##### 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 June 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
 þ o
  Title of Each Class
    
    Outstanding at August 2, 2005Common Stock, par value $0.01 per share
    
    127,064,482




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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 4. Submission of Matters to a Vote of Security HoldersITEM 6. ExhibitsSIGNATURESEXHIBIT INDEXCertification 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
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share data)(Restated)
    
    
    
    
    
    (Restated)Revenues
    
    $
    316,947
    
    
    $
    224,666
    
    
    $
    609,043
    
    
    $
    416,147Operating Expenses:Cost of sales
    
    
    180,277
    
    
    
    136,229
    
    
    
    348,193
    
    
    
    250,121Sales and marketing
    
    
    34,654
    
    
    
    30,718
    
    
    
    66,358
    
    
    
    59,858General and administrative
    
    
    24,554
    
    
    
    19,985
    
    
    
    49,076
    
    
    
    39,437Research and engineering
    
    
    6,189
    
    
    
    4,969
    
    
    
    11,952
    
    
    
    10,321Other charges
    
    
    
    
    
    
    2,498
    
    
    
    
    
    
    
    5,232245,674
    
    
    
    194,399
    
    
    
    475,579
    
    
    
    364,969Operating Income
    
    
    71,273
    
    
    
    30,267
    
    
    
    133,464
    
    
    
    51,178Interest Expense
    
    
    (9,230
    )
    
    
    (10,495
    )
    
    
    (19,240
    )
    
    
    (20,990
    )Other Income, Net
    
    
    3,456
    
    
    
    333
    
    
    
    4,593
    
    
    
    2,358Equity Income (Loss) in Unconsolidated Affiliates
    
    
    7,637
    
    
    
    (481
    )
    
    
    10,024
    
    
    
    (287
    )Refinancing Charges
    
    
    (35,432
    )
    
    
    
    
    
    
    (35,432
    )
    
    
    Income From Continuing Operations Before Income Taxes
and Minority Interests
    
    
    37,704
    
    
    
    19,624
    
    
    
    93,409
    
    
    
    32,259Income Tax Provision
    
    
    (9,232
    )
    
    
    (6,058
    )
    
    
    (26,295
    )
    
    
    (10,869
    )Income from Continuing Operations Before Minority
Interests
    
    
    28,472
    
    
    
    13,566
    
    
    
    67,114
    
    
    
    21,390Minority Interests
    
    
    (2,644
    )
    
    
    (1,521
    )
    
    
    (4,620
    )
    
    
    (2,781
    )Income from Continuing Operations
    
    
    25,828
    
    
    
    12,045
    
    
    
    62,494
    
    
    
    18,609Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (9,885
    )
    
    
    
    
    
    
    (9,243
    )Net Income
    
    $
    25,828
    
    
    $
    2,160
    
    
    $
    62,494
    
    
    $
    9,366Basic Net Income Per Share:Income from continuing operations
    
    $
    0.21
    
    
    $
    0.10
    
    
    $
    0.50
    
    
    $
    0.15Loss from discontinued operations
    
    
    
    
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.07
    )Net income
    
    $
    0.21
    
    
    $
    0.02
    
    
    $
    0.50
    
    
    $
    0.08Basic weighted average shares outstanding
    
    
    125,858
    
    
    
    122,767
    
    
    
    125,546
    
    
    
    122,405Diluted Net Income Per Share:Income from continuing operations
    
    $
    0.20
    
    
    $
    0.10
    
    
    $
    0.48
    
    
    $
    0.15Loss from discontinued operations
    
    
    
    
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.07
    )Net income
    
    $
    0.20
    
    
    $
    0.02
    
    
    $
    0.48
    
    
    $
    0.08Diluted weighted average shares outstanding
    
    
    129,310
    
    
    
    125,383
    
    
    
    128,899
    
    
    
    124,863
  2




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GRANT PRIDECO, INC.
 Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
 June 30,
    
    December 31,2005
    
    2004ASSETSCurrent Assets:Cash
    
    $
    23,550
    
    
    $
    47,552Restricted cash
    
    
    1,163
    
    
    
    231Accounts receivable, net of allowance for uncollectible
accounts of $9,260 and $8,024 for 2005 and 2004,
respectively
    
    
    196,956
    
    
    
    202,084Inventories
    
    
    332,642
    
    
    
    288,820Deferred charges
    
    
    17,966
    
    
    
    17,204Current deferred tax assets
    
    
    38,413
    
    
    
    26,473Prepaid expenses
    
    
    14,868
    
    
    
    12,033Other current assets
    
    
    1,450
    
    
    
    2,370627,008
    
    
    
    596,767Property, Plant and Equipment, Net
    
    
    235,563
    
    
    
    244,305Goodwill
    
    
    396,680
    
    
    
    393,993Intangible Assets, Net
    
    
    41,938
    
    
    
    43,807Investments In and Advances to Unconsolidated Affiliates
    
    
    57,542
    
    
    
    49,159Other Assets
    
    
    10,004
    
    
    
    16,435$
    1,368,735
    
    
    $
    1,344,466LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of long-term
debt
    
    $
    4,098
    
    
    $
    4,181Accounts payable
    
    
    84,644
    
    
    
    71,741Accrued labor and benefits
    
    
    45,423
    
    
    
    53,060Deferred revenues
    
    
    24,196
    
    
    
    21,413Federal income taxes payable
    
    
    21,608
    
    
    
    8,144Current deferred tax liabilities
    
    
    2,390
    
    
    
    3,108Other accrued liabilities
    
    
    25,318
    
    
    
    33,854207,677
    
    
    
    195,501Long-Term Debt
    
    
    296,124
    
    
    
    377,773Deferred Tax Liabilities
    
    
    49,605
    
    
    
    36,433Other Long-Term Liabilities
    
    
    14,369
    
    
    
    13,224Commitments and Contingencies
    
    
    
    
    
    
    Minority Interests
    
    
    16,310
    
    
    
    15,994Stockholders Equity:Preferred stock, $0.01 par value
    
    
    
    
    
    
    Common stock, $0.01 par value
    
    
    1,265
    
    
    
    1,245Capital in excess of par value
    
    
    559,746
    
    
    
    530,687Unearned compensation
    
    
    (10,169
    )
    
    
    (8,300
    )Retained earnings
    
    
    254,783
    
    
    
    192,289Accumulated other comprehensive loss
    
    
    (16,767
    )
    
    
    (12,291
    )Treasury stock, at cost
    
    
    (15,570
    )
    
    
    (8,483
    )Deferred compensation obligation
    
    
    11,362
    
    
    
    10,394784,650
    
    
    
    705,541$
    1,368,735
    
    
    $
    1,344,466
  3




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GRANT PRIDECO, INC.
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended June 30,2005
    
    2004(In thousands)(Restated)Cash Flows From Operating Activities:Net income
    
    $
    62,494
    
    
    $
    9,366Adjustments to reconcile net income to net cash provided by operating
activities:Loss on discontinued operations
    
    
    
    
    
    
    11,446Gain on sale of businesses, net
    
    
    
    
    
    
    (774
    )Depreciation and amortization
    
    
    22,206
    
    
    
    21,761Non-cash portion of other charges
    
    
    
    
    
    
    2,447Refinancing charges
    
    
    30,180
    
    
    
    Bad debt expense
    
    
    1,802
    
    
    
    1,684Deferred income tax
    
    
    (8,696
    )
    
    
    5,464Equity income in unconsolidated affiliates, net of dividends
    
    
    2,017
    
    
    
    5,051Stock-based compensation expense
    
    
    4,631
    
    
    
    2,014Deferred compensation expense
    
    
    1,608
    
    
    
    1,033Minority interests in consolidated subsidiaries, net of dividends
    
    
    997
    
    
    
    2,661Loss (gain) on sale of assets, net
    
    
    992
    
    
    
    (2,621
    )Change in operating assets and liabilities, net of effects of
businesses acquired:Accounts receivable
    
    
    (2,776
    )
    
    
    5,246Inventories
    
    
    (44,485
    )
    
    
    (15,784
    )Deferred charges
    
    
    (762
    )
    
    
    (23,375
    )Accounts payable
    
    
    10,744
    
    
    
    (14
    )Deferred revenues
    
    
    2,783
    
    
    
    28,626Federal income tax payable
    
    
    19,354
    
    
    
    (5,290
    )Other accrued liabilities
    
    
    (20,976
    )
    
    
    (1,885
    )Other, net
    
    
    7,101
    
    
    
    146Net cash provided by operating activities
    
    
    89,214
    
    
    
    47,202Cash Flows From Investing Activities:Acquisition of business
    
    
    
    
    
    
    (17,312
    )Proceeds from sales of businesses, net of cash disposed
    
    
    
    
    
    
    2,180Proceeds from sale of discontinued operations, net of cash disposed
    
    
    
    
    
    
    20,159Capital expenditures for property, plant and equipment
    
    
    (13,963
    )
    
    
    (20,733
    )Other, net
    
    
    (1,768
    )
    
    
    1,729Net cash used in investing activities
    
    
    (15,731
    )
    
    
    (13,977
    )Cash Flows From Financing Activities:Borrowings on credit facility, net
    
    
    119,000
    
    
    
    (22,892
    )Repayments on debt, net
    
    
    (204,893
    )
    
    
    (4,666
    )Debt redemption make-whole premium
    
    
    (25,356
    )
    
    
    Debt issuance costs
    
    
    (2,432
    )
    
    
    Proceeds from stock option exercises
    
    
    17,013
    
    
    
    9,984Other, net
    
    
    (509
    )
    
    
    (617
    )Net cash used in financing activities
    
    
    (97,177
    )
    
    
    (18,191
    )Effect of Exchange Rate Changes on Cash
    
    
    (308
    )
    
    
    134Net (Decrease) Increase in Cash
    
    
    (24,002
    )
    
    
    15,168Cash at Beginning of Period
    
    
    47,552
    
    
    
    19,230Cash at End of Period
    
    $
    23,550
    
    
    $
    34,398
  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 June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share data)(Restated)
    


    
(Restated)Net Income As Reported
    
    $
    25,828
    
    
    $
    2,160
    
    
    $
    62,494
    
    
    $
    9,366Add: stock-based employee compensation expense
included in reported net income, net of related tax
effects
    
    
    1,840
    
    
    
    2,214
    
    
    
    3,362
    
    
    
    3,128Deduct: stock-based employee compensation expense
determined under the fair value method for all awards,
net of related tax effects
    
    
    (3,088
    )
    
    
    (3,477
    )
    
    
    (5,652
    )
    
    
    (5,574
    )Pro Forma Net Income
    
    $
    24,580
    
    
    $
    897
    
    
    $
    60,204
    
    
    $
    6,920Net Income Per Share:Basic as reported
    
    $
    0.21
    
    
    $
    0.02
    
    
    $
    0.50
    
    
    $
    0.08Basic pro forma
    
    
    0.20
    
    
    
    0.01
    
    
    
    0.48
    
    
    
    0.06Diluted as reported
    
    
    0.20
    
    
    
    0.02
    
    
    
    0.48
    
    
    
    0.08Diluted pro forma
    
    
    0.19
    
    
    
    0.01
    
    
    
    0.47
    
    
    
    0.06
  Restricted Stock
   6




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3. Comprehensive Income
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands)(Restated)
    
    
    
    
    
    (Restated)Net Income
    
    $
    25,828
    
    
    $
    2,160
    
    
    $
    62,494
    
    
    $
    9,366Foreign Currency Translation Adjustments
    
    
    (3,705
    )
    
    
    (3,465
    )
    
    
    (4,476
    )
    
    
    (2,769
    )Total Comprehensive Income (Loss)
    
    $
    22,123
    
    
    $
    (1,305
    )
    
    $
    58,018
    
    
    $
    6,597
 4. Inventories
  June 30,
    
    December 31,2005
    
    2004(In thousands)Raw Materials, Components and Supplies
    
    $
    141,834
    
    
    $
    104,543Work in Process
    
    
    79,702
    
    
    
    59,308Finished Goods
    
    
    111,106
    
    
    
    124,969$
    332,642
    
    
    $
    288,820
 5. Property, Plant and Equipment
  June 30,
    
    December 31,2005
    
    2004(In thousands)Land
    
    $
    21,522
    
    
    $
    21,521Buildings and Improvements
    
    
    84,035
    
    
    
    78,557Machinery and Equipment
    
    
    271,594
    
    
    
    269,517Furniture and Fixtures
    
    
    32,706
    
    
    
    29,058Construction in Progress
    
    
    11,613
    
    
    
    19,655421,470
    
    
    
    418,308Less: Accumulated Depreciation
    
    
    (185,907
    )
    
    
    (174,003
    )$
    235,563
    
    
    $
    244,305
 6. Other Charges
  7




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7. Debt Restructuring
 New Credit Facility
       Redemption of 9 5/8% Senior Notes
  Treasury Rate Locks
  8




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8. Net Income Per Share
  9. Goodwill and Other Intangible Assets
  Drilling
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    TechnologyServices
    
    Drill Bits
    
    and Services
    
    Total(In thousands)Balance, December 31, 2004
    
    $
    130,127
    
    
    $
    166,733
    
    
    $
    97,133
    
    
    $
    393,993Translation and Other Adjustments
    
    
    (35
    )
    
    
    2,722
    
    
    
    
    
    
    
    2,687Balance, June 30, 2005
    
    $
    130,092
    
    
    $
    169,455
    
    
    $
    97,133
    
    
    $
    396,680
   June 30, 2005
    
    December 31, 2004Gross
    
    Accumulated
    
    Net
    
    Gross
    
    Accumulated
    
    NetIntangibles
    
    Amortization
    
    Intangibles
    
    Intangibles
    
    Amortization
    
    Intangibles(In thousands)Patents
    
    $
    43,585
    
    
    $
    (7,562
    )
    
    $
    36,023
    
    
    $
    43,380
    
    
    $
    (5,908
    )
    
    $
    37,472Technology Licenses
    
    
    1,438
    
    
    
    (529
    )
    
    
    909
    
    
    
    1,438
    
    
    
    (498
    )
    
    
    940Customer Relationships
    
    
    4,600
    
    
    
    (457
    )
    
    
    4,143
    
    
    
    4,600
    
    
    
    (335
    )
    
    
    4,265Trademarks
    
    
    1,610
    
    
    
    (934
    )
    
    
    676
    
    
    
    1,610
    
    
    
    (815
    )
    
    
    795Covenants Not To Compete
    
    
    3,125
    
    
    
    (2,938
    )
    
    
    187
    
    
    
    3,125
    
    
    
    (2,790
    )
    
    
    335$
    54,358
    
    
    $
    (12,420
    )
    
    $
    41,938
    
    
    $
    54,153
    
    
    $
    (10,346
    )
    
    $
    43,807
  9




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10. Restricted Cash
  11. Segment Information
 Business Segments
  Drilling
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    TechnologyServices
    
    Drill Bits
    
    and Services
    
    Other
    
    Corporate
    
    Total(In thousands)Three Months Ended:June 30, 2005Revenues from Unaffiliated
Customers
    
    $
    144,356
    
    
    $
    93,089
    
    
    $
    79,502
    
    
    $
    
    
    
    $
    
    
    
    $
    316,947Operating Income (Loss)
    
    
    43,070
    
    
    
    20,568
    
    
    
    19,225
    
    
    
    (110
    )
    
    
    (11,480
    )
    
    
    71,273Income (Loss) from Continuing
Operations Before Income
Taxes and
Minority Interests
    
    
    51,841
    
    
    
    20,489
    
    
    
    19,161
    
    
    
    (110
    )
    
    
    (53,677
    )
    
    
    37,704June 30, 2004 (Restated)Revenues from Unaffiliated
Customers
    
    $
    90,272
    
    
    $
    76,585
    
    
    $
    56,936
    
    
    $
    873
    
    
    $
    
    
    
    $
    224,666Operating Income (Loss)
    
    
    19,326
    
    
    
    16,686
    
    
    
    2,298
    
    
    
    (528
    )
    
    
    (7,515
    )
    
    
    30,267Income (Loss) from Continuing
Operations Before Income
Taxes and
Minority Interests
    
    
    18,959
    
    
    
    14,474
    
    
    
    2,433
    
    
    
    (520
    )
    
    
    (15,722
    )
    
    
    19,624
 Drilling
    
    
    
    
    
    TubularProducts and
    
    
    
    
    
    TechnologyServices
    
    Drill Bits
    
    and Services
    
    Other
    
    Corporate
    
    Total(In thousands)Six Months Ended:June 30, 2005Revenues from Unaffiliated
Customers
    
    $
    272,706
    
    
    $
    183,715
    
    
    $
    152,622
    
    
    $
    
    
    
    $
    
    
    
    $
    609,043Operating Income (Loss)
    
    
    79,331
    
    
    
    42,190
    
    
    
    34,486
    
    
    
    (220
    )
    
    
    (22,323
    )
    
    
    133,464Income (Loss) from Continuing
Operations Before Income
Taxes and
Minority Interests
    
    
    91,044
    
    
    
    39,640
    
    
    
    33,605
    
    
    
    (220
    )
    
    
    (70,660
    )
    
    
    93,409June 30, 2004 (Restated)Revenues from Unaffiliated
Customers
    
    $
    160,087
    
    
    $
    155,843
    
    
    $
    98,457
    
    
    $
    1,760
    
    
    $
    
    
    
    $
    416,147Operating Income (Loss)
    
    
    27,906
    
    
    
    35,971
    
    
    
    2,983
    
    
    
    (1,707
    )
    
    
    (13,975
    )
    
    
    51,178Income (Loss) from Continuing
Operations Before Income
Taxes and
Minority Interests
    
    
    29,001
    
    
    
    31,755
    
    
    
    3,688
    
    
    
    (1,633
    )
    
    
    (30,552
    )
    
    
    32,259
 10




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12. Acquisition
  13. Dispositions
   14. Discontinued Operations
  Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2004(In thousands)Revenues
    
    $
    2,594
    
    
    $
    12,833Income Before Income Taxes
    
    
    358
    
    
    
    1,346Income Tax Provision
    
    
    (125
    )
    
    
    (471
    )Income from Operations, Net of Tax
    
    
    233
    
    
    
    875Loss on Disposal, Net of Tax
    
    
    (10,118
    )
    
    
    (10,118
    )$
    (9,885
    )
    
    $
    (9,243
    )
  11




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##### Table of Contents



15. Pension Plans
 U.S. Pension Plan
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands)Service Cost
    
    $
    122
    
    
    $
    72
    
    
    $
    196
    
    
    $
    168Interest Cost
    
    
    237
    
    
    
    134
    
    
    
    380
    
    
    
    348Expected Return on Plan Assets
    
    
    (193
    )
    
    
    (106
    )
    
    
    (310
    )
    
    
    (247
    )Administration Expenses
    
    
    55
    
    
    
    10
    
    
    
    88
    
    
    
    23Net Periodic Benefit Cost
    
    $
    221
    
    
    $
    110
    
    
    $
    354
    
    
    $
    292
  Non-U.S. Pension Plan
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands)Interest Cost
    
    $
    250
    
    
    $
    420
    
    
    $
    494
    
    
    $
    420Expected Return on Plan Assets
    
    
    (250
    )
    
    
    (451
    )
    
    
    (513
    )
    
    
    (451
    )Amortization
of Gain (Loss)
    
    
    (56
    )
    
    
    47
    
    
    
    19
    
    
    
    47Administration Expenses
    
    
    136
    
    
    
    203
    
    
    
    136
    
    
    
    203Net Periodic Benefit Cost
    
    $
    80
    
    
    $
    219
    
    
    $
    136
    
    
    $
    219
  16. Investments in Unconsolidated Affiliates
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(In thousands)Net Sales
    
    $
    135,017
    
    
    $
    74,942
    
    
    $
    237,244
    
    
    $
    138,034Gross Profit
    
    
    34,519
    
    
    
    5,968
    
    
    
    51,196
    
    

    
    11,012Net Income
    
    
    20,369
    
    
    
    2,223
    
    
    
    28,736
    
    
    
    3,072Companys Equity Income
    
    
    9,450
    
    
    
    1,071
    
    
    
    13,765
    
    
    
    1,593Dividends Received
    
    
    12,041
    
    
    
    4,764
    
    
    
    12,041
    
    
    
    4,764
  12




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##### Table of Contents



17. Recent Accounting Pronouncements
    18. Subsequent Events
   13




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##### Table of Contents



19. Subsidiary Guarantor Financial Information
  14




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2005
(Unaudited)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    207,782
    
    
    $
    109,165
    
    
    $
    
    
    
    $
    316,947Operating Expenses:Cost of sales
    
    
    
    
    
    
    124,301
    
    
    
    55,976
    
    
    
    
    
    
    
    180,277Selling, general and administrative
    
    
    
    
    
    
    46,784
    
    
    
    18,613
    
    
    
    
    
    
    
    65,397Other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,085
    
    
    
    74,589
    
    
    
    
    
    
    
    245,674Operating Income
    
    
    
    
    
    
    36,697
    
    
    
    34,576
    
    
    
    
    
    
    
    71,273Interest Expense
    
    
    (8,798
    )
    
    
    (254
    )
    
    
    (178
    )
    
    
    
    
    
    
    (9,230
    )Other Income (Expense), Net
    
    
    
    
    
    
    (238
    )
    
    
    3,694
    
    
    
    
    
    
    
    3,456Equity (Loss) Income in Unconsolidated Affiliates
    
    
    
    
    
    
    7,637
    
    
    
    
    
    
    
    
    
    
    
    7,637Refinance Charges
    
    
    (27,887
    )
    
    
    (7,545
    )
    
    
    
    
    
    
    
    
    
    
    (35,432
    )Equity in Subsidiaries, Net of Taxes
    
    
    52,425
    
    
    
    
    
    
    
    
    
    
    
    (52,425
    )
    
    
    Income Before Income Taxes and Minority Interest
    
    
    15,740
    
    
    
    36,297
    
    
    
    38,092
    
    
    
    (52,425
    )
    
    
    37,704Income Tax (Provision) Benefit
    
    
    10,088
    
    
    
    (9,489
    )
    
    
    (9,831
    )
    
    
    
    
    
    
    (9,232
    )Income Before Minority Interests
    
    
    25,828
    
    
    
    26,808
    
    
    
    28,261
    
    
    
    (52,425
    )
    
    
    28,472Minority Interests
    
    
    
    
    
    
    
    
    
    
    (2,644
    )
    
    
    
    
    
    
    (2,644
    )Net Income
    
    $
    25,828
    
    
    $
    26,808
    
    
    $
    25,617
    
    
    $
    (52,425
    )
    
    $
    25,828
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2004
(Unaudited)
(Restated)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    159,053
    
    
    $
    65,613
    
    
    $
    
    
    
    $
    224,666Operating Expenses:Cost of sales
    
    
    
    
    
    
    100,523
    
    
    
    35,706
    
    
    
    
    
    
    
    136,229Selling, general and administrative
    
    
    
    
    
    
    38,648
    
    
    
    17,024
    
    
    
    
    
    
    
    55,672Other charges
    
    
    
    
    
    
    2,289
    
    
    
    209
    
    
    
    
    
    
    
    2,498
    
    
    
    141,460
    
    
    
    52,939
    
    
    
    
    
    
    
    194,399Operating Income
    
    
    
    
    
    
    17,593
    
    
    
    12,674
    
    
    
    
    
    
    
    30,267Interest Expense
    
    
    (8,816
    )
    
    
    (1,504
    )
    
    
    (175
    )
    
    
    
    
    
    
    (10,495
    )Other Income (Expense), Net
    
    
    
    
    
    
    1,003
    
    
    
    (670
    )
    
    
    
    
    
    
    333Equity Loss in Unconsolidated Affiliates
    
    
    
    
    
    
    (481
    )
    
    
    
    
    
    
    
    
    
    
    (481
    )Equity in Subsidiaries, Net of Taxes
    
    
    8,309
    
    
    
    
    
    
    
    
    
    
    
    (8,309
    )
    
    
    Income (Loss) From Continuing Operations Before
Income Taxes and Minority Interest
    
    
    (507
    )
    
    
    16,611
    
    
    
    11,829
    
    
    
    (8,309
    )
    
    
    19,624Income Tax (Provision) Benefit
    
    
    2,667
    
    
    
    (4,769
    )
    
    
    (3,956
    )
    
    
    
    
    
    
    (6,058
    )Income From Continuing Operations Before
Minority Interests
    
    
    2,160
    
    
    
    11,842
    
    
    
    7,873
    
    
    
    (8,309
    )
    
    
    13,566Minority Interests
    
    
    
    
    
    
    
    
    
    
    (1,521
    )
    
    
    
    
    
    
    (1,521
    )Income From Continuing Operations
    
    
    2,160
    
    
    
    11,842
    
    
    
    6,352
    
    
    
    (8,309
    )
    
    
    12,045Loss From Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (9,885
    )
    
    
    
    
    
    
    
    
    
    
    (9,885
    )Net Income
    
    $
    2,160
    
    
    $
    1,957
    
    
    $
    6,352
    
    
    $
    (8,309
    )
    
    $
    2,160
 15




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2005
(Unaudited)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    396,446
    
    
    $
    212,597
    
    
    $
    
    
    
    $
    609,043Operating Expenses:Cost of sales
    
    
    
    
    
    
    238,855
    
    
    
    109,338
    
    
    
    
    
    
    
    348,193Selling, general and administrative
    
    
    
    
    
    
    89,824
    
    
    
    37,562
    
    
    
    
    
    
    
    127,386
    
    
    
    328,679
    
    
    
    146,900
    
    
    
    
    
    
    
    475,579Operating Income
    
    
    
    
    
    
    67,767
    
    
    
    65,697
    
    
    
    
    
    
    
    133,464Interest Expense
    
    
    (17,988
    )
    
    
    (1,052
    )
    
    
    (200
    )
    
    
    
    
    
    
    (19,240
    )Other Income, Net
    
    
    
    
    
    
    1,786
    
    
    
    2,807
    
    
    
    
    
    
    
    4,593Equity Income in Unconsolidated Affiliates
    
    
    
    
    
    
    10,024
    
    
    
    
    
    
    
    
    
    
    
    10,024Refinance Charges
    
    
    (27,887
    )
    
    
    (7,545
    )
    
    
    
    
    
    
    
    
    
    
    (35,432
    )Equity in Subsidiaries, Net of Taxes
    
    
    95,432
    
    
    
    
    
    
    
    
    
    
    
    (95,432
    )
    
    
    Income Before Income Taxes and Minority Interest
    
    
    49,557
    
    
    
    70,980
    
    
    
    68,304
    
    
    
    (95,432
    )
    
    
    93,409Income Tax (Provision) Benefit
    
    
    12,937
    
    
    
    (20,052
    )
    
    
    (19,180
    )
    
    
    
    
    
    
    (26,295
    )Income Before Minority Interests
    
    
    62,494
    
    
    
    50,928
    
    
    
    49,124
    
    
    
    (95,432
    )
    
    
    67,114Minority Interests
    
    
    
    
    
    
    
    
    
    
    (4,620
    )
    
    
    
    
    
    
    (4,620
    )Net Income
    
    $
    62,494
    
    
    $
    50,928
    
    
    $
    44,504
    
    
    $
    (95,432
    )
    
    $
    62,494
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004
(Unaudited)
(Restated)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    273,541
    
    
    $
    142,606
    
    
    $
    
    
    
    $
    416,147Operating Expenses:Cost of sales
    
    
    
    
    
    
    174,567
    
    
    
    75,554
    
    
    
    
    
    
    
    250,121Selling, general and administrative
    
    
    
    
    
    
    75,089
    
    
    
    34,527
    
    
    
    
    
    
    
    109,616Other charges
    
    
    
    
    
    
    3,207
    
    
    
    2,025
    
    
    
    
    
    
    
    5,232
    
    
    
    252,863
    
    
    
    112,106
    
    
    
    
    
    
    
    364,969Operating Income
    
    
    
    
    
    
    20,678
    
    
    
    30,500
    
    
    
    
    
    
    
    51,178Interest Expense
    
    
    (18,006
    )
    
    
    (2,676
    )
    
    
    (308
    )
    
    
    
    
    
    
    (20,990
    )Other Income (Expense), Net
    
    
    
    
    
    
    5,247
    
    
    
    (2,889
    )
    
    
    
    
    
    
    2,358Equity Loss in Unconsolidated Affiliates
    
    
    
    
    
    
    (287
    )
    
    
    
    
    
    
    
    
    
    
    (287
    )Equity in Subsidiaries, Net of Taxes
    
    
    21,250
    
    
    
    
    
    
    
    
    
    
    
    (21,250
    )
    
    
    Income From Continuing Operations Before
Income Taxes
and Minority Interest
    
    
    3,244
    
    
    
    22,962
    
    
    
    27,303
    
    
    
    (21,250
    )
    
    
    32,259Income Tax (Provision) Benefit
    
    
    6,122
    
    
    
    (8,068
    )
    
    
    (8,923
    )
    
    
    
    
    
    
    (10,869
    )Income From Continuing Operations Before
Minority Interests
    
    
    9,366
    
    
    
    14,894
    
    
    
    18,380
    
    
    
    (21,250
    )
    
    
    21,390Minority Interests
    
    
    
    
    
    
    
    
    
    
    (2,781
    )
    
    
    
    
    
    
    (2,781
    )Income From Continuing Operations
    
    
    9,366
    
    
    
    14,894
    
    
    
    15,599
    
    
    
    (21,250
    )
    
    
    18,609Loss From Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (9,243
    )
    
    
    
    
    
    
    
    
    
    
    (9,243
    )Net Income
    
    $
    9,366
    
    
    $
    5,651
    
    
    $
    15,599
    
    
    $
    (21,250
    )
    
    $
    9,366
 16




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2005
(Unaudited)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)ASSETSCurrent Assets:Cash
    
    $
    
    
    
    $
    5,973
    
    
    $
    17,577
    
    
    $
    
    
    
    $
    23,550Restricted cash
    
    
    
    
    
    
    
    
    
    
    1,163
    
    
    
    
    
    
    
    1,163Accounts receivable, net
    
    
    
    
    
    
    133,379
    
    
    
    63,577
    
    
    
    
    
    
    
    196,956Inventories
    
    
    
    
    
    
    225,459
    
    
    
    107,183
    
    
    
    
    
    
    
    332,642Deferred charges
    
    
    
    
    
    
    15,796
    
    
    
    2,170
    
    
    
    
    
    
    
    17,966Current deferred tax assets
    
    
    
    
    
    
    29,042
    
    
    
    9,371
    
    
    
    
    
    
    
    38,413Other current assets
    
    
    
    
    
    
    6,925
    
    
    
    9,393
    
    
    
    
    
    
    
    16,318
    
    
    
    416,574
    
    
    
    210,434
    
    
    
    
    
    
    
    627,008Property, Plant and Equipment, Net
    
    
    
    
    
    
    133,336
    
    
    
    102,227
    
    
    
    
    
    
    
    235,563Goodwill
    
    
    
    
    
    
    206,234
    
    
    
    190,446
    
    
    
    
    
    
    
    396,680Investment In and Advances to Subsidiaries
    
    
    1,074,061
    
    
    
    
    
    
    
    
    
    
    
    (1,074,061
    )
    
    
    Investment In and Advances to Unconsolidated Affiliates
    
    
    
    
    
    
    57,542
    
    
    
    
    
    
    
    
    
    
    
    57,542Other Assets
    
    
    5,697
    
    
    
    31,067
    
    
    
    15,178
    
    
    
    
    
    
    
    51,942$
    1,079,758
    
    
    $
    844,753
    
    
    $
    518,285
    
    
    $
    (1,074,061
    )
    
    $
    1,368,735LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings and current portion of
long-term debt
    
    $
    
    
    
    $
    4,098
    
    
    $
    
    
    
    $
    
    
    
    $
    4,098Accounts payable
    
    
    
    
    
    
    50,646
    
    
    
    33,998
    
    
    
    
    
    
    
    84,644Deferred revenues
    
    
    
    
    
    
    20,170
    
    
    
    4,026
    
    
    
    
    
    
    
    24,196Federal income taxes payable
    
    
    
    
    
    
    973
    
    
    
    20,635
    
    
    
    
    
    
    
    21,608Current deferred tax liabilities
    
    
    
    
    
    
    122
    
    
    
    2,268
    
    
    
    
    
    
    
    2,390Other accrued liabilities
    
    
    1,108
    
    
    
    48,333
    
    
    
    21,300
    
    
    
    
    
    
    
    70,7411,108
    
    
    
    124,342
    
    
    
    82,227
    
    
    
    
    
    
    
    207,677Long-Term Debt
    
    
    294,000
    
    
    
    2,124
    
    
    
    
    
    
    
    
    
    
    
    296,124Deferred Tax Liabilities
    
    
    
    
    
    
    22,243
    
    
    
    27,362
    
    
    
    
    
    
    
    49,605Other Long-Term Liabilities
    
    
    
    
    
    
    13,091
    
    
    
    1,278
    
    
    
    
    
    
    
    14,369Commitments and Contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority Interests
    
    
    
    
    
    
    
    
    
    
    16,310
    
    
    
    
    
    
    
    16,310Stockholders Equity
    
    
    784,650
    
    
    
    682,953
    
    
    
    391,108
    
    
    
    (1,074,061
    )
    
    
    784,650$
    1,079,758
    
    
    $
    844,753
    
    
    $
    518,285
    
    
    $
    (1,074,061
    )
    
    $
    1,368,735
 17




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2004
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)ASSETSCurrent 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
 18




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2005
(Unaudited)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)Cash Flows From Operating Activities:Net cash (used in) provided by operating activities
    
    $
    92,284
    
    
    $
    (9,246
    )
    
    $
    6,176
    
    
    $
    
    
    
    $
    89,214Cash Flows From Investing Activities:Capital expenditures for property, plant and equipment
    
    
    
    
    
    
    (8,714
    )
    
    
    (5,249
    )
    
    
    
    
    
    
    (13,963
    )Other, net
    
    
    
    
    
    
    (1,895
    )
    
    
    127
    
    
    
    
    
    
    
    (1,768
    )Net cash used in investing activities
    
    
    
    
    
    
    (10,609
    )
    
    
    (5,122
    )
    
    
    
    
    
    
    (15,731
    )Cash Flows From Financing Activities:Repayments on debt, net
    
    
    (81,000
    )
    
    
    (4,893
    )
    
    
    
    
    
    
    
    
    
    
    (85,893
    )Debt redemption make-whole premium
    
    
    (25,356
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,356
    )Proceeds from stock option exercises
    
    
    17,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,013Other, net
    
    
    (2,941
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,941
    )Net cash used in financing activities
    
    
    (92,284
    )
    
    
    (4,893
    )
    
    
    
    
    
    
    
    
    
    
    (97,177
    )Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    
    
    
    
    (308
    )
    
    
    
    
    
    
    (308
    )Net (Decrease) Increase in Cash
    
    
    
    
    
    
    (24,748
    )
    
    
    746
    
    
    
    
    
    
    
    (24,002
    )Cash at Beginning of Period
    
    
    
    
    
    
    30,721
    
    
    
    16,831
    
    
    
    
    
    
    
    47,552Cash at End of Period
    
    $
    
    
    
    $
    5,973
    
    
    $
    17,577
    
    
    $
    
    
    
    $
    23,550
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2004
(Unaudited)
(Restated)
 Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    Total(In thousands)Cash Flows From Operating Activities:Net cash (used in) provided by operating activities
    
    $
    (9,367
    )
    
    $
    42,001
    
    
    $
    14,568
    
    
    $
    
    
    
    $
    47,202Cash Flows From Investing Activities:Acquisition of businesses
    
    
    
    
    
    
    (17,312
    )
    
    
    
    
    
    
    
    
    
    
    (17,312
    )Proceeds from sales of businesses, net of cash disposed
    
    
    
    
    
    
    2,180
    
    
    
    
    
    
    
    
    
    
    
    2,180Proceeds on sale of discontinued operations, net of cash disposed
    
    
    
    
    
    
    19,328
    
    
    
    831
    
    
    
    
    
    
    
    20,159Capital expenditures for property, plant and equipment
    
    
    
    
    
    
    (8,698
    )
    
    
    (12,035
    )
    
    
    
    
    
    
    (20,733
    )Other, net
    
    
    
    
    
    
    1,542
    
    
    
    187
    
    
    
    
    
    
    
    1,729Net cash used in investing activities
    
    
    
    
    
    
    (2,960
    )
    
    
    (11,017
    )
    
    
    
    
    
    
    (13,977
    )Cash Flows From Financing Activities:Repayments on debt, net
    
    
    
    
    
    
    (25,854
    )
    
    
    (1,704
    )
    
    
    
    
    
    
    (27,558
    )Proceeds from stock option exercises
    
    
    9,984
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,984Other, net
    
    
    (617
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (617
    )Net cash provided by (used in) financing activities
    
    
    9,367
    
    
    
    (25,854
    )
    
    
    (1,704
    )
    
    
    
    
    
    
    (18,191
    )Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    134Net Increase in Cash
    
    
    
    
    
    
    13,187
    
    
    
    1,981
    
    
    
    
    
    
    
    15,168Cash at Beginning of Period
    
    
    
    
    
    
    2,620
    
    
    
    16,610
    
    
    
    
    
    
    
    19,230Cash at End of Period
    
    $
    
    
    
    $
    15,807
    
    
    $
    18,591
    
    
    $
    
    
    
    $
    34,398
 19




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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
    Corion Diamond Products Acquisition
  20




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##### Table of Contents



Market Trends and Outlook
   Three Months EndedJune 30, 2005
    
    December 31, 2004
    
    June 30, 2004WTI Oil(a)Average
    
    $
    53.11
    
    
    $
    48.31
    
    
    $
    38.32Ending
    
    
    56.50
    
    
    
    43.45
    
    
    
    37.05Henry Hub Gas(b)Average
    
    $
    6.95
    
    
    $
    6.39
    
    
    $
    6.10Ending
    
    
    7.00
    
    
    
    6.01
    
    
    
    6.03North American Rig Count(c)Average
    
    
    1,577
    
    
    
    1,669
    
    
    
    1,360Ending
    
    
    1,648
    
    
    
    1,686
    
    
    
    1,510International Rig Count(c)Average
    
    
    916
    
    
    
    862
    
    
    
    837Ending
    
    
    932
    
    
    
    869
    
    
    
    841
 
 (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
   21




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##### Table of Contents



Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    % Change
    
    2005
    
    2004
    
    % Change(In thousands)(Restated)
    
    
    
    
    
    
    
    
    
    (Restated)Revenues:Drilling Products and Services
    
    $
    144,356
    
    
    $
    90,272
    
    
    
    60
    %
    
    $
    272,706
    
    
    $
    160,087
    
    
    
    70
    %Drill Bits
    
    
    93,089
    
    
    
    76,585
    
    
    
    22
    %
    
    
    183,715
    
    
    
    155,843
    
    
    
    18
    %Tubular Technology and Services
    
    
    79,502
    
    
    
    56,936
    
    
    
    40
    %
    
    
    152,622
    
    
    
    98,457
    
    
    
    55
    %Other
    
    
    
    
    
    
    873
    
    
    
    100
    %
    
    
    
    
    
    
    1,760
    
    
    
    100
    %Total Revenues
    
    
    316,947
    
    
    
    224,666
    
    
    
    41
    %
    
    
    609,043
    
    
    
    416,147
    
    
    
    46
    %Operating Income (Loss):Drilling Products and Services
    
    $
    43,070
    
    
    $
    19,326
    (a)
    
    
    123
    %
    
    $
    79,331
    
    
    $
    27,906
    (c)
    
    
    184
    %Drill Bits
    
    
    20,568
    
    
    
    16,686
    
    
    
    23
    %
    
    
    42,190
    
    
    
    35,971
    
    
    
    17
    %Tubular Technology and Services
    
    
    19,225
    
    
    
    2,298
    (b)
    
    
    737
    %
    
    
    34,486
    
    
    
    2,983
    (d)
    
    
    1056
    %Other
    
    
    (110
    )
    
    
    (528
    )
    
    
    (79
    %)
    
    
    (220
    )
    
    
    (1,707
    )
    
    
    (87
    %)Corporate
    
    
    (11,480
    )
    
    
    (7,515
    )
    
    
    53
    %
    
    
    (22,323
    )
    
    
    (13,975
    )
    
    
    60
    %Total Operating Income
    
    
    71,273
    
    
    
    30,267
    
    
    
    135
    %
    
    
    133,464
    
    
    
    51,178
    
    
    
    161
    %
 
 (a)
    
    Includes other charges of $0.2 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.(b)
    
    Includes other charges of $2.3 million for severance costs related to the
Tubular Technology and Services organizational restructuring.(c)
    
    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.(d)
    
    Includes other charges of $3.2 million for severance costs related to the
Tubular Technology and Services organizational restructuring. Consolidated Revenues and Operating Income
 Results for the three-month periods ended June 30, 2005 and 2004
  22




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##### Table of Contents



Results for the six-month periods ended June 30, 2005 and 2004
   Drilling Products and Services
 Results for the three-month periods ended June 30, 2005 and 2004
  Results for the six-month periods ended June 30, 2005 and 2004
  Drill Bits
 Results for the three-month periods ended June 30, 2005 and 2004
  Results for the six-month periods ended June 30, 2005 and 2004
  23




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##### Table of Contents



Tubular Technology and Services
 Results for the three-month periods ended June 30, 2005 and 2004
  Results for the six-month periods ended June 30, 2005 and 2004
  Other Income and Expense
       Liquidity and Capital Resources
 Overview
  24




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##### Table of Contents



Historical Cash Flows
  Six Months EndedJune 30,2005
    
    2004(In thousands)(Restated)Net Cash Provided by Operating Activities
    
    $
    89,214
    
    
    $
    47,202Net Cash Used in Investing Activities
    
    
    (15,731
    )
    
    
    (13,977
    )Net Cash Used in Financing Activities
    
    
    (97,177
    )
    
    
    (18,191
    )
 Operating Activities
  Investing Activities
  Capital Expenditures
  Financing Activities
  Debt Restructuring
 New Credit Facility
   25




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##### Table of Contents



Redemption of 9 5/8% Senior Notes
  Treasury Rate Locks
  Issue $200 million 6 1/8% Senior Notes and Tender Offer $175 million 9% Senior Notes
  26




---



##### Table of Contents



Contractual Obligations
  Other Commitments
   Recent Accounting Pronouncements
  Forward-Looking Statements and Exposures
  27




---



##### 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.
   28




---



##### 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 international operations may experience severe interruptions due to political, economic, or
other risks, which could adversely affect our results of operations and financial condition.
  29




---



##### Table of Contents




    
    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.
    30




---



##### 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
 Foreign Currency Risk
  31




---



##### Table of Contents



Interest Rates
  
 ITEM 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Update on Internal Control Over Financial Reporting
   32




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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 ShareApril 2005
    
    
    35,352
    
    
    $
    24.07May 2005
    
    
    6,715
    
    
    $
    22.57June 2005
    
    
    206,143
    
    
    $
    26.26
 
 ITEM 4. Submission of Matters to a Vote of Security Holders
  Votes For
    
    Votes WithheldDavid J. Butters
    
    
    114,088,422
    
    
    
    2,316,571Eliot M. Fried
    
    
    115,867,637
    
    
    
    537,356Dennis R. Hendrix
    
    
    115,817,383
    
    
    
    587,610Harold E. Layman
    
    
    111,214,880
    
    
    
    5,190,113Sheldon B. Lubar
    
    
    114,028,397
    
    
    
    2,376,596Michael McShane
    
    
    114,365,041
    
    
    
    2,039,952Robert K. Moses, Jr.
    
    
    115,915,713
    
    
    
    489,280Joseph E. Reid
    
    
    115,870,927
    
    
    
    534,066David A. Trice
    
    
    97,339,301
    
    
    
    19,065,692
 
 ITEM 6. Exhibits
  4.1
    
    Indenture relating to the
61/8% 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 61/8% 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).4.4
    
    Credit Facility dated as of May 12, 2005, among Grant Prideco, Inc. a Delaware corporation,
certain Subsidiaries of Grant Prideco party thereto, each lender from time to time party
thereto Bank of America, N.A., as Syndication Agent, Wells Fargo Bank, National Association,
as Administrative Agent, US Swing Line Lender and an L/C Issuer, HSBC Bank Plc, as UK Swing
Line Lender and an L/C Issuer, and Deutche Bank Securities Inc., as Documentation Agent
(incorporated by reference from the Companys Current Report on Form 8-K dated May 17, 2005).4.5
    
    Security Agreement dated as of May 12, 2005, among Grant Prideco, Inc., certain subsidiaries
of Grant Prideco, and Wells Fargo Bank, National Association, in its capacity as
administrative agent (incorporated by reference from the Companys Current Report on Form 8-K
dated May 17, 2005).31.1
    
    Certification of Michael McShane31.2
    
    Certification of Matthew D. Fitzgerald32.1
    
    Section 1350 Certification
 33




---



##### 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
  34




---



##### Table of Contents



Exhibit Number
    
    Description4.1
    
    Indenture relating to the 61/8% 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 61/8% 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).4.4
    
    Credit Facility dated as of May 12, 2005, among Grant Prideco, Inc. a Delaware corporation,
certain Subsidiaries of Grant Prideco party thereto, each lender from time to time party
thereto Bank of America, N.A., as Syndication Agent, Wells Fargo Bank, National Association,
as Administrative Agent, US Swing Line Lender and an L/C Issuer, HSBC Bank Plc, as UK Swing
Line Lender and an L/C Issuer, and Deutche Bank Securities Inc., as Documentation Agent
(incorporated by reference from the Companys Current Report on Form 8-K dated May 17, 2005).4.5
    
    Security Agreement dated as of May 12, 2005, among Grant Prideco, Inc., certain subsidiaries
of Grant Prideco, and Wells Fargo Bank, National Association, in its capacity as
administrative agent (incorporated by reference from the Companys Current Report on Form 8-K
dated May 17, 2005).31.1
    
    Certification of Michael McShane31.2
    
    Certification of Matthew D. Fitzgerald32.1
    
    Section 1350 Certification
 35