
  Accounts Payable..........................................    62,689       74,344
  Current Deferred Tax Liabilities..........................     5,051        2,581
  Customer Advances.........................................     1,469        1,228
  Accrued Labor and Benefits................................    15,927       25,473
  Drill Pipe Credit.........................................    10,000       16,886
  Other Accrued Liabilities.................................    29,891       44,810
                                                              --------   ----------
                                                               186,181      181,979
                                                              --------   ----------
Long-Term Debt..............................................   205,024      478,846
Deferred Tax Liabilities....................................    40,948       38,897
Minimum Pension Liabilities.................................        --        5,211
Other Long-Term Liabilities.................................    12,863        9,623
Commitments and Contingencies (See Notes 16 and 17).........        --           --
Minority Interests..........................................     1,615       11,921
Stockholders' Equity:
  Preferred Stock, $0.01 Par Value; Authorized 10,000
     Shares; no shares issued in 2001 or 2002...............        --           --
  Common Stock, $0.01 Par Value; Authorized 300,000
     Shares; Issued 109,293 and 120,815 in 2001 and 2002,
     respectively...........................................     1,093        1,208
  Capital in Excess of Par Value............................   361,699      476,536
  Treasury Stock, at Cost...................................    (2,551)      (4,409)
  Retained Earnings.........................................   125,199      131,833
  Deferred Compensation Obligation..........................     6,078        7,777
  Accumulated Other Comprehensive Loss......................   (22,551)     (24,073)
                                                              --------   ----------
                                                               468,967      588,872
                                                              --------   ----------
                                                              $915,598   $1,315,349
                                                              ========   ==========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        48
<PAGE>

                              GRANT PRIDECO, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 2000          2001          2002
                                                              -----------   -----------   -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
Revenues....................................................   $498,481      $740,127      $639,748
                                                               --------      --------      --------
Costs and Expenses:
  Cost of Sales.............................................    439,515       571,118       503,854
  Selling, General, and Administrative Attributable to
     Segments...............................................     36,759        49,544        56,338
  Corporate General and Administrative......................     20,809        21,402        26,427
  Weatherford Charges.......................................        500            --            --
  Other Charges.............................................     11,129        33,755         7,045
                                                               --------      --------      --------
                                                                508,712       675,819       593,664
                                                               --------      --------      --------
Equity Income in Unconsolidated Affiliates..................      5,495         8,747         5,342
                                                               --------      --------      --------
Operating Income (Loss).....................................     (4,736)       73,055        51,426
                                                               --------      --------      --------
Other Income (Expense):
  Interest Expense..........................................    (17,005)      (27,067)      (27,051)
  Other, Net................................................       (109)       (1,270)       (1,050)
                                                               --------      --------      --------
                                                                (17,114)      (28,337)      (28,101)
                                                               --------      --------      --------
Income (Loss) Before Income Taxes...........................    (21,850)       44,718        23,325
(Provision) Benefit for Income Taxes........................      7,365       (15,651)       (7,228)
                                                               --------      --------      --------
Net Income (Loss) Before Minority Interest..................    (14,485)       29,067        16,097
Minority Interest...........................................       (211)         (977)       (3,051)
                                                               --------      --------      --------
Net Income (Loss) Before Cumulative Effect of Accounting
  Change....................................................    (14,696)       28,090        13,046
Cumulative Effect of Accounting Change, Net of Tax..........     (1,789)           --        (6,412)
                                                               --------      --------      --------
Net Income (Loss)...........................................   $(16,485)     $ 28,090      $  6,634
                                                               ========      ========      ========
Basic Net Income (Loss) Per Share
  Basic net income (loss) before cumulative effect of
     accounting change......................................   $  (0.13)     $   0.26      $   0.12
  Cumulative effect of accounting change....................      (0.02)           --         (0.06)
                                                               --------      --------      --------
  Net income (loss).........................................   $  (0.15)     $   0.26      $   0.06
                                                               ========      ========      ========
  Basic weighted average shares outstanding.................    109,000       109,486       111,459
                                                               ========      ========      ========
Diluted Net Income (Loss) Per Share
  Diluted net income (loss) before cumulative effect of
     accounting change......................................   $  (0.13)     $   0.25      $   0.12
  Cumulative effect of accounting change....................      (0.02)           --         (0.06)
                                                               --------      --------      --------
  Net income (loss).........................................   $  (0.15)     $   0.25      $   0.06
                                                               ========      ========      ========
  Diluted weighted average shares outstanding...............    109,000       110,884       112,854
                                                               ========      ========      ========
</Table>

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

                                        49
<PAGE>

                              GRANT PRIDECO, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2000       2001       2002
                                                              --------   --------   ---------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Cash Flows From Operating Activities:
  Net Income (Loss).........................................  $(16,485)  $ 28,090   $   6,634
  Adjustments to Reconcile Net Income (Loss) to Net Cash
     Provided by (Used) in Operating Activities:
  Cumulative Effect of Accounting Change....................        --         --       6,412
  Non-Cash Portion of Other Charges.........................    22,125     30,248       2,580
  Depreciation and Amortization.............................    26,746     30,076      31,147
  Goodwill Amortization.....................................     5,096      6,377          --
  Deferred Income Tax.......................................   (11,662)     4,476      (3,663)
  Equity (Income) Loss in Unconsolidated Affiliates, Net of
     Dividends..............................................    (4,939)     3,019      10,746
  Change in Operating Assets and Liabilities, Net of Effects
     of Businesses Acquired:
     Accounts Receivable, Net...............................   (45,466)   (25,158)     22,100
     Inventories............................................   (28,000)   (10,406)     50,169
     Other Current Assets...................................    (1,582)    (3,881)       (143)
     Other Assets...........................................        --       (238)        892
     Accounts Payable.......................................    28,654    (23,125)     (1,039)
     Customer Advances......................................   (16,228)      (806)       (241)
     Other Accrued Liabilities..............................     8,942     (2,293)     (5,880)
     Other, Net.............................................       184      4,111        (425)
                                                              --------   --------   ---------
       Net Cash (Used) in Provided by Operating
          Activities........................................   (32,615)    40,490     119,289
                                                              --------   --------   ---------
Cash Flows From Investing Activities:
  Acquisition of Businesses, Net of Cash Acquired...........   (66,027)    (3,413)   (265,172)
  Investments in and Advances to Unconsolidated
     Affiliates.............................................        --     (1,595)     (3,794)
  Capital Expenditures for Property, Plant, and Equipment...   (20,891)   (37,212)    (45,781)
  Other, Net................................................       149         86         911
                                                              --------   --------   ---------
       Net Cash Used in Investing Activities................   (86,769)   (42,134)   (313,836)
                                                              --------   --------   ---------
Cash Flows From Financing Activities:
  Issuance of Long-Term Debt, Net...........................   193,324         --     170,373
  Borrowings (Repayments) on Debt, Net......................   (89,489)     4,696      36,774
  Purchases of Treasury Stock...............................    (1,046)    (1,637)     (2,279)
  Proceeds from Stock Option Exercises......................     1,502        654       1,173
  Predecessor Stockholder's Investment......................    17,204         --          --
                                                              --------   --------   ---------
       Net Cash Provided by Financing Activities............   121,495      3,713     206,041
                                                              --------   --------   ---------
Net Increase in Cash and Cash Equivalents...................     2,111      2,069      11,494
Cash and Cash Equivalents at Beginning of Year..............     6,204      8,315      10,384
                                                              --------   --------   ---------
Cash and Cash Equivalents at End of Year....................  $  8,315   $ 10,384   $  21,878
                                                              ========   ========   =========
</Table>

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

                                        50
<PAGE>

                              GRANT PRIDECO, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
                                   COMMON STOCK                              ACCUMULATED
                                    $0.01 PAR       CAPITAL IN                  OTHER        TREASURY STOCK      DEFERRED
                                 ----------------   EXCESS OF    RETAINED   COMPREHENSIVE   ----------------   COMPENSATION
                                 SHARES    AMOUNT   PAR VALUE    EARNINGS       LOSS        SHARES   AMOUNT     OBLIGATION
                                 -------   ------   ----------   --------   -------------   ------   -------   ------------
                                                                       (IN THOUSANDS)
<S>                              <C>       <C>      <C>          <C>        <C>             <C>      <C>       <C>
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       (2,497)        --         --          --
  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          --           --         --         --          --
  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
  Total Comprehensive Income
    (Loss).....................       --      --           --       6,634       (1,522)        --         --          --
  Stock Grant and Options
    Exercised..................      169       2        1,171          --           --         --         --          --
  Tax Benefit of Options
    Exercised..................       --      --          733          --           --         --         --          --
  Deferred Compensation
    Obligation.................       --      --           --          --           --         28        421       1,699
  Issuance of Stock for
    Acquisition................   11,353     113      110,798          --           --         --         --          --
  Issuance of Restricted
    Stock......................       --      --        7,550          --           --         --         --          --
  Unamortized Restricted
    Stock......................       --      --       (5,415)         --           --         --         --          --
  Purchase of Treasury Stock
    for Executive Deferred
    Compensation Plan..........       --      --           --          --           --       (202)    (2,279)         --
                                 -------  ------     --------    --------     --------       ----    -------      ------
Balance at December 31, 2002...  120,815  $1,208     $476,536    $131,833     $(24,073)      (342)   $(4,409)     $7,777
                                 =======  ======     ========    ========     ========       ====    =======      ======

<Caption>

                                  PREDECESSOR        TOTAL
                                 STOCKHOLDER'S   STOCKHOLDERS'
                                  INVESTMENT        EQUITY
                                 -------------   -------------
                                        (IN THOUSANDS)
<S>                              <C>             <C>
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).....................           --          25,593
  Stock Grant and Options
    Exercised..................           --             654
  Tax Benefit of Options
    Exercised..................           --             130
  Deferred Compensation
    Obligation.................           --           1,237
  Issuance of Stock for
    Acquisition................           --          12,000
  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
  Total Comprehensive Income
    (Loss).....................           --           5,112
  Stock Grant and Options
    Exercised..................           --           1,173
  Tax Benefit of Options
    Exercised..................           --             733
  Deferred Compensation
    Obligation.................           --           2,120
  Issuance of Stock for
    Acquisition................           --         110,911
  Issuance of Restricted
    Stock......................           --           7,550
  Unamortized Restricted
    Stock......................           --          (5,415)
  Purchase of Treasury Stock
    for Executive Deferred
    Compensation Plan..........           --          (2,279)
                                   ---------       ---------
Balance at December 31, 2002...    $      --       $ 588,872
                                   =========       =========
</Table>

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

                                        51
<PAGE>

                              GRANT PRIDECO, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

  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.

  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 tubular technology and services. The Company's drill stem
products are used to drill oil and gas wells while its tubular technology and
services are primarily used in drilling and completing oil and gas wells. The
Company also provides a variety of products and services to the growing
world-wide offshore and deepwater market through its marine products and
services segment. The Company's marine products and services are used for subsea
construction, installation, and production of oil and gas wells. The Company is
also a global leader in drill bit technology, manufacturing, sales, and service,
due to the Company's acquisition of ReedHycalog(TM) on December 20, 2002.
ReedHycalog(TM) is a leading designer, manufacturer, and distributor of
fixed-cutter and roller-cone drill bits to the global oil and gas industry.
ReedHycalog(TM) has been designing, manufacturing, and distributing drill bits
for over 80 years. The Company's customers include drilling contractors; North
American oil country tubular goods (OCTG) distributors; major, independent and
state-owned oil companies; and oilfield service companies.

     The Company's business is materially dependent on the level of drilling
activity worldwide, which depends on the level of capital spending by major,
independent and state-owned exploration and production companies. This capital
spending is driven by current and forecasted prices for oil and gas, and the
perceived stability and sustainability of those prices. The Company's drilling
products segment's revenues and ReedHycalog's revenues most closely track
worldwide rig counts, while its tubular technology and services business is
dependent on the U.S. rig count, particularly the natural gas rig count, and
more specifically, rigs drilling for deep gas. The Company's marine products and
services are primarily dependent on domestic and international offshore rig
counts, particularly in the U.S. Gulf of Mexico.

  PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Grant Prideco
and its wholly owned subsidiaries. Prior to March 26, 2002, the Company
accounted for its 21.5% investment in Jiangsu Shuguang Grant Prideco Tubular
Limited (JSG) under the equity method of accounting. As discussed further in
Note 5, on March 26, 2002, the Company acquired an additional 48.5% in JSG,
thereby giving the Company a 70% controlling interest. The following table lists
less than 100% owned consolidated subsidiaries as of December 31, 2002:

<Table>
<Caption>
                                                              % OWNERSHIP
                                                              -----------
<S>                                                           <C>
JSG.........................................................      70%
Rotator AS..................................................      65%
TPCO........................................................      60%
H-Tech......................................................      54%
</Table>

                                        52
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The minority interests of the above listed subsidiaries are 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).

     Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 2002 classifications. These reclassifications had
no impact on net income (loss).

  USE OF ESTIMATES

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

  CASH

     The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 2001
and 2002, the Company had $5.4 million and $8.5 million of restricted cash,
respectively. The restricted cash primarily relates to the Company's 54%
interest in H-Tech that is subject to dividend and distribution restrictions,
and funding for the issuance of Industrial Revenue Bonds (IRB's) that is
designated for a specific purpose.

  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 includes raw materials, direct labor, and
manufacturing overhead allocations. The Company also performs obsolescence
reviews on its slow-moving drill stem and tubular related inventories and
establishes reserves based on current assessments about future demands, market
conditions, and related management initiatives (see Note 3). Related to the
Company's drill bit inventory, reserves for inventory obsolescence are
established at 50% of cost for inventories held longer than one year, and at
100% of cost for inventories held longer than two years.

  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. When properties and equipment are sold, retired, or otherwise
disposed of, the cost and related accumulated depreciation are eliminated and
the resulting gain or loss is recognized. Depreciation on fixed assets is
computed using the straight-line method over the estimated useful lives for the
respective categories. The useful lives of the major classes of property, plant,
and equipment are as follows:

<Table>
<Caption>
                                                                 LIFE
                                                              ----------
<S>                                                           <C>
Buildings and Improvements..................................  7-30 years
Machinery and Equipment.....................................  2-10 years
Furniture and Fixtures......................................   3-7 years
</Table>

                                        53
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Property, plant, and equipment consisted of the following:

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2001        2002
                                                              ---------   ---------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Land........................................................  $  24,852   $  24,702
Buildings and Improvements..................................     66,884      88,685
Machinery and Equipment.....................................    221,767     282,898
Furniture and Fixtures......................................      8,380      16,134
Construction in Progress....................................     37,212      36,852
                                                              ---------   ---------
                                                              $ 359,095   $ 449,271
Less: Accumulated Depreciation..............................   (134,588)   (156,767)
                                                              ---------   ---------
                                                              $ 224,507   $ 292,504
                                                              =========   =========
</Table>

     Depreciation expense was $25.7 million, $29.1 million, and $30.2 million
for the years ended December 31, 2000, 2001, and 2002, respectively, which
includes depreciation of assets related to capital leases.

     In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever there is evidence that the
carrying amount of such assets may not be recoverable. This consists of
comparing the carrying amount of an asset group with its expected future
undiscounted cash flows without interest costs. If the asset group's carrying
amount is less than such cash flow estimate, it is written down to its fair
value. Estimates of expected future cash flows represent management's best
estimate based on currently available information and reasonable and supportable
assumptions. Any impairment recognized in accordance with SFAS No. 144 is
permanent and may not be restored. See Note 4 for discussion related to the
Company's fixed asset write-downs.

  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 circumstances 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, except as noted in Note 10 regarding the
goodwill carrying value of the Industrial reporting unit, which warrant revision
to the remaining useful life or which affect the recoverability of any
intangible assets. Other identifiable intangible assets are amortized on a
straight-line basis over the years expected to be benefited, ranging from 1.5 to
20 years.

     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 adopted this 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 (see Note 10).

                                        54
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  STOCK-BASED COMPENSATION

     The Company accounts for its stock-based compensation programs using the
intrinsic value method of accounting established by APB No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Under APB No. 25, no
compensation expense is recognized when the exercise price of an employee stock
option is equal to the market price of common stock on the grant date.
Nonemployee stock-based compensation is accounted for using the fair value
method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" (see Note 13).

     Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS No. 123. The pro forma information has been determined
as if the Company had accounted for its stock options under the fair value
method as provided therein. 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 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.

     Pro forma information applying to the fair value method follows:

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                        --------------------------------
                                                          2000        2001       2002
                                                        ---------   --------   ---------
                                                        (IN THOUSANDS, EXCEPT PER SHARE
                                                                    AMOUNTS)
<S>                                                     <C>         <C>        <C>
Net Income (Loss):
  As Reported.........................................  $(16,485)   $28,090    $  6,634
  Pro forma Compensation Expense, Net of Tax..........    18,210     19,748      16,911
                                                        --------    -------    --------
  Pro forma Net Income (Loss).........................  $(34,695)   $ 8,342    $(10,277)
                                                        ========    =======    ========
Basic Earnings (Loss) Per Share:
  As Reported.........................................  $  (0.15)   $  0.26    $   0.06
  Pro forma Compensation expense, Net of Tax..........     (0.17)     (0.18)      (0.15)
                                                        --------    -------    --------
  Pro forma Basic Earnings (Loss) Per Share...........  $  (0.32)   $  0.08    $  (0.09)
                                                        ========    =======    ========
Diluted Earnings (Loss) Per Share:
  As Reported.........................................  $  (0.15)   $  0.25    $   0.06
  Pro forma Compensation Expense, Net of Tax..........     (0.17)     (0.17)      (0.15)
                                                        --------    -------    --------
  Pro forma Diluted Earnings (Loss) Per Share.........  $  (0.32)   $  0.08    $  (0.09)
                                                        ========    =======    ========
</Table>

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's employee stock options. See
Note 13 for a discussion of the assumptions used in the option pricing model and
estimated fair value of employee stock options.

                                        55
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure", which amends SFAS No. 123, to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS No. 123 to require prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. Finally,
SFAS No. 148 amends APB No. 28, "Interim Financial Reporting" to require
disclosure about those effects in interim financial information. SFAS No. 148's
amendment of the transition and disclosure requirements of SFAS No. 123 are
effective for fiscal years ending after December 15, 2002, with earlier
application permitted. SFAS No. 148's amendment of the disclosure requirements
of APB No. 28 is effective for interim periods beginning after December 15,
2002. The Company adopted SFAS No. 148 on January 1, 2003. The Company did not
change to the fair value based method of accounting for stock-based employee
compensation. Accordingly, the adoption of SFAS No. 148 would only affect the
Company's financial condition or results of operations if the Company elects to
change to the fair value method specified in SFAS No. 123. The adoption of SFAS
No. 148 will, however, require the Company to disclose the effects of its
stock-based employee compensation in interim financial statements beginning with
the first quarter of 2003.

  PENSION PLANS

     On December 20, 2002, the Company assumed sponsorship of two defined
benefit pension plans incurred in connection with the ReedHycalog(TM)
acquisition (see Note 14). Generally accepted accounting principles require the
Company to develop actuarial assumptions in determining annual pension expense
and benefit obligations for the related plans. These assumptions are reviewed on
an annual basis and modified as necessary to reflect changed conditions.
Further, the recognition of a minimum pension liability and in certain
circumstances an adjustment to stockholders' equity is required when the fair
market value of year-end pension assets are less that the accumulated benefit
obligation. Future increases or decreases to the minimum pension liability are
dependent upon actuarial experience, including whether asset returns exceed
assumed rates of return.

     The assets and related obligations of the defined benefit pension plans are
presented in Note 14. The plans assets are valued using market quotations and
consist primarily of marketable equity and debt instruments. The plans
obligations and annual pension expenses are determined by independent actuaries
and through the use of a number of assumptions. Key assumptions used in
measuring the plans obligations include the discount rate, and the estimated
future return on plan assets. In determining the discount rate, the Company
utilizes the yield on high-quality, fixed-income investments currently available
with maturities corresponding to the anticipated timing of the benefit payments.
Asset returns are based upon the anticipated average rate of earnings expected
on the invested funds of the plans.

  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, 2000, 2001, and 2002
were not material.

                                        56
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Company uses from time-to-time 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 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.

     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 customer's behalf
for a brief period of time, typically less than one year. With respect to
ReedHycalog(TM), for consignment and performance sales revenue is recognized
when the customer runs the bit. 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. Reserves for bad debt of $1.4 million and $2.8 million as of
December 31, 2001 and 2002, respectively, are provided based on specific
customer collection issues. The provision for bad debt expense was $0.9 million
and $1.1 million for 2001 and 2002, respectively.

     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.

                                        57
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company adopted SAB No. 101 in the fourth quarter of 2000, effective January
1, 2000. The cumulative effect of the accounting change was a reduction in
income of $1.8 million, net of income taxes of $1.0 million.

  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
antidilutive. At December 31, 2000, stock options to purchase 1.7 million shares
were excluded from the computation of diluted earnings per share due to their
antidilutive effect. The computation of diluted earnings per share for 2001 and
2002 did not include options to purchase 5.0 million and 5.2 million shares,
respectively, of common stock because their exercise prices were greater than
the average market price of the common stock.

     The following table reconciles basic and diluted weighted average shares:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                          ---------------------------
                                                           2000      2001      2002
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Basic weighted average number of shares outstanding.....  109,000   109,486   111,459
Dilutive effect of stock options, net of assumed
  repurchase of treasury shares.........................       --     1,398     1,395
                                                          -------   -------   -------
Diluted weighted average number of shares outstanding...  109,000   110,884   112,854
                                                          =======   =======   =======
</Table>

  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN No. 46). FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN No. 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It applies
to the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. The Company does not believe the adoption
of FIN No. 46 will have an impact on its consolidated results of operations and
financial position.

     In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN No. 45), which addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. FIN No. 45 also clarifies the
requirements related to the recognition of a liability by a guarantor at the
inception of a guarantee for the obligations the guarantor has undertaken in
issuing that guarantee. The disclosure requirements of FIN No. 45 are effective
for financial statements of interim or annual periods ending after December 15,
2002, while the initial recognition and initial measurement provisions are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company does not have any guarantees that are subject to
the disclosure requirements of FIN No. 45.

                                        58
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit plan or disposal
plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 replaces EITF Issue No. 94-3 and is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company will adopt SFAS No. 146 as of January 1, 2003. At this time, the
Company does not believe that the adoption of SFAS No. 146 will have a material
impact on its consolidated results of operations and financial position.

     In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections", was issued.
SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64 related to classification of
gains and losses on debt extinguishment such that most debt extinguishment gains
and losses will no longer be classified as extraordinary. SFAS No. 145 also
amends SFAS No. 13 with respect to sale-leaseback transactions. The Company
adopted the provisions of SFAS No. 145 effective April 1, 2002, and the adoption
had no impact on the Company's consolidated results of operations and financial
position.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective January 1, 2003. This standard
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
The Company has determined that the implementation of this standard will not
have a material effect on its consolidated results of operations and financial
position.

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,
                                                         ----------------------------
                                                           2000      2001      2002
                                                         --------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                      <C>        <C>       <C>
Net Income (Loss)......................................  $(16,485)  $28,090   $ 6,634
Foreign Currency Translation Adjustments, net of tax of
  ($3,607), ($1,227), and ($782) for 2000, 2001, and
  2002, respectively...................................    (6,699)   (2,279)   (1,740)
Change in Fair Value of Derivative Instruments, net of
  tax of ($92) and $74 for 2001 and 2002, respectively
  (see Note 9).........................................        --      (164)      164
Unrealized Gain (Loss) on Marketable Securities, net of
  tax of ($29) and $24 for 2001 and 2002,
  respectively.........................................        --       (54)       54
                                                         --------   -------   -------
Total Comprehensive Income (Loss)......................  $(23,184)  $25,593   $ 5,112
                                                         ========   =======   =======
</Table>

                                        59
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  INVENTORIES

     Inventories by category are as follows:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2002
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Raw materials, components, and supplies.....................  $136,087   $131,519
Work in process.............................................    24,992     32,045
Finished goods..............................................    47,056     95,067
Inventory Reserves..........................................    (9,321)   (10,695)
                                                              --------   --------
                                                              $198,814   $247,936
                                                              ========   ========
</Table>

     Work in process and finished goods inventories include the cost of
materials, labor, and plant overhead. Inventory reserve changes for 2001 and
2002 include charges to expense of $8.2 million and $5.8 million and reserve
deductions of $7.9 million and $4.5 million, respectively.

4.  OTHER CHARGES

  2002 OTHER CHARGES

     During 2002, the Company incurred approximately $7.0 million of pre-tax
charges, $4.9 million net of tax. These charges included $2.6 million related to
fixed asset write-downs and $4.4 million for executive severance payments and
related expenses and are summarized in the following chart (in thousands):

<Table>
<Caption>
                                                 DRILLING    TUBULAR
                                                 PRODUCTS   TECHNOLOGY
                                                   AND         AND
                                                 SERVICES    SERVICES    CORPORATE   TOTAL
                                                 --------   ----------   ---------   ------
<S>                                              <C>        <C>          <C>         <C>
Fixed Asset Write-Downs(a).....................   $2,360       $220       $   --     $2,580
Severance(b)...................................       --         --        4,465      4,465
                                                  ------       ----       ------     ------
  Total........................................   $2,360       $220       $4,465     $7,045
                                                  ======       ====       ======     ======
</Table>

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

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

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

  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 $11.1 million, $7.2
million net of tax, related to inventory write-offs and capitalized
manufacturing variance write-offs which were classified as cost of sales, $17.7
million, $11.5 million net of tax, pertaining to the write-off of assets related
to the Company's manufacturing arrangement with Oil Country Tubular Ltd. (OCTL)
in India, severance and related expenses of $14.5 million, $9.4 million net of
tax, and a fixed asset impairment of $1.5 million, $1.0 million net of tax,
related to the decision to discontinue the

                                        60
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

manufacturing of industrial flanges. As of December 31, 2002, all of the charges
have been utilized or paid. These charges are summarized in the following chart:

<Table>
<Caption>
                                     DRILLING    TUBULAR      MARINE
                                     PRODUCTS   TECHNOLOGY   PRODUCTS
                                       AND         AND         AND
                                     SERVICES    SERVICES    SERVICES   OTHER    CORPORATE    TOTAL
                                     --------   ----------   --------   ------   ---------   -------
                                                             (IN THOUSANDS)
<S>                                  <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
                                     -------       ----       ------    ------    -------    -------
  Total............................  $23,991       $509       $2,169    $3,967    $14,165    $44,801
                                     =======       ====       ======    ======    =======    =======
</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 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.

(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, all of which were paid in
     2001.

  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. It was determined that $19.2 million of the pre-tax
charge amount related to adjustments to capitalized manufacturing costs
variances. These inventory adjustments were made pursuant to a review of the
Company's capitalized manufacturing variances in excess of standard costs and
are recorded as cost of sales. The remaining $22.1 million of 2000 pre-tax
charges are summarized in the chart below. The Company estimates that all of

                                        61
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the remaining accrued balances at December 31, 2002 will be paid during 2003.
The categories of the charge incurred, the actual cash payments, and the accrued
balances at December 31, 2002 are summarized below:

<Table>
<Caption>
                                          TUBULAR
                            DRILLING     TECHNOLOGY      MARINE                                    LIABILITY
                          PRODUCTS AND      AND       PRODUCTS AND                        CASH      BALANCE
                            SERVICES      SERVICES      SERVICES     OTHER     TOTAL    PAYMENTS   12/31/02
                          ------------   ----------   ------------   ------   -------   --------   ---------
                                                            (IN THOUSANDS)
<S>                       <C>            <C>          <C>            <C>      <C>       <C>        <C>
Inventory
  Write-Off(a)..........    $ 8,137         $572         $   --      $2,287   $10,996   $10,996     $   --
Write-Down of
  Assets(b).............      3,270           --             --          --     3,270     3,270         --
Litigation Accrual(c)...         --           --          2,500          --     2,500       641      1,859
Contingent Liability
  Accrual(d)............      4,650           --             --          --     4,650        --      4,650
Other Accrued
  Liabilities(e)........        594          115             --          --       709       709         --
                            -------         ----         ------      ------   -------   -------     ------
  Total.................    $16,651         $687         $2,500      $2,287   $22,125   $15,616     $6,509
                            =======         ====         ======      ======   =======   =======     ======
</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
     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.

5.  ACQUISITIONS

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

     The addition of ReedHycalog(TM) provides the Company with a strong market
position in the drill bit market as well as a revenue, cash flow, and earnings
that historically have remained strong throughout the market cycle. In addition,
the Company expects ReedHycalog's strong international presence will reduce the
Company's relative exposure to the domestic markets which historically have been
more volatile and cyclical when compared to international markets.

                                        62
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In addition to the cash and equity consideration for ReedHycalog(TM), the
Company assumed certain of Schlumberger's and its affiliates' obligations,
responsibilities, liabilities, costs, and expenses arising out of or incurred in
connection with the operation of ReedHycalog(TM). This includes, subject to
certain exceptions, certain of Schlumberger's and its affiliates' obligations,
liabilities, costs, and expenses related to the operation of its business,
contractual matters, warranty claims, and various accrued liabilities, including
certain known and unknown obligations, liabilities, costs, and expenses arising
or incurred prior to the closing date. The Company believes that, as a result of
Schlumberger's indemnification obligations, the Company will not have any
material exposure for pre-closing matters. However, any indemnification the
Company receives is subject to certain thresholds and limits and the Company
cannot assure that any such indemnification will be adequate.

     To assist in the Company's integration efforts, Schlumberger has agreed to
provide transition services for a period of up to twelve months from the closing
of the ReedHycalog(TM) acquisition. Schlumberger also has agreed, subject to
certain exceptions, not to engage in the manufacture or development of drill
bits for a period of three years and will not enter into any strategic marketing
alliances with respect to drill bits for a period of 18 months.

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

                                        63
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of the estimated purchase price and preliminary allocation
as of the acquisition date, including the weighted average useful life of
intangibles, are as follows (in thousands):

<Table>
<Caption>
                                                                         INTANGIBLES
                                                                          WEIGHTED
                                                                           AVERAGE
                                                                           USEFUL
                                                               AMOUNT       LIFE
                                                              --------   -----------
<S>                                                           <C>        <C>
PRELIMINARY ALLOCATION OF PURCHASE PRICE:
  Cash Paid.................................................  $259,271
  Grant Prideco Common Stock Issued.........................    90,000
  Non-Current Liabilities Assumed...........................     5,211
  Acquisition Costs.........................................     3,247
                                                              --------
     TOTAL CONSIDERATION AND ACQUISITION COSTS..............  $357,729
                                                              ========
PRELIMINARY ALLOCATION OF PURCHASE PRICE:
  Current Assets............................................  $156,094
  Property, Plant, and Equipment............................    45,841
  Other Assets..............................................       618
  Identifiable Intangible Assets:
     Patents................................................    29,350      15.0
     Customer Relationships.................................     3,300      20.0
     Covenant Not to Compete................................     1,000       1.5
  Goodwill..................................................   155,983
  Liabilities Assumed.......................................   (34,457)
                                                              --------
     NET ASSETS ACQUIRED....................................  $357,729
                                                              ========
</Table>

     Goodwill that is expected to be deductible for income tax purposes related
to this acquisition is $95.5 million.

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

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 2001          2002
                                                              -----------   -----------
                                                              (IN THOUSANDS, EXPECT PER
                                                                     SHARE DATA)
<S>                                                           <C>           <C>
Revenues....................................................   $984,373      $853,598
Net Income Before Cumulative Effect of Accounting Change....     42,740        23,737
Net Income..................................................     42,740        17,325
Basic Earnings Per Share....................................       0.36          0.14
Diluted Earnings Per Share..................................       0.35          0.14
</Table>

                                        64
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

     On September 13, 2002, the Company acquired the assets of Grey-Mak Pipe,
Inc. (Grey-Mak), a company headquartered in Casper, Wyoming that specializes in
the threading of casing and tubing and provides related accessories. The Company
paid approximately $4.8 million in cash, and goodwill recognized in the
acquisition was approximately $0.6 million. Grey-Mak's results of operations are
included in the Company's Tubular Technology and Services segment.

     On March 26, 2002, the Company acquired an additional 48.5% interest in
JSG, a Chinese entity engaged in the manufacture and sale of drill pipe to the
Chinese and related markets, thereby giving the Company a 70% controlling
interest in JSG. The Company previously owned approximately 21.5% of JSG and
accounted for its investment under the equity method. The Company paid
approximately $0.5 million in cash and issued 1.3 million shares of Grant
Prideco common stock for the additional interest. Goodwill recognized in the
step acquisition of JSG was approximately $11.3 million. Subsequent to acquiring
a controlling interest, the Company's consolidated financial statements include
the accounts of JSG. Previously recorded goodwill of $2.9 million related to the
Company's initial 21.5% investment has been reclassified from "Investments in
and Advances to Unconsolidated Affiliates" to "Goodwill" in the Consolidated
Balance Sheets.

     On March 26, 2002, the Company also entered into a joint venture with
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 representing the Company's contribution to the joint venture. As of
December 31, 2002, the Company had invested approximately $2.5 million into this
joint venture.

     On May 7, 2002, the Company acquired 65% of Rotator AS (Rotator), a
Norwegian company that manufactures control valves and systems for the offshore
oil and gas industry. The agreement provided the Company the right to acquire
the remaining 35% of Rotator two years following its purchase, with the price
being based on Rotator's results of operations during this two-year period. The
Company issued approximately 0.3 million shares of Grant Prideco common stock
with a value of approximately $5.1 million for the initial 65% interest.
Goodwill recognized in the acquisition of Rotator was approximately $2.7
million. The terms of the agreement also provided a guarantee by the Company to
the selling shareholders that they would receive 41,500,000 Norwegian Kroner
(NOK) upon their disposition of the Grant Prideco common stock. Any price
deficiency would be paid in cash by the Company to the selling shareholders, and
any price excess would be applied towards the purchase price to be paid by the
Company for the additional 35% interest. In July 2002, the selling shareholders
sold the Grant Prideco common stock at a price deficiency upon disposition, and
the Company was required to make a cash payment of $0.9 million. In January
2003, the Company purchased the remaining 35% interest in Rotator (see Note 21).

     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. As of December 31, 2002, the
Company has funded working capital of approximately $2.2 million. 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. As of
December 31, 2002, the Company recorded additional consideration of $1.3
million.

     On November 26, 2000, the Company purchased 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

                                        65
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition secured for the Company a high-quality source of tool joints and
decreased its dependence on its Veracruz, Mexico operations.

     In addition to the acquisition discussed separately above, the Company made
several other acquisitions during 2000. In 2000, the aggregate purchase price of
these acquisitions was approximately $36.7 million with $7.5 million in assumed
debt, and goodwill recorded was approximately $29.1 million.

     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 2000, 2001, and
2002 acquisitions, with the exception of the ReedHycalog(TM) acquisition, are
not material to the Company individually or in the aggregate for each applicable
year, therefore pro forma information is not presented. See Note 11 for
supplemental cash flow information concerning acquisitions.

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 $37.3
million and $37.9 million at December 31, 2001 and 2002, respectively.
Summarized financial information for Voest-Alpine is as follows (in thousands):

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Current Assets..............................................  $ 84,289   $ 70,887
Other Assets................................................    35,572     45,662
                                                              --------   --------
  Total Assets..............................................  $119,861   $116,549
                                                              ========   ========
Current Liabilities.........................................  $ 32,168   $ 25,140
Other Liabilities...........................................    31,506     43,884
Stockholders' Equity........................................    56,187     47,525
                                                              --------   --------
                                                              $119,861   $116,549
                                                              ========   ========
</Table>

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2000       2001       2002
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Net Sales............................................  $182,572   $237,742   $220,266
                                                       --------   --------   --------
Gross Profit.........................................    21,385     38,083     37,154
                                                       --------   --------   --------
Net Income...........................................  $  9,555   $ 20,149   $ 16,443
                                                       ========   ========   ========
Company's Equity Income..............................  $  4,578   $  9,422   $  8,446
                                                       ========   ========   ========
Dividends Received...................................  $    427   $ 11,487   $ 16,088
                                                       ========   ========   ========
</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 in 2001, and the elimination of intercompany profit on Voest-Alpine
sales to the Company. At December 31, 2001 and 2002, the Company's investment in
Voest-Alpine exceeded its equity in its net assets by approximately $9.2 million
and $14.1 million, respectively, due to goodwill, tax adjustments, and timing
differences. Amortization of the goodwill related to the investment totaling
$0.3 million is included in Equity Income in Unconsolidated Affiliates for the
year ended December 31, 2001.

                                        66
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In March 2002, the Company purchased an additional 48.5% interest in JSG, a
Chinese drill pipe manufacturer for a total of 70% interest. Prior to the
purchase, the Company accounted for the JSG investment under the equity method
of accounting (see Note 5 for further discussion).

     In September 2001, the Company entered into a joint venture, G-PEX, related
to the commercialization of composite progressive cavity motors and pumps. The
Company has a 50% interest in this joint venture and its investment is accounted
for under the equity method of accounting. Under the terms of the agreement, the
Company funds 100% of the expenses related to G-PEX until commercialization of
the product. Once the product has reached commercialization, G-PEX is obligated
to reimburse the Company for all expenses paid on behalf of G-PEX. As of
December 31, 2001 and 2002, the Company's investment in G-PEX was $0.4 million
and $1.0 million, respectively, which includes a notes receivable in the amount
of $0.5 million and $1.7 million, respectively. For the years ended December 31,
2001 and 2002, the Company has recorded equity losses of $0.1 million and $0.6
million, respectively. The Company expects to introduce its first composite
products from this joint venture during 2003 or thereafter.

     In May 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. The Company, through its
100% owned subsidiary Intellipipe, Inc., owns a 50% interest in Intelliserv, Inc
(Intelliserv). Intelliserv is currently developing and commercializing a smart
drill pipe telemetry system. The Company's investment in Intelliserve is
accounted for under the equity method of accounting and as of December 31, 2001
and 2002, the Company's investment in Intelliserv was $11.8 million and $11.4
million, respectively. For the years ended December 31, 2001 and 2002, the
Company has recorded equity losses of $0.4 million and $3.0 million,
respectively. Intelliserve is in the prototype testing and refinement stage and
is expected to introduce a product commercially some time in 2004.

7.  SHORT-TERM DEBT

     As of December 31, 2002, the Company had short-term borrowings of $4.9
million with a weighted average interest rate of 5.5%.

     As of December 31, 2001, the Company had borrowed $54.3 million under the
prior revolving credit facility, $4.8 million had been used to support
outstanding letters of credit, and $65.9 million was available for borrowing
under the prior revolving credit facility, which reflects an increase in the
committed amount of the prior revolving credit facility from $100 million to
$125 million in December 2001.

     Additionally, at December 31, 2001 and 2002, there were outstanding
borrowings of $0.4 million and $0.2 million under a miscellaneous credit
facility and $0.7 million and $3.1 million of outstanding letters of credit,
respectively, which had been supported under various available letter of credit
facilities that are not related to the senior credit facility.

                                        67
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8.  LONG-TERM DEBT

     Long-term debt consists of the following:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2002
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Credit Facility:
  Term Loan.................................................  $     --   $ 50,000
  Revolving Credit Facility.................................        --     57,302
9 5/8% Senior Notes due 2007, net of unamortized discount of
  $1,050 and $872 in 2001 and 2002, respectively............   198,950    199,128
9% Senior Notes due 2009....................................        --    175,000
Long-Term Loan, Interest at 6 Month EURIBOR, Due 2002.......     2,590         --
Long-Term Loan, Interest at 6 Month EURIBOR, Due 2007.......     2,877         --
Capital Lease Obligations Under Various Agreements..........     3,493      2,328
Other.......................................................     3,570      6,599
                                                              --------   --------
                                                               211,480    490,357
Less: Current Portion of Long-Term Debt.....................     6,456     11,511
                                                              --------   --------
                                                              $205,024   $478,846
                                                              ========   ========
</Table>

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

<Table>
<S>                                                           <C>
2003........................................................  $ 11,511
2004........................................................     9,076
2005........................................................     7,432
2006........................................................    86,089
2007........................................................   199,355
Thereafter..................................................   176,894
                                                              --------
                                                              $490,357
                                                              ========
</Table>

  SENIOR CREDIT FACILITY

     In connection with the ReedHycalog(TM) acquisition in December 2002, the
Company entered into a new four-year $240 million senior secured credit facility
(Senior Credit Facility) with a syndicate of U.S. and foreign banks. This Senior
Credit Facility replaced the Company's prior revolving credit facility. The
Senior Credit Facility is comprised of a $50 million term loan consisting of a
$47 million U.S. term loan and a $3 million Canadian term loan, and a $190
million revolving credit facility consisting of a $183 million U.S. revolving
facility and a $7 million Canadian revolving facility.

     The credit facilities are guaranteed by Grant Prideco, Inc. and all
domestic subsidiaries and are secured by substantially all of the Company's U.S.
assets, including U.S. inventories, equipment, receivables, owned real property,
and stock of certain foreign subsidiaries. The Canadian credit facilities are
guaranteed by Grant Prideco, Inc. and all U.S. subsidiaries and are secured by
substantially all of the Company's U.S. assets and certain Canadian inventories,
equipment, receivables, owned real property, and 65% of the stock of certain
foreign subsidiaries.

     Amounts outstanding under the Senior Credit Facility accrue interest at a
variable rate based on either the U.S. prime rate (plus 0.75% to 2.00% depending
on the Company's leverage ratio and the type of loan,

                                        68
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

whether revolving or term) or LIBOR (plus 1.75% to 3.00% depending on the
Company's leverage ratio and the type of loan, whether revolving or term) for
the U.S. denominated advances or a variable rate based on the Canadian prime
rate (plus 0.75% to 2.00% depending on the Company's leverage ratio and the type
of loan, whether revolving or term) or the applicable rate for Canadian bankers
acceptances, for Canadian denominated advances. Interest on outstanding
borrowings is payable monthly or, with respect to LIBOR borrowings, either
quarterly or at the end of the applicable LIBOR period. The U.S. revolving
credit facility also provides the Company with availability for stand-by letters
of credit. The Company is required to comply with various affirmative and
negative covenants which will limit the Company's ability to incur new debt,
make certain investments and acquisitions, sell assets, grant liens, and take
other actions. The Company is also subject to financial covenants that require
the Company to limit its capital expenditures and, under certain circumstances,
require the Company to maintain a certain minimum fixed charge coverage ratio.

     As of December 31, 2002, the Company had borrowed $107.3 million under the
Senior Credit Facility, of which $50 million relates to the term loan and $4.2
million had been used to support outstanding letters of credit. Net borrowing
availability was $91.0 million. The revolving credit facility, under the Senior
Credit Facility, is recorded as "Long-Term Debt" in the accompanying
Consolidated Balance Sheets as the Company has the ability under the credit
agreements and the intent to maintain these obligations for longer than one
year.

  9% SENIOR NOTES DUE 2009

     In December 2002, the Company issued $175 million principal amount of 9%
Senior Notes Due 2009 (9% Senior Notes). Net proceeds from the issuance of
approximately $170 million were used, along with certain other funds, to fund
the cash portion of the ReedHycalog(TM) acquisition. Interest is payable June 15
and December 15 of each year. After December 15, 2006, the Company may redeem
all or part of the 9% 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 9% Senior Notes are guaranteed by all of the Company's
domestic subsidiaries. The indenture governing the 9% 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.

  9 5/8% SENIOR NOTES DUE 2007

     In December 2000, the Company issued $200 million principal amount of
9 5/8% Senior Notes Due 2007 (9 5/8% Senior Notes). The 9 5/8% 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 a $100 million
subordinated note to Weatherford International, Inc. and to repay outstanding
borrowings under the Company's existing revolving credit facility of
approximately $80.3 million. Interest is payable June 1 and December 1 of each
year. The Company may redeem all or part of the 9 5/8% 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 9 5/8% Senior Notes are
guaranteed by all of the Company's domestic subsidiaries. The indenture
governing the 9 5/8% 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.

     In the event there is a payment default under the Senior Credit Facility,
the 9% and 9 5/8% Senior Notes could come due. As of December 31, 2002, the
Company is in compliance with the various covenants under the 9% and 9 5/8%
Senior Notes agreements.

                                        69
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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"). As of December 31, 2002, this debt had
been paid in full.

9.  FINANCIAL INSTRUMENTS

     The Company uses from time to time 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 were marked to market based on forward rates and
there was no material impact on income as a result of these forward contracts.
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 2001. As of December
31, 2002, all of the Company's forward contracts had expired.

     The following table summarizes activity in other comprehensive income
(loss) related to derivatives classified as cash flow hedges held by the Company
(in thousands):

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                                2001            2002
                                                              --------        --------
<S>                                                           <C>             <C>
Balance as of January 1, net of tax of $119 and $74.........   $ 216           $ 164
Net deferred loss reclassified into earnings from other
  comprehensive income (loss), net of tax of ($481) and
  ($76).....................................................    (892)           (168)
Change in fair value of derivatives, net of tax of $454 and
  $2........................................................     840               4
                                                               -----           -----
Accumulated other comprehensive (income) loss, 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. In
January 2002, one of the forward contracts expired, and the remaining forward
contract was cancelled. There was no material impact on income as a result of
these transactions.

  NET INVESTMENT HEDGE

     Gains and losses attributable to the translation of the 7 1/2 year
Voest-Alpine Debt were included in other comprehensive income as the debt was
designated as, and was effective as, a net investment hedge of the Company's
equity investment in Voest-Alpine. For the years ended December 31, 2001 and
2002, $0.5 million, and $0.1 million, respectively, related to the net
investment hedge was included in the foreign currency translation adjustment. In
May 2002, the Voest-Alpine Debt was paid in full.

                                        70
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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 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 debt based on current market rates. The
Company had approximately $265.8 million and $490.4 million of debt at December
31, 2001 and 2002, respectively. The fair value of the debt at December 31, 2001
and 2002 was $264.8 million and $508.5 million, respectively.

10.  GOODWILL AND OTHER INTANGIBLE ASSETS

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

     In accordance with SFAS No. 142, prior period amounts were not restated. A
reconciliation of the previously reported net income and earnings per share for
the year ended December 31, 2000 and 2001 to the amounts adjusted for the
reduction of amortization expense, net of the related income tax effect, is as
follows (in thousands, except per share amounts):

<Table>
<Caption>
                             YEAR ENDED DECEMBER 31, 2000           YEAR ENDED DECEMBER 31, 2001
                         ------------------------------------   ------------------------------------
                         NET INCOME
                           (LOSS)     BASIC EPS   DILUTED EPS   NET INCOME   BASIC EPS   DILUTED EPS
                         ----------   ---------   -----------   ----------   ---------   -----------
<S>                      <C>          <C>         <C>           <C>          <C>         <C>
Reported results.......   $(16,485)    $(0.15)      $(0.15)      $28,090       $0.26        $0.25
Goodwill amortization
  expense, net of
  tax..................      5,096       0.05         0.05         6,377        0.06         0.06
                          --------     ------       ------       -------       -----        -----
Adjusted results.......   $(11,389)    $(0.10)      $(0.10)      $34,467       $0.32        $0.31
                          ========     ======       ======       =======       =====        =====
</Table>

     SFAS No. 142 provides for a two-step transitional goodwill impairment test
with respect to existing goodwill. The first step of the test involved a
comparison of the fair value of each of the Company's reporting units, as
defined under SFAS No. 142, with its carrying value. If the carrying amount
exceeded the fair value of a reporting unit, the Company is required to complete
the second step of the transitional goodwill impairment test for this reporting
unit by December 31, 2002. The Company's reporting units are as follows: 1)
Drilling Products and Services, 2) ReedHycalog(TM), 3) Tubular Technology and
Services, 4) Marine Products and Services, and 5) Industrial.

     Completion of the first step of the test, upon adoption of SFAS No. 142,
indicated the carrying value of the Industrial reporting unit exceeded its fair
value. The Company then performed the second step of the impairment test for
this reporting unit during the fourth quarter of 2002, and a pre-tax goodwill
impairment loss was recorded totaling $9.3 million, $6.4 million net of tax.
This charge had no impact on cash flows and was recorded as a cumulative effect
of a change in accounting principle in the Consolidated Statements of Operations
effective January 1, 2002. The fair value of the Industrial reporting unit was
determined using a combination of discounted cash flow projections and
comparable company market value multiples. The circumstances leading to the
goodwill impairment in the Industrial reporting unit are overall weak market
conditions in the telecommunications industry, which have contributed to
declining revenues and profitability, and a reduction in the estimated future
expected performance of this reporting unit, which manufactures drill pipe and
other products used in the industrial markets for fiber optic cable installation
and water well drilling.

                                        71
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company performs its annual test for potential goodwill impairment as
of October 1st of each year or when events occur or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its
carrying amount. The Company completed its year end assessment and no impairment
was indicated. The carrying amount of goodwill by reporting unit is as follows:

<Table>
<Caption>
                                DRILLING                  TUBULAR      MARINE
                                PRODUCTS                 TECHNOLOGY   PRODUCTS
                                  AND                       AND         AND
                                SERVICES   REEDHYCALOG    SERVICES    SERVICES   INDUSTRIAL    TOTAL
                                --------   -----------   ----------   --------   ----------   --------
                                                            (IN THOUSANDS)
<S>                             <C>        <C>           <C>          <C>        <C>          <C>
Balance, December 31, 2001....  $114,485    $     --      $92,064     $14,130     $10,842     $231,521
Acquisitions..................    14,203     155,983          640       3,996          --      174,822
Transitional Impairment
  Loss........................        --          --           --          --      (9,308)      (9,308)
Translation and other
  adjustments.................    (3,489)         --           --         537          --       (2,952)
                                --------    --------      -------     -------     -------     --------
Balance, December 31, 2002....  $125,199    $155,983      $92,704     $18,663     $ 1,534     $394,083
                                ========    ========      =======     =======     =======     ========
</Table>

     Intangible assets of $3.5 million and $39.0 million, including accumulated
amortization of $2.5 million and $3.4 million, as of December 31, 2001 and 2002,
respectively, are recorded at cost and are amortized on a straight-line basis.
The Company's intangible assets primarily consist of patents, covenants not to
compete, technology licenses, and customer relationships that are amortized over
the definitive terms of the related agreement or the Company's estimate of the
useful life if there are no definitive terms. The following table shows the
Company's intangible assets by asset category (in thousands):

<Table>
<Caption>
                                                  GROSS                                 NET
                                               INTANGIBLES   ACCUMULATED            INTANGIBLES
                                                12/31/01     AMORTIZATION   OTHER    12/31/01
                                               -----------   ------------   -----   -----------
<S>                                            <C>           <C>            <C>     <C>
Patents......................................    $1,038        $  (394)     $(42)     $  602
Technology Licenses..........................     1,887           (251)       --       1,636
Covenant Not To Compete......................     3,050         (1,815)       --       1,235
                                                 ------        -------      ----      ------
                                                 $5,975        $(2,460)     $(42)     $3,473
                                                 ======        =======      ====      ======
</Table>

<Table>
<Caption>
                                                  GROSS                                 NET
                                               INTANGIBLES   ACCUMULATED            INTANGIBLES
                                                12/31/02     AMORTIZATION   OTHER    12/31/02
                                               -----------   ------------   -----   -----------
<S>                                            <C>           <C>            <C>     <C>
Patents......................................    $30,895       $  (563)     $(67)     $30,265
Technology Licenses..........................      2,434          (385)       --        2,049
Customer Relationships.......................      3,300            (1)       --        3,299
Trademarks...................................      1,610           (33)       --        1,577
Covenant Not To Compete......................      4,150        (2,387)       --        1,763
                                                 -------       -------      ----      -------
                                                 $42,389       $(3,369)     $(67)     $38,953
                                                 =======       =======      ====      =======
</Table>

     Amortization expense related to intangible assets for the years ended
December 31, 2000, 2001, and 2002 was $1.0 million, $1.0 million, and $0.9
million, respectively. Excluding the impact of future acquisitions, estimated
annual amortization expense related to existing intangible assets for years 2003
through 2007 is expected to be approximately $3.9 million, $3.5 million, $2.9
million, $2.8 million and $2.4 million, respectively.

                                        72
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  SUPPLEMENTAL CASH FLOW INFORMATION

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

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000      2001      2002
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Interest paid...........................................  $15,024   $27,170   $26,068
Income taxes paid, net of refunds.......................    2,182     2,449    21,139
</Table>

     The following summarizes investing activities relating to acquisitions:

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2000      2001       2002
                                                       --------   -------   ---------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>       <C>
Fair value of assets, net of cash acquired...........  $ 33,728   $ 1,290   $ 263,061
Goodwill.............................................    52,164     4,901     171,955
Fair value of liabilities assumed....................   (19,865)   (2,778)    (58,933)
Grant Prideco common stock issued....................        --        --    (110,911)
                                                       --------   -------   ---------
Cash consideration, net of cash acquired.............  $ 66,027   $ 3,413   $ 265,172
                                                       ========   =======   =========
</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, 2002, there were
approximately 120.8 million shares of Common Stock outstanding and no preferred
stock outstanding.

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 Employee 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, 2002, approximately 3.0 million shares were available for
granting under such plans.

     Compensation expense of $8.8 million was recognized during 2001 for stock
options exercised 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.

                                        73
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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. In June 2002, an award was granted to an executive
officer for 500,000 shares of restricted stock under the 2002 Plan. Total
compensation expense of $7.6 million, based on the market price of $15.10 per
share at the grant date, is being amortized over the vesting period of three
years. Compensation expense recognized in 2001 and 2002 related to the
restricted stock awards was $0.2 million and $2.1 million, respectively.

     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. As of December 31, 2002, options outstanding related to the Weatherford
plans prior to September 1998 were 909,880.

     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.

     A summary of the status of the Company's stock options under both the 2000
Plan and the 2001 Plan along with the Weatherford grants prior to September 1998
as of December 31, 2000, 2001, and 2002 and the changes during the year ended on
those dates are presented below (actual amounts):

<Table>
<Caption>
                                        2000                    2001                    2002
                               ----------------------   ---------------------   ---------------------
                                             WEIGHTED                WEIGHTED                WEIGHTED
                                             AVERAGE                 AVERAGE                 AVERAGE
                               NUMBER OF     EXERCISE   NUMBER OF    EXERCISE   NUMBER OF    EXERCISE
                                 SHARES       PRICE       SHARES      PRICE       SHARES      PRICE
                               ----------    --------   ----------   --------   ----------   --------
<S>                            <C>           <C>        <C>          <C>        <C>          <C>
Outstanding at the beginning
  of the year................         --      $   --     8,778,055    $14.41    12,305,863    $11.80
                               ---------      ------    ----------    ------    ----------    ------
  Weatherford options
    converted to Grant
    Prideco options..........  3,761,408        7.62            --        --            --        --
  Options granted during the
    year.....................  5,266,500       19.00     5,469,900      9.44       417,000     10.80
  Options exercised..........   (146,362)      10.44      (123,905)     5.65      (168,832)     6.95
  Options canceled...........   (103,491)       6.55    (1,818,187)    17.72      (457,498)    15.62
                               ---------      ------    ----------    ------    ----------    ------
Outstanding at the end of the
  year.......................  8,778,055      $14.41    12,305,863    $11.80    12,096,533    $11.69
                               =========      ======    ==========    ======    ==========    ======
Exercisable at the end of the
  year.......................    929,174      $ 6.25     2,653,833    $ 7.03     3,039,883    $ 7.74
                               =========      ======    ==========    ======    ==========    ======
</Table>

                                        74
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
at December 31, 2002:

<Table>
<Caption>
                                          OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                 -------------------------------------   ----------------------
                                                 WEIGHTED     WEIGHTED                 WEIGHTED
                                                 AVERAGE      AVERAGE                  AVERAGE
                                   NUMBER       REMAINING     EXERCISE     NUMBER      EXERCISE
RANGE OF EXERCISE PRICES         OUTSTANDING   LIFE (YEARS)    PRICE     EXERCISABLE    PRICE
------------------------         -----------   ------------   --------   -----------   --------
<S>                              <C>           <C>            <C>        <C>           <C>
$2.47-$7.65....................   5,887,601       10.78        $ 6.72     2,133,951     $5.97
$8.65-$14.19...................   1,899,096       10.59         11.27       750,596     11.26
$14.64-$19.56..................   4,309,836       10.45         18.66       155,336     15.09
                                 ----------       -----        ------     ---------     -----
                                 12,096,533       10.63        $11.69     3,039,883     $7.74
                                 ==========       =====        ======     =========     =====
</Table>

     The fair value of stock options granted by the Company during 2000, 2001,
and 2002 was estimated using the Black-Scholes option-pricing model, with the
following weighted average assumptions:

<Table>
<Caption>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               2000      2001     2002
                                                              -------   ------   ------
<S>                                                           <C>       <C>      <C>
Weighted average fair value per option granted..............  $15.87    $4.08    $5.88
Valuation assumptions:
  Expected option term (years)..............................    12.4      7.4      7.4
  Expected volatility.......................................   63.12%   43.50%    43.0%
  Expected dividend rate....................................      --       --       --
  Risk free interest rate...................................    6.18%    3.53%    4.58%
</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. As of
December 31, 2002, 362,250 shares still remain. 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.

                                        75
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

  DEFINED CONTRIBUTION PLAN

     The Company has defined contribution plans covering certain of its
employees. The Company's expenses related to these plans totaled $0.8 million,
$0.9 million, and $1.2 million in 2000, 2001, and 2002, respectively.

  PENSION PLANS

     As part of the purchase agreement with Schlumberger, the Company acquired
the Reed Hourly Pension Plan in the U.S. and the Hycalog Retirement Death
Benefit Scheme in the U.K. effective December 20, 2002. The Reed Hourly Plan
covers approximately 200 employees and provides a monthly benefit based on a
fixed dollar amount per year of service. The fixed dollar amount is defined in
the union contract and is subject to change. The Hycalog Retirement Plan is a
frozen plan with no future benefits accruing. For both plans, the assignment of
the purchase price to individual assets acquired and liabilities incurred in
connection with the acquisition, include a $5.2 million pension liability for
the projected benefit obligation in excess of plan assets, thereby eliminating
any previously existing unrecognized net gain or loss, unrecognized prior
service cost, unrecognized net obligation, or net asset existing at the date of
acquisition. Because the date of the acquisition was at year-end, there was no
pension expense recorded for the fiscal year ending December 31, 2002 or in
prior years. Grant Prideco's funding policy for the U.S. tax-qualified plan is
consistent with the funding requirements of federal laws and regulations.

     The following table reflects information concerning the benefit
obligations, plan assets, funded status and amounts recognized in the
Consolidated Balance Sheets (in thousands):

<Table>
<Caption>
                                                                    2002
                                                              -----------------
                                                               U.S.      U.K.
                                                              -------   -------
<S>                                                           <C>       <C>
Projected Benefit Obligation at End of Year.................  $12,658   $11,155
Fair Value of Plan Assets at End of Year....................    9,372     9,230
Funded Status...............................................   (3,286)   (1,925)
Pension Liability...........................................   (3,286)   (1,925)
</Table>

     Weighted average assumptions at end of year:

<Table>
<Caption>
                                                                 2002
                                                              -----------
                                                              U.S.   U.K.
                                                              ----   ----
<S>                                                           <C>    <C>
Discount Rate...............................................  6.75%  5.50%
Rate of Compensation Expense................................    --     --
Expected Return on Plan Assets..............................  8.50%  6.75%
</Table>

                                        76
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED 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,
                                                         ----------------------------
                                                           2000      2001      2002
                                                         --------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                      <C>        <C>       <C>
Domestic...............................................  $(22,084)  $20,861   $(6,048)
Foreign................................................       234    23,857    29,373
                                                         --------   -------   -------
  Total income (loss) before income taxes..............  $(21,850)  $44,718   $23,325
                                                         ========   =======   =======
</Table>

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

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          2000       2001      2002
                                                         -------   --------   -------
                                                                (IN THOUSANDS)
<S>                                                      <C>       <C>        <C>
Current
  U.S. federal and state income taxes..................  $  (246)  $   (708)  $(1,441)
  Foreign..............................................   (4,051)   (10,467)   (9,450)
                                                         -------   --------   -------
                                                          (4,297)   (11,175)  (10,891)
                                                         -------   --------   -------
Deferred
  U.S. federal and state income taxes..................    9,284     (3,511)    6,216
  Foreign..............................................    2,378       (965)   (2,553)
                                                         -------   --------   -------
                                                          11,662     (4,476)    3,663
                                                         -------   --------   -------
     Total income tax (provision) benefit(a)...........  $ 7,365   $(15,651)  $(7,228)
                                                         =======   ========   =======
</Table>

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

(a)  Excludes the deferred tax benefits totaling $1.0 million and $2.9 million
     relating to the cumulative effect of the accounting change for the years
     ended 2000 and 2002, respectively (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 Consolidated Statements of Operations:

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000      2001      2002
                                                          ------   --------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>      <C>        <C>
(Provision) benefit for income taxes at statutory
  rates.................................................  $7,648   $(15,651)  $(8,164)
Effect of foreign income tax, net.......................    (293)    (1,659)     (975)
Change in valuation allowance...........................      --         --    (2,000)
Extraterritorial income benefit.........................      --        732       350
Foreign loss not benefited..............................    (502)       (43)       --
Equity in earnings of unconsolidated affiliates.........   1,983        947     3,144
State and local income taxes net of U.S. federal income
  tax benefit...........................................    (159)      (431)     (305)
Other permanent items...................................  (1,312)       454       722
                                                          ------   --------   -------
     (Provision) benefit for income taxes...............  $7,365   $(15,651)  $(7,228)
                                                          ======   ========   =======
</Table>

                                        77
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 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) and the
related valuation allowances were as follows:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                 2001         2002
                                                              ----------   ----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>          <C>
Deferred tax assets:
  Foreign tax credits.......................................   $     --     $  5,877
  Domestic and foreign operating losses.....................         --          163
  Accrued liabilities and reserves..........................      9,853       11,284
  Inventory basis differences...............................      3,677        6,640
  Goodwill and other intangibles............................      4,949        7,082
                                                               --------     --------
     Total deferred tax assets..............................     18,479       31,046
                                                               --------     --------
Deferred tax liabilities:
  Property and equipment and other..........................    (48,095)     (50,290)
                                                               --------     --------
     Total deferred tax liabilities.........................    (48,095)     (50,290)
                                                               --------     --------
Valuation allowance:
  Foreign tax credits.......................................         --       (2,000)
                                                               --------     --------
     Total valuation allowance..............................         --       (2,000)
                                                               --------     --------
  Net deferred tax liabilities..............................   $(29,616)    $(21,244)
                                                               ========     ========
</Table>

     At December 31, 2002, the Company had United States net operating loss
(NOL) carryforwards for tax purposes of approximately $0.5 million. The NOL
carryforward at December 31, 2002 will expire after the year 2022. At December
31, 2002, the Company had foreign tax credit carryforwards of $3.9 million,
which expire after the year 2007. At December 31, 2002 the Company had a
valuation allowance of $2.0 million due to the uncertainty of utilization of
foreign tax credits to reduce the U.S. income tax liability. The Company has not
recorded a deferred income tax liability that would result from the distribution
of earnings from the foreign subsidiaries of ReedHycalog(TM) if those earnings
were actually repatriated. The Company intends to indefinitely reinvest the
undistributed earnings of the ReedHycalog(TM) foreign subsidiaries.

16.  DISPUTES, LITIGATION, AND CONTINGENCIES

  LITIGATION AND OTHER DISPUTES

     In May 1997, Mr. John D. Watts filed suit in the U.S. District Court for
the Eastern District of Texas, Beaumont Division, against XL Systems 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' motion for summary
judgment.

                                        78
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On March 2, 2001, a jury found that XL Systems' 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 U.S.
District Court for the Eastern District of Texas Court (the "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 from making and selling its XLC connection in its current configuration,
so long as XL Systems 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.

     In March 2003, the federal circuit upheld all of the trial court rulings
and decisions on appeal. The Company believes it is fully accrued for any
additional expenses related to this ruling. The Company also does not expect
this claim to have an adverse impact on its future operations, as it believes it
can offer its XLC connection without the features that were the subject of this
litigation. The Company also recently licensed a new marine weld-on connector
that it will offer in lieu of its XLC connector in various markets.

     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 $4.7 million, $5.3 million,

                                        79
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and $8.9 million for the years ended December 31, 2000, 2001, and 2002,
respectively. Future minimum rental commitments under these operating leases are
as follows (in thousands):

<Table>
<S>                                                            <C>
2003........................................................   $ 8,432
2004........................................................     7,972
2005........................................................     6,867
2006........................................................     5,652
2007........................................................     5,010
Thereafter..................................................    14,349
                                                               -------
                                                               $48,282
                                                               =======
</Table>

  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. The Company is in the process of extending the term of this
contract, which it expects to have similar terms and conditions as its existing
contractual arrangement.

     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, 2002, the Company had closed-ended purchase commitments maturing
within the next twelve months of approximately $0.8 million and open-ended
purchase commitments of approximately $8.0 million, of which $6.4 million are
expected to mature within the next twelve months.

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, 2000 was
$7.0 million.

     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, 2002, the drill pipe credit

                                        80
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

balance was $16.9 million. The Company is currently in negotiations with
Weatherford to extend the terms of this agreement.

  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.

19.  SEGMENT INFORMATION

  BUSINESS SEGMENTS

     The Company operates primarily through four business segments: drilling
products and services, ReedHycalog(TM), tubular technology and services, and
marine products and services. The Company's drilling products and services
segment manufactures and sells a full range of proprietary and API drill pipe,
drill collars, heavy weight drill pipe, and accessories. In December 2002, the
Company acquired ReedHycalog(TM), which became the Company's fourth primary
business segment. The ReedHycalog(TM) segment designs, manufacturers, and
distributes fixed-cutter and roller-cone drill bits. The Company's tubular
technology and services 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 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 four primary business segments the Company also has an Other segment
that manufactures 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 to the segments by an application of
the Company-wide effective rate to the net income (loss) of each segment.

<Table>
<Caption>
                                            DRILLING                      TUBULAR      MARINE
                                            PRODUCTS                     TECHNOLOGY   PRODUCTS
                                              AND                           AND         AND
                                            SERVICES   REEDHYCALOG(TM)    SERVICES    SERVICES    OTHER    CORPORATE     TOTAL
                                            --------   ---------------   ----------   --------   -------   ---------   ----------
                                                                               (IN THOUSANDS)
<S>                                         <C>        <C>               <C>          <C>        <C>       <C>         <C>
2000
  Revenues from unaffiliated customers....  $208,347       $     --       $225,628    $36,646    $27,860   $     --    $  498,481
  Other charges(a)........................    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)
  (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>

                                        81
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                            DRILLING                      TUBULAR      MARINE
                                            PRODUCTS                     TECHNOLOGY   PRODUCTS
                                              AND                           AND         AND
                                            SERVICES   REEDHYCALOG(TM)    SERVICES    SERVICES    OTHER    CORPORATE     TOTAL
                                            --------   ---------------   ----------   --------   -------   ---------   ----------
                                                                               (IN THOUSANDS)
<S>                                         <C>        <C>               <C>          <C>        <C>       <C>         <C>
2001
  Revenues from unaffiliated customers....  $382,579       $     --       $272,283    $44,085    $41,180   $     --    $  740,127
  Other charges(a)........................    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............................     8,859             --           (112)        --         --         --         8,747
  Operating income (loss).................    69,547             --         46,292       (630)    (6,587)   (35,567)       73,055
  (Provision) Benefit for income taxes....   (23,352)            --        (16,316)       596      2,285     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
2002
  Revenues from unaffiliated customers....  $317,280       $  5,270       $216,842    $72,921    $27,435   $     --    $  639,748
  Other charges(a)........................     2,360             --            220         --         --      4,465         7,045
  Depreciation and amortization...........    12,252            249         12,543      4,006      1,156        941        31,147
  Equity income (loss) in unconsolidated
    affiliates............................     5,989             --           (647)        --         --         --         5,342
  Operating income (loss).................    67,397            796          9,954      4,452       (281)   (30,892)       51,426
  (Provision) Benefit for income taxes....   (20,835)          (276)        (1,061)       747        390     13,807        (7,228)
  Capital expenditures for property,
    plant, and equipment..................    22,781             --         11,536      4,745        639      6,080        45,781
  Total assets............................   497,243        394,352        219,050     84,220     54,111     66,373     1,315,349
</Table>

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

(a)  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). Includes
     $7.0 million of other charges relating to fixed asset write-downs and
     executive severance cost for the year ended December 31, 2002.

                                        82
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  FOREIGN OPERATIONS AND EXPORT SALES

     Financial information by geographic segment for each of the three years
ended December 31, 2002 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     ASIA      OTHER     TOTAL
                          --------   -------   -------   -------   -------   -------   --------
                                                     (IN THOUSANDS)
<S>                       <C>        <C>       <C>       <C>       <C>       <C>       <C>
2000
  Revenues..............  $448,380   $32,038   $ 6,545   $   721   $10,797   $    --   $498,481
  Long-lived assets.....   361,497    16,998    89,922    32,191    14,088       499    515,195
2001
  Revenues..............  $624,835   $51,531   $10,263   $26,025   $20,956   $ 6,517   $740,127
  Long-lived assets.....   363,756    18,208    94,202    32,865    13,681       415    523,127
2002
  Revenues..............  $475,472   $38,175   $10,212   $24,564   $63,746   $27,579   $639,748
  Long-lived assets.....   518,406    19,806    88,163    35,757    85,465    45,248    792,845
</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, drill bit
products and other 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,
in-country national oil companies, or are secured by a letter of credit or
similar arrangements.

     In 2000, 2001, and 2002, there were no individual customers who accounted
for 10% or more of total revenues.

                                        83
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following tabulation sets forth unaudited quarterly financial data for
2002 and 2001 (in thousands, except per share amounts).

<Table>
<Caption>
                                                                      2002
                                                  --------------------------------------------
                                                   FIRST      SECOND        THIRD      FOURTH
                                                  QUARTER    QUARTER       QUARTER    QUARTER
                                                  --------   --------      --------   --------
<S>                                               <C>        <C>           <C>        <C>
Revenues........................................  $152,051   $168,601      $162,237   $156,859
Gross Profit....................................    35,205     39,382        31,593     29,714
Other Charges...................................        --      7,045(a)         --         --
Selling, General, and Administrative............    19,088     21,213        22,296     20,168
Operating Income................................    18,473     12,408(a)     10,570      9,975
Net Income (Loss) Before Cumulative Effect of
  Accounting Change.............................     7,560      3,879(a)      1,945       (338)
Cumulative Effect of Accounting Change(b).......    (6,412)        --            --         --
Net Income......................................     1,148      3,879(a)      1,945       (338)
Basic Net Income (Loss) Per Share(c)
  Basic net income (loss) before cumulative
     effect of accounting change................  $   0.07   $   0.03      $   0.02   $   0.00
  Cumulative effect of accounting change........     (0.06)        --            --         --
                                                  --------   --------      --------   --------
  Net income (loss).............................  $   0.01   $   0.03      $   0.02   $   0.00
                                                  ========   ========      ========   ========
Basic weighted average shares outstanding.......   109,885    111,466       111,620    112,908
                                                  ========   ========      ========   ========
Diluted Net Income (Loss) Per Share(c)
  Diluted net income (loss) before cumulative
     effect of accounting change................  $   0.07   $   0.03      $   0.02   $   0.00
  Cumulative effect of accounting change........     (0.06)        --            --         --
                                                  --------   --------      --------   --------
  Net income (loss).............................  $   0.01   $   0.03      $   0.02   $   0.00
                                                  ========   ========      ========   ========
Diluted weighted average shares outstanding.....   111,711    114,080       112,685    113,989
                                                  ========   ========      ========   ========
</Table>

                                        84
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<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(d)       44,061     53,156(f)       49,588
Other Charges............................    32,280(e)           --      1,475(g)           --
Selling, General, and Administrative.....    17,164          18,254     18,564          16,964
Operating Income (Loss)..................   (25,256)(d)(e)   28,655     34,511(f)(g)    35,145
Net Income (Loss)........................   (21,817)(d)(e)   13,997     17,334(f)(g)    18,576
Basic Net Income (Loss) Per Share(c)
  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(c)
  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>

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

(a)  Includes $7.0 million of other charges in the second quarter of 2002
     related to fixed asset write-downs and executive severance costs.

(b)  Effective January 1, 2002, the Company adopted SFAS No. 142, which requires
     goodwill to be tested annually for impairment. The initial impairment test
     was completed in the fourth quarter of 2002 and resulted in a $6.4 million,
     net of tax, write-down of goodwill that is recorded as a cumulative effect
     of an accounting change as of January 1, 2002.

(c)  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 by taking the average of the weighted average number
     of shares outstanding each quarter. Thus, the sum of the four quarters' EPS
     may not equal the full-year EPS.

(d)  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.

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

(f)  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.

(g)  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.

     See Note 4 for further discussion of 2001 and 2002 other charges.

21.  SUBSEQUENT EVENT (UNAUDITED)

     On January 28, 2002, the Company acquired the remaining 35% interest in
Rotator for approximately $5.0 million. Rotator is a Norwegian company that
manufactures control valves and systems for the offshore oil and gas industry
and is reported in our marine products and services segment. Goodwill recognized
with the additional 35% purchase was approximately $2.3 million.

                                        85
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On March 25, 2003, the Company sold Star Iron Works, Inc. (Star), a
manufacturer of drilling tools for the water well, construction, and utility
boring industries, for $11.0 million in cash. In this regard, the Company
recently announced the closure of its Bryan, Texas facility, where the majority
of its industrial drill pipe operations have occurred. Future operations will be
conducted at the Company's Navasota, Texas location.

22.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

     The following balance sheets as of December 31, 2001 and 2002, and the
related statements of operations and cash flows for each of the three years in
the period ended December 31, 2002, are provided for the Company's domestic
subsidiaries that are guarantors of debt securities issued by the Company. The
Company's obligations to pay principal and interest under the 9% and 9 5/8%
Senior Notes are guaranteed on a joint and several basis by all of the Company's
domestic subsidiaries. The guarantees are full and unconditional and the
guarantor subsidiaries are 100% owned by Grant Prideco, Inc.

                                        86
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED 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 Assets..........        --      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, Net....        --     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 and Advances to
  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 Liabilities.....        --          --        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 Tax Liabilities...............        --      25,847       15,101            --       40,948
Minority Interests.....................        --          --        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>

                                        87
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            CONDENSED BALANCE SHEET
                            AS OF DECEMBER 31, 2002

<Table>
<Caption>
                                                                  NON-
                                        PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS     TOTAL
                                       --------   ----------   ----------   ------------   ----------
                                                               (IN THOUSANDS)
<S>                                    <C>        <C>          <C>          <C>            <C>
                                               ASSETS
Current Assets:
  Cash and Cash Equivalents..........  $     --    $  2,690     $ 19,188     $      --     $   21,878
  Restricted Cash....................        --       2,903        5,619            --          8,522
  Accounts Receivable, Net...........        --     109,376       81,711            --        191,087
  Inventories........................        --     154,241       93,695            --        247,936
  Current Deferred Tax Assets........        --      18,788        1,176            --         19,964
  Other Current Assets...............        --      15,632       17,215            --         32,847
                                       --------    --------     --------     ---------     ----------
                                             --     303,630      218,604            --        522,234
                                       --------    --------     --------     ---------     ----------
Property, Plant, And Equipment,
  Net................................        --     199,463       93,041            --        292,504
Goodwill, Net........................        --     233,731      160,352            --        394,083
Investment in and Advances to
  Subsidiaries.......................   923,677          --           --      (923,677)            --
Investment in and Advances to
  Unconsolidated Affiliates..........    50,302          --           --            --         50,302
Other Assets.........................     8,733      26,176       21,317            --         56,226
                                       --------    --------     --------     ---------     ----------
                                       $982,712    $763,000     $493,314     $(923,677)    $1,315,349
                                       ========    ========     ========     =========     ==========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-Term Borrowings and Current
     Portion of Long-Term Debt.......  $     --    $ 10,797     $  5,860     $      --     $   16,657
  Accounts Payable...................        --      46,553       27,791            --         74,344
  Current Deferred Tax Liabilities...        --          --        2,581            --          2,581
  Customer Advances..................        --         241          987            --          1,228
  Other Accrued Liabilities..........    19,715      39,446       28,008            --         87,169
                                       --------    --------     --------     ---------     ----------
                                         19,715      97,037       65,227            --        181,979
                                       --------    --------     --------     ---------     ----------
Long-Term Debt.......................   374,125     101,953        2,768            --        478,846
Deferred Tax Liabilities.............        --      20,990       17,907            --         38,897
Minority Interests...................        --          --       11,921            --         11,921
Other Long-Term Liabilities..........        --       8,296        6,538            --         14,834
Commitments and Contingencies
Stockholders' Equity.................   588,872     534,724      388,953      (923,677)       588,872
                                       --------    --------     --------     ---------     ----------
                                       $982,712    $763,000     $493,314     $(923,677)    $1,315,349
                                       ========    ========     ========     =========     ==========
</Table>

                                        88
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED 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
  Weatherford Charges..................       500          --          --            --           500
  Nonrecurring Charges.................        --      11,129          --            --        11,129
                                         --------    --------     -------       -------      --------
                                              500     463,321      44,891            --       508,712
                                         --------    --------     -------       -------      --------
Equity Income In Unconsolidated
  Affiliates...........................     5,495          --          --            --         5,495
                                         --------    --------     -------       -------      --------
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>

                                        89
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED 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...............................  $     --    $624,835     $115,292      $     --     $740,127
                                         --------    --------     --------      --------     --------
Costs and Expenses:
  Cost of Sales........................        --     501,558       69,560            --      571,118
  Selling, General, and
     Administrative....................        --      56,274       14,672            --       70,946
  Other Charges........................        --      32,280        1,475            --       33,755
                                         --------    --------     --------      --------     --------
                                               --     590,112       85,707            --      675,819
                                         --------    --------     --------      --------     --------
Equity Income in Unconsolidated
  Affiliates...........................     8,747          --           --            --        8,747
                                         --------    --------     --------      --------     --------
Operating Income.......................     8,747      34,723       29,585            --       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...........................        --       5,252       (6,522)           --       (1,270)
                                         --------    --------     --------      --------     --------
                                           15,129        (373)      (7,177)      (35,916)     (28,337)
                                         --------    --------     --------      --------     --------
Income (Loss) Before Income Taxes......    23,876      34,350       22,408       (35,916)      44,718
Income Tax (Provision) Benefit.........     4,214      (8,433)     (11,432)           --      (15,651)
                                         --------    --------     --------      --------     --------
Net Income (Loss) Before Minority
  Interest.............................    28,090      25,917       10,976       (35,916)      29,067
Minority Interest......................        --          --         (977)           --         (977)
                                         --------    --------     --------      --------     --------
Net Income (Loss)......................  $ 28,090    $ 25,917     $  9,999      $(35,916)    $ 28,090
                                         ========    ========     ========      ========     ========
</Table>

                                        90
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2002

<Table>
<Caption>
                                                                    NON-
                                          PARENT    GUARANTORS   GUARANTORS   ELIMINATIONS    TOTAL
                                         --------   ----------   ----------   ------------   --------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>          <C>          <C>            <C>
Revenues...............................  $     --    $475,472     $164,276      $     --     $639,748
                                         --------    --------     --------      --------     --------
Costs and Expenses:
  Cost of Sales........................        --     393,111      110,743            --      503,854
  Selling, General, and
     Administrative....................        --      63,678       19,087            --       82,765
  Other Charges........................        --       5,745        1,300            --        7,045
                                         --------    --------     --------      --------     --------
                                               --     462,534      131,130            --      593,664
                                         --------    --------     --------      --------     --------
Equity Income in Unconsolidated
  Affiliates...........................     5,342          --           --            --        5,342
                                         --------    --------     --------      --------     --------
Operating Income.......................     5,342      12,938       33,146            --       51,426
                                         --------    --------     --------      --------     --------
Other Income (Expense):
  Interest Expense.....................   (23,003)     (2,930)      (1,118)           --      (27,051)
  Equity in Subsidiaries, Net of
     Taxes.............................    18,820          --           --       (18,820)          --
  Other, Net...........................        --       1,197       (2,247)           --       (1,050)
                                         --------    --------     --------      --------     --------
                                           (4,183)     (1,733)      (3,365)      (18,820)     (28,101)
                                         --------    --------     --------      --------     --------
Income (Loss) Before Income Taxes......     1,159      11,205       29,781       (18,820)      23,325
Income Tax (Provision) Benefit.........     5,475        (700)     (12,003)           --       (7,228)
                                         --------    --------     --------      --------     --------
Net Income (Loss) Before Minority
  Interest.............................     6,634      10,505       17,778       (18,820)      16,097
Minority Interest......................        --          --       (3,051)           --       (3,051)
                                         --------    --------     --------      --------     --------
Net Income (Loss) Before Cumulative
  Effect Of Accounting Change..........     6,634      10,505       14,727       (18,820)      13,046
Cumulative Effect Of Accounting
  Change...............................        --      (6,412)          --            --       (6,412)
                                         --------    --------     --------      --------     --------
Net Income (Loss)......................  $  6,634    $  4,093     $ 14,727      $(18,820)    $  6,634
                                         ========    ========     ========      ========     ========
</Table>

                                        91
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED 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 by (Used) in
     Operating Activities.............  $   8,316    $(68,569)    $27,638      $      --     $(32,615)
                                        ---------    --------     -------      ---------     --------
Cash Flows from Investing Activities:
  Acquisition of Businesses, 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 Provided by (Used) in
       Investing Activities...........   (102,106)    (54,350)    (32,419)       102,106      (86,769)
                                        ---------    --------     -------      ---------     --------
Cash Flows from Financing Activities:
  Issuance of Long-Term Debt, Net.....    193,324          --          --             --      193,324
  (Repayments) Borrowings on Debt,
     Net..............................   (103,548)     18,270      (4,211)            --      (89,489)
  Purchases 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)          --
  Predecessor Stockholder's
     Investment.......................      3,558      33,583     (19,937)            --       17,204
                                        ---------    --------     -------      ---------     --------
     Net Cash Provided by (Used) in
       Financing Activities...........     93,790     122,075       7,736       (102,106)     121,495
                                        ---------    --------     -------      ---------     --------
Net Increase (Decrease) 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>

                                        92
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED 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    $10,325      $14,621        $  --       $40,490
                                           -------    -------      -------        -----       -------
Cash Flows from Investing Activities:
  Acquisition of Businesses, Net of Cash
     Acquired............................       --     (2,217)      (1,196)          --        (3,413)
  Investments in and Advances to
     Unconsolidated Affiliates...........       --     (1,595)          --           --        (1,595)
  Capital Expenditures for Property,
     Plant, and Equipment................       --    (28,829)      (8,383)          --       (37,212)
  Other, Net.............................       --          4           82           --            86
                                           -------    -------      -------        -----       -------
     Net Cash Used in Investing
       Activities........................       --    (32,637)      (9,497)          --       (42,134)
                                           -------    -------      -------        -----       -------
Cash Flows from Financing Activities:
  (Repayments) Borrowings on Debt, Net...  (14,561)    20,063         (806)          --         4,696
  Proceeds from Stock Option Exercises...      654         --           --           --           654
  Purchases of Treasury Stock............   (1,637)        --           --           --        (1,637)
                                           -------    -------      -------        -----       -------
     Net Cash Provided by (Used) in
       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>

                                        93
<PAGE>
                              GRANT PRIDECO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2002

<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 (Used) in
     Operating Activities..............  $107,126    $(4,784)     $16,947        $  --       $119,289
                                         --------    -------      -------        -----       --------
Cash Flows from Investing Activities:
  Acquisition of Businesses, Net of
     Cash Acquired.....................  (266,543)        --        1,371           --       (265,172)
  Investments in and Advances to
     Unconsolidated Affiliates.........    (3,794)        --           --           --         (3,794)
  Capital Expenditures for Property,
     Plant, and Equipment..............        --    (35,718)     (10,063)          --        (45,781)
  Other, Net...........................        --        860           51           --            911
                                         --------    -------      -------        -----       --------
     Net Cash Used in Investing
       Activities......................  (270,337)   (34,858)      (8,641)          --       (313,836)
                                         --------    -------      -------        -----       --------
Cash Flows from Financing Activities:
  Issuance of Long-Term Debt, Net......   170,373         --           --           --        170,373
  (Repayments) Borrowings on Debt,
     Net...............................    (6,056)    40,427        2,403           --         36,774
  Proceeds from Stock Option
     Exercises.........................     1,173         --           --           --          1,173
  Purchases of Treasury Stock..........    (2,279)        --           --           --         (2,279)
                                         --------    -------      -------        -----       --------
     Net Cash Provided by Financing
       Activities......................   163,211     40,427        2,403           --        206,041
                                         --------    -------      -------        -----       --------
Net Increase (Decrease) in Cash and
  Cash Equivalents.....................        --        785       10,709           --         11,494
Cash and Cash Equivalents at Beginning
  of Year..............................        --      1,905        8,479           --         10,384
                                         --------    -------      -------        -----       --------
Cash and Cash Equivalents at End of
  Year.................................  $     --    $ 2,690      $19,188        $  --       $ 21,878
                                         ========    =======      =======        =====       ========
</Table>

                                        94
<PAGE>

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

     None.

                                    PART III

ITEM 15. CONTROLS AND PROCEDURES

     Included in its recent Release No. 34-46427, effective August 29, 2002, the
Securities and Exchange Commission adopted rules requiring reporting companies
to maintain disclosure controls and procedures to provide reasonable assurance
that a registrant is able to record, process, summarize and report the
information required in the registrant's quarterly and annual reports under the
Securities Exchange Act of 1934 (the "Exchange Act"). While we believe that our
existing disclosure controls and procedures have been effective to accomplish
these objectives, we intend to continue to examine, refine and formalize our
disclosure controls and procedures and to monitor ongoing developments in this
area.

     Our principal executive officer and principal financial officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14(c) and Rule 15d-14(c)) as of a date within
90 days before the filing date of this report, have concluded that, as of such
date, our disclosure controls and procedures are adequate and effective to
ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.

     There have been no changes in our internal controls or in other factors
known to us that could significantly affect those internal controls subsequent
to the date of the evaluation, nor were there any significant deficiencies or
material weaknesses in our internal controls. As a result, no corrective actions
were required or undertaken.

                                    PART IV

ITEM 16. 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 45 of this
        report.

     2. All financial statement 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 16(c).

(b) Reports on Form 8-K

     1. Current Report on Form 8-K dated November 13, 2002, filing financial
        statements and other information related to the ReedHycalog(TM)
        acquisition.

     2. Current Report on Form 8-K dated November 6, 2002, filing certain
        information related to an investor presentation.

     3. Current Report on Form 8-K dated October 28, 2002, announcing the
        signing of definitive agreements to purchase ReedHycalog(TM).

(c) Exhibits

<Table>
<C>        <S>
    2.1    Distribution Agreement, dated as of March 22, 2000, between
           Weatherford and Grant Prideco, Inc. (incorporated by reference to
           Exhibit 2.1 to Grant Prideco, Inc.'s Registration Statement on
           Form S-3, Reg. No. 333-35272).
    2.2    Purchase Agreement dated as of October 25, 2002, among Technology
           Corporation and Grant Prideco, Inc. (incorporated by reference to
           Exhibit 2.1 to Grant Prideco, Inc.'s Current Report on Form 8-K,
           File No. 1-15423, filed October 28, 2002).
</Table>

                                        95
<PAGE>
<Table>
<C>        <S>
    3.1    Restated Certificate of Incorporation of Grant Prideco, Inc.
           (incorporated by reference to Exhibit 3.1 to Grant Prideco,
           Inc.'s Registration Statement on Form S-3, Reg. No. 333-35272).
    3.2    Restated Bylaws of Grant Prideco, Inc. (incorporated by reference
           to Exhibit 3.2 to Grant Prideco, Inc.'s Registration Statement on
           Form 10, File No. 1-15423, as amended).
    4.1    Indenture for 9 5/8% Senior Notes due 2007 (incorporated by
           reference to Exhibit 4.7 to Grant Prideco, Inc.'s Annual Report
           on Form 10-K for the year ended December 31, 2000, File No.
           1-15423).
    4.2    Form of 9 5/8% Senior Notes due 2007 (included as part of Exhibit
           4.1 above).
    4.3    Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan
           (incorporated by reference to Exhibit 10.6 to Grant Prideco,
           Inc.'s Annual Report on Form 10-K for the year ended December 31,
           2000, File No. 1-15423).
    4.4    Grant Prideco, Inc. 2000 Employee Stock Option and Stock Plan
           (incorporated by reference to Exhibit 10.5 to Grant Prideco,
           Inc.'s Registration Statement on Form 10, File No. 1-15423, as
           amended).
    4.5    Grant Prideco, Inc. Executive Deferred Compensation Plan
           (incorporated by reference to Exhibit 10.9 to Grant Prideco,
           Inc.'s Registration Statement on Form 10, File No. 1-15423, as
           amended).
    4.6    Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
           (incorporated by reference to Exhibit 10.8 to Grant Prideco,
           Inc.'s Registration Statement on Form 10, File No. 1-15423, as
           amended).
    4.7    Grant Prideco, Inc. Deferred Compensation Plan for Non-Employee
           Directors (incorporated by reference to Exhibit 10.10 to Grant
           Prideco, Inc.'s Registration Statement on Form 10, File No.
           1-15423, as amended).
    4.8    Grant Prideco, Inc. 401(k) Savings Plan (incorporated by
           reference to Exhibit 10.11 to Grant Prideco, Inc.'s Registration
           Statement on Form 10, File No. 1-15423, as amended).
    4.9    Grant Prideco, Inc. 2001 Stock Option and Restricted Stock Plan
           (incorporated by reference to Exhibit 10.16 to Grant Prideco,
           Inc.'s Annual Report on Form 10-K for the year ended December 31,
           2001, File No. 1-15423).
    4.10   Registration Rights Agreement dated as of December 20, 2002, by
           and among Schlumberger Technology Corporation and Grant Prideco,
           Inc. (incorporated by reference to Exhibit 4.1 to Prideco, Inc.'s
           Current Report on Form 8-K, File No. 1-15423, filed on January 3,
           2003).
    4.11   Indenture relating to 9% Senior Notes due 2009 dated as of
           December 4, 2002, between Grant Prideco Escrow Corp. and Wells
           Fargo Bank, N.A., as trustee (incorporated by reference to
           Exhibit 4.2 to Grant Prideco, Inc.'s Current Report on Form 8-K,
           File No. 1-15423, filed on January 3, 2003).
    4.12   Form of 9% Senior Notes due 2009 (included as part of Exhibit
           4.11).
    4.13   Supplemental Indenture dated as of December 20, 2002, among Grant
           Prideco, Inc., Grant Prideco Escrow Corp., certain of Grant
           Prideco, Inc.'s subsidiaries, and Wells Fargo Bank, N.A., as
           trustee (incorporated by reference to Exhibit 4.4 to Grant
           Prideco, Inc.'s Current Report on Form 8-K, File No. 1-15423,
           filed on January 3, 2003).
    4.14   Credit Agreement, dated as of December 19, 2002, among Grant
           Prideco, Inc., certain of its subsidiaries, the Lenders party
           thereto, Deutsche Bank Trust Company Americas, as US, Deutsche
           Bank AG, Canada Branch, as Canadian Agent, Transamerica Business
           Capital Corporation, as Documentation Agent, JP Morgan Chase
           Bank, as Co-Syndication Agent, and Lynch Capital, as
           Co-Syndication Agent (incorporated by reference to Exhibit 4.6 to
           Grant Prideco, Inc.'s Current Report on Form 8-K, File No.
           1-15423, filed on January 3, 2003).
    4.15   Security Agreement, dated as of December 19, 2002, among Grant
           Prideco, Inc., certain of its subsidiaries and Deutsche Bank
           Trust Company Americas, as agent (incorporated by reference to
           Exhibit 4.7 to Grant Prideco, Inc.'s Current Report on Form 8-K,
           File No. 1-15423, filed on January 3, 2003).
</Table>

                                        96
<PAGE>
<Table>
<C>        <S>
    4.16   Amended and Restated Security Agreement, dated as of December 19,
           2002 between Grant Prideco Canada Ltd. and Deutsche Bank AG,
           Canada Branch, as agent (incorporated by reference to Exhibit 4.8
           to Grant Prideco, Inc.'s Current Report on Form 8-K, File No.
           1-15423, filed on January 3, 2003).
    4.17   Security Agreement, dated as of December 19, 2002 between Grant
           Prideco Canada Ltd. and Deutsche Bank AG, Canada Branch, as agent
           (incorporated by reference to Exhibit 4.9 to Grant Prideco,
           Inc.'s Current Report on Form 8-K, File No. 1-15423, filed on
           January 3, 2003).
    4.18   Form of Subsidiary Guarantee by certain of Grant Prideco, Inc.'s
           subsidiaries in favor of Deutsche Bank Trust Company Americas, as
           agent (incorporated by reference to Exhibit 4.10 to Grant
           Prideco, Inc.'s Current Report on Form 8-K, File No. 1-15423,
           filed on January 3, 2003).
   10.1    See Exhibits 2.1 and 4.1 through 4.18 for certain items material
           contracts.
   10.2    Employment Agreement with Michael McShane dated June 26, 2002
           (incorporated by reference to Exhibit 10.1 to Grant Prideco,
           Inc.'s Quarterly Report on Form 10-Q for the quarter ended June
           30, 2002, File No. 1-15423).
   10.3    Employment Agreement dated April 14, 2000 with Bernard J.
           Duroc-Danner (incorporated by reference to Exhibit 10.2 to Grant
           Prideco, Inc.'s Quarterly Report on Form 10-Q for the quarter
           ended March 31, 2000, File No. 1-15423).
   10.4    Employment Agreement dated April 14, 2000 with Louis A. Raspino
           (incorporated by reference to Exhibit 10.1 to Grant Prideco,
           Inc.'s Quarterly Report on Form 10-Q for the quarter ended June
           30, 2001, File No. 1-15423).
   10.5    Employment Agreement with Philip Choyce dated April 14, 2000
           (incorporated by reference to Exhibit 10.26 to Grant Prideco
           Inc.'s Registration Statement on Form S-4, Reg. No. 333-102635).
   10.6    Form of Change of Control Agreement with William Chunn, Dan
           Latham, Warren Avery and Philip Choyce (incorporated by reference
           to Exhibit 10.6 to Grant Prideco, Inc.'s Quarterly Report on Form
           10-Q for the quarter ended March 31, 2000, File No. 1-15423).
   10.7    Form of Change of Control Agreement with Curtis Burton and
           Marshall Danby (incorporated by reference to Exhibit 10.12 to
           Grant Prideco, Inc.'s Annual Report on Form 10-K for the year
           ended December 31, 2001, File No. 1-15423).
   10.8    Preferred Supplier Agreement dated April 14, 2000, between Grant
           Prideco, Inc. and Weatherford International, Inc. (incorporated
           by reference to Exhibit 10.12 to Weatherford International,
           Inc.'s Quarterly Report on Form 10-Q for the quarter ended March
           31, 2000, File No. 1-13086).
   10.9    Tax Allocation Agreement dated April 14, 2000 between Grant
           Prideco, Inc. and Weatherford (incorporated by reference to
           Exhibit 10.13 to Weatherford International, Inc.'s Quarterly
           Report on Form 10-Q for the quarter ended March 31, 2000, File
           No. 1-13086).
   10.10   Investment Agreement, dated as of April 29, 1999, by and between
           Grant Prideco, Inc. and Voest-Alpine Schienen GmbH & Co KG
           (incorporated by reference to Exhibit 10.12 to Grant Prideco,
           Inc.'s Registration Statement on Form 10, File No. 1-15423, as
           amended).
   10.11   Operating Agreement, dated as of July 23, 1999, by and Grant
           Prideco, Inc. and Voest-Alpine Schienen GmbH & Co KG
           (incorporated by reference to Exhibit 10.13 to Grant Prideco,
           Inc.'s Registration Statement on Form 10, File No. 1-15423, as
           amended).
   10.12   Supply Agreement, dated as of July 23, 1999, by and between
           Voest-Alpine Stahlrohr Kindberg GmbH & Co KG and Grant Prideco,
           Inc. (incorporated by reference to Exhibit 10.14 to Grant
           Prideco, Inc.'s Registration Statement on Form 10, File No.
           1-15423, as amended).
   10.13   Stock Purchase Agreement, dated as of June 19, 1998, by and
           between Weatherford, Pridecomex Holding, S.A. de C.V., Tubos de
           Acero de Mexico S.A. and Tamsider S.A. de C.V. (incorporated by
           reference to Exhibit 10.16 to Grant Prideco, Inc.'s Registration
           Statement on Form 10, File No. 1-15423, as amended).
</Table>

                                        97
<PAGE>
<Table>
<C>        <S>
   10.14   Master Technology License Agreement, dated as of June 19,
           1998, by and between Grant Prideco, Inc. and DST
           Distributors of Steel Tubes Limited (incorporated by
           reference to Exhibit 10.17 to Grant Prideco, Inc.'s
           Registration Statement on Form 10, File No. 1-15423, as
           amended).
   10.15   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. (incorporated
           by reference to Exhibit 10.18 to Grant Prideco, Inc.'s
           Registration Statement on Form 10, File No. 1-15423, as
           amended).
   10.16   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. (incorporated by
           reference to Exhibit 10.19 to Grant Prideco, Inc.'s
           Registration Statement on Form 10, File No. 1-15423, as
           amended).
   21.1    Subsidiaries of Registrant (incorporated by reference to
           Exhibit 21.1 to Grant Prideco, Inc.'s Registration Statement
           on Form S-4, Reg. No. 333-102635).
   23.1    Consent of Ernst & Young LLP.
   99.1    Section 906 Certification.
</Table>

                                        98
<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/ MICHAEL MCSHANE
                                            ------------------------------------
                                                      Michael McShane
                                            Chief Executive Officer, President,
                                                         and Director

Date: March 27, 2003

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below 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
                    ---------                             ------------------------             ----
<S>     <C>                                          <C>                                  <C>
               /s/ MICHAEL MCSHANE                   Chief Executive Officer, President   March 27, 2003
 ------------------------------------------------    and Director (Principal Executive
                 Michael McShane                                  Officer)


           /s/ BERNARD J. DUROC-DANNER                     Chairman of the Board          March 27, 2003
 ------------------------------------------------
             Bernard J. Duroc-Danner


               /s/ LOUIS A. RASPINO                   Senior Vice President, Finance;     March 27, 2003
 ------------------------------------------------       Chief Financial Officer and
                 Louis A. Raspino                      Treasurer (Principal Financial
                                                                  Officer)


                /s/ GREG L. BOANE                     Corporate Controller (Principal     March 27, 2003
 ------------------------------------------------           Accounting Officer)
                  Greg L. Boane


               /s/ DAVID J. BUTTERS                               Director                March 27, 2003
 ------------------------------------------------
                 David J. Butters


                                                                  Director                March 27, 2003
 ------------------------------------------------
                  Eliot M. Fried


             /s/ ROBERT K. MOSES, JR.                             Director                March 27, 2003
 ------------------------------------------------
               Robert K. Moses, Jr.


               /s/ ROBERT A. RAYNE                                Director                March 27, 2003
 ------------------------------------------------
                 Robert A. Rayne


               /s/ SHELDON B. LUBAR                               Director                March 27, 2003
 ------------------------------------------------
                 Sheldon B. Lubar
</Table>

                                        99
<PAGE>

                                 CERTIFICATION

I, Michael McShane, certify that:

     1. I have reviewed this annual report on Form 10-K of Grant Prideco, Inc;

     2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          (a) Designed such disclosure controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

          (b) Evaluated the effectiveness of the registrant's disclosure
     controls and procedures as of a date within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

          (c) Presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):

          (a) All significant deficiencies in the design or operation of
     internal controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

          (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     controls; and

     6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

                                          Signature: /s/ MICHAEL MCSHANE
                                                --------------------------------
                                                        Michael McShane
                                                 President and Chief Executive
                                                               Officer

Date: March 27, 2003

                                       100
<PAGE>

                                 CERTIFICATION

I, Louis A. Raspino, certify that:

     1. I have reviewed this annual report on Form 10-K of Grant Prideco, Inc;

     2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          (a) Designed such disclosure controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

          (b) Evaluated the effectiveness of the registrant's disclosure
     controls and procedures as of a date within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

          (c) Presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):

          (a) All significant deficiencies in the design or operation of
     internal controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

          (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     controls; and

     6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

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

Date: March 27, 2003

                                       101
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<C>      <S>
 2.1     Distribution Agreement, dated as of March 22, 2000, between
         Weatherford and Grant Prideco, Inc. (incorporated by reference to
         Exhibit 2.1 to Grant Prideco, Inc.'s Registration Statement on
         Form S-3, Reg. No. 333-35272).
 2.2     Purchase Agreement dated as of October 25, 2002, among Technology
         Corporation and Grant Prideco, Inc. (incorporated by reference to
         Exhibit 2.1 to Grant Prideco, Inc.'s Current Report on Form 8-K,
         File No. 1-15423, filed October 28, 2002).
 3.1     Restated Certificate of Incorporation of Grant Prideco, Inc.
         (incorporated by reference to Exhibit 3.1 to Grant Prideco,
         Inc.'s Registration Statement on Form S-3, Reg. No. 333-35272).
 3.2     Restated Bylaws of Grant Prideco, Inc. (incorporated by reference
         to Exhibit 3.2 to Grant Prideco, Inc.'s Registration Statement on
         Form 10, File No. 1-15423, as amended).
 4.1     Indenture for 9 5/8% Senior Notes due 2007 (incorporated by
         reference to Exhibit 4.7 to Grant Prideco, Inc.'s Annual Report
         on Form 10-K for the year ended December 31, 2000, File No.
         1-15423).
 4.2     Form of 9 5/8% Senior Notes due 2007 (included as part of Exhibit
         4.1 above).
 4.3     Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan
         (incorporated by reference to Exhibit 10.6 to Grant Prideco,
         Inc.'s Annual Report on Form 10-K for the year ended December 31,
         2000, File No. 1-15423).
 4.4     Grant Prideco, Inc. 2000 Employee Stock Option and Stock Plan
         (incorporated by reference to Exhibit 10.5 to Grant Prideco,
         Inc.'s Registration Statement on Form 10, File No. 1-15423, as
         amended).
 4.5     Grant Prideco, Inc. Executive Deferred Compensation Plan
         (incorporated by reference to Exhibit 10.9 to Grant Prideco,
         Inc.'s Registration Statement on Form 10, File No. 1-15423, as
         amended).
 4.6     Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
         (incorporated by reference to Exhibit 10.8 to Grant Prideco,
         Inc.'s Registration Statement on Form 10, File No. 1-15423, as
         amended).
 4.7     Grant Prideco, Inc. Deferred Compensation Plan for Non-Employee
         Directors (incorporated by reference to Exhibit 10.10 to Grant
         Prideco, Inc.'s Registration Statement on Form 10, File No.
         1-15423, as amended).
 4.8     Grant Prideco, Inc. 401(k) Savings Plan (incorporated by
         reference to Exhibit 10.11 to Grant Prideco, Inc.'s Registration
         Statement on Form 10, File No. 1-15423, as amended).
 4.9     Grant Prideco, Inc. 2001 Stock Option and Restricted Stock Plan
         (incorporated by reference to Exhibit 10.16 to Grant Prideco,
         Inc.'s Annual Report on Form 10-K for the year ended December 31,
         2001, File No. 1-15423).
 4.10    Registration Rights Agreement dated as of December 20, 2002, by
         and among Schlumberger Technology Corporation and Grant Prideco,
         Inc. (incorporated by reference to Exhibit 4.1 to Prideco, Inc.'s
         Current Report on Form 8-K, File No. 1-15423, filed on January 3,
         2003).
 4.11    Indenture relating to 9% Senior Notes due 2009 dated as of
         December 4, 2002, between Grant Prideco Escrow Corp. and Wells
         Fargo Bank, N.A., as trustee (incorporated by reference to
         Exhibit 4.2 to Grant Prideco, Inc.'s Current Report on Form 8-K,
         File No. 1-15423, filed on January 3, 2003).
 4.12    Form of 9% Senior Notes due 2009 (included as part of Exhibit
         4.11).
 4.13    Supplemental Indenture dated as of December 20, 2002, among Grant
         Prideco, Inc., Grant Prideco Escrow Corp., certain of Grant
         Prideco, Inc.'s subsidiaries, and Wells Fargo Bank, N.A., as
         trustee (incorporated by reference to Exhibit 4.4 to Grant
         Prideco, Inc.'s Current Report on Form 8-K, File No. 1-15423,
         filed on January 3, 2003).
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 4.14    Credit Agreement, dated as of December 19, 2002, among Grant
         Prideco, Inc., certain of its subsidiaries, the Lenders party
         thereto, Deutsche Bank Trust Company Americas, as US, Deutsche
         Bank AG, Canada Branch, as Canadian Agent, Transamerica Business
         Capital Corporation, as Documentation Agent, JP Morgan Chase
         Bank, as Co-Syndication Agent, and Lynch Capital, as
         Co-Syndication Agent (incorporated by reference to Exhibit 4.6 to
         Grant Prideco, Inc.'s Current Report on Form 8-K, File No.
         1-15423, filed on January 3, 2003).
 4.15    Security Agreement, dated as of December 19, 2002, among Grant
         Prideco, Inc., certain of its subsidiaries and Deutsche Bank
         Trust Company Americas, as agent (incorporated by reference to
         Exhibit 4.7 to Grant Prideco, Inc.'s Current Report on Form 8-K,
         File No. 1-15423, filed on January 3, 2003).
 4.16    Amended and Restated Security Agreement, dated as of December 19,
         2002 between Grant Prideco Canada Ltd. and Deutsche Bank AG,
         Canada Branch, as agent (incorporated by reference to Exhibit 4.8
         to Grant Prideco, Inc.'s Current Report on Form 8-K, File No.
         1-15423, filed on January 3, 2003).
 4.17    Security Agreement, dated as of December 19, 2002 between Grant
         Prideco Canada Ltd. and Deutsche Bank AG, Canada Branch, as agent
         (incorporated by reference to Exhibit 4.9 to Grant Prideco,
         Inc.'s Current Report on Form 8-K, File No. 1-15423, filed on
         January 3, 2003).
 4.18    Form of Subsidiary Guarantee by certain of Grant Prideco, Inc.'s
         subsidiaries in favor of Deutsche Bank Trust Company Americas, as
         agent (incorporated by reference to Exhibit 4.10 to Grant
         Prideco, Inc.'s Current Report on Form 8-K, File No. 1-15423,
         filed on January 3, 2003).
10.1     See Exhibits 2.1 and 4.1 through 4.18 for certain items material
         contracts.
10.2     Employment Agreement with Michael McShane dated June 26, 2002
         (incorporated by reference to Grant Prideco, Inc.'s Quarterly
         Report on Form 10-Q for the quarter ended June 30, 2002, File No.
         1-15423).
10.3     Employment Agreement dated April 14, 2000 with Bernard J.
         Duroc-Danner (incorporated by reference to Exhibit 10.2 to Grant
         Prideco, Inc.'s Quarterly Report on Form 10-Q for the quarter
         ended March 31, 2000, File No. 1-15423).
10.4     Employment Agreement dated April 14, 2000 with Louis A. Raspino
         (incorporated by reference to Exhibit 10.1 to Grant Prideco,
         Inc.'s Quarterly Report on Form 10-Q for the quarter ended June
         30, 2001, File No. 1-15423).
10.5     Employment Agreement with Philip Choyce dated April 14, 2000
         (incorporated by reference to Exhibit 10.26 to Grant Prideco,
         Inc.'s Registration Statement on Form S-4, Reg. No. 333-102635).
10.6     Form of Change of Control Agreement with William Chunn, Dan
         Latham, Warren Avery and Philip Choyce (incorporated by reference
         to Exhibit 10.6 to Grant Prideco, Inc.'s Quarterly Report on Form
         10-Q for the quarter ended March 31, 2000, File No. 1-15423).
10.7     Form of Change of Control Agreement with Curtis Burton and
         Marshall Danby (incorporated by reference to Exhibit 10.12 to
         Grant Prideco, Inc.'s Annual Report on Form 10-K for the year
         ended December 31, 2001, File No. 1-15423).
10.8     Preferred Supplier Agreement dated April 14, 2000, between
         Prideco, Inc. and Weatherford International, Inc. (incorporated
         by reference to Exhibit 10.12 to Weatherford International,
         Inc.'s Quarterly Report on Form 10-Q for the quarter ended March
         31, 2000, File No. 1-13086).
10.9     Tax Allocation Agreement dated April 14, 2000 between Grant
         Prideco, Inc. and Weatherford (incorporated by reference to
         Exhibit 10.13 to Weatherford International, Inc.'s Quarterly
         Report on Form 10-Q for the quarter ended March 31, 2000, File
         No. 1-13086).
10.10    Investment Agreement, dated as of April 29, 1999, by and between
         Grant Prideco, Inc. and Voest-Alpine Schienen GmbH & Co KG
         (incorporated by reference to Exhibit 10.12 to Grant Prideco,
         Inc.'s Registration Statement on Form 10, File No. 1-15423, as
         amended).
10.11    Operating Agreement, dated as of July 23, 1999, by and Grant
         Prideco, Inc. and Voest-Alpine Schienen GmbH & Co KG
         (incorporated by reference to Exhibit 10.13 to Grant Prideco,
         Inc.'s Registration Statement on Form 10, File No. 1-15423, as
         amended).
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10.12    Supply Agreement, dated as of July 23, 1999, by and between
         Voest-Alpine Stahlrohr Kindberg GmbH & Co KG and Grant Prideco,
         Inc. (incorporated by reference to Exhibit 10.14 to Grant
         Prideco, Inc.'s Registration Statement on Form 10, File No.
         1-15423, as amended).
10.13    Stock Purchase Agreement, dated as of June 19, 1998, by and
         between Weatherford, Pridecomex Holding, S.A. de C.V., Tubos de
         Acero de Mexico S.A. and Tamsider S.A. de C.V. (incorporated by
         reference to Exhibit 10.16 to Grant Prideco, Inc.'s Registration
         Statement on Form 10, File No. 1-15423, as amended).
10.14    Master Technology License Agreement, dated as of June 19, 1998,
         by and between Grant Prideco, Inc. and DST Distributors of Steel
         Tubes Limited (incorporated by reference to Exhibit 10.17 to
         Grant Prideco, Inc.'s Registration Statement on Form 10, File No.
         1-15423, as amended).
10.15    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. (incorporated by reference to Exhibit 10.18 to Grant
         Prideco, Inc.'s Registration Statement on Form 10, File No.
         1-15423, as amended).
10.16    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. (incorporated by reference to
         Exhibit 10.19 to Grant Prideco, Inc.'s Registration Statement on
         Form 10, File No. 1-15423, as amended).
21.1     Subsidiaries of Registrant (incorporated by reference to Exhibit
         21.1 to Grant Prideco, Inc.'s Registration Statement on Form S-4,
         Reg. No. 333-102635).
23.1     Consent of Ernst & Young LLP.
99.1     Section 906 Certification.
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