##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15( ) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2005
 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
 o þ
 þ o
  Title of Each Class
    
    Outstanding at November 1, 2005Common Stock, par value $0.01 per share
    
    128,573,025




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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 Market Risk DisclosuresITEM 4. Controls and ProceduresPART IIITEM 2. Unregistered Sales of Equity in Securities and Use of ProceedsITEM 6. ExhibitsSignatureExhibit IndexCertification of Michael McShaneCertfication 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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share data)Revenues
    
    $
    352,228
    
    
    $
    246,366
    
    
    $
    961,271
    
    
    $
    662,513Operating Expenses:Cost of sales
    
    
    201,438
    
    
    
    148,793
    
    
    
    549,631
    
    
    
    398,914Sales and marketing
    
    
    34,824
    
    
    
    33,432
    
    
    
    101,182
    
    
    
    93,290General and administrative
    
    
    25,150
    
    
    
    20,898
    
    
    
    74,226
    
    
    
    60,335Research and engineering
    
    
    5,965
    
    
    
    4,982
    
    
    
    17,917
    
    
    
    15,303Other charges
    
    
    
    
    
    
    3,803
    
    
    
    
    
    
    
    9,035267,377
    
    
    
    211,908
    
    
    
    742,956
    
    
    
    576,877Operating Income
    
    
    84,851
    
    
    
    34,458
    
    
    
    218,315
    
    
    
    85,636Interest Expense
    
    
    (5,138
    )
    
    
    (10,352
    )
    
    
    (24,378
    )
    
    
    (31,342
    )Other Income, Net
    
    
    2,920
    
    
    
    1,613
    
    
    
    7,513
    
    
    
    3,971Equity Income in Unconsolidated Affiliates
    
    
    15,927
    
    
    
    1,447
    
    
    
    33,849
    
    
    
    1,910Refinancing Charges
    
    
    (21,654
    )
    
    
    
    
    
    
    (57,086
    )
    
    
    Income From Continuing Operations Before Income Taxes
and Minority Interests
    
    
    76,906
    
    
    
    27,166
    
    
    
    178,213
    
    
    
    60,175Income Tax Provision
    
    
    (25,453
    )
    
    
    (8,606
    )
    
    
    (59,646
    )
    
    
    (20,225
    )Income from Continuing Operations Before Minority
Interests
    
    
    51,453
    
    
    
    18,560
    
    
    
    118,567
    
    
    
    39,950Minority Interests
    
    
    (3,339
    )
    
    
    (1,326
    )
    
    
    (7,959
    )
    
    
    (4,107
    )Income from Continuing Operations
    
    
    48,114
    
    
    
    17,234
    
    
    
    110,608
    
    
    
    35,843Income (Loss) from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    (9,222
    )Net Income
    
    $
    48,114
    
    
    $
    17,255
    
    
    $
    110,608
    
    
    $
    26,621Basic Net Income Per Share:Income from continuing operations
    
    $
    0.37
    
    
    $
    0.14
    
    
    $
    0.87
    
    
    $
    0.29Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.07
    )Net income
    
    $
    0.37
    
    
    $
    0.14
    
    
    $
    0.87
    
    
    $
    0.22Basic weighted average shares outstanding
    
    
    128,373
    
    
    
    123,805
    
    
    
    126,511
    
    
    
    122,874Diluted Net Income Per Share:Income from continuing operations
    
    $
    0.37
    
    
    $
    0.14
    
    
    $
    0.85
    
    
    $
    0.29Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.08
    )Net income
    
    $
    0.37
    
    
    $
    0.14
    
    
    $
    0.85
    
    
    $
    0.21Diluted weighted average shares outstanding
    
    
    131,657
    
    
    
    126,603
    
    
    
    129,658
    
    
    
    125,525
  2




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GRANT PRIDECO, INC.
 Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent Assets:Cash
    
    $
    24,100
    
    
    $
    47,552Restricted cash
    
    
    1,073
    
    
    
    231Accounts receivable, net of allowance for uncollectible
accounts of $9,232 and $8,024 for 2005 and 2004,
respectively
    
    
    228,420
    
    
    
    202,084Inventories
    
    
    366,897
    
    
    
    288,820Deferred charges
    
    
    12,820
    
    
    
    17,204Current deferred tax assets
    
    
    37,893
    
    
    
    26,473Prepaid expenses
    
    
    14,392
    
    
    
    12,033Other current assets
    
    
    1,254
    
    
    
    2,370686,849
    
    
    
    596,767Property, Plant and Equipment, Net
    
    
    241,349
    
    
    
    244,305Goodwill
    
    
    412,845
    
    
    
    393,993Intangible Assets, Net
    
    
    66,780
    
    
    
    43,807Investments In and Advances to Unconsolidated Affiliates
    
    
    60,706
    
    
    
    49,159Other Assets
    
    
    11,338
    
    
    
    16,435$
    1,479,867
    
    
    $
    1,344,466LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of long-term
debt
    
    $
    7,957
    
    
    $
    4,181Accounts payable
    
    
    88,187
    
    
    
    71,741Accrued labor and benefits
    
    
    51,656
    
    
    
    53,060Deferred revenues
    
    
    17,269
    
    
    
    21,413Federal income taxes payable
    
    
    27,255
    
    
    
    8,144Current deferred tax liabilities
    
    
    3,406
    
    
    
    3,108Other accrued liabilities
    
    
    33,698
    
    
    
    33,854229,428
    
    
    
    195,501Long-Term Debt
    
    
    276,598
    
    
    
    377,773Deferred Tax Liabilities
    
    
    51,349
    
    
    
    36,433Other Long-Term Liabilities
    
    
    15,732
    
    
    
    13,224Commitments and Contingencies
    
    
    
    
    
    
    Minority Interests
    
    
    18,808
    
    
    
    15,994Stockholders Equity:Preferred stock, $0.01 par value
    
    
    
    
    
    
    Common stock, $0.01 par value; issued 129,217 and
124,516 in 2005 and 2004, respectively
    
    
    1,292
    
    
    
    1,245Capital in excess of par value
    
    
    612,959
    
    
    
    528,188Unearned compensation
    
    
    (7,182
    )
    
    
    (5,801
    )Retained earnings
    
    
    302,897
    
    
    
    192,289Accumulated other comprehensive loss
    
    
    (17,659
    )
    
    
    (12,291
    )Treasury stock, at cost
    
    
    (15,764
    )
    
    
    (8,483
    )Deferred compensation obligation
    
    
    11,409
    
    
    
    10,394887,952
    
    
    
    705,541$
    1,479,867
    
    
    $
    1,344,466
  3




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GRANT PRIDECO, INC.
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004(Restated)(In thousands)Cash Flows From Operating Activities:Net income
    
    $
    110,608
    
    
    $
    26,621Adjustments to reconcile net income to net cash provided by operating activities:Loss on discontinued operations
    
    
    
    
    
    
    11,446Gain on sale of businesses, net
    
    
    (1,577
    )
    
    
    (774
    )Depreciation and amortization
    
    
    33,956
    
    
    
    31,778Non-cash portion of other charges
    
    
    
    
    
    
    6,010Refinancing charges
    
    
    51,834
    
    
    
    Deferred income tax
    
    
    (18,605
    )
    
    
    6,085Equity income in unconsolidated affiliates, net of dividends
    
    
    (21,808
    )
    
    
    2,854Stock-based compensation expense
    
    
    8,242
    
    
    
    3,180Deferred compensation expense
    
    
    1,919
    
    
    
    1,339Minority interests in consolidated subsidiaries, net of dividends
    
    
    1,824
    
    
    
    1,026Loss (gain) on sale of assets, net
    
    
    1,064
    
    
    
    (4,799
    )Change in operating assets and liabilities, net of effects of businesses acquired:Accounts receivable
    
    
    (28,189
    )
    
    
    1,832Inventories
    
    
    (77,985
    )
    
    
    (41,761
    )Deferred charges
    
    
    4,384
    
    
    
    (25,215
    )Accounts payable
    
    
    14,825
    
    
    
    4,421Deferred revenues
    
    
    (4,144
    )
    
    
    32,521Federal income tax payable
    
    
    51,863
    
    
    
    (1,874
    )Other accrued liabilities
    
    
    (9,351
    )
    
    
    17,124Other, net
    
    
    6,829
    
    
    
    5,222Net cash provided by operating activities
    
    
    125,689
    
    
    
    77,036Cash Flows From Investing Activities:Acquisition of businesses, net of cash acquired
    
    
    (28,725
    )
    
    
    (33,833
    )Proceeds from sale of businesses, net of cash disposed
    
    
    2,521
    
    
    
    2,180Proceeds from sale of discontinued operations, net of cash disposed
    
    
    
    
    
    
    20,159Capital expenditures for property, plant and equipment
    
    
    (20,324
    )
    
    
    (29,529
    )Other, net
    
    
    (3,587
    )
    
    
    4,692Net cash used in investing activities
    
    
    (50,115
    )
    
    
    (36,331
    )Cash Flows From Financing Activities:Borrowings (repayments) on credit facility, net
    
    
    70,000
    
    
    
    (14,320
    )Repayments on debt, net
    
    
    (177,991
    )
    
    
    (27,976
    )Debt
refinancing costs
    
    
    (43,778
    )
    
    
    Debt issuance costs
    
    
    (6,041
    )
    
    
    Proceeds from stock option exercises
    
    
    59,276
    
    
    
    18,397Other, net
    
    
    (975
    )
    
    
    (1,072
    )Net cash used in financing activities
    
    
    (99,509
    )
    
    
    (24,971
    )Effect of Exchange Rate Changes on Cash
    
    
    483
    
    
    
    2Net (Decrease) Increase in Cash
    
    
    (23,452
    )
    
    
    15,736Cash at Beginning of Period
    
    
    47,552
    
    
    
    19,230Cash at End of Period
    
    $
    24,100
    
    
    $
    34,966
  4




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GRANT PRIDECO, INC.
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. General
 Basis of Presentation
     Use of Estimates
  5




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2. Stock-Based Compensation
 Pro Forma Stock Option Compensation Expense
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share data)Net Income As Reported
    
    $
    48,114
    
    
    $
    17,255
    
    
    $
    110,608
    
    
    $
    26,621Add: stock-based employee compensation expense
included in reported net income, net of related tax
effects
    
    
    1,906
    
    
    
    593
    
    
    
    5,474
    
    
    
    3,633Deduct: stock-based employee compensation expense
determined under the fair value method for all awards,
net of related tax effects
    
    
    (2,993
    )
    
    
    (1,835
    )
    
    
    (8,649
    )
    
    
    (7,243
    )Pro Forma Net Income
    
    $
    47,027
    
    
    $
    16,013
    
    
    $
    107,433
    
    
    $
    23,011Net Income Per Share:Basic as reported
    
    $
    0.37
    
    
    $
    0.14
    
    
    $
    0.87
    
    
    $
    0.22Basic pro forma
    
    
    0.37
    
    
    
    0.13
    
    
    
    0.85
    
    
    
    0.19Diluted as reported
    
    
    0.37
    
    
    
    0.14
    
    
    
    0.85
    
    
    
    0.21Diluted pro forma
    
    
    0.36
    
    
    
    0.13
    
    
    
    0.83
    
    
    
    0.18
  Restricted Stock
  6




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3. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Net Income
    
    $
    48,114
    
    
    $
    17,255
    
    
    $
    110,608
    
    
    $
    26,621Foreign Currency Translation Adjustments
    
    
    (892
    )
    
    
    3,268
    
    
    
    (5,368
    )
    
    
    499Total Comprehensive Income
    
    $
    47,222
    
    
    $
    20,523
    
    
    $
    105,240
    
    
    $
    27,120
 4. Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)Raw Materials, Components and Supplies
    
    $
    161,011
    
    
    $
    104,543Work in Process
    
    
    95,088
    
    
    
    59,308Finished Goods
    
    
    110,798
    
    
    
    124,969$
    366,897
    
    
    $
    288,820
 5. Property, Plant and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)Land
    
    $
    21,536
    
    
    $
    21,521Buildings and Improvements
    
    
    85,191
    
    
    
    78,557Machinery and Equipment
    
    
    281,276
    
    
    
    269,517Furniture and Fixtures
    
    
    33,631
    
    
    
    29,058Construction in Progress
    
    
    14,583
    
    
    
    19,655436,217
    
    
    
    418,308Less: Accumulated Depreciation
    
    
    (194,868
    )
    
    
    (174,003
    )$
    241,349
    
    
    $
    244,305
 6. Other Charges
 7




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7. Debt Restructuring
 Issuance of 6 1/8% Senior Notes Due 2015
  Year
    
    Percentage2010
    
    
    103.063
    %2011
    
    
    102.042
    %2012
    
    
    101.021
    %2013 and thereafter
    
    
    100.000
    %
  Repurchase of 9% Senior Notes Due 2009
  New Credit Facility
    8




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Redemption of 9 5/8% Senior Notes Due 2007
  Treasury Rate Locks
  Summary
of Long-Term Debt
  9




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September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)New Credit Facility
    
    $
    70,000
    
    
    $
    9 5/8% Senior Notes Due 2007
    
    
    
    
    
    
    199,4829% Senior Notes Due 2009
    
    
    95
    
    
    
    175,0006 1/8% Senior Notes Due 2015
    
    
    200,000
    
    
    
    Capital Lease Obligations
    
    
    2,558
    
    
    
    Other
    
    
    11,902
    
    
    
    7,472$
    284,555
    
    
    $
    381,954Less: Current Portion of Long-Term Debt
    
    
    7,957
    
    
    
    4,181$
    276,598
    
    
    $
    377,773
 8. Net Income Per Share
  9. Goodwill and Other Intangible Assets
  Drilling
    
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    
    Technology andServices
    
    
    Drill Bits
    
    
    Services
    
    
    Other
    
    
    Total(In thousands)Balance, December 31, 2004
    
    $
    130,127
    
    
    $
    166,733
    
    
    $
    97,133
    
    
    $
    
    
    
    $
    393,993Acquisitions
    
    
    
    
    
    
    6,219
    
    
    
    
    
    
    
    9,899
    
    
    
    16,118Translation and Other Adjustments
    
    
    425
    
    
    
    2,309
    
    
    
    
    
    
    
    
    
    
    
    2,734Balance, September 30, 2005
    
    $
    130,552
    
    
    $
    175,261
    
    
    $
    97,133
    
    
    $
    9,899
    
    
    $
    412,845
   10




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September 30, 2005
    
    
    December 31, 2004Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    NetIntangibles
    
    
    Amortization
    
    
    Intangibles
    
    
    Intangibles
    
    
    Amortization
    
    
    Intangibles(In thousands)Patents
    
    $
    66,576
    
    
    $
    (6,993
    )
    
    $
    59,583
    
    
    $
    43,380
    
    
    $
    (5,908
    )
    
    $
    37,472Technology Licenses
    
    
    1,438
    
    
    
    (556
    )
    
    
    882
    
    
    
    1,438
    
    
    
    (498
    )
    
    
    940Customer Relationships
    
    
    6,100
    
    
    
    (515
    )
    
    
    5,585
    
    
    
    4,600
    
    
    
    (335
    )
    
    
    4,265Trademarks
    
    
    1,610
    
    
    
    (993
    )
    
    
    617
    
    
    
    1,610
    
    
    
    (815
    )
    
    
    795Covenants Not To Compete
    
    
    3,125
    
    
    
    (3,012
    )
    
    
    113
    
    
    
    3,125
    
    
    
    (2,790
    )
    
    
    335$
    78,849
    
    
    $
    (12,069
    )
    
    $
    66,780
    
    
    $
    54,153
    
    
    $
    (10,346
    )
    
    $
    43,807
  10. Restricted Cash
  11. Segment Information
 Business Segments
  11




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Drilling
    
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    
    Technology andServices
    
    
    Drill Bits
    
    
    Services
    
    
    Other
    
    
    Corporate
    
    
    Total(In thousands)Three Months Ended:September 30, 2005Revenues from Unaffiliated Customers
    
    $
    153,173
    
    
    $
    100,132
    
    
    $
    98,923
    
    
    $
    
    
    
    $
    
    
    
    $
    352,228Operating Income (Loss)
    
    
    47,008
    
    
    
    25,735
    
    
    
    25,753
    
    
    
    (1,464
    )
    
    
    (12,181
    )
    
    
    84,851Income (Loss) from Continuing
Operations Before Income Taxes and
Minority Interests
    
    
    65,344
    
    
    
    26,596
    
    
    
    25,803
    
    
    
    (3,469
    )
    
    
    (37,368
    )
    
    
    76,906September 30, 2004Revenues from Unaffiliated Customers
    
    $
    103,301
    
    
    $
    79,492
    
    
    $
    63,458
    
    
    $
    115
    
    
    $
    
    
    
    $
    246,366Operating Income (Loss)
    
    
    23,205
    
    
    
    15,731
    
    
    
    8,229
    
    
    
    (287
    )
    
    
    (12,420
    )
    
    
    34,458Income (Loss) from Continuing
Operations Before Income Taxes and
Minority Interests
    
    
    27,531
    
    
    
    13,936
    
    
    
    8,118
    
    
    
    (1,541
    )
    
    
    (20,878
    )
    
    
    27,166
 Drilling
    
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    
    Technology andServices
    
    
    Drill Bits
    
    
    Services
    
    
    Other
    
    
    Corporate
    
    
    Total(In thousands)Nine Months Ended:September 30, 2005Revenues from Unaffiliated Customers
    
    $
    425,879
    
    
    $
    283,847
    
    
    $
    251,545
    
    
    $
    
    
    
    $
    
    
    
    $
    961,271Operating Income (Loss)
    
    
    126,559
    
    
    
    67,925
    
    
    
    60,239
    
    
    
    (1,904
    )
    
    
    (34,504
    )
    
    
    218,315Income (Loss) from Continuing
Operations Before Income Taxes and
Minority Interests
    
    
    168,246
    
    
    
    66,236
    
    
    
    59,408
    
    
    
    (7,649
    )
    
    
    (108,028
    )
    
    
    178,213September 30, 2004Revenues from Unaffiliated Customers
    
    $
    263,388
    
    
    $
    235,335
    
    
    $
    161,915
    
    
    $
    1,875
    
    
    $
    
    
    
    $
    662,513Operating Income (Loss)
    
    
    51,111
    
    
    
    51,702
    
    
    
    11,212
    
    
    
    (1,994
    )
    
    
    (26,395
    )
    
    
    85,636Income (Loss) from Continuing
Operations Before Income Taxes and
Minority Interests
    
    
    59,162
    
    
    
    45,691
    
    
    
    11,806
    
    
    
    (5,054
    )
    
    
    (51,430
    )
    
    
    60,175
 12




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##### Table of Contents



12. Acquisitions
     13. Dispositions
     13




---



##### Table of Contents



14. Discontinued Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2004(In thousands)Revenues
    
    $
    
    
    
    $
    12,833Income Before Income Taxes
    
    
    32
    
    
    
    1,378Income Tax Provision
    
    
    (11
    )
    
    
    (482
    )Income from Operations, Net of Tax
    
    
    21
    
    
    
    896Loss on Disposal, Net of Tax
    
    
    
    
    
    
    (10,118
    )$
    21
    
    
    $
    (9,222
    )
  15. Pension Plans
 U.S. Pension Plan
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Service Cost
    
    $
    94
    
    
    $
    96
    
    
    $
    290
    
    
    $
    264Interest Cost
    
    
    192
    
    
    
    178
    
    
    
    572
    
    
    
    526Expected Return on Plan Assets
    
    
    (153
    )
    
    
    (141
    )
    
    
    (463
    )
    
    
    (388
    )Administration Expenses
    
    
    44
    
    
    
    13
    
    
    
    132
    
    
    
    36Net Periodic Benefit Cost
    
    $
    177
    
    
    $
    146
    
    
    $
    531
    
    
    $
    438
  Non-U.S. Pension Plan
  14




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Interest Cost
    
    $
    250
    
    
    $
    210
    
    
    $
    744
    
    
    $
    630Expected Return on Plan Assets
    
    
    (250
    )
    
    
    (225
    )
    
    
    (763
    )
    
    
    (676
    )Amortization of Gain
    
    
    
    
    
    
    23
    
    
    
    19
    
    
    
    70Administration Expenses
    
    
    47
    
    
    
    95
    
    
    
    183
    
    
    
    298Net Periodic Benefit Cost
    
    $
    47
    
    
    $
    103
    
    
    $
    183
    
    
    $
    322
  16. Investments in Unconsolidated Affiliates
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Net Sales
    
    $
    149,864
    
    
    $
    83,331
    
    
    $
    387,451
    
    
    $
    221,365Gross Profit
    
    
    38,743
    
    
    
    7,048
    
    
    
    90,436
    
    
    
    18,060Net Income
    
    
    35,722
    
    
    
    4,412
    
    
    
    78,487
    
    
    
    9,141Companys Equity Income
    
    
    17,906
    
    
    
    2,614
    
    
    
    39,568
    
    
    
    4,957Dividends Received
    
    
    
    
    
    
    
    
    
    
    12,041
    
    
    
    4,764
   17. Recent Accounting Pronouncements
  15




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##### Table of Contents



18. Subsidiary Guarantor Financial Information
  16




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2005
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    276,013
    
    
    $
    194,683
    
    
    $
    (118,468
    )
    
    $
    352,228Operating Expenses:Cost of sales
    
    
    
    
    
    
    184,196
    
    
    
    119,724
    
    
    
    (102,482
    )
    
    
    201,438Selling, general and administrative
    
    
    
    
    
    
    46,144
    
    
    
    19,795
    
    
    
    
    
    
    
    65,939Other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,340
    
    
    
    139,519
    
    
    
    (102,482
    )
    
    
    267,377Operating Income
    
    
    
    
    
    
    45,673
    
    
    
    55,164
    
    
    
    (15,986
    )
    
    
    84,851Interest Expense
    
    
    (5,051
    )
    
    
    (23
    )
    
    
    (64
    )
    
    
    
    
    
    
    (5,138
    )Other Income, Net
    
    
    
    
    
    
    627
    
    
    
    2,293
    
    
    
    
    
    
    
    2,920Equity Income in Unconsolidated Affiliates
    
    
    
    
    
    
    15,927
    
    
    
    
    
    
    
    
    
    
    
    15,927Refinance Charges
    
    
    (21,654
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,654
    )Equity in Subsidiaries, Net of Taxes
    
    
    66,009
    
    
    
    
    
    
    
    
    
    
    
    (66,009
    )
    
    
    Income Before Income Taxes and Minority Interest
    
    
    39,304
    
    
    
    62,204
    
    
    
    57,393
    
    
    
    (81,995
    )
    
    
    76,906Income Tax (Provision) Benefit
    
    
    8,810
    
    
    
    (23,677
    )
    
    
    (10,586
    )
    
    
    
    
    
    
    (25,453
    )Income Before Minority Interests
    
    
    48,114
    
    
    
    38,527
    
    
    
    46,807
    
    
    
    (81,995
    )
    
    
    51,453Minority Interests
    
    
    
    
    
    
    
    
    
    
    (3,339
    )
    
    
    
    
    
    
    (3,339
    )Net Income
    
    $
    48,114
    
    
    $
    38,527
    
    
    $
    43,468
    
    
    $
    (81,995
    )
    
    $
    48,114
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2005
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    755,185
    
    
    $
    413,010
    
    
    $
    (206,924
    )
    
    $
    961,271Operating Expenses:Cost of sales
    
    
    
    
    
    
    508,163
    
    
    
    210,064
    
    
    
    (168,596
    )
    
    
    549,631Selling, general and administrative
    
    
    
    
    
    
    135,968
    
    
    
    57,357
    
    
    
    
    
    
    
    193,325
    
    
    
    644,131
    
    
    
    267,421
    
    
    
    (168,596
    )
    
    
    742,956Operating Income
    
    
    
    
    
    
    111,054
    
    
    
    145,589
    
    
    
    (38,328
    )
    
    
    218,315Interest Expense
    
    
    (23,039
    )
    
    
    (1,075
    )
    
    
    (264
    )
    
    
    
    
    
    
    (24,378
    )Other Income, Net
    
    
    
    
    
    
    2,413
    
    
    
    5,100
    
    
    
    
    
    
    
    7,513Equity Income in Unconsolidated Affiliates
    
    
    
    
    
    
    33,849
    
    
    
    
    
    
    
    
    
    
    
    33,849Refinance Charges
    
    
    (49,541
    )
    
    
    (7,545
    )
    
    
    
    
    
    
    
    
    
    
    (57,086
    )Equity in Subsidiaries, Net of Taxes
    
    
    158,895
    
    
    
    
    
    
    
    
    
    
    
    (158,895
    )
    
    
    Income Before Income Taxes and Minority Interest
    
    
    86,315
    
    
    
    138,696
    
    
    
    150,425
    
    
    
    (197,223
    )
    
    
    178,213Income Tax (Provision) Benefit
    
    
    24,293
    
    
    
    (54,173
    )
    
    
    (29,766
    )
    
    
    
    
    
    
    (59,646
    )Income Before Minority Interests
    
    
    110,608
    
    
    
    84,523
    
    
    
    120,659
    
    
    
    (197,223
    )
    
    
    118,567Minority Interests
    
    
    
    
    
    
    
    
    
    
    (7,959
    )
    
    
    
    
    
    
    (7,959
    )Net Income
    
    $
    110,608
    
    
    $
    84,523
    
    
    $
    112,700
    
    
    $
    (197,223
    )
    
    $
    110,608
 17




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##### Table of Contents



CONDENSED
CONSOLIDATING BALANCE SHEET
As of September 30, 2005
(Unaudited)
 ASSETS
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Current Assets:Cash
    
    $
    
    
    
    $
    4,743
    
    
    $
    19,357
    
    
    $
    
    
    
    $
    24,100Restricted cash
    
    
    
    
    
    
    
    
    
    
    1,073
    
    
    
    
    
    
    
    1,073Accounts receivable, net
    
    
    
    
    
    
    156,058
    
    
    
    72,362
    
    
    
    
    
    
    
    228,420Inventories
    
    
    
    
    
    
    270,069
    
    
    
    137,145
    
    
    
    (40,317
    )
    
    
    366,897Deferred charges
    
    
    
    
    
    
    12,589
    
    
    
    231
    
    
    
    
    
    
    
    12,820Current deferred tax assets
    
    
    
    
    
    
    30,109
    
    
    
    7,784
    
    
    
    
    
    
    
    37,893Other current assets
    
    
    
    
    
    
    5,410
    
    
    
    10,236
    
    
    
    
    
    
    
    15,646
    
    
    
    478,978
    
    
    
    248,188
    
    
    
    (40,317
    )
    
    
    686,849Property, Plant and Equipment, Net
    
    
    
    
    
    
    133,959
    
    
    
    107,390
    
    
    
    
    
    
    
    241,349Goodwill
    
    
    
    
    
    
    221,621
    
    
    
    191,224
    
    
    
    
    
    
    
    412,845Investment In and Advances to Subsidiaries
    
    
    1,446,361
    
    
    
    
    
    
    
    
    
    
    
    (1,446,361
    )
    
    
    Investment In and Advances to Unconsolidated Affiliates
    
    
    
    
    
    
    60,706
    
    
    
    
    
    
    
    
    
    
    
    60,706Other Assets
    
    
    6,635
    
    
    
    56,714
    
    
    
    14,769
    
    
    
    
    
    
    
    78,118$
    1,452,996
    
    
    $
    951,978
    
    
    $
    561,571
    
    
    $
    (1,486,678
    )
    
    $
    1,479,867LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of
long-term debt
    
    $
    
    
    
    $
    7,957
    
    
    $
    
    
    
    $
    
    
    
    $
    7,957Accounts payable
    
    
    
    
    
    
    65,395
    
    
    
    22,792
    
    
    
    
    
    
    
    88,187Deferred revenues
    
    
    
    
    
    
    16,905
    
    
    
    364
    
    
    
    
    
    
    
    17,269Federal income taxes payable
    
    
    
    
    
    
    917
    
    
    
    26,338
    
    
    
    
    
    
    
    27,255Current deferred tax liabilities
    
    
    
    
    
    
    184
    
    
    
    3,222
    
    
    
    
    
    
    
    3,406Intercompany liabilities (assets)
    
    
    292,703
    
    
    
    (524,085
    )
    
    
    231,382
    
    
    
    
    
    
    
    Other accrued liabilities
    
    
    2,341
    
    
    
    56,735
    
    
    
    26,278
    
    
    
    
    
    
    
    85,354295,044
    
    
    
    (375,992
    )
    
    
    310,376
    
    
    
    
    
    
    
    229,428Long-Term Debt
    
    
    270,000
    
    
    
    6,598
    
    
    
    
    
    
    
    
    
    
    
    276,598Deferred Tax Liabilities
    
    
    
    
    
    
    25,248
    
    
    
    26,101
    
    
    
    
    
    
    
    51,349Other Long-Term Liabilities
    
    
    
    
    
    
    14,420
    
    
    
    1,312
    
    
    
    
    
    
    
    15,732Commitments and Contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority Interests
    
    
    
    
    
    
    
    
    
    
    18,808
    
    
    
    
    
    
    
    18,808Stockholders Equity
    
    
    887,952
    
    
    
    1,281,704
    
    
    
    204,974
    
    
    
    (1,486,678
    )
    
    
    887,952$
    1,452,996
    
    
    $
    951,978
    
    
    $
    561,571
    
    
    $
    (1,486,678
    )
    
    $
    1,479,867
 18




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##### Table of Contents



CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2005
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Cash Flows From Operating Activities:Net cash provided by (used in) operating activities
    
    $
    120,395
    
    
    $
    (25,493
    )
    
    $
    44,189
    
    
    $
    (13,402
    )
    
    $
    125,689Cash Flows From Investing Activities:Acquisition of businesses, net of cash acquired
    
    
    (28,725
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,725
    )Proceeds from sale of businesses, net of cash disposed
    
    
    
    
    
    
    2,521
    
    
    
    
    
    
    
    
    
    
    
    2,521Capital expenditures for property, plant and equipment
    
    
    
    
    
    
    (12,983
    )
    
    
    (7,341
    )
    
    
    
    
    
    
    (20,324
    )Other, net
    
    
    
    
    
    
    (3,719
    )
    
    
    132
    
    
    
    
    
    
    
    (3,587
    )Net cash used in investing activities
    
    
    (28,725
    )
    
    
    (14,181
    )
    
    
    (7,209
    )
    
    
    
    
    
    
    (50,115
    )Cash Flows From Financing Activities:Repayments on revolver debt, net
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,000Repayments on debt, net
    
    
    (174,905
    )
    
    
    (3,086
    )
    
    
    
    
    
    
    
    
    
    
    (177,991
    )Borrowings
(Repayments) between subsidiaries, net
    
    
    4,753
    
    
    
    16,782
    
    
    
    (21,535
    )
    
    
    
    
    
    
    Debt refinancing costs
    
    
    (43,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,778
    )Debt issue costs
    
    
    (6,041
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,041
    )Proceeds from stock option exercises
    
    
    59,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,276Dividends
paid
    
    
    
    
    
    
    
    
    
    
    (13,402
    )
    
    
    13,402
    
    
    
    Other, net
    
    
    (975
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (975
    )Net cash
(used in) provided by financing activities
    
    
    (91,670
    )
    
    
    13,696
    
    
    
    (34,937
    )
    
    
    13,402
    
    
    
    (99,509
    )Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    
    
    
    
    483
    
    
    
    
    
    
    
    483Net (Decrease) Increase in Cash
    
    
    
    
    
    
    (25,978
    )
    
    
    2,526
    
    
    
    
    
    
    
    (23,452
    )Cash at Beginning of Period
    
    
    
    
    
    
    30,721
    
    
    
    16,831
    
    
    
    
    
    
    
    47,552Cash at End of Period
    
    $
    
    
    
    $
    4,743
    
    
    $
    19,357
    
    
    $
    
    
    
    $
    24,100
 19




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##### Table of Contents



CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2004
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    174,373
    
    
    $
    71,993
    
    
    $
    
    
    
    $
    246,366Operating Expenses:Cost of sales
    
    
    
    
    
    
    107,147
    
    
    
    41,646
    
    
    
    
    
    
    
    148,793Selling, general and administrative
    
    
    
    
    
    
    44,279
    
    
    
    15,033
    
    
    
    
    
    
    
    59,312Other charges
    
    
    
    
    
    
    3,777
    
    
    
    26
    
    
    
    
    
    
    
    3,803
    
    
    
    155,203
    
    
    
    56,705
    
    
    
    
    
    
    
    211,908Operating Income
    
    
    
    
    
    
    19,170
    
    
    
    15,288
    
    
    
    
    
    
    
    34,458Interest Expense
    
    
    (9,563
    )
    
    
    (734
    )
    
    
    (55
    )
    
    
    
    
    
    
    (10,352
    )Other Income (Expense), Net
    
    
    
    
    
    
    2,399
    
    
    
    (786
    )
    
    
    
    
    
    
    1,613Equity Income in Unconsolidated Affiliates
    
    
    
    
    
    
    1,447
    
    
    
    
    
    
    
    
    
    
    
    1,447Equity in Subsidiaries, Net of Taxes
    
    
    24,118
    
    
    
    
    
    
    
    
    
    
    
    (24,118
    )
    
    
    Income From Continuing Operations Before
Income Taxes and Minority Interest
    
    
    14,555
    
    
    
    22,282
    
    
    
    14,447
    
    
    
    (24,118
    )
    
    
    27,166Income Tax (Provision) Benefit
    
    
    2,700
    
    
    
    (7,623
    )
    
    
    (3,683
    )
    
    
    
    
    
    
    (8,606
    )Income From Continuing Operations Before
Minority Interests
    
    
    17,255
    
    
    
    14,659
    
    
    
    10,764
    
    
    
    (24,118
    )
    
    
    18,560Minority Interests
    
    
    
    
    
    
    
    
    
    
    (1,326
    )
    
    
    
    
    
    
    (1,326
    )Income From Continuing Operations
    
    
    17,255
    
    
    
    14,659
    
    
    
    9,438
    
    
    
    (24,118
    )
    
    
    17,234Income From Discontinued Operations, Net of Tax
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Net Income
    
    $
    17,255
    
    
    $
    14,680
    
    
    $
    9,438
    
    
    $
    (24,118
    )
    
    $
    17,255
 CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2004
(Unaudited)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    447,914
    
    
    $
    214,599
    
    
    $
    
    
    
    $
    662,513Operating Expenses:Cost of sales
    
    
    
    
    
    
    281,714
    
    
    
    117,200
    
    
    
    
    
    
    
    398,914Selling, general and administrative
    
    
    
    
    
    
    119,368
    
    
    
    49,560
    
    
    
    
    
    
    
    168,928Other charges
    
    
    
    
    
    
    6,984
    
    
    
    2,051
    
    
    
    
    
    
    
    9,035
    
    
    
    408,066
    
    
    
    168,811
    
    
    
    
    
    
    
    576,877Operating Income
    
    
    
    
    
    
    39,848
    
    
    
    45,788
    
    
    
    
    
    
    
    85,636Interest Expense
    
    
    (27,569
    )
    
    
    (3,410
    )
    
    
    (363
    )
    
    
    
    
    
    
    (31,342
    )Other Income (Expense), Net
    
    
    
    
    
    
    7,646
    
    
    
    (3,675
    )
    
    
    
    
    
    
    3,971Equity Income in Unconsolidated Affiliates
    
    
    
    
    
    
    1,910
    
    
    
    
    
    
    
    
    
    
    
    1,910Equity in Subsidiaries, Net of Taxes
    
    
    45,368
    
    
    
    
    
    
    
    
    
    
    
    (45,368
    )
    
    
    Income From Continuing Operations Before
Income Taxes
and Minority Interest
    
    
    17,799
    
    
    
    45,994
    
    
    
    41,750
    
    
    
    (45,368
    )
    
    
    60,175Income Tax (Provision) Benefit
    
    
    8,822
    
    
    
    (16,441
    )
    
    
    (12,606
    )
    
    
    
    
    
    
    (20,225
    )Income From Continuing Operations Before
Minority Interests
    
    
    26,621
    
    
    
    29,553
    
    
    
    29,144
    
    
    
    (45,368
    )
    
    
    39,950Minority Interests
    
    
    
    
    
    
    
    
    
    
    (4,107
    )
    
    
    
    
    
    
    (4,107
    )Income From Continuing Operations
    
    
    26,621
    
    
    
    29,553
    
    
    
    25,037
    
    
    
    (45,368
    )
    
    
    35,843Loss From Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (9,222
    )
    
    
    
    
    
    
    
    
    
    
    (9,222
    )Net Income
    
    $
    26,621
    
    
    $
    20,331
    
    
    $
    25,037
    
    
    $
    (45,368
    )
    
    $
    26,621
 20




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##### Table of Contents



CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2004
 ASSETS
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Current Assets:Cash
    
    $
    
    
    
    $
    30,721
    
    
    $
    16,831
    
    
    $
    
    
    
    $
    47,552Restricted cash
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    231Accounts receivable, net
    
    
    
    
    
    
    133,589
    
    
    
    68,495
    
    
    
    
    
    
    
    202,084Inventories
    
    
    
    
    
    
    193,738
    
    
    
    95,082
    
    
    
    
    
    
    
    288,820Deferred charges
    
    
    
    
    
    
    17,204
    
    
    
    
    
    
    
    
    
    
    
    17,204Current deferred tax assets
    
    
    
    
    
    
    24,236
    
    
    
    2,237
    
    
    
    
    
    
    
    26,473Other current assets
    
    
    
    
    
    
    5,920
    
    
    
    8,483
    
    
    
    
    
    
    
    14,403
    
    
    
    405,408
    
    
    
    191,359
    
    
    
    
    
    
    
    596,767Property, Plant and Equipment, Net
    
    
    
    
    
    
    141,793
    
    
    
    102,512
    
    
    
    
    
    
    
    244,305Goodwill
    
    
    
    
    
    
    206,004
    
    
    
    187,989
    
    
    
    
    
    
    
    393,993Investment In and Advances to Subsidiaries
    
    
    1,080,596
    
    
    
    
    
    
    
    
    
    
    
    (1,080,596
    )
    
    
    Investment In and Advances to Unconsolidated Affiliates
    
    
    
    
    
    
    49,159
    
    
    
    
    
    
    
    
    
    
    
    49,159Other Assets
    
    
    6,101
    
    
    
    38,357
    
    
    
    15,784
    
    
    
    
    
    
    
    60,242$
    1,086,697
    
    
    $
    840,721
    
    
    $
    497,644
    
    
    $
    (1,080,596
    )
    
    $
    1,344,466LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of
long-term debt
    
    $
    
    
    
    $
    4,181
    
    
    $
    
    
    
    $
    
    
    
    $
    4,181Accounts payable
    
    
    
    
    
    
    40,912
    
    
    
    30,829
    
    
    
    
    
    
    
    71,741Deferred revenues
    
    
    
    
    
    
    21,413
    
    
    
    
    
    
    
    
    
    
    
    21,413Current deferred tax liabilities
    
    
    
    
    
    
    (47
    )
    
    
    3,155
    
    
    
    
    
    
    
    3,108Other accrued liabilities
    
    
    6,673
    
    
    
    56,821
    
    
    
    31,564
    
    
    
    
    
    
    
    95,0586,673
    
    
    
    123,280
    
    
    
    65,548
    
    
    
    
    
    
    
    195,501Long-Term Debt
    
    
    374,483
    
    
    
    3,290
    
    
    
    
    
    
    
    
    
    
    
    377,773Deferred Tax Liabilities
    
    
    
    
    
    
    10,536
    
    
    
    25,897
    
    
    
    
    
    
    
    36,433Other Long-Term Liabilities
    
    
    
    
    
    
    11,954
    
    
    
    1,270
    
    
    
    
    
    
    
    13,224Commitments and Contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority Interests
    
    
    
    
    
    
    
    
    
    
    15,994
    
    
    
    
    
    
    
    15,994Stockholders Equity
    
    
    705,541
    
    
    
    691,661
    
    
    
    388,935
    
    
    
    (1,080,596
    )
    
    
    705,541$
    1,086,697
    
    
    $
    840,721
    
    
    $
    497,644
    
    
    $
    (1,080,596
    )
    
    $
    1,344,466
 CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2004
(Unaudited)
(Restated)
 Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Total(In thousands)Cash Flows From Operating Activities:Net cash provided by operating activities
    
    $
    16,508
    
    
    $
    53,980
    
    
    $
    6,548
    
    
    $
    
    
    
    $
    77,036Cash Flows From Investing Activities:Acquisition of businesses
    
    
    (33,833
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,833
    )Proceeds from sale of businesses, net of cash disposed
    
    
    
    
    
    
    1,349
    
    
    
    831
    
    
    
    
    
    
    
    2,180Proceeds on sale of discontinued operations, net of cash disposed
    
    
    
    
    
    
    20,159
    
    
    
    
    
    
    
    
    
    
    
    20,159Capital expenditures for property, plant and equipment
    
    
    
    
    
    
    (13,939
    )
    
    
    (15,590
    )
    
    
    
    
    
    
    (29,529
    )Other, net
    
    
    
    
    
    
    4,514
    
    
    
    178
    
    
    
    
    
    
    
    4,692Net cash (used in) provided by investing activities
    
    
    (33,833
    )
    
    
    12,083
    
    
    
    (14,581
    )
    
    
    
    
    
    
    (36,331
    )Cash Flows From Financing Activities:Repayments on debt, net
    
    
    
    
    
    
    (40,019
    )
    
    
    (2,277
    )
    
    
    
    
    
    
    (42,296
    )Proceeds from stock option exercises
    
    
    18,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,397Other, net
    
    
    (1,072
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,072
    )Net cash provided by (used in) financing activities
    
    
    17,325
    
    
    
    (40,019
    )
    
    
    (2,277
    )
    
    
    
    
    
    
    (24,971
    )Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Net Increase (Decrease) in Cash
    
    
    
    
    
    
    26,044
    
    
    
    (10,308
    )
    
    
    
    
    
    
    15,736Cash at Beginning of Period
    
    
    
    
    
    
    2,620
    
    
    
    16,610
    
    
    
    
    
    
    
    19,230Cash at End of Period
    
    $
    
    
    
    $
    28,664
    
    
    $
    6,302
    
    
    $
    
    
    
    $
    34,966
 21




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   General
  Critical Accounting Policies and Estimates
  Refinancing Charges
    IntelliServ Acquisition
  22




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##### Table of Contents



Corion Diamond Products Acquisition
  Market Trends
   Three Months Ended September 30,2005
    
    
    2004WTI Oil(a)Average
    
    $
    63.18
    
    
    $
    43.91Ending
    
    
    66.24
    
    
    
    49.64Henry Hub Gas(b)Average
    
    $
    9.84
    
    
    $
    5.50Ending
    
    
    14.50
    
    
    
    6.45North American Rig Count(c)Average
    
    
    1,926
    
    
    
    1,555Ending
    
    
    1,949
    
    
    
    1,530International Rig Count(c)Average
    
    
    911
    
    
    
    846Ending
    
    
    907
    
    
    
    866
 
 (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). 23




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##### Table of Contents



Future Market Trends and Expectations
   Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    % Change
    
    
    2005
    
    
    2004
    
    
    % Change(In thousands)Revenues:Drilling Products and Services
    
    $
    153,173
    
    
    $
    103,301
    
    
    48
    %
    
    
    $
    425,879
    
    
    $
    263,388
    
    
    
    62
    %Drill Bits
    
    
    100,132
    
    
    
    79,492
    
    
    26
    %
    
    
    
    283,847
    
    
    
    235,335
    
    
    
    21
    %Tubular Technology and Services
    
    
    98,923
    
    
    
    63,458
    
    
    56
    %
    
    
    
    251,545
    
    
    
    161,915
    
    
    
    55
    %Other
    
    
    
    
    
    
    115
    
    
    (100
    %)
    
    
    
    
    
    
    
    1,875
    
    
    
    (100
    %)Total Revenues
    
    
    352,228
    
    
    
    246,366
    
    
    43
    %
    
    
    
    961,271
    
    
    
    662,513
    
    
    
    45
    %Operating Income (Loss):Drilling Products and Services
    
    $
    47,008
    
    
    $
    23,205
    
    
    103
    %
    
    
    $
    126,559
    
    
    $
    51,111
    (b)
    
    
    148
    %Drill Bits
    
    
    25,735
    
    
    
    15,731
    
    
    64
    %
    
    
    
    67,925
    
    
    
    51,702
    
    
    
    31
    %Tubular Technology and Services
    
    
    25,753
    
    
    
    8,229
    
    
    213
    %
    
    
    
    60,239
    
    
    
    11,212
    (c)
    
    
    437
    %Other
    
    
    (1,464
    )
    
    
    (287
    )
    
    410
    %
    
    
    
    (1,904
    )
    
    
    (1,994
    )
    
    
    (5
    %)Corporate
    
    
    (12,181
    )
    
    
    (12,420
    ) (a)
    
    (2
    %)
    
    
    
    (34,504
    )
    
    
    (26,395
    )
    
    
    31
    %Total Operating Income
    
    
    84,851
    
    
    
    34,458
    
    
    146
    %
    
    
    
    218,315
    
    
    
    85,636
    
    
    
    155
    %
 
 (a)
    
    Includes other charges of $3.8 million for the write-off of leasehold
improvements and furniture and fixtures related to the relocation of our corporate
office in September 2004.(b)
    
    Includes other charges of $2.0 million related to our manufacturing
rationalization program, which includes lease termination, severance and other exit
costs in connection with the downsizing of our Drilling Products and Services
Canadian operations.(c)
    
    Includes other charges of $3.2 million for severance costs related to the
Tubular Technology and Services organizational restructuring. 24




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##### Table of Contents



Consolidated Revenues and Operating Income
 Results for the three-month periods ended September 30, 2005 and 2004
  Results for the nine-month periods ended September 30, 2005 and 2004
   Drilling Products and Services
 Results for the three-month periods ended September 30, 2005 and 2004
  Results for the nine-month periods ended September 30, 2005 and 2004
  Drill Bits
 Results for the three-month periods ended September 30, 2005 and 2004
  25




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##### Table of Contents



Results for the nine-month periods ended September 30, 2005 and 2004
  Tubular Technology and Services
 Results for the three-month periods ended September 30, 2005 and 2004
 Ô Ô
 Results for the nine-month periods ended September 30, 2005 and 2004
  Other
  Corporate
  Other Income and Expenses
   26




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##### Table of Contents



Liquidity and Capital Resources
 Overview
  Historical Cash Flows
  Nine Months EndedSeptember 30,2005
    
    
    2004(In thousands)Net Cash Provided by Operating Activities
    
    $
    125,689
    
    
    $
    77,036Net Cash Used in Investing Activities
    
    
    (50,115
    )
    
    
    (36,331
    )Net Cash Used in Financing Activities
    
    
    (99,509
    )
    
    
    (24,971
    )
 Operating Activities
  Investing Activities
  Capital Expenditures
  27




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##### Table of Contents



Financing Activities
  Debt Restructuring
 Issuance of 6 1/8% Senior Notes Due 2015
  Year
    
    Percentage2010
    
    
    103.063
    %2011
    
    
    102.042
    %2012
    
    
    101.021
    %2013 and thereafter
    
    
    100.000
    %
  Repurchase of 9% Senior Notes Due 2009
  New Credit Facility
    28




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##### Table of Contents



Redemption of 9 5/8% Senior Notes Due 2007
  Treasury Rate Locks
     29




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##### Table of Contents



Contractual Obligations
   AfterTotal
    
    1 Year
    
    2-4 Years
    
    5-6 Years
    
    6 Years(In thousands)Contractual Obligations:Long-Term Debt (a)
    
    $
    352,353
    
    
    $
    17,211
    
    
    $
    22,140
    
    
    $
    87,055
    
    
    $
    225,947
 
 (a)
    
    The long-term debt table above includes estimated interest payments based on
principal balances and interest rates as of September 30, 2005. Other Commitments
   Recent Accounting Pronouncements
  Forward-Looking Statements and Exposures
  30




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##### Table of Contents



Risk Factors and Exposures
  A decline in domestic and worldwide oil and gas drilling activity would adversely affect our
results of operations.
  
    
    the level of North American and worldwide oil and gas exploration and production activity;
    
    worldwide economic conditions, particularly economic conditions in North America;
    
    oil and gas production costs;
    
    the expected costs of developing new reserves;
    
    national government political requirements and the policies of the OPEC;
    
    the price and availability of alternative fuels;
    
    environmental regulation; and
    
    tax policies.
  An economic downturn could adversely affect demand for our products and services and our results of
operations.
  Increases in the prices of our raw materials could affect our results of operations.
   31




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##### Table of Contents



Interruptions of supply of raw materials could materially adversely affect our results of
operations.
  Due to intense competition in our industry, our revenues may decline if we do not develop, produce,
and commercialize new competitive technologies and products or if we are unable to adequately
protect our current and future intellectual property rights relating to our technologies and
products.
    Our results of operations and financial condition are dependent upon our ability to successfully
increase and decrease, without material disruption, our manufacturing capacity and expense in
response to changes in demand and to maintain prices for our products, which can be adversely
affected by changes in industry conditions and competitive forces.
  Our results of operations can be adversely affected by adverse weather conditions and unexpected
stoppages in production.
  32




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##### Table of Contents



Our international operations may experience severe interruptions due to political, economic, or
other risks, which could adversely affect our results of operations and financial condition.
  
    
    changes in foreign tax laws;
    
    changes in regulations and labor practices;
    
    currency fluctuations and devaluations;
    
    currency restrictions, banking crises, and limitations on repatriation of profits; and
    
    political instability or military conflict.
     In connection with our business operations, we could be subject to substantial liability claims
that adversely affect our results of operations.
  33




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##### Table of Contents



We are subject to environmental, health, and safety laws and regulations that expose us to
potential financial liability.
    Our results of operations could be adversely affected by actions under U.S. trade laws and new
foreign entrants into U.S. markets.
   Off-Balance Sheet Financing
  
 ITEM 3. Quantitative and Qualitative Market Risk Disclosures
 34




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##### Table of Contents



Foreign Currency Risk
  Interest Rates
  
 ITEM 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Update on Internal Control Over Financial Reporting
   35




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##### Table of Contents



PART II
 
 ITEM 2. Unregistered Sales of Equity in Securities and Use of Proceeds
  Number ofShares
    
    
    Average PricePeriod
    
    Purchased
    
    
    Per ShareJuly 2005
    
    
    2,704
    
    
    $
    27.72August 2005
    
    
    7,171
    
    
    $
    33.66September 2005
    
    
    3,910
    
    
    $
    38.58
 
 ITEM 6. Exhibits
  Exhibit Number
    
    Description4.1
    
    Indenture relating to the 6 1/8% Senior Notes due 2015,
dated as of July 27, 2005, among Grant Prideco, Inc.,
certain subsidiary guarantors and Wells Fargo Bank,
N.A., as Trustee (including form of note) (incorporated
by reference from the Companys Current Report on Form
8-K dated July 27, 2005).4.2
    
    Registration Rights Agreement relating to the 6 1/8%
Senior Notes due 2015, dated as of July 27, 2005, among
Grant Prideco, Inc., certain subsidiary guarantors and
Banc of America Securities LLC, as representative of
the initial purchasers (incorporated by reference from
the Companys Current Report on Form 8-K dated July 27,
2005).4.3
    
    Supplemental indenture relating to the 9% Senior Notes
due 2009, dated as of July 27, 2005, among Grant
Prideco, Inc., certain subsidiary guarantors and Wells
Fargo Bank, N.A., as Trustee (incorporated by reference
from the Companys Current Report on Form 8-K dated
July 27, 2005).31.1
    
    Certification of Michael McShane31.2
    
    Certification of Matthew D. Fitzgerald32.1
    
    Section 1350 Certification
 36




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##### Table of Contents



SIGNATURES
  GRANT PRIDECO, INC.By:
    /s/ MATTHEW D. FITZGERALDMatthew D. FitzgeraldSr. Vice President and Chief Financial OfficerBy:
    /s/ GREG L. BOANEGreg L. BoaneCorporate Controller and Principal Accounting Officer  37




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##### Table of Contents



Exhibit Number
    
    Description4.1
    
    Indenture relating to the 6 1/8% Senior Notes due 2015,
dated as of July 27, 2005, among Grant Prideco, Inc.,
certain subsidiary guarantors and Wells Fargo Bank,
N.A., as Trustee (including form of note) (incorporated
by reference from the Companys Current Report on Form
8-K dated July 27, 2005).4.2
    
    Registration Rights Agreement relating to the 6 1/8%
Senior Notes due 2015, dated as of July 27, 2005, among
Grant Prideco, Inc., certain subsidiary guarantors and
Banc of America Securities LLC, as representative of
the initial purchasers (incorporated by reference from
the Companys Current Report on Form 8-K dated July 27,
2005).4.3
    
    Supplemental indenture relating to the 9% Senior Notes
due 2009, dated as of July 27, 2005, among Grant
Prideco, Inc., certain subsidiary guarantors and Wells
Fargo Bank, N.A., as Trustee (incorporated by reference
from the Companys Current Report on Form 8-K dated
July 27, 2005).31.1
    
    Certification of Michael McShane31.2
    
    Certification of Matthew D. Fitzgerald32.1
    
    Section 1350 Certification