##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 1-8226
 
 Grey Wolf, Inc.
  Texas
    
    74-2144774(State or jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)10370 Richmond Avenue, Suite 600Houston, Texas
    
    77042(Address of principal executive offices)
    
    (Zip Code)
 (713) 435-6100
  þ o
  þ o o
  o þ




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##### 



GREY WOLF, INC. AND SUBSIDIARIES
Table of Contents
 PagePart I.Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Shareholders Equity and Comprehensive Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29Part II.Other InformationItem 1. Legal Proceedings
    
    
    30Item 1a. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33Signatures
    
    
    34Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of Pursuant to Section 1350
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    291,729
    
    
    $
    229,773Restricted cash
    
    
    837
    
    
    
    817Accounts receivable, net of allowance of $3,169
    
    
    181,706
    
    
    
    206,523Prepaids and other current assets
    
    
    11,370
    
    
    
    7,817Deferred tax assets
    
    
    4,651
    
    
    
    6,916Total current assets
    
    
    490,293
    
    
    
    451,846Property and equipment:Land, buildings and improvements
    
    
    7,637
    
    
    
    7,044Drilling equipment
    
    
    1,237,601
    
    
    
    1,107,457Furniture and fixtures
    
    
    5,078
    
    
    
    4,839Total property and equipment
    
    
    1,250,316
    
    
    
    1,119,340Less: accumulated depreciation
    
    
    (554,248
    )
    
    
    (511,204
    )Net property and equipment
    
    
    696,068
    
    
    
    608,136Goodwill
    
    
    10,377
    
    
    
    10,377Other noncurrent assets, net
    
    
    6,592
    
    
    
    16,625$
    1,203,330
    
    
    $
    1,086,984LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable-trade
    
    $
    91,657
    
    
    $
    85,253Accrued workers compensation
    
    
    6,061
    
    
    
    7,435Payroll and related employee costs
    
    
    13,575
    
    
    
    15,952Accrued interest payable
    
    
    2,530
    
    
    
    2,536Current income taxes payable
    
    
    6,260
    
    
    
    20,641Other accrued liabilities
    
    
    18,175
    
    
    
    15,265Total current liabilities
    
    
    138,258
    
    
    
    147,082Contingent convertible senior notes
    
    
    275,000
    
    
    
    275,000Other long-term liabilities
    
    
    15,272
    
    
    
    9,877Deferred income taxes
    
    
    143,859
    
    
    
    121,231Commitments and contingent liabilities
    
    
    
    
    
    
    Shareholders equity:Series B Junior Participating Preferred stock; $1 par value;
250,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock; $0.10 par value;
shares authorized: 500,000,000 at June 30, 2007 and
300,000,000 at December 31, 2006; shares issued: 196,668,314 at June 30, 2007 and 195,228,691 at December 31, 2006;
shares outstanding: 185,627,034 at June 30, 2007
and 185,936,440 at December 31, 2006
      
    
    19,666
    
    
    
    19,523Additional paid-in capital
    
    
    390,497
    
    
    
    383,482Treasury stock, at cost: 11,041,280 shares at
June 30, 2007 and 9,292,251 shares at December 31, 2006
    
    
    (76,623
    )
    
    
    (65,119
    )Retained earnings
    
    
    297,401
    
    
    
    195,908Total shareholders equity
    
    
    630,941
    
    
    
    533,794$
    1,203,330
    
    
    $
    1,086,984
 See accompanying notes to consolidated financial statements
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Contract drilling revenue
    
    $
    227,520
    
    
    $
    239,590
    
    
    $
    469,533
    
    
    $
    462,469Costs and expenses:Drilling operations
    
    
    132,307
    
    
    
    129,285
    
    
    
    253,260
    
    
    
    252,145Depreciation and amortization
    
    
    22,397
    
    
    
    18,199
    
    
    
    43,811
    
    
    
    35,347General and administrative
    
    
    7,159
    
    
    
    5,862
    
    
    
    14,558
    
    
    
    11,179Gain on sale of assets
    
    
    (76
    )
    
    
    (22
    )
    
    
    (129
    )
    
    
    (9,537
    )Gain on insurance proceeds
    
    
    
    
    
    
    (4,159
    )
    
    
    
    
    
    
    (4,159
    )Total costs and expenses
    
    
    161,787
    
    
    
    149,165
    
    
    
    311,500
    
    
    
    284,975Operating income
    
    
    65,733
    
    
    
    90,425
    
    
    
    158,033
    
    
    
    177,494Other income (expense):Interest income
    
    
    3,593
    
    
    
    3,065
    
    
    
    6,752
    
    
    
    5,181Interest expense
    
    
    (3,438
    )
    
    
    (3,367
    )
    
    
    (6,930
    )
    
    
    (6,636
    )Other expense, net
    
    
    155
    
    
    
    (302
    )
    
    
    (178
    )
    
    
    (1,455
    )Income before income taxes
    
    
    65,888
    
    
    
    90,123
    
    
    
    157,855
    
    
    
    176,039Income tax expense:Current
    
    
    17,307
    
    
    
    28,398
    
    
    
    44,287
    
    
    
    57,298Deferred
    
    
    6,873
    
    
    
    3,810
    
    
    
    13,282
    
    
    
    6,577Total income tax expense
    
    
    24,180
    
    
    
    32,208
    
    
    
    57,569
    
    
    
    63,875Net income
    
    $
    41,708
    
    
    $
    57,915
    
    
    $
    100,286
    
    
    $
    112,164Net income per common share (Note 2):Basic
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.55
    
    
    $
    0.58Diluted
    
    $
    0.19
    
    
    $
    0.25
    
    
    $
    0.46
    
    
    $
    0.49Weighted average common shares outstanding:Basic
    
    
    183,009
    
    
    
    192,475
    
    
    
    183,016
    
    
    
    192,508Diluted
    
    
    226,734
    
    
    
    236,748
    
    
    
    226,655
    
    
    
    236,374
 See accompanying notes to consolidated financial statements
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Shareholders Equity and Comprehensive Income
  Common Stock
    
    
    Additional
    
    
    Treasury Stock
    
    
    RetainedNumber of
    
    
    Amount,
    
    
    Paid-in
    
    
    Number of
    
    
    Amount,
    
    
    EarningsShares
    
    
    at $0.10 par value
    
    
    Capital
    
    
    Shares
    
    
    at cost
    
    
    (Deficit)
    
    
    TotalBalance, December 31, 2005
    
    
    192,626
    
    
    $
    19,263
    
    
    $
    374,012
    
    
    
    
    
    
    $
    
    
    
    $
    (24,043
    )
    
    $
    369,232Exercise of stock options
    
    
    905
    
    
    
    90
    
    
    
    3,062
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,152Tax benefit of stock
option exercises
    
    
    
    
    
    
    
    
    
    
    1,330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,330Issuance of restricted stock,
net of forfeitures
    
    
    1,697
    
    
    
    170
    
    
    
    (170
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    5,248
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,248Purchase of treasury stock
    
    
    (9,292
    )
    
    
    
    
    
    
    
    
    
    
    9,292
    
    
    
    (65,119
    )
    
    
    
    
    
    
    (65,119
    )Comprehensive net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219,951
    
    
    
    219,951Balance, December 31, 2006
    
    
    185,936
    
    
    
    19,523
    
    
    
    383,482
    
    
    
    9,292
    
    
    
    (65,119
    )
    
    
    195,908
    
    
    
    533,794Adjustment for the adoption
of FASB Interpretation
No. (FIN) 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,207
    
    
    
    1,207Exercise of stock options
    
    
    784
    
    
    
    78
    
    
    
    2,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,794Tax effect of share-based
payments
    
    
    
    
    
    
    
    
    
    
    1,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,074Issuance of restricted stock,
net of forfeitures
    
    
    656
    
    
    
    65
    
    
    
    (65
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    3,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,290Purchase of treasury stock
    
    
    (1,749
    )
    
    
    
    
    
    
    
    
    
    
    1,749
    
    
    
    (11,504
    )
    
    
    
    
    
    
    (11,504
    )Comprehensive net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,286
    
    
    
    100,286Balance, June 30, 2007
(Unaudited)
    
    
    185,627
    
    
    $
    19,666
    
    
    $
    390,497
    
    
    
    11,041
    
    
    $
    (76,623
    )
    
    $
    297,401
    
    
    $
    630,941
 See accompanying notes to consolidated financial statements
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
   Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    100,286
    
    
    $
    112,164Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    43,811
    
    
    
    35,347Deferred income taxes
    
    
    13,282
    
    
    
    6,577Gain on sale of assets
    
    
    (129
    )
    
    
    (9,537
    )Gain on insurance proceeds
    
    
    
    
    
    
    (4,159
    )Stock-based compensation expense
    
    
    3,290
    
    
    
    2,194Excess tax benefit of stock option exercises
and vested restricted stock
    
    
    (696
    )
    
    
    (416
    )Net effect of changes in assets and liabilities
related to operating accounts
    
    
    30,475
    
    
    
    (7,504
    )Cash provided by operating activities
    
    
    190,319
    
    
    
    134,666Cash flows from investing activities:Property and equipment additions
    
    
    (122,842
    )
    
    
    (77,130
    )Proceeds from sale of property and equipment
    
    
    2,493
    
    
    
    17,052Insurance proceeds
    
    
    
    
    
    
    9,409Deposits for new rig purchases
    
    
    
    
    
    
    (12,673
    )Cash used in investing activities
    
    
    (120,349
    )
    
    
    (63,342
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    2,794
    
    
    
    2,341Excess tax benefit of stock option exercises
and vested restricted stock
    
    
    696
    
    
    
    416Purchase of treasury stock
    
    
    (11,504
    )
    
    
    (10,356
    )Cash used in financing activities
    
    
    (8,014
    )
    
    
    (7,599
    )Net increase in cash and cash equivalents
    
    
    61,956
    
    
    
    63,725Cash and cash equivalents, beginning of period
    
    
    229,773
    
    
    
    173,145Cash and cash equivalents, end of period
    
    $
    291,729
    
    
    $
    236,870Supplemental cash flow disclosure:Cash paid for interest
    
    $
    6,505
    
    
    $
    5,901Cash paid for taxes
    
    $
    43,295
    
    
    $
    54,180
 See accompanying notes to consolidated financial statements
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
  (1) General
   (2) Significant Accounting Policies
 Earnings Per Share
   -7-




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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share amounts)Numerator:Net income
    
    $
    41,708
    
    
    $
    57,915
    
    
    $
    100,286
    
    
    $
    112,164Add interest expense on contingent
convertible senior notes,
net of related tax effects
    
    
    2,059
    
    
    
    2,035
    
    
    
    4,135
    
    
    
    3,937Adjusted net incomediluted
    
    $
    43,767
    
    
    $
    59,950
    
    
    $
    104,421
    
    
    $
    116,101Denominator:Weighted average common
shares outstandingbasic
    
    
    183,009
    
    
    
    192,475
    
    
    
    183,016
    
    
    
    192,508Effect of dilutive securitiesOptionstreasury stock method
    
    
    740
    
    
    
    1,204
    
    
    
    715
    
    
    
    1,048Restricted stocktreasury stock method
    
    
    528
    
    
    
    612
    
    
    
    467
    
    
    
    361Contingent convertible senior notes
    
    
    42,457
    
    
    
    42,457
    
    
    
    42,457
    
    
    
    42,457Weighted average common shares
outstandingdiluted
    
    
    226,734
    
    
    
    236,748
    
    
    
    226,655
    
    
    
    236,374Earnings per common share:Basic
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.55
    
    
    $
    0.58Diluted
    
    $
    0.19
    
    
    $
    0.25
    
    
    $
    0.46
    
    
    $
    0.49
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic earnings per share:Unvested restricted stock
    
    
    2,165,140
    
    
    
    1,744,791
    
    
    
    2,165,140
    
    
    
    1,744,791Diluted earnings per share:Anti-dilutive stock options
    
    
    1,300,981
    
    
    
    377,339
    
    
    
    1,288,213
    
    
    
    488,884Anti-dilutive restricted stock
    
    
    659
    
    
    
    
    
    
    
    330
    
    
    
    Total anti-dilutive shares excluded from the
computation of diluted earnings per share
    
    
    1,301,640
    
    
    
    377,339
    
    
    
    1,288,543
    
    
    
    488,884
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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
 Share-Based Payment Arrangements
   Recent Accounting Pronouncements
  -9-




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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
  (3) Accounting for Income Taxes
   (4) Long-Term Debt
  June 30,
    
    
    December 31,2007
    
    
    20063.75% Contingent Convertible
Senior Notes due May 2023
    
    $
    150,000
    
    
    $
    150,000Floating Rate Contingent Convertible
Senior Notes due April 2024
    
    
    125,000
    
    
    
    125,000275,000
    
    
    
    275,000Less current maturities
    
    
    
    
    
    
    Long-term debt
    
    $
    275,000
    
    
    $
    275,000
 3.75% Notes
   -10-




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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
   Floating Rate Notes
    -11-




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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
 CIT Facility
    (5) Segment Information
  (6) Contingencies
  -12-




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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
 (7) Capital Stock and Option Plans
  
    
    incentive stock options;
    
    non-statutory stock options;
    
    restricted shares; and
    
    other stock-based and cash awards.
     (8) Treasury Stock
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GREY WOLF, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements
  (9) Concentrations
   (10) Insurance Recoveries
     (11) Asset Sales
  (12) Subsequent Event
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Managements Discussion and Analysis of Financial  Condition and Results of Operations
  Overview
    New Rig Purchases and Reactivations
   Rig Activity
  -15-




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2005
    
    2006

    
    2007Domestic
    
    Full
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Full
    
    
    
    
    
    
    
    
    
    7/1Land Rig Count
    
    Year
    
    Q-1
    
    Q-2
    
    Q-3
    
    Q-4
    
    Year
    
    Q-1
    
    Q-2
    
    to 7/31Baker
Hughes
    
    
    1,263
    
    
    
    1,417
    
    
    
    1,512
    
    
    
    1,603
    
    
    
    1,609
    
    
    
    1,535
    
    
    
    1,626
    
    
    
    1,653
    
    
    
    1,675Grey Wolf
    
    
    102
    
    
    
    109
    
    
    
    108
    
    
    
    107
    
    
    
    110
    
    
    
    108
    
    
    
    110
    
    
    
    104
    
    
    
    107
 Term Contracts
    Drilling and Contract Rates
  -16-




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Turnkey Contract Activity
   Second Quarter 2007 Results and Financial Outlook
    -17-




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Critical Accounting Policies
  Property and Equipment
  Impairment of Long-Lived Assets
   -18-




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Goodwill
   Revenue Recognition
  Insurance Accruals
   -19-




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Income Taxes
     -20-




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Financial Condition and Liquidity
  June 30, 2007
    
    
    December 31, 2006(Unaudited)(Dollars in thousands)Amount
    
    
    %
    
    
    Amount
    
    
    %Working capital
    
    $
    352,035
    
    
    
    33
    
    
    $
    304,764
    
    
    
    32Property and equipment, net
    
    
    696,068
    
    
    
    65
    
    
    
    608,136
    
    
    
    65Goodwill
    
    
    10,377
    
    
    
    1
    
    
    
    10,377
    
    
    
    1Other noncurrent assets, net
    
    
    6,592
    
    
    
    1
    
    
    
    16,625
    
    
    
    2Total
    
    $
    1,065,072
    
    
    
    100
    
    
    $
    939,902
    
    
    
    100Long-term debt
    
    $
    275,000
    
    
    
    26
    
    
    $
    275,000
    
    
    
    29Other long-term liabilities
    
    
    159,131
    
    
    
    15
    
    
    
    131,108
    
    
    
    14Shareholders equity
    
    
    630,941
    
    
    
    59
    
    
    
    533,794
    
    
    
    57Total
    
    $
    1,065,072
    
    
    
    100
    
    
    $
    939,902
    
    
    
    100
 Significant Changes in Financial Condition
    Long Term Debt
 3.75% Notes
  -21-




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Floating Rate Notes
    -22-




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CIT Facility
    Cash Flow
  Six Months EndedJune 30,2007
    
    
    2006(In thousands)(Unaudited)Net cash provided by (used in):Operating activities
    
    $
    190,319
    
    
    $
    134,666Investing activities
    
    
    (120,349
    )
    
    
    (63,342
    )Financing activities
    
    
    (8,014
    )
    
    
    (7,599
    )Net increase in cash
    
    $
    61,956
    
    
    $
    63,725
 -23-




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Projected Cash Sources and Uses
    Inflation and Changing Prices
  -24-




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##### Table of Contents



Results of Operations
  Reconciliation of Non-GAAP Financial Measures
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)(Unaudited)Earnings before interest expense, taxes,
depreciation and amortization
    
    $
    91,723
    
    
    $
    111,689
    
    
    $
    208,596
    
    
    $
    218,022Depreciation and amortization
    
    
    (22,397
    )
    
    
    (18,199
    )
    
    
    (43,811
    )
    
    
    (35,347
    )Interest expense
    
    
    (3,438
    )
    
    
    (3,367
    )
    
    
    (6,930
    )
    
    
    (6,636
    )Total income tax expense
    
    
    (24,180
    )
    
    
    (32,208
    )
    
    
    (57,569
    )
    
    
    (63,875
    )Net income applicable to common shares
    
    $
    41,708
    
    
    $
    57,915
    
    
    $
    100,286
    
    
    $
    112,164
 -25-




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##### Table of Contents



Comparison of the Three Months Ended June 30, 2007 and 2006
  Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006Daywork
    
    
    Turnkey
    
    
    
    
    
    
    Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    Total(Dollars in thousands except averages per rig day worked)(Unaudited)Rig days worked
    
    
    8,715
    
    
    
    761
    
    
    
    9,476
    
    
    
    8,679
    
    
    
    1,120
    
    
    
    9,799Contract drilling revenues
    
    $
    186,225
    
    
    $
    41,295
    
    
    $
    227,520
    
    
    $
    178,253
    
    
    $
    61,337
    
    
    $
    239,590Drilling operations expenses
    
    
    (100,762
    )
    
    
    (31,545
    )
    
    
    (132,307
    )
    
    
    (89,935
    )
    
    
    (39,350
    )
    
    
    (129,285
    )General and administrative
expenses
    
    
    (6,659
    )
    
    
    (500
    )
    
    
    (7,159
    )
    
    
    (5,213
    )
    
    
    (649
    )
    
    
    (5,862
    )Interest income
    
    
    3,303
    
    
    
    290
    
    
    
    3,593
    
    
    
    2,714
    
    
    
    351
    
    
    
    3,065Gain on sale of assets
    
    
    72
    
    
    
    4
    
    
    
    76
    
    
    
    19
    
    
    
    3
    
    
    
    22Gain on insurance proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,675
    
    
    
    484
    
    
    
    4,159EBITDA
    
    $
    82,179
    
    
    $
    9,544
    
    
    $
    91,723
    
    
    $
    89,513
    
    
    $
    22,176
    
    
    $
    111,689Average per rig day worked:Contract drilling revenues
    
    $
    21,368
    
    
    $
    54,264
    
    
    $
    24,010
    
    
    $
    20,538
    
    
    $
    54,765
    
    
    $
    24,450EBITDA
    
    $
    9,430
    
    
    $
    12,541
    
    
    $
    9,680
    
    
    $
    10,314
    
    
    $
    19,800
    
    
    $
    11,398
  Daywork Operations
  Turnkey Operations
  -26-




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##### Table of Contents



Other
    Comparison of the Six Months Ended June 30, 2007 and 2006
  Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006Daywork
    
    
    Turnkey
    
    
    
    
    
    
    Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    Total(Dollars in thousands except averages per rig day worked)(Unaudited)Rig days worked
    
    
    18,017
    
    
    
    1,380
    
    
    
    19,397
    
    
    
    17,386
    
    
    
    2,200
    
    
    
    19,586Contract drilling revenues
    
    $
    393,589
    
    
    $
    75,944
    
    
    $
    469,533
    
    
    $
    342,620
    
    
    $
    119,849
    
    
    $
    462,469Drilling operations expenses
    
    
    (200,625
    )
    
    
    (52,635
    )
    
    
    (253,260
    )
    
    
    (174,416
    )
    
    
    (77,729
    )
    
    
    (252,145
    )General and administrative
expenses
    
    
    (13,617
    )
    
    
    (941
    )
    
    
    (14,558
    )
    
    
    (9,954
    )
    
    
    (1,225
    )
    
    
    (11,179
    )Interest income
    
    
    6,264
    
    
    
    488
    
    
    
    6,752
    
    
    
    4,596
    
    
    
    585
    
    
    
    5,181Gain on sale of assets
    
    
    110
    
    
    
    19
    
    
    
    129
    
    
    
    8,487
    
    
    
    1,050
    
    
    
    9,537Gain on insurance proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,675
    
    
    
    484
    
    
    
    4,159EBITDA
    
    $
    185,721
    
    
    $
    22,875
    
    
    $
    208,596
    
    
    $
    175,008
    
    
    $
    43,014
    
    
    $
    218,022Average per rig day worked:Contract drilling revenues
    
    $
    21,845
    
    
    $
    55,032
    
    
    $
    24,206
    
    
    $
    19,707
    
    
    $
    54,477
    
    
    $
    23,612EBITDA
    
    $
    10,308
    
    
    $
    16,576
    
    
    $
    10,754
    
    
    $
    10,066
    
    
    $
    19,552
    
    
    $
    11,132
 
 (1)
    
    Turnkey operations include the results from turnkey and footage contracts.  -27-




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##### Table of Contents



Daywork Operations
  Turnkey Operations
  Other
    
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
 Interest Rate Risk.
 -28-




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  -29-




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1a. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    ApproximateShares
    
    Dollar Value ofPurchased as
    
    Shares that MayTotal Number of
    
    Average Price
    
    Part of Publicly
    
    Yet be PurchasedShares
    
    Paid per
    
    Announced
    
    Under thePeriod
    
    Purchased(1)
    
    Share
    
    Program
    
    Program(2)January 1, 2007 to January 31, 2007
    
    
    1,219
    
    
    $
    6.59
    
    
    
    1,219
    
    
    $
    27,161February 1, 2007 to February 28, 2007
    
    
    97
    
    
    $
    6.62
    
    
    
    
    
    
    $
    27,161March 1, 2007 to March 31, 2007
    
    
    426
    
    
    $
    6.51
    
    
    
    425
    
    
    $
    24,408April 1, 2007 to April 30, 2007
    
    
    3
    
    
    $
    6.87
    
    
    
    
    
    
    $
    24,408May 1, 2007 to May 31, 2007
    
    
    4
    
    
    $
    7.93
    
    
    
    
    
    
    $
    24,408June 1, 2007 to June 30, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    Our employees elected to have shares of stock withheld to cover payroll taxes when
shares of restricted stock vest. We then pay the taxes on their behalf and hold the shares
withheld as treasury stock. We had approximately 105,000 of such treasury share purchases
during the six months ended June 30, 2007. These share repurchases are not covered under a
publicly announced program.(2)
    
    On May 25, 2006, the Company announced that its Board of Directors approved a plan
authorizing the repurchase of up to $100.0 million of Grey Wolf common stock in open market
or in privately negotiated block-trade transactions. The number of shares to be purchased
and the timing of purchases will be based on several factors, including the price of the
common stock, general market conditions, available cash and alternate investment
opportunities. The stock repurchase program is subject to termination prior to completion. 
 Item 3. Defaults Upon Senior Securities
  -30-




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  (i)
    
    Elected Robert E. Rose and Trevor Turbidy as Class II Directors. Class II Directors
will hold office until the annual meeting in 2010 or until their successors have been duly
elected and qualified. The following details the number of votes for the election of these
directors and the number of votes withheld:
 Director
    
    For
    
    WithheldRobert E. Rose
    
    
    179,104,839
    
    
    
    2,665,728Trevor Turbidy
    
    
    176,131,637
    
    
    
    5,638,930
 (ii)
    
    Approved the amendment to the 2003 Incentive Plan to increase the number of shares
available for grant under the plan by five million shares and to prohibit repricing without
shareholder approval.
 For
    
    
    96,661,236Against
    
    
    22,649,367Abstaining
    
    
    234,140Broker Non-Votes
    
    
    62,225,827
 (iii)
    
    Approved the amendment of the Articles of Incorporation to increase the number of
authorized shares of Common Stock from 300,000,000 to 500,000,000 shares.
 For
    
    
    162,960,288Against
    
    
    18,485,514Abstaining
    
    
    324,553Broker Non-Votes
    
    
    215
 -31-




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##### Table of Contents



Item 5. Other Information
  
    
    business strategy;
    
    demand for our services;
    
    spending by our customers;
    
    projected rig activity;
    
    increases in rig supply and its effects on us;
    
    projected dayrates;
    
    projected interest expense;
    
    projected tax rate;
    
    rigs expected to be engaged in turnkey operations;
    
    cost of building new rigs, delivery times and deployment destinations of these rigs;
    
    the ability to recover our refurbishment costs or the purchase price of
rigs from term contracts;
    
    the availability and financial terms of term contracts;
    
    wage rates and retention of employees;
    
    sufficiency of our capital resources and liquidity;
    
    projected depreciation and capital expenditures;
    
    future common stock repurchases by us; and
    
    projected sources and uses of cash.
  
    
    fluctuations in prices and demand for oil and natural gas;
    
    fluctuations in levels of oil and natural gas exploration and development activities;
    
    fluctuations in demand for contract land drilling services;
    
    fluctuations in interest rates;
    
    the existence and competitive responses of our competitors;
    
    uninsured or underinsured casualty losses;
    
    technological changes and developments in the industry;
    
    the existence of operating risks inherent in the contract land drilling industry;
    
    U.S. and global economic conditions;
    
    the availability and terms of insurance coverage;
    
    the ability to attract and retain qualified personnel;
    
    unforeseen operating costs such as cost for environmental remediation and
turnkey cost overruns; and
    
    weather conditions.
  -32-




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Articles of Incorporation of Grey Wolf, Inc., as amended (incorporated herein
by reference to Exhibit 3.1 to Form 8-K filed May 21, 2007).3.2
    
    By-Laws of Grey Wolf, Inc., as amended (incorporated herein by reference to
Exhibit 99.1 to Form 8-K dated March 23, 1999).4.1
    
    Rights Agreement dated as of September 21, 1998 by and between the Company and
American Stock Transfer and Trust Company as Rights Agent (incorporated herein by
reference to Exhibit 4.1 to Form 8-K filed September 22, 1998).4.2
    
    Indenture, dated as of May 7, 2003, relating to the 3.75% Contingent
Convertible Senior Notes due 2023 between the Company, the Guarantors, and JPMorgan
Chase Bank, a New York Banking Corporation, as Trustee (incorporated herein by
reference to Exhibit 4.2 to the Companys Registration Statement on Form S-3 No.
333-106997 filed July 14, 2003).4.3
    
    Supplemental Indenture, dated as of May 22, 2003, relating to the 3.75%
Contingent Convertible Senior Notes due 2023 between the Company, the Guarantors, and
JPMorgan Chase Bank, a New York Banking Corporation, as Trustee (incorporated herein by
reference to Exhibit 4.3 to the Companys Registration Statement on Form S-3 No.
333-106997 filed July 14, 2003).4.4
    
    Indenture, dated as of March 31, 2004, relating to the Floating Rate Contingent
Convertible Senior Notes Due 2024 between the Company, the Guarantors, and J.P. Morgan
Chase Bank, a New York banking corporation, as Trustee (incorporated by reference to
Exhibit 4.1 to Form 10-Q dated May 5, 2004).4.5
    
    Registration Rights Agreement as of March 31, 2004 by and between Grey Wolf,
Inc., the Guarantors, and the Initial Purchasers of the Floating Rate Contingent
Convertible Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q filed May 5, 2004).4.6
    
    Second Supplemental Indenture, dated as of March 31, 2004, relating to the
3.75% Contingent Convertible Senior Notes due 2023 between the Company, the Guarantors,
and JP Morgan Chase Bank, a New York Banking Corporation, as Trustee (incorporated by
reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q filed May 5, 2004).* 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)* 31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)**32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of Thomas P. Richards, Chairman, President
and Chief Executive Officer and David W. Wehlmann, Executive Vice President and Chief
Financial Officer.
 
 *
    
    Filed herewith**
    
    Furnished, not filed, in accordance with Item 601(b)(32) of Regulation S-K. -33-




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##### Table of Contents



SIGNATURES
 Pursuant to the requirements 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.
 GREY WOLF, INC.Date: August 6, 2007
    
    By:
    
    /s/ David W. Wehlmann

David W. Wehlmann 
Executive Vice President andChief Financial OfficerDate: August 6, 2007
    
    By:
    
    /s/ Kent D. Cauley

Kent D. CauleyVice President and Controller
 -34-




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##### Table of Contents



Exhibit Index
 3.1
    
    Articles of Incorporation of Grey Wolf, Inc., as amended (incorporated herein
by reference to Exhibit 3.1 to Form 8-K filed May 21, 2007).3.2
    
    By-Laws of Grey Wolf, Inc., as amended (incorporated herein by reference to
Exhibit 99.1 to Form 8-K dated March 23, 1999).4.1
    
    Rights Agreement dated as of September 21, 1998 by and between the Company
and American Stock Transfer and Trust Company as Rights Agent (incorporated herein by
reference to Exhibit 4.1 to Form 8-K filed September 22, 1998).4.2
    
    Indenture, dated as of May 7, 2003, relating to the 3.75% Contingent
Convertible Senior Notes due 2023 between the Company, the Guarantors, and JPMorgan
Chase Bank, a New York Banking Corporation, as Trustee (incorporated herein by
reference to Exhibit 4.2 to the Companys Registration Statement on Form S-3 No.
333-106997 filed July 14, 2003).4.3
    
    Supplemental Indenture, dated as of May 22, 2003, relating to the 3.75%
Contingent Convertible Senior Notes due 2023 between the Company, the Guarantors, and
JPMorgan Chase Bank, a New York Banking Corporation, as Trustee (incorporated herein
by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-3 No.
333-106997 filed July 14, 2003).4.4
    
    Indenture, dated as of March 31, 2004, relating to the Floating Rate
Contingent Convertible Senior Notes Due 2024 between the Company, the Guarantors, and
J.P. Morgan Chase Bank, a New York banking corporation, as Trustee (incorporated by
reference to Exhibit 4.1 to Form 10-Q dated May 5, 2004).4.5
    
    Registration Rights Agreement as of March 31, 2004 by and between Grey Wolf,
Inc., the Guarantors, and the Initial Purchasers of the Floating Rate Contingent
Convertible Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q filed May 5, 2004).4.6
    
    Second Supplemental Indenture, dated as of March 31, 2004, relating to the
3.75% Contingent Convertible Senior Notes due 2023 between the Company, the
Guarantors, and JP Morgan Chase Bank, a New York Banking Corporation, as Trustee
(incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q filed
May 5, 2004).* 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)* 31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)** 32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of Thomas P. Richards, Chairman, President
and Chief Executive Officer and David W. Wehlmann, Executive Vice President and Chief
Financial Officer.
 
 *
    
    Filed herewith**
    
    Furnished, not filed, in accordance with Item 601(b)(32) of Regulation S-K.