##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 Commission file number 001-15423
 Grant Prideco, Inc.
  Delaware
    
    76-0312499(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)400 N . Sam Houston Pkwy. EastSuite 900Houston, Texas
    
    77060(Address of Principal Executive Offices)
    
    (Zip Code)
 (281) 878-8000
 þ o
  þ o o
 o þ
  Title of Each Class
    
    Outstanding at November 2, 2007Common Stock, par value $0.01 per share
    
    127,019,341




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 3. Quantitative and Qualitative Disclosures About Market RiskITEM 4. Controls and ProceduresPART IIITEM 1A. Risk FactorsITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 6. ExhibitsSIGNATURESEXHIBIT INDEXSupply AgreementCertification of Michael McShaneCertification of Matthew D. FitzgeraldSection 1350 Certification    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 GRANT PRIDECO, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)Income:Revenues
    
    $
    539,865
    
    
    $
    451,349
    
    
    $
    1,558,506
    
    
    $
    1,297,558License and royalty income
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000539,865
    
    
    
    471,349
    
    
    
    1,558,506
    
    
    
    1,317,558Operating Expenses:Cost of sales
    
    
    296,861
    
    
    
    239,486
    
    
    
    814,944
    
    
    
    695,380Sales and marketing
    
    
    45,226
    
    
    
    38,803
    
    
    
    136,237
    
    
    
    112,088General and administrative
    
    
    29,574
    
    
    
    23,613
    
    
    
    96,433
    
    
    
    79,943Research and engineering
    
    
    9,940
    
    
    
    9,006
    
    
    
    30,717
    
    
    
    25,263381,601
    
    
    
    310,908
    
    
    
    1,078,331
    
    
    
    912,674Operating Income
    
    
    158,264
    
    
    
    160,441
    
    
    
    480,175
    
    
    
    404,884Interest Expense
    
    
    (2,209
    )
    
    
    (3,687
    )
    
    
    (11,337
    )
    
    
    (11,105
    )Other Income (Expense), Net
    
    
    935
    
    
    
    121
    
    
    
    (864
    )
    
    
    (1,726
    )Equity Income in Unconsolidated Affiliate
    
    
    24,290
    
    
    
    26,619
    
    
    
    98,929
    
    
    
    91,280Income Before Income Taxes and Minority
Interests
    
    
    181,280
    
    
    
    183,494
    
    
    
    566,903
    
    
    
    483,333Income Tax Provision
    
    
    (54,048
    )
    
    
    (54,865
    )
    
    
    (168,669
    )
    
    
    (150,922
    )Income Before Minority Interests
    
    
    127,232
    
    
    
    128,629
    
    
    
    398,234
    
    
    
    332,411Minority Interests
    
    
    (2,993
    )
    
    
    (2,157
    )
    
    
    (7,494
    )
    
    
    (7,922
    )Net Income
    
    $
    124,239
    
    
    $
    126,472
    
    
    $
    390,740
    
    
    $
    324,489Basic Net Income Per Share
    
    $
    0.97
    
    
    $
    0.97
    
    
    $
    3.04
    
    
    $
    2.47Basic Weighted Average Shares Outstanding
    
    
    128,585
    
    
    
    130,606
    
    
    
    128,365
    
    
    
    131,158Diluted Net Income Per Share
    
    $
    0.96
    
    
    $
    0.95
    
    
    $
    3.00
    
    
    $
    2.43Diluted Weighted Average Shares Outstanding
    
    
    129,818
    
    
    
    132,649
    
    
    
    130,154
    
    
    
    133,378
  2




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GRANT PRIDECO, INC.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    240,995
    
    
    $
    57,344Accounts receivable, net of allowance for doubtful accounts
of $3,027 and $3,523 for 2007 and 2006, respectively
    
    
    417,836
    
    
    
    368,695Inventories
    
    
    529,300
    
    
    
    454,947Current deferred tax assets
    
    
    41,446
    
    
    
    48,101Other current assets
    
    
    24,740
    
    
    
    18,359Total Current Assets
    
    
    1,254,317
    
    
    
    947,446Property, Plant and Equipment, Net
    
    
    354,683
    
    
    
    305,524Goodwill
    
    
    527,023
    
    
    
    520,992Other Intangible Assets, Net
    
    
    84,451
    
    
    
    89,827Investment in Unconsolidated Affiliate
    
    
    96,881
    
    
    
    135,428Other Assets
    
    
    25,550
    
    
    
    22,850Total Assets
    
    $
    2,342,905
    
    
    $
    2,022,067LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of long-term debt
    
    $
    3,638
    
    
    $
    8,640Accounts payable
    
    
    147,140
    
    
    
    138,942Accrued payroll and benefits
    
    
    48,494
    
    
    
    74,952Deferred revenues
    
    
    23,375
    
    
    
    18,190Income taxes payable
    
    
    28,850
    
    
    
    33,039Other current liabilities
    
    
    28,772
    
    
    
    33,576Total Current Liabilities
    
    
    280,269
    
    
    
    307,339Long-Term Debt
    
    
    203,504
    
    
    
    237,212Deferred Tax Liabilities
    
    
    103,192
    
    
    
    68,310Other Long-Term Liabilities
    
    
    27,769
    
    
    
    28,801Commitments and ContingenciesMinority Interests
    
    
    18,189
    
    
    
    17,522Stockholders Equity:Preferred stock, $0.01 par value
    
    
    
    
    
    
    Common stock, $0.01 par value; issued 134,715
and 132,706 in 2007 and 2006, respectively
    
    
    1,347
    
    
    
    1,327Capital in excess of par value
    
    
    736,934
    
    
    
    687,384Retained earnings
    
    
    1,235,747
    
    
    
    845,877Accumulated other comprehensive income (loss)
    
    
    10,292
    
    
    
    (960
    )Treasury stock, at cost
    
    
    (284,768
    )
    
    
    (180,557
    )Deferred compensation obligation
    
    
    10,430
    
    
    
    9,812Total Stockholders Equity
    
    
    1,709,982
    
    
    
    1,362,883Total Liabilities and Stockholders Equity
    
    $
    2,342,905
    
    
    $
    2,022,067
  3




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GRANT PRIDECO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006(In thousands)Cash Flows From Operating Activities:Net income
    
    $
    390,740
    
    
    $
    324,489Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    44,916
    
    
    
    36,014Deferred income tax
    
    
    32,305
    
    
    
    (24,718
    )Equity income in unconsolidated affiliate, net of dividends
    
    
    45,682
    
    
    
    (3,561
    )Stock-based compensation expense
    
    
    8,715
    
    
    
    9,306Excess tax
benefits on stock option exercises
    
    
    (17,032
    )
    
    
    (12,172
    )Other non-cash items, net
    
    
    3,703
    
    
    
    3,693Change in operating assets and liabilities:Accounts receivable
    
    
    (44,881
    )
    
    
    (60,070
    )Inventories
    
    
    (73,448
    )
    
    
    (99,671
    )Deferred charges
    
    
    1,223
    
    
    
    10,055Other current assets
    
    
    (5,152
    )
    
    
    (1,429
    )Other assets
    
    
    (3,966
    )
    
    
    (469
    )Accounts payable
    
    
    12,520
    
    
    
    24,804Deferred revenues
    
    
    5,185
    
    
    
    (5,012
    )Income taxes payable
    
    
    7,481
    
    
    
    76,059Other current liabilities
    
    
    (32,699
    )
    
    
    (15,184
    )Other, net
    
    
    (156
    )
    
    
    2,894Net cash provided by operating activities
    
    
    375,136
    
    
    
    265,028Cash Flows From Investing Activities:Capital expenditures for property, plant and equipment
    
    
    (91,931
    )
    
    
    (64,472
    )Acquisition of businesses
    
    
    (3,394
    )
    
    
    Purchases of short-term investments
    
    
    (274,785
    )
    
    
    (153,400
    )Proceeds from sale of short-term investments
    
    
    274,785
    
    
    
    147,400Other, net
    
    
    4,816
    
    
    
    1,091Net cash used in investing activities
    
    
    (90,509
    )
    
    
    (69,381
    )Cash Flows From Financing Activities:Repayments on credit facilities, net
    
    
    (31,446
    )
    
    
    (11,200
    )Repayments on debt, net
    
    
    (7,278
    )
    
    
    (6,756
    )Proceeds from stock option exercises
    
    
    23,825
    
    
    
    19,823Excess tax benefits on stock option exercises
    
    
    17,032
    
    
    
    12,172Repurchases of common stock
    
    
    (105,821
    )
    
    
    (139,757
    )Other, net
    
    
    900
    
    
    
    Net cash used in financing activities
    
    
    (102,788
    )
    
    
    (125,718
    )Effect of Exchange Rate Changes on Cash
    
    
    1,812
    
    
    
    (132
    )Net Increase in Cash and Cash Equivalents
    
    
    183,651
    
    
    
    69,797Cash and Cash Equivalents at Beginning of Period
    
    
    57,344
    
    
    
    28,164Cash and Cash Equivalents at End of Period
    
    $
    240,995
    
    
    $
    97,961
  4




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GRANT PRIDECO, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. General
 Basis of Presentation
   Use of Estimates
  Derivative Instruments
 Accounting for Derivative Instruments and Hedging
Activities,
   5




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2. Income Taxes
      3. Stock-Based Compensation
  Stock Options
  2007Valuation Assumptions:Expected Option Term (Years)
    
    
    5Expected Volatility
    
    
    40
    %Expected Dividend Rate
    
    
    Risk Free Interest Rate
    
    
    4.67
    %Weighted-Average Grant Date Fair Value
    
    $
    18.82
 Restricted Stock
  6




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4. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net Income
    
    $
    124,239
    
    
    $
    126,472
    
    
    $
    390,740
    
    
    $
    324,489Foreign Currency Translation Adjustments
    
    
    1,862
    
    
    
    1,302
    
    
    
    5,410
    
    
    
    8,327Other Comprehensive Income (Loss) for
Unconsolidated Affiliate, Net of Tax
    
    
    (65
    )
    
    
    (121
    )
    
    
    5,236
    
    
    
    9,647Gain on Derivative Instruments, Net of Tax
    
    
    439
    
    
    
    
    
    
    
    606
    
    
    
    Gain on Short-Term Investments, Net of Tax
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    Total Comprehensive Income
    
    $
    126,502
    
    
    $
    127,653
    
    
    $
    401,992
    
    
    $
    342,463
 5. Net Income Per Share
  6. Inventories
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Raw Materials, Components and Supplies
    
    $
    254,649
    
    
    $
    203,368Work in Process
    
    
    136,571
    
    
    
    129,966Finished Goods
    
    
    104,401
    
    
    
    97,565Rental Bits
    
    
    33,679
    
    
    
    24,048$
    529,300
    
    
    $
    454,947
 7




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7. Property, Plant and Equipment
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Land
    
    $
    24,369
    
    
    $
    24,915Buildings and Improvements
    
    
    120,896
    
    
    
    101,809Machinery and Equipment
    
    
    373,779
    
    
    
    332,401Furniture and Fixtures
    
    
    49,310
    
    
    
    44,267Construction in Progress
    
    
    52,914
    
    
    
    42,864621,268
    
    
    
    546,256Less: Accumulated Depreciation
    
    
    (266,585
    )
    
    
    (240,732
    )$
    354,683
    
    
    $
    305,524
 8. Goodwill
  Drilling
    
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    
    TechnologyServices
    
    
    ReedHycalog
    
    
    and Services
    
    
    Other
    
    
    Total(In thousands)Balance, December 31, 2006
    
    $
    132,203
    
    
    $
    275,928
    
    
    $
    97,153
    
    
    $
    15,708
    
    
    $
    520,992Acquisitions
    
    
    
    
    
    
    3,394
    
    
    
    
    
    
    
    
    
    
    
    3,394Translation and Other Adjustments
    
    
    703
    
    
    
    653
    
    
    
    1,281
    
    
    
    
    
    
    
    2,637Balance, September 30, 2007
    
    $
    132,906
    
    
    $
    279,975
    
    
    $
    98,434
    
    
    $
    15,708
    
    
    $
    527,023
  9. Investment in Unconsolidated Affiliate
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006(In thousands)Net Sales
    
    $
    185,336
    
    
    $
    167,438
    
    
    $
    592,778
    
    
    $
    539,972Gross Profit
    
    
    47,621
    
    
    
    57,767
    
    
    
    191,958
    
    
    
    192,313Net Income
    
    
    47,339
    
    
    
    53,473
    
    
    
    195,857
    
    
    
    183,735Companys Equity Income
    
    $
    24,290
    
    
    $
    26,619
    
    
    $
    98,929
    
    
    $
    91,280Dividends Received
    
    
    
    
    
    
    
    
    
    
    144,611
    
    
    
    87,719
  8




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10. Singapore Credit Facility
    11. Derivative Instruments
   Cash Flow Hedges
  Other Derivative Instruments
  9




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12. Pension Plans
 U.S. Pension Plan
  Three MonthsEnded
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service Cost
    
    $
    102
    
    
    $
    101
    
    
    $
    307
    
    
    $
    303Interest Cost
    
    
    224
    
    
    
    222
    
    
    
    670
    
    
    
    667Expected Return on Plan Assets
    
    
    (275
    )
    
    
    (238
    )
    
    
    (825
    )
    
    
    (714
    )Amortization of Prior Service Cost
    
    
    6
    
    
    
    6
    
    
    
    18
    
    
    
    18Amortization of Actuarial Loss
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    12Administration Expenses
    
    
    25
    
    
    
    15
    
    
    
    74
    
    
    
    45Net Periodic Cost
    
    $
    82
    
    
    $
    110
    
    
    $
    244
    
    
    $
    331
  Non-U.S. Pension Plan
  Three MonthsEnded
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service Cost
    
    $
    4
    
    
    $
    
    
    
    $
    12
    
    
    $
    Interest Cost
    
    
    244
    
    
    
    229
    
    
    
    732
    
    
    
    687Expected Return on Plan Assets
    
    
    (248
    )
    
    
    (226
    )
    
    
    (744
    )
    
    
    (678
    )Amortization of Prior Service Cost
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    82Amortization of Actuarial Gain
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (91
    )Net Periodic Cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  13. Stockholders Equity
   10




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14. Segment Information
  Drilling
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    Technology
    
    CorporateServices
    
    ReedHycalog
    
    and Services
    
    and Other
    
    Total(In thousands)Three Months Ended:September 30, 2007Revenues
from
Unaffiliated
Customers
    
    $
    305,892
    
    
    $
    149,115
    
    
    $
    84,140
    
    
    $
    718
    
    
    $
    539,865Intersegment
Revenues
    
    
    361
    
    
    
    10
    
    
    
    3,333
    
    
    
    
    
    
    
    3,704Operating
Income
(Loss)
    
    
    117,894
    
    
    
    35,185
    
    
    
    21,111
    
    
    
    (15,926
    )
    
    
    158,264Income
(Loss)
Before
Income
Taxes
and
Minority
Interests
    
    
    141,821
    
    
    
    28,986
    
    
    
    20,422
    
    
    
    (9,949
    )
    
    
    181,280September 30, 2006Revenues
from
Unaffiliated
Customers
    
    $
    214,375
    
    
    $
    128,001
    
    
    $
    108,170
    
    
    $
    803
    
    
    $
    451,349Intersegment
Revenues
    
    
    362
    
    
    
    12
    
    
    
    1,713
    
    
    
    
    
    
    
    2,087Operating
Income
(Loss)
    
    
    78,910
    
    
    
    66,386
    
    
    
    28,523
    
    
    
    (13,378
    )
    
    
    160,441Income
(Loss)
Before
Income
Taxes
and
Minority
Interests
    
    
    104,117
    
    
    
    64,977
    
    
    
    28,105
    
    
    
    (13,705
    )
    
    
    183,494Nine Months Ended:September 30, 2007Revenues
from
Unaffiliated
Customers
    
    $
    864,605
    
    
    $
    449,364
    
    
    $
    238,514
    
    
    $
    6,023
    
    
    $
    1,558,506Intersegment
Revenues
    
    
    1,117
    
    
    
    10
    
    
    
    10,075
    
    
    
    
    
    
    
    11,202Operating
Income
(Loss)
    
    
    346,976
    
    
    
    127,809
    
    
    
    55,157
    
    
    
    (49,767
    )
    
    
    480,175Income
(Loss)
Before
Income
Taxes
and
Minority
Interests
    
    
    442,296
    
    
    
    108,198
    
    
    
    53,546
    
    
    
    (37,137
    )
    
    
    566,903September 30, 2006Revenues
from
Unaffiliated
Customers
    
    $
    622,220
    
    
    $
    361,031
    
    
    $
    313,229
    
    
    $
    1,078
    
    
    $
    1,297,558Intersegment
Revenues
    
    
    588
    
    
    
    52
    
    
    
    3,969
    
    
    
    
    
    
    
    4,609Operating
Income
(Loss)
    
    
    222,671
    
    
    
    142,758
    
    
    
    89,003
    
    
    
    (49,548
    )
    
    
    404,884Income
(Loss)
Before
Income
Taxes
and
Minority
Interests
    
    
    309,694
    
    
    
    138,157
    
    
    
    87,788
    
    
    
    (52,306
    )
    
    
    483,333
 15. Recent Accounting Standards
   11




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16. Subsequent Events
  17. Subsidiary Guarantor Financial Information
  GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2007
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    403,393
    
    
    $
    223,845
    
    
    $
    (87,373
    )
    
    $
    539,865Operating Expenses:Cost of sales
    
    
    
    
    
    
    257,819
    
    
    
    116,374
    
    
    
    (77,332
    )
    
    
    296,861Selling, general and administrative and
research and engineering
    
    
    77
    
    
    
    57,268
    
    
    
    27,395
    
    
    
    
    
    
    
    84,74077
    
    
    
    315,087
    
    
    
    143,769
    
    
    
    (77,332
    )
    
    
    381,601Operating Income (Loss)
    
    
    (77
    )
    
    
    88,306
    
    
    
    80,076
    
    
    
    (10,041
    )
    
    
    158,264Interest Expense, net
    
    
    (3,688
    )
    
    
    1,567
    
    
    
    (88
    )
    
    
    
    
    
    
    (2,209
    )Other Income (Expense), Net
    
    
    1,327
    
    
    
    8,120
    
    
    
    (8,512
    )
    
    
    
    
    
    
    935Equity Income in Unconsolidated Affiliate
    
    
    
    
    
    
    24,288
    
    
    
    
    
    
    
    2
    
    
    
    24,290Equity in Subsidiaries, Net of Taxes
    
    
    130,567
    
    
    
    5,075
    
    
    
    
    
    
    
    (135,642
    )
    
    
    Income Before Income Taxes and Minority Interests
    
    
    128,129
    
    
    
    127,356
    
    
    
    71,476
    
    
    
    (145,681
    )
    
    
    181,280Income Tax Provision
    
    
    (3,890
    )
    
    
    (36,778
    )
    
    
    (13,380
    )
    
    
    
    
    
    
    (54,048
    )Income Before Minority Interests
    
    
    124,239
    
    
    
    90,578
    
    
    
    58,096
    
    
    
    (145,681
    )
    
    
    127,232Minority Interests
    
    
    
    
    
    
    
    
    
    
    (2,993
    )
    
    
    
    
    
    
    (2,993
    )Net Income
    
    $
    124,239
    
    
    $
    90,578
    
    
    $
    55,103
    
    
    $
    (145,681
    )
    
    $
    124,239
 12




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##### Table of Contents



GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2007
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    1,167,550
    
    
    $
    686,685
    
    
    $
    (295,729
    )
    
    $
    1,558,506Operating Expenses:Cost of sales
    
    
    
    
    
    
    707,775
    
    
    
    359,899
    
    
    
    (252,730
    )
    
    
    814,944Selling, general and administrative and
research and engineering
    
    
    163
    
    
    
    181,305
    
    
    
    81,919
    
    
    
    
    
    
    
    263,387163
    
    
    
    889,080
    
    
    
    441,818
    
    
    
    (252,730
    )
    
    
    1,078,331Operating Income (Loss)
    
    
    (163
    )
    
    
    278,470
    
    
    
    244,867
    
    
    
    (42,999
    )
    
    
    480,175Interest Expense, net
    
    
    (12,363
    )
    
    
    1,427
    
    
    
    (401
    )
    
    
    
    
    
    
    (11,337
    )Other Income (Expense), Net
    
    
    3,886
    
    
    
    18,180
    
    
    
    (22,930
    )
    
    
    
    
    
    
    (864
    )Equity Income in Unconsolidated Affiliate
    
    
    
    
    
    
    98,580
    
    
    
    
    
    
    
    349
    
    
    
    98,929Equity in Subsidiaries, Net of Taxes
    
    
    406,378
    
    
    
    21,273
    
    
    
    
    
    
    
    (427,651
    )
    
    
    Income Before Income Taxes and Minority Interests
    
    
    397,738
    
    
    
    417,930
    
    
    
    221,536
    
    
    
    (470,301
    )
    
    
    566,903Income Tax Provision
    
    
    (6,998
    )
    
    
    (118,524
    )
    
    
    (43,147
    )
    
    
    
    
    
    
    (168,669
    )Income Before Minority Interests
    
    
    390,740
    
    
    
    299,406
    
    
    
    178,389
    
    
    
    (470,301
    )
    
    
    398,234Minority Interests
    
    
    
    
    
    
    
    
    
    
    (7,494
    )
    
    
    
    
    
    
    (7,494
    )Net Income
    
    $
    390,740
    
    
    $
    299,406
    
    
    $
    170,895
    
    
    $
    (470,301
    )
    
    $
    390,740
 13




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##### Table of Contents



GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2007
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Current Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    209,689
    
    
    $
    31,306
    
    
    $
    
    
    
    $
    240,995Accounts
receivable, Net
    
    
    
    
    
    
    271,429
    
    
    
    146,407
    
    
    
    
    
    
    
    417,836Inventories
    
    
    
    
    
    
    365,857
    
    
    
    223,461
    
    
    
    (60,018
    )
    
    
    529,300Current deferred tax assets
    
    
    16
    
    
    
    21,883
    
    
    
    19,547
    
    
    
    
    
    
    
    41,446Other current assets
    
    
    
    
    
    
    12,293
    
    
    
    12,447
    
    
    
    
    
    
    
    24,74016
    
    
    
    881,151
    
    
    
    433,168
    
    
    
    (60,018
    )
    
    
    1,254,317Property, Plant and Equipment, Net
    
    
    
    
    
    
    204,294
    
    
    
    150,389
    
    
    
    
    
    
    
    354,683Goodwill
    
    
    
    
    
    
    252,670
    
    
    
    274,353
    
    
    
    
    
    
    
    527,023Investment In and Advances to Subsidiaries
    
    
    1,987,472
    
    
    
    100,458
    
    
    
    
    
    
    
    (2,087,930
    )
    
    
    Investment In Unconsolidated
Affiliate
    
    
    
    
    
    
    96,881
    
    
    
    
    
    
    
    
    
    
    
    96,881Other Assets
    
    
    5,999
    
    
    
    47,104
    
    
    
    56,898
    
    
    
    
    
    
    
    110,001$
    1,993,487
    
    
    $
    1,582,558
    
    
    $
    914,808
    
    
    $
    (2,147,948
    )
    
    $
    2,342,905LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current
portion of
long-term debt
    
    $
    
    
    
    $
    738
    
    
    $
    2,900
    
    
    $
    
    
    
    $
    3,638Accounts payable
    
    
    
    
    
    
    91,709
    
    
    
    55,431
    
    
    
    
    
    
    
    147,140Deferred revenues
    
    
    
    
    
    
    20,109
    
    
    
    3,266
    
    
    
    
    
    
    
    23,375Income taxes payable
    
    
    (66,575
    )
    
    
    82,164
    
    
    
    13,261
    
    
    
    
    
    
    
    28,850Intercompany liabilities (assets)
    
    
    156,785
    
    
    
    (343,016
    )
    
    
    186,231
    
    
    
    
    
    
    
    Other current liabilities
    
    
    1,743
    
    
    
    46,582
    
    
    
    28,941
    
    
    
    
    
    
    
    77,26691,953
    
    
    
    (101,714
    )
    
    
    290,030
    
    
    
    
    
    
    
    280,269Long-Term Debt
    
    
    200,000
    
    
    
    3,250
    
    
    
    254
    
    
    
    
    
    
    
    203,504Deferred Tax Liabilities
    
    
    (8,448
    )
    
    
    71,002
    
    
    
    40,638
    
    
    
    
    
    
    
    103,192Other Long-Term Liabilities
    
    
    
    
    
    
    27,167
    
    
    
    602
    
    
    
    
    
    
    
    27,769Commitments and ContingenciesMinority Interests
    
    
    
    
    
    
    
    
    
    
    18,189
    
    
    
    
    
    
    
    18,189Stockholders Equity
    
    
    1,709,982
    
    
    
    1,582,853
    
    
    
    565,095
    
    
    
    (2,147,948
    )
    
    
    1,709,982$
    1,993,487
    
    
    $
    1,582,558
    
    
    $
    914,808
    
    
    $
    (2,147,948
    )
    
    $
    2,342,905
 14




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##### Table of Contents



GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2007
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Cash Flows From Operating Activities:Net cash provided by operating activities
    
    $
    76,342
    
    
    $
    254,141
    
    
    $
    57,590
    
    
    $
    (12,937
    )
    
    $
    375,136Cash Flows From Investing Activities:Capital expenditures for property, plant and equipment
    
    
    
    
    
    
    (68,406
    )
    
    
    (23,525
    )
    
    
    
    
    
    
    (91,931
    )Acquisition of businesses
    
    
    (3,394
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,394
    )Purchases of short-term investments
    
    
    
    
    
    
    (274,785
    )
    
    
    
    
    
    
    
    
    
    
    (274,785
    )Proceeds from sale of short-term investments
    
    
    
    
    
    
    274,785
    
    
    
    
    
    
    
    
    
    
    
    274,785Other, net
    
    
    
    
    
    
    4,525
    
    
    
    291
    
    
    
    
    
    
    
    4,816Net cash used in investing activities
    
    
    (3,394
    )
    
    
    (63,881
    )
    
    
    (23,234
    )
    
    
    
    
    
    
    (90,509
    )Cash Flows From Financing Activities:(Repayments) borrowings on credit facilities, net
    
    
    
    
    
    
    (34,600
    )
    
    
    3,154
    
    
    
    
    
    
    
    (31,446
    )(Repayments) borrowings on debt, net
    
    
    (8,000
    )
    
    
    722
    
    
    
    
    
    
    
    
    
    
    
    (7,278
    )Borrowings (repayments) on debt between subsidiaries, net
    
    
    16
    
    
    
    40,778
    
    
    
    (40,794
    )
    
    
    
    
    
    
    Proceeds from stock option exercises
    
    
    23,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,825Excess tax benefits on stock option exercises
    
    
    17,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,032Repurchases of common stock
    
    
    (105,821
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,821
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (12,937
    )
    
    
    12,937
    
    
    
    Other, net
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    
    
    
    
    900Net cash
(used in) provided by financing activities
    
    
    (72,948
    )
    
    
    6,900
    
    
    
    (49,677
    )
    
    
    12,937
    
    
    
    (102,788
    )Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    
    
    
    
    1,812
    
    
    
    
    
    
    
    1,812Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    
    
    
    
    197,160
    
    
    
    (13,509
    )
    
    
    
    
    
    
    183,651Cash and Cash Equivalents at Beginning of Period
    
    
    
    
    
    
    12,529
    
    
    
    44,815
    
    
    
    
    
    
    
    57,344Cash and Cash Equivalents at End of Period
    
    $
    
    
    
    $
    209,689
    
    
    $
    31,306
    
    
    $
    
    
    
    $
    240,995
 15




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##### Table of Contents



GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2006
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Income:Revenues
    
    $
    
    
    
    $
    331,733
    
    
    $
    203,199
    
    
    $
    (83,583
    )
    
    $
    451,349License and Royalty Income
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000
    
    
    
    331,733
    
    
    
    223,199
    
    
    
    (83,583
    )
    
    
    471,349Operating Expenses:Cost of sales
    
    
    
    
    
    
    197,138
    
    
    
    111,495
    
    
    
    (69,147
    )
    
    
    239,486Selling,
general and administrative and research and engineering
    
    
    58
    
    
    
    51,129
    
    
    
    20,235
    
    
    
    
    
    
    
    71,42258
    
    
    
    248,267
    
    
    
    131,730
    
    
    
    (69,147
    )
    
    
    310,908Operating Income (Expense)
    
    
    (58
    )
    
    
    83,466
    
    
    
    91,469
    
    
    
    (14,436
    )
    
    
    160,441Interest Expense
    
    
    (3,504
    )
    
    
    (171
    )
    
    
    (12
    )
    
    
    
    
    
    
    (3,687
    )Other Income (Expense), Net
    
    
    649
    
    
    
    1,773
    
    
    
    (2,301
    )
    
    
    
    
    
    
    121Equity Income in Unconsolidated Affiliate
    
    
    
    
    
    
    27,263
    
    
    
    
    
    
    
    (644
    )
    
    
    26,619Equity in Subsidiaries, Net of Taxes
    
    
    147,904
    
    
    
    6,702
    
    
    
    
    
    
    
    (154,606
    )
    
    
    Income Before Income Taxes and Minority Interest
    
    
    144,991
    
    
    
    119,033
    
    
    
    89,156
    
    
    
    (169,686
    )
    
    
    183,494Income Tax Provision
    
    
    (18,519
    )
    
    
    (15,017
    )
    
    
    (21,329
    )
    
    
    
    
    
    
    (54,865
    )Income Before Minority Interests
    
    
    126,472
    
    
    
    104,016
    
    
    
    67,827
    
    
    
    (169,686
    )
    
    
    128,629Minority Interests
    
    
    
    
    
    
    
    
    
    
    (2,157
    )
    
    
    
    
    
    
    (2,157
    )Net Income
    
    $
    126,472
    
    
    $
    104,016
    
    
    $
    65,670
    
    
    $
    (169,686
    )
    
    $
    126,472
 GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2006
(Unaudited)
 Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Income:Revenues
    
    $
    
    
    
    $
    982,323
    
    
    $
    559,116
    
    
    $
    (243,881
    )
    
    $
    1,297,558License and Royalty Income
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000
    
    
    
    982,323
    
    
    
    579,116
    
    
    
    (243,881
    )
    
    
    1,317,558Operating Expenses:Cost of sales
    
    
    
    
    
    
    601,945
    
    
    
    293,595
    
    
    
    (200,160
    )
    
    
    695,380Selling,
general and administrative and research and engineering
    
    
    166
    
    
    
    156,937
    
    
    
    60,191
    
    
    
    
    
    
    
    217,294166
    
    
    
    758,882
    
    
    
    353,786
    
    
    
    (200,160
    )
    
    
    912,674Operating Income (Loss)
    
    
    (166
    )
    
    
    223,441
    
    
    
    225,330
    
    
    
    (43,721
    )
    
    
    404,884Interest Expense
    
    
    (10,569
    )
    
    
    (420
    )
    
    
    (116
    )
    
    
    
    
    
    
    (11,105
    )Other Income (Expense), Net
    
    
    1,702
    
    
    
    1,697
    
    
    
    (5,125
    )
    
    
    
    
    
    
    (1,726
    )Equity Income in Unconsolidated Affiliate
    
    
    
    
    
    
    91,924
    
    
    
    
    
    
    
    (644
    )
    
    
    91,280Equity in Subsidiaries, Net of Taxes
    
    
    368,470
    
    
    
    20,041
    
    
    
    
    
    
    
    (388,511
    )
    
    
    Income Before Income Taxes and Minority Interest
    
    
    359,437
    
    
    
    336,683
    
    
    
    220,089
    
    
    
    (432,876
    )
    
    
    483,333Income Tax Provision
    
    
    (34,948
    )
    
    
    (66,200
    )
    
    
    (49,774
    )
    
    
    
    
    
    
    (150,922
    )Income Before Minority Interests
    
    
    324,489
    
    
    
    270,483
    
    
    
    170,315
    
    
    
    (432,876
    )
    
    
    332,411Minority Interests
    
    
    
    
    
    
    
    
    
    
    (7,922
    )
    
    
    
    
    
    
    (7,922
    )Net Income
    
    $
    324,489
    
    
    $
    270,483
    
    
    $
    162,393
    
    
    $
    (432,876
    )
    
    $
    324,489
 16




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##### Table of Contents



GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2006
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)ASSETSCurrent Assets:Cash
    
    $
    
    
    
    $
    12,529
    
    
    $
    44,815
    
    
    $
    
    
    
    $
    57,344Accounts
receivable, Net
    
    
    
    
    
    
    240,407
    
    
    
    128,288
    
    
    
    
    
    
    
    368,695Inventories
    
    
    
    
    
    
    334,242
    
    
    
    178,667
    
    
    
    (57,962
    )
    
    
    454,947Current deferred tax assets
    
    
    131
    
    
    
    28,082
    
    
    
    19,888
    
    
    
    
    
    
    
    48,101Other current assets
    
    
    
    
    
    
    10,162
    
    
    
    8,197
    
    
    
    
    
    
    
    18,359131
    
    
    
    625,422
    
    
    
    379,855
    
    
    
    (57,962
    )
    
    
    947,446Property, Plant and Equipment, Net
    
    
    
    
    
    
    170,965
    
    
    
    134,559
    
    
    
    
    
    
    
    305,524Goodwill
    
    
    
    
    
    
    249,976
    
    
    
    271,016
    
    
    
    
    
    
    
    520,992Investment In and Advances to Subsidiaries
    
    
    1,569,776
    
    
    
    79,185
    
    
    
    
    
    
    
    (1,648,961
    )
    
    
    Investment In Unconsolidated Affiliate
    
    
    
    
    
    
    135,428
    
    
    
    
    
    
    
    
    
    
    
    135,428Other Assets
    
    
    6,830
    
    
    
    61,376
    
    
    
    44,471
    
    
    
    
    
    
    
    112,677$
    1,576,737
    
    
    $
    1,322,352
    
    
    $
    829,901
    
    
    $
    (1,706,923
    )
    
    $
    2,022,067LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of
long-term debt
    
    $
    7,924
    
    
    $
    716
    
    
    $
    
    
    
    $
    
    
    
    $
    8,640Accounts payable
    
    
    
    
    
    
    94,649
    
    
    
    44,293
    
    
    
    
    
    
    
    138,942Deferred revenues
    
    
    
    
    
    
    14,259
    
    
    
    3,931
    
    
    
    
    
    
    
    18,190Income taxes payable
    
    
    (48,719
    )
    
    
    59,800
    
    
    
    21,958
    
    
    
    
    
    
    
    33,039Intercompany liabilities (assets)
    
    
    61,345
    
    
    
    (302,256
    )
    
    
    240,911
    
    
    
    
    
    
    
    Other current liabilities
    
    
    4,815
    
    
    
    70,031
    
    
    
    33,682
    
    
    
    
    
    
    
    108,52825,365
    
    
    
    (62,801
    )
    
    
    344,775
    
    
    
    
    
    
    
    307,339Long-Term Debt
    
    
    200,000
    
    
    
    37,212
    
    
    
    
    
    
    
    
    
    
    
    237,212Deferred Tax Liabilities
    
    
    (11,511
    )
    
    
    40,916
    
    
    
    38,905
    
    
    
    
    
    
    
    68,310Other Long-Term Liabilities
    
    
    
    
    
    
    28,151
    
    
    
    650
    
    
    
    
    
    
    
    28,801Commitments and ContingenciesMinority Interests
    
    
    
    
    
    
    
    
    
    
    17,522
    
    
    
    
    
    
    
    17,522Stockholders Equity
    
    
    1,362,883
    
    
    
    1,278,874
    
    
    
    428,049
    
    
    
    (1,706,923
    )
    
    
    1,362,883$
    1,576,737
    
    
    $
    1,322,352
    
    
    $
    829,901
    
    
    $
    (1,706,923
    )
    
    $
    2,022,067
 17




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##### Table of Contents



GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2006
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Cash Flows From Operating Activities:Net cash provided by operating activities
    
    $
    104,259
    
    
    $
    98,700
    
    
    $
    85,271
    
    
    $
    (23,202
    )
    
    $
    265,028Cash Flows From Investing Activities:Capital expenditures for property, plant and equipment
    
    
    
    
    
    
    (48,916
    )
    
    
    (15,556
    )
    
    
    
    
    
    
    (64,472
    )Purchases of short-term investments
    
    
    
    
    
    
    (153,400
    )
    
    
    
    
    
    
    
    
    
    
    (153,400
    )Proceeds from sale of short-term investments
    
    
    
    
    
    
    147,400
    
    
    
    
    
    
    
    
    
    
    
    147,400Other, net
    
    
    (39
    )
    
    
    1,187
    
    
    
    (57
    )
    
    
    
    
    
    
    1,091Net cash used in investing activities
    
    
    (39
    )
    
    
    (53,729
    )
    
    
    (15,613
    )
    
    
    
    
    
    
    (69,381
    )Cash Flows From Financing Activities:Repayments on revolver debt, net
    
    
    
    
    
    
    
    
    
    
    (11,200
    )
    
    
    
    
    
    
    (11,200
    )Repayments on debt, net
    
    
    
    
    
    
    (6,756
    )
    
    
    
    
    
    
    
    
    
    
    (6,756
    )Borrowings (repayments) on debt between subs, net
    
    
    3,542
    
    
    
    (3,023
    )
    
    
    (519
    )
    
    
    
    
    
    
    Proceeds from stock option exercises
    
    
    19,823
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,823Excess tax benefits on stock option exercises
    
    
    12,172
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,172Repurchase of common stock
    
    
    (139,757
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139,757
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (23,202
    )
    
    
    23,202
    
    
    
    Net cash used in financing activities
    
    
    (104,220
    )
    
    
    (9,779
    )
    
    
    (34,921
    )
    
    
    23,202
    
    
    
    (125,718
    )Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    
    
    
    
    (132
    )
    
    
    
    
    
    
    (132
    )Net Increase in Cash
    
    
    
    
    
    
    35,192
    
    
    
    34,605
    
    
    
    
    
    
    
    69,797Cash at Beginning of Period
    
    
    
    
    
    
    13,088
    
    
    
    15,076
    
    
    
    
    
    
    
    28,164Cash at End of Period
    
    $
    
    
    
    $
    48,280
    
    
    $
    49,681
    
    
    $
    
    
    
    $
    97,961
 18




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   General
 ®
 Sale of Selected Tubular Businesses
  License and Royalty Agreement
  Critical Accounting Policies and Estimates
  Market Trends
  19




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##### Table of Contents



Three Months Ended September 30,2007
    
    2006WTI Oil(a)Average
    
    $
    75.24
    
    
    $
    70.48Ending
    
    
    81.66
    
    
    
    62.91Henry Hub Gas(b)Average
    
    $
    6.18
    
    
    $
    6.12Ending
    
    
    6.14
    
    
    
    3.63North American Rig Count(c)Average
    
    
    2,136
    
    
    
    2,213Ending
    
    
    2,134
    
    
    
    2,185International Rig Count(c)Average
    
    
    1,020
    
    
    
    941Ending
    
    
    1,032
    
    
    
    949
 
 (a)
    
    Price per barrel of West Texas Intermediate (WTI) crude. Source: Bloomberg Energy/Commodity
Service.(b)
    
    Price per MMBtu. Source: Bloomberg Energy/Commodity Service.(c)
    
    Source: Baker Hughes Rig Count (International Rig Count excludes China and the former Soviet
Union). Future Market Trends and Expectations
      20




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##### Table of Contents



Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,%
    
    
    
    
    
    
    
    
    
    
    %2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(In thousands)Revenues:Drilling Products and Services
    
    $
    305,892
    
    
    $
    214,375
    
    
    
    43
    %
    
    $
    864,605
    
    
    $
    622,220
    
    
    
    39
    %ReedHycalog
    
    
    149,115
    
    
    
    128,001
    
    
    
    16
    %
    
    
    449,364
    
    
    
    361,031
    
    
    
    24
    %Tubular Technology and Services
    
    
    84,140
    
    
    
    108,170
    
    
    
    (22
    %)
    
    
    238,514
    
    
    
    313,229
    
    
    
    (24
    %)Corporate and Other
    
    
    718
    
    
    
    803
    
    
    
    (11
    %)
    
    
    6,023
    
    
    
    1,078
    
    
    
    459
    %Total Revenues
    
    $
    539,865
    
    
    $
    451,349
    
    
    
    20
    %
    
    $
    1,558,506
    
    
    $
    1,297,558
    
    
    
    20
    %Operating Income (Loss):Drilling Products and Services
    
    $
    117,894
    
    
    $
    78,910
    
    
    
    49
    %
    
    $
    346,976
    
    
    $
    222,671
    
    
    
    56
    %ReedHycalog
    
    
    35,185
    
    
    
    66,386
    
    
    
    (47
    %)
    
    
    127,809
    
    
    
    142,758
    
    
    
    (10
    %)Tubular Technology and Services
    
    
    21,111
    
    
    
    28,523
    
    
    
    (26
    %)
    
    
    55,157
    
    
    
    89,003
    
    
    
    (38
    %)Corporate and Other
    
    
    (15,926
    )
    
    
    (13,378
    )
    
    
    19
    %
    
    
    (49,767
    )
    
    
    (49,548
    )
    
    
    0
    %Total Operating Income
    
    $
    158,264
    
    
    $
    160,441
    
    
    
    (1
    %)
    
    $
    480,175
    
    
    $
    404,884
    
    
    
    19
    %
 Consolidated Revenues and Operating Income
 Results for the three- and nine-month periods ended September 30, 2007 and 2006
    21




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##### Table of Contents



Segment Revenues and Operating Income
 Drilling Products and Services
 Results for the three- and nine-month periods ended September 30, 2007 and 2006
  ReedHycalog
 Results for the three- and nine-month periods ended September 30, 2007 and 2006
  Tubular Technology and Services
 Results for the three- and nine-month periods ended September 30, 2007 and 2006
  Corporate and Other
 Results for the three- and nine-month periods ended September 30, 2007 and 2006
  22




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##### Table of Contents



Other Items
     Liquidity and Capital Resources
 Overview
  Historical Cash Flows
  Nine Months EndedSeptember 30,2007
    

2006(In thousands)Net Cash Provided by Operating Activities
    
    $
    375,136
    
    
    $
    265,028Net Cash Used in Investing Activities
    
    
    (90,509
    )
    
    
    (69,381
    )Net Cash Used in Financing Activities
    
    
    (102,788
    )
    
    
    (125,718
    )
 Operating Activities
  Investing Activities
  Capital Expenditures
  23




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##### Table of Contents



Financing Activities
  Singapore Credit Facility
    Long-Term Debt
   Recent Accounting Pronouncements
   24




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##### Table of Contents



Forward-Looking Statements and Exposures
  Risk Factors and Exposures
  Off-Balance Sheet Financing
  
 ITEM
3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Risk
     25




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##### Table of Contents



Interest Rates
  
 
 ITEM 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  26




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##### Table of Contents



PART II
 
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Number of
    
    
    
    
    
    
    Total Number of SharesShares
    
    
    Average Price
    
    
    Purchased as Part of aPeriod
    
    Purchased (a)
    
    
    Per Share
    
    
    Publicly Announced Plan (b)July 1 - 31, 2007
    
    
    136,269
    
    
    $
    54.91
    
    
    
    133,300August 1 - 31, 2007
    
    
    629,079
    
    
    
    52.98
    
    
    
    625,000September 1 - 30, 2007
    
    
    2,755
    
    
    
    54.90
    
    
    
    0Total
    
    
    768,103
    
    
    $
    53.33
    
    
    
    758,300
 
 (a)
    
    Of the 768,103 shares purchased during the three-month period ended September 30, 2007, 9,803
shares were purchased by the trustee for our executive deferred compensation plan for the benefit
of the plan participants using funds directed by the plan participants and funds matched by us as
provided in the plan. These share purchases were not part of a publicly announced program to
purchase common shares.(b)
    
    In October 2006, our Board of Directors approved a revised stock repurchase program that
authorizes the repurchase of up to $350 million of our common stock with no established expiration
date. For the three-month period ended September 30, 2007, we repurchased 0.8 million shares at a
total cost of $40.4 million. Such shares are reflected in the accompanying Condensed Consolidated
Balance Sheets as Treasury Stock. At September 30, 2007, there was $85.6 million remaining under
this program for future repurchases. 27




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##### Table of Contents



ITEM 6. Exhibits
 Exhibit Number
    
    Description10.1
    
    Supply Agreement, dated as of
September 13, 2007, by and between voestalpine Tubulars GmbH
& Co KG and Grant Prideco, Inc.10.2
    
    Purchase and Sale Agreement, dated
as of October 29, 2007, by and among Vallourec S.A. and Vallourec
& Mannesmann Holdings, Inc. and Grant Prideco, Inc. (incorporated by reference
to Exhibit 10.1 to Grant Prideco, Inc.s Current Report on Form 8-K
filed October 31, 2007, File No. 1-15423).31.1
    
    Certification of Michael McShane31.2
    
    Certification of Matthew D. Fitzgerald32.1
    
    Section 1350 Certification
 28




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##### Table of Contents



SIGNATURES
  GRANT PRIDECO, INC.By:
    /s/ MATTHEW D. FITZGERALDMatthew D. FitzgeraldSr. Vice President, Chief Financial Officer and TreasurerBy:
    /s/ GREG L. BOANEGreg L. BoaneDate: November 9, 2007
    
    Vice President and Controller 29




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##### Table of Contents



Exhibit Number
    
    Description10.1
    
    Supply Agreement, dated as of
September 13, 2007, by and between voestalpine Tubulars GmbH
& Co KG and Grant Prideco, Inc.10.2
    
    Purchase and Sale Agreement, dated
as of October 29, 2007, by and among Vallourec S.A. and Vallourec
& Mannesmann Holdings, Inc. and Grant Prideco, Inc. (incorporated by reference
to Exhibit 10.1 to Grant Prideco, Inc.s Current Report on Form 8-K
filed October 31, 2007, File No. 1-15423).31.1
    
    Certification of Michael McShane31.2
    
    Certification of Matthew D. Fitzgerald32.1
    
    Section 1350 Certification
 30