<PAGE>
                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

(Mark One)

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003
                               -------------

                                       OR

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

For the transition period from                 to
                               ---------------   ---------------


                        Commission file number 000-31579
                                               ---------

                                 HYDRIL COMPANY
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              95-2777268
-------------------------------                              -------------------
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

3300 North Sam Houston Parkway East Houston, Texas               77032-3411
--------------------------------------------------               ----------
   (Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code  (281) 449-2000
                                                    --------------

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                                                 Yes  X    No
                                                                     ---     ---

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

        Shares outstanding at August 8, 2003:
        Common stock, $.50 par value, 16,013,692 shares outstanding
        Class B common stock, $.50 par value, 6,757,721 shares outstanding

                                       1



<PAGE>

                                 HYDRIL COMPANY

                                      INDEX

                          PART I--FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Item 1.  Financial Statements

         Consolidated Balance Sheets--June 30, 2003 (unaudited) and
         December 31, 2002                                                    3

         Unaudited Consolidated Statements of Operations--For the
         Three and Six Months Ended June 30, 2003 and 2002                    5

         Unaudited Consolidated Statements of Cash Flows--For the
         Six Months Ended June 30, 2003 and 2002                              6

         Notes to Unaudited Consolidated Financial Statements                 7

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           15

Item 3.  Quantitative and Qualitative Disclosures About Market Risk          31

Item 4.  Controls and Procedures                                             32


                   PART II--OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders                 32

Item 6.  Exhibits and Reports on Form 8-K                                    33
</TABLE>

                                      * * *




           Cautionary Statement Regarding Forward-Looking Information


         This quarterly report on Form 10-Q contains forward-looking statements.
These statements relate to future events or our future financial performance,
including our business strategy and product development plans, and involve known
and unknown risks and uncertainties. These risks and uncertainties and
assumptions, which are more fully described under "RISK FACTORS" in Item 2 of
this report and in Hydril Company's Annual Report on Form 10-K for the year
ended December 31, 2002 filed with the Securities and Exchange Commission,
include the impact of oil and gas prices and worldwide economic conditions on
drilling activity, and the demand for and pricing of Hydril's products and
Hydril's assumptions relating thereto. These factors may cause our company's or
our industry's actual results, levels of activity, performance or achievements
to be materially different from those expressed or implied by the
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"intends," "plans," "anticipated," "believes," "estimated," "potential," or the
negative of these terms or other comparable terminology.

         These statements are only projections, based on anticipated industry
activity. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.

                                       2



<PAGE>


                                 HYDRIL COMPANY
                   PART I, ITEM 1: CONSOLIDATED BALANCE SHEETS
             (In Thousands, Except Share and Per Share Information)

<TABLE>
<CAPTION>
                                                                                JUNE 30,        DECEMBER 31,
                                                                                  2003             2002
                                                                              -----------       ------------
                                                                              (unaudited)
<S>                                                                           <C>               <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                   $ 44,163           $ 61,590
   Investments                                                                   10,479              7,899
   Receivables:
     Trade, less allowance for doubtful
       accounts: 2003, $1,063; 2002, $1,039                                      32,924             35,393
     Contract costs and estimated earnings in excess of billings                  6,485              4,829
     Other                                                                        1,090                396
                                                                               --------           --------
           Total receivables                                                     40,499             40,618
                                                                               --------           --------
   Inventories:
     Finished goods                                                              22,118             22,299
     Work-in-process                                                             10,205             13,041
     Raw Materials                                                                6,130              6,144
                                                                               --------           --------
           Total inventories                                                     38,453             41,484
                                                                               --------           --------
   Deferred tax asset                                                             9,488              9,164
   Other current assets                                                           2,048              3,851
                                                                               --------           --------
           Total current assets                                                 145,130            164,606
                                                                               --------           --------

PROPERTY:
   Land and improvements                                                         20,184             20,031
   Buildings and equipment                                                       51,536             51,061
   Machinery and equipment                                                      160,012            156,175
   Construction-in-progress                                                       3,997              3,569
                                                                               --------           --------
           Total                                                                235,729            230,836
   Less accumulated depreciation and amortization                              (129,437)          (123,805)
                                                                               --------           --------
           Property, net                                                        106,292            107,031
                                                                               --------           --------

OTHER LONG-TERM ASSETS:
   Investments                                                                       --              1,665
   Other assets                                                                   5,766              4,906
                                                                               --------           --------
           TOTAL                                                               $257,188           $278,208
                                                                               ========           ========
</TABLE>

            See notes to unaudited consolidated financial statements


                                       3


<PAGE>


                                 HYDRIL COMPANY
                   PART I, ITEM 1: CONSOLIDATED BALANCE SHEETS
             (In Thousands, Except Share and Per Share Information)

<TABLE>
<CAPTION>
                                                                                JUNE 30,        DECEMBER 31,
                                                                                  2003             2002
                                                                              -----------       ------------
                                                                              (unaudited)
<S>                                                                           <C>               <C>
CURRENT LIABILITIES:
   Accounts payable                                                            $ 12,593          $ 13,723
   Billings in excess of contract costs and estimated earnings                    3,539             4,981
   Accrued liabilities                                                           15,808            21,656
   Current portion of long-term debt                                                 --            30,000
   Income taxes payable                                                           5,848             3,763
                                                                               --------          --------
           Total current liabilities                                             37,788            74,123
                                                                               --------          --------

LONG-TERM LIABILITIES:
   Deferred tax liability                                                           176               578
   Other                                                                         17,062            16,370
                                                                               --------          --------
           Total long-term liabilities                                           17,238            16,948
                                                                               --------          --------

CONTINGENCIES (NOTE 3)

STOCKHOLDERS' EQUITY:
   Capital stock:
     Preferred stock-authorized, 10,000,000 shares of $1 par
       value; none issued or outstanding
     Common stock-authorized 75,000,000 shares of $.50 par value;
       15,994,856 and 15,369,638 shares issued and outstanding at
       June 30, 2003 and December 31, 2002, respectively                         7,997              7,685
     Class B common stock-authorized, 32,000,000 shares of
       $.50 par value; 6,742,721 and 7,192,427 shares issued
       and outstanding at June 30, 2003 and December 31, 2002,
       respectively                                                               3,371             3,596
   Additional paid in capital                                                    48,241            43,898
   Retained earnings                                                            147,107           134,481
   Deferred compensation-restricted stock/units                                  (2,031)               --
   Accumulated other comprehensive loss                                          (2,523)           (2,523)
                                                                               --------          --------
           Total stockholders' equity                                           202,162           187,137
                                                                               --------          --------
              TOTAL                                                            $257,188          $278,208
                                                                               ========          ========
</TABLE>


            See notes to unaudited consolidated financial statements

                                       4



<PAGE>


                                 HYDRIL COMPANY
         PART I, ITEM 1: UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                          JUNE 30,                         JUNE 30,
                                                               ----------------------------    ----------------------------
                                                                   2003            2002            2003             2002
                                                               ------------    ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>             <C>
REVENUE                                                        $     54,551    $     64,068    $    111,889    $    122,123
COST OF SALES                                                        32,941          40,077          67,980          77,402
                                                               ------------    ------------    ------------    ------------
GROSS PROFIT                                                         21,610          23,991          43,909          44,721
                                                               ------------    ------------    ------------    ------------
SELLING, GENERAL &
  ADMINISTRATION EXPENSES:
  Engineering                                                         3,349           2,966           7,015           6,041
  Sales and marketing                                                 4,168           4,500           8,166           8,326
  General and administration                                          4,405           4,513           8,712           8,812
                                                               ------------    ------------    ------------    ------------
         Total                                                       11,922          11,979          23,893          23,179
                                                               ------------    ------------    ------------    ------------
OPERATING INCOME                                                      9,688          12,012          20,016          21,542

INTEREST EXPENSE                                                       (546)         (1,107)         (1,101)         (2,234)
INTEREST INCOME                                                         226             442             476             830
OTHER INCOME (EXPENSE)                                                  112              40              32             (70)
                                                               ------------    ------------    ------------    ------------
INCOME BEFORE INCOME
  TAXES                                                               9,480          11,387          19,423          20,068
PROVISION FOR INCOME
  TAXES                                                               3,317           4,042           6,797           7,124
                                                               ------------    ------------    ------------    ------------
NET INCOME                                                     $      6,163    $      7,345    $     12,626    $     12,944
                                                               ============    ============    ============    ============

NET INCOME PER SHARE:
  BASIC                                                        $       0.27    $       0.33    $       0.56    $       0.58
                                                               ============    ============    ============    ============
  DILUTED                                                      $       0.27    $       0.32    $       0.55    $       0.57
                                                               ============    ============    ============    ============

WEIGHTED AVERAGE SHARES
  OUTSTANDING:
  BASIC                                                          22,685,637      22,380,883      22,637,244      22,360,659
  DILUTED                                                        23,019,217      22,893,743      22,969,513      22,801,721
</TABLE>


            See notes to unaudited consolidated financial statements

                                       5



<PAGE>

                                 HYDRIL COMPANY
         PART I, ITEM 1: UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                                SIX MONTHS ENDED
                                                                                                     JUNE 30,
                                                                                     -------------------------------------
                                                                                       2003                        2002
                                                                                     --------                     --------
<S>                                                                                  <C>                          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                         $ 12,626                     $ 12,944
                                                                                     --------                     --------
  Adjustments to reconcile net income to net cash used in
    operating activities:
    Amortization of deferred compensation                                                  35                           --
    Depreciation                                                                        5,814                        5,177
    Deferred income taxes                                                                 325                        3,519
    Provision for doubtful accounts                                                        45                          202
    Gain on sale of real estate not used in operations                                   (104)
    Change in operating assets and liabilities:
       Receivables                                                                      1,730                       (2,074)
       Contract costs and estimated earnings in excess of billings                     (1,656)                      (5,398)
       Inventories                                                                      3,031                        1,022
       Other current and noncurrent assets                                                973                          (86)
       Accounts payable                                                                (1,130)                      (5,933)
       Billings in excess of contract costs and estimated earnings                     (1,442)                      (1,280)
       Accrued liabilities                                                             (5,848)                        (597)
       Income taxes payable                                                             2,085                         (211)
       Other long-term liabilities                                                        692                        1,145
                                                                                     --------                     --------
          Net cash provided by operating activities                                    17,176                        8,430
                                                                                     --------                     --------
NET CASH FROM INVESTING ACTIVITIES:
  Purchase of held-to-maturity investments                                            (13,146)                          --
  Proceeds from held-to-maturity investments                                           12,230                           --
  Capital expenditures                                                                 (3,915)                     (11,644)
  Other, net                                                                           (1,096)                          --
                                                                                     --------                     --------
  Net cash used in investing activities                                                (5,927)                     (11,644)
                                                                                     --------                     --------
NET CASH FROM FINANCING ACTIVITIES:
  Repayment of debt                                                                   (30,000)                        (234)
  Repayment of capital leases                                                              --                          (52)
  Net proceeds from issuance of common stock                                              102                           96
  Net proceeds from exercise of stock options                                           1,222                          310
                                                                                     --------                     --------
          Net cash provided by (used in) financing activities                         (28,676)                         120
                                                                                     --------                     --------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                             (17,427)                      (3,094)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       61,590                       89,346
                                                                                     --------                     --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                           $ 44,163                     $ 86,252
                                                                                     --------                     --------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid                                                                      $  1,039                     $  2,157
  Income taxes paid:
      Domestic                                                                             --                           43
      Foreign                                                                           3,203                        2,630
</TABLE>

            See notes to unaudited consolidated financial statements

                                       6

<PAGE>

                                 HYDRIL COMPANY

      PART I, ITEM 1: NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION

         Principles of Consolidation - The consolidated financial statements
include the accounts of Hydril Company and its wholly owned subsidiaries.
Intercompany accounts and transactions are eliminated in consolidation.

         Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.

         Reclassifications - Certain prior year amounts within the consolidated
financial statements have been reclassified to conform to the current year's
presentation.

         Interim Presentation - The accompanying consolidated interim financial
statements and disclosures have been prepared by the Company in accordance with
accounting principles generally accepted in the United States of America and in
the opinion of management reflect all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation in all material
respects of the financial position and results for the interim periods. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2002. The results of operations for the
three and six months ended June 30, 2003 are not necessarily indicative of
results to be expected for the full year.


NOTE 2 -- PRODUCT WARRANTY LIABILITY

         The changes in the aggregate product warranty liability is as follows
for the quarters ended June 30:

<TABLE>
<CAPTION>
(in thousands)                                                                2003            2002
--------------                                                              ------          ------
<S>                                                                         <C>             <C>
Beginning balance                                                           $2,912          $3,241
Claims paid                                                                   (424)           (257)
Additional warranty charged to expense                                        (284)            220
                                                                            ------          ------
Ending balance                                                              $2,204          $3,204
                                                                            ======          ======
</TABLE>

                                        7


<PAGE>

NOTE 3 -- LONG-TERM CONTRACTS

         The components of long-term contracts as of June 30, 2003 and December
31, 2002 consist of the following:

<TABLE>
<CAPTION>
                                                             JUNE 30, 2003                 DECEMBER 31, 2002
                                                             -------------                 -----------------
                                                                              (in thousands)
<S>                                                             <C>                                <C>
Costs and estimated earnings on uncompleted contracts           $ 47,044                           $ 48,417
Less: billings to date                                           (44,098)                           (48,569)
                                                                --------                           --------
Excess of costs and estimated earnings over billings            $  2,946                           $   (152)
                                                                ========                           =========

Included in the accompanying balance sheets under
  the following captions:
Contract costs and estimated earnings in excess
 of billings                                                    $  6,485                           $  4,829
Billings in excess of contract costs and
 estimated earnings                                               (3,539)                            (4,981)
                                                                --------                           --------
         Total                                                  $  2,946                           $   (152)
                                                                ========                           ========
</TABLE>


NOTE 4 -- CONTINGENCIES

         The Company is involved in legal proceedings arising in the ordinary
course of business. In the opinion of management these matters are such that
their outcome will not have a material adverse effect on the financial position
or results of operations of the Company.

         The Company has been identified as a potentially responsible party at a
waste disposal site near Houston, Texas. Based on the number of other
potentially responsible parties, the total estimated site cleanup costs and its
estimated share of such costs, the Company does not expect this matter to
materially affect its results of operation or financial condition.


NOTE 5 -- LONG TERM DEBT

         The Company's borrowings as of June 30, 2003 and December 31, 2002 were
as follows:

<TABLE>
<CAPTION>
                                                      JUNE 30, 2003              DECEMBER 31, 2002
                                                      -------------              -----------------
                                                                    (in thousands)
<S>                                                    <C>                            <C>
Senior notes                                           $     --                       $ 30,000
Less current portion                                         --                        (30,000)
                                                       ---------                      --------
        Total long-term debt                           $     --                       $    --
                                                       =========                      ========
</TABLE>


         The Company repaid the $30,000,000 senior unsecured notes at maturity
on June 30, 2003. The notes bore interest at a rate of 6.85% per annum, which
was payable quarterly. The notes were paid in full including accrued interest,
for a total of $30,514,000.


                                       8



<PAGE>


         Effective June 30, 2003, the Company entered into a new domestic line
of credit to replace its expiring facility. The new facility provides for
$15,000,000 in committed unsecured revolving credit through June 30, 2005. The
Company may, at its election, borrow at either a prime or LIBOR based interest
rate. Interest rates under the line fluctuate depending on the Company's
leverage ratio and are prime minus a spread ranging from 60 to 115 basis points
or LIBOR plus a spread ranging from 85 to 140 basis points. At June 30, 2003,
there were no outstanding borrowings under this credit facility. There are
covenants under this line which require the Company to maintain certain
financial ratios. The Company was in compliance with these covenants at June 30,
2003.

         Additionally, effective June 30, 2003 the Company amended its
$5,000,000 committed unsecured foreign line of credit to, among other things
extend the maturity to June 30, 2005. The Company may, at its election, borrow
at either a prime or LIBOR based interest rate. Interest rates under the credit
line fluctuate depending on the Company's leverage ratio and are prime minus a
spread ranging from 60 to 115 basis points or LIBOR plus a spread ranging from
85 to 140 basis points. At June 30, 2003, there were no outstanding borrowings
under this facility. The foreign line does not contain any separate financial
covenants but contains cross-default provisions which would be triggered by a
default under the U.S. line of credit.

         The terms of the Company's credit facilities allows for the issuance of
letters of credit. The amount of outstanding letters of credit reduces the
amount available for borrowing under the credit facilities. The letters of
credit are generally short in duration and immaterial in amount. At June 30,
2003 there was approximately $274,000 outstanding in letters of credit.


NOTE 6 -- EARNINGS PER SHARE

         The Company has presented basic and diluted income per share ("EPS") on
the consolidated statement of operations. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Dilutive EPS is
based on the weighted average number of shares outstanding during each period
plus the assumed exercise of dilutive stock options and vesting of restricted
stock and restricted stock units, less the number of treasury shares from the
proceeds using the average market price for the Company's common stock for each
of the periods presented. When potentially dilutive securities are
anti-dilutive, they are not included in dilutive EPS. Basic weighted average
shares outstanding for the three months ended June 30, 2003 and 2002 were
22,685,637 and 22,380,883, respectively, while the six months ended June 30,
2003 and 2002 were 22,637,244 and 22,360,659, respectively. Dilutive weighted
average shares outstanding for the three months ended June 30, 2003 and 2002
were 23,019,217 and 22,893,743, respectively, while the six months ended June
30, 2003 and 2002 were 22,969,513 and 22,801,721, respectively.


NOTE 7 -- EMPLOYEE STOCK OPTION PLANS

      On June 1, 2003, the Company granted 189,140 stock options to officers and
key employees for the purchase of common stock. Of these, 185,459 were granted
at an exercise price of $27.165 per share and 3,681 were granted at an exercise
price of $29.8815 per share.


                                       9


<PAGE>


These options have a term of ten years and vest and become exercisable in
cumulative annual installments of one-fifth each beginning on the first
anniversary of the date of grant.

      In addition, each of the Company's non-employee directors received a grant
of non-qualified stock options to purchase 3,000 shares of common stock as
provided under the Company's 2000 Incentive Plan. These options were granted at
an exercise price of $27.165 per share, have a term of ten years, are fully
vested upon the completion of one year of service, and are exercisable in
cumulative annual installments of one-third each beginning on the first
anniversary of the date of grant.

      The Company accounts for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for the Company's stock option plans. In December 2002, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure." The statement requires pro forma
disclosures that reflect the difference in stock-based employee compensation
cost, if any, included in net income and the total cost measured by the fair
value based method per SFAS 123 "Accounting for Stock-Based Compensation", if
any, that would have been recognized in the income statement if the fair value
based method had been applied to all awards.

         The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS 123 for the three and six months ended June 30, 2003 and 2002:


<TABLE>
<CAPTION>
                                                                         THREE MONTHS                SIX MONTHS
                                                                         ENDED JUNE 30              ENDED JUNE 30
                                                                    -----------------------     ----------------------
(in thousands except per share data)                                  2003           2002         2003          2002
------------------------------------                                --------       --------     --------      --------
<S>                                                                 <C>            <C>          <C>           <C>
Net income, as reported................................             $  6,163       $  7,345     $ 12,626      $ 12,944
Deduct: Total stock-based employee compensation
  expense determined under the fair value based
  method for all awards, net of tax....................                 (466)          (396)        (899)         (737)
                                                                    --------       --------     --------      --------
Proforma net income....................................             $  5,697       $  6,949     $ 11,727      $ 12,207
                                                                    ========       ========     ========      ========

EARNINGS PER SHARE:
Basic-as reported......................................                $0.27          $0.33        $0.56         $0.58
Basic-proforma.........................................                $0.25          $0.31        $0.52         $0.55

Diluted-as reported....................................                $0.27          $0.32        $0.55         $0.57
Diluted-proforma.......................................                $0.25          $0.30        $0.51         $0.54
</TABLE>


      Additionally on June 1, 2003, the Company granted a total of 76,054 in
restricted stock units and shares of restricted stock to officers and key
employees. A stock unit represents the right to receive a share of common stock
on the date the restrictions on the unit lapse. The restrictions on restricted
stock units and restricted stock generally lapse over a five year period with
sixty percent vested on the third anniversary of the date of grant and an
additional twenty percent vested on the fourth and fifth anniversary dates of
the grant. In


                                       10



<PAGE>


the event a grantee terminates employment with the Company, any restricted stock
units or restricted stock remaining subject to restrictions are forfeited.
Restricted stock and unit awards result in the recognition of deferred
compensation. Deferred compensation is a contra-equity account with an offset to
additional paid in capital and is amortized to operating expense over the
vesting period of the award.

NOTE 8 -- SEGMENT AND RELATED INFORMATION

         In accordance with Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information," the Company has identified the following reportable segments:
Premium Connection and Pressure Control.

         The Company's premium connection segment manufactures premium
connections that are used in drilling environments where extreme pressure,
temperature, corrosion and mechanical stress are encountered, as well as in
environmentally sensitive drilling. These harsh drilling conditions are typical
for deepwater, deep-formation and horizontal wells. Hydril applies premium
threaded connections to tubulars owned by its customers and purchases pipe in
certain international markets for threading and resale. Hydril manufactures
premium threaded connections and provides services at facilities located in
Houston, Texas; Westwego, Louisiana; Bakersfield, California; Nisku, Alberta,
and Dartmouth, Nova Scotia, Canada; Aberdeen, Scotland; Veracruz, Mexico; Batam,
Indonesia; and Port Harcourt and Warri, Nigeria.

         The Company's pressure control segment manufactures a broad range of
pressure control equipment used in oil and gas drilling and well completion
typically employed in harsh environments. The Company's pressure control
products are primarily safety devices that control and contain fluid and gas
pressure during drilling, completion and maintenance in oil and gas wells. The
Company also provides aftermarket replacement parts, repair and field services
for its installed base of pressure control equipment. Hydril manufactures
pressure control products at two plant locations in Houston, Texas.

         The accounting policies of the segments are the same as those described
in Note 1 "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" under Item 8 of our
Annual Report on Form 10-K for the year-ended December 31, 2002 filed with the
Securities and Exchange Commission. The Company evaluates performance based on
operating income or loss.


                                       11


<PAGE>


         Financial data for the business segments for the three and six months
ended June 30, 2003 and 2002 is as follows:


<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED                      SIX MONTHS ENDED
                                                    JUNE 30,                               JUNE 30,
                                         ----------------------------           -------------------------------
(in thousands)                             2003                2002               2003                   2002
--------------                           --------            --------           --------               --------
<S>                                      <C>                 <C>                <C>                    <C>
REVENUE
  Premium Connection                     $ 28,057            $ 34,288           $ 59,502               $ 63,601
  Pressure Control                         26,494              29,780             52,387                 58,522
                                         --------            --------           --------               --------
           Total                         $ 54,551            $ 64,068           $111,889               $122,123
                                         ========            ========           ========               ========
OPERATING INCOME (LOSS)
  Premium Connection                     $  7,230            $ 10,191           $ 15,436               $ 17,440
  Pressure Control                          5,803               4,910             11,064                 10,321
  Corporate Administration                 (3,345)             (3,089)            (6,484)                (6,219)
                                         --------            --------           --------               --------
           Total                         $  9,688            $ 12,012           $ 20,016               $ 21,542
                                         ========            ========           ========               ========
DEPRECIATION EXPENSE
  Premium Connection                     $  1,808            $  1,647           $  3,591               $  3,223
  Pressure Control                            685                 568              1,362                  1,093
  Corporate Administration                    432                 441                861                    861
                                         --------            --------           --------               --------
           Total                         $  2,925            $  2,656           $  5,814               $  5,177
                                         ========            ========           ========               ========
CAPITAL EXPENDITURES
  Premium Connection                     $  1,171            $  3,940           $  1,795               $  6,746
  Pressure Control                            707               1,831              1,592                  4,219
  Corporate Administration                    234                 637                528                    679
                                         --------            --------           --------               --------
           Total                         $  2,112            $  6,408           $  3,915               $ 11,644
                                         ========            ========           ========               ========
</TABLE>


NOTE 9 -- RECENT ACCOUNTING PRONOUNCEMENTS

         In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. Subsequently,
the asset retirement costs should be allocated to expense using a systematic and
rational method. SFAS 143 is effective for fiscal years beginning after June 15,
2002. The Company adopted SFAS 143 effective January 1, 2003, which had no
material impact on the results of operations or financial condition.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The rescission of SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements," will affect income statement classification
of gains and losses from extinguishment of debt. SFAS No. 4 required that gains
and losses from extinguishment of debt be classified as an extraordinary item,
if material. Under SFAS No. 145, extinguishment of debt is now considered a risk
management strategy by the reporting enterprise and the FASB does not believe it
should be considered extraordinary under the criteria in APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a

                                       12


<PAGE>

Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", unless the debt extinguishment meets the "unusual in nature and
infrequency of occurrence" criteria in APB Opinion No. 30. SFAS No. 145 will be
effective for fiscal years beginning after May 15, 2002. The Company's early
adoption of SFAS 145, effective July 1, 2002, had no material impact on the
results of operations or financial condition.

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Previous accounting guidance was provided by EITF Issue No. 94-3. "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
replaces Issue 94-3 and is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company adopted SFAS 146
effective January 1, 2003, which had no material impact on the results of
operations or financial condition.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123". This statement provides alternative methods of transition
for an entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation and amends APB Opinion No. 28,
"Interim Financial Reporting" to require disclosure of those effects in interim
financial information. Additionally, the statement requires new disclosures
about the effect of stock-based employee compensation on reported results and
specifies the form, content, and location of those disclosures. This statement
is effective for fiscal years ending after December 15, 2002. The Company has
adopted the disclosure only provisions of SFAS 148 and continues to account for
stock-based compensation using the intrinsic value method prescribed in APB 25.
See Note 7 for additional information.

         In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others an
Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34". The interpretation addresses disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under guarantees. The disclosure requirements in the interpretation are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company adopted FASB Interpretation No. 45 effective
January 1, 2003, which had no material impact on the results of operations or
financial condition.

         On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". SFAS 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under Statement 133. This statement is effective for contracts entered into or
modified after June 30, 2003. The Company is currently evaluating the impact of
adopting SFAS 149; however, it does not expect the adoption to materially affect
its results of operations or financial condition.

         On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". The
statement requires that an issuer classify financial instruments that are within
its scope as a liability. Many of those


                                       13



<PAGE>

instruments were classified as equity under previous guidance. Most of the
guidance in SFAS No. 150 is effective for all financial instruments entered into
or modified after May 31, 2003, and otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company is currently
evaluating the impact of adopting SFAS 150; however, it does not expect the
adoption to materially affect its results of operations or financial condition.


                                       14


<PAGE>

PART I, ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

         The following discussion of Hydril's historical results of operations
and financial condition should be read in conjunction with Hydril's unaudited
consolidated financial statements and notes thereto included elsewhere in this
report and the audited consolidated financial statements and notes thereto
included in Hydril's Annual Report on Form 10-K for the year ended December 31,
2002.


                                    OVERVIEW

         Hydril Company is engaged worldwide in engineering, manufacturing and
marketing premium connection and pressure control products used for oil and gas
drilling and production. Our premium connections are used in drilling
environments where extreme pressure, temperature, corrosion and mechanical
stress are encountered, as well as in environmentally sensitive drilling. These
harsh drilling conditions are typical for deep-formation, deepwater and
horizontal wells. Our pressure control products are primarily safety devices
that control and contain fluid and gas pressure during drilling, completion and
maintenance of oil and gas wells. We also provide aftermarket replacement parts,
repair and field services for our installed base of pressure control equipment.
These products and services are required on a recurring basis because of the
impact of the extreme conditions in which pressure control products are used.

         Demand for our products and services is cyclical and substantially
dependent on the activity levels in the oil and gas industry and our customers'
willingness to spend capital on the exploration and development of oil and gas
reserves. The level of these capital expenditures is highly sensitive to current
and expected oil and gas prices, which have historically been characterized by
significant volatility. Our premium connection products are marketed primarily
to exploration and production company operators. In North America, our premium
connection business is driven principally by the number of rigs drilling to
target depths greater than 15,000 feet and by the number of rigs drilling in
water depths greater than 1,500 feet. Internationally, while the total
international rig count is a general indicator of the premium connection market,
there are many variables, including political and civil unrest, which may
adversely impact the level of drilling activity in only particular countries or
regions. If we are affected by conditions that exist in only specific markets,
our premium connections results may differ relative to movements in the
international rig count.

         We sell our pressure control products primarily to drilling contractors
for use in oil and gas drilling and production. The main factors that affect
sales of pressure control capital equipment products are the level of
construction of new drilling rigs and the rate at which existing rigs are
refurbished. Demand for our pressure control aftermarket replacement parts,
repair and field services primarily depends upon the level of worldwide offshore
drilling activity as well as the total U.S. rig count. The following tables
illustrate the data for these sectors over the last five quarters:


                                       15

<PAGE>


<TABLE>
<CAPTION>
                  AVERAGE                                  AVERAGE
               U.S. RIG COUNT                      GULF OF MEXICO RIG COUNT
      OVER 15,000 FT TARGET DEPTH (1)           OVER 1,500 FT WATER DEPTH (2)
      -------------------------------           -----------------------------

QUARTER                           NUMBER                                NUMBER
ENDED                             OF RIGS                               OF RIGS
-----                             -------                               -------
<S>                                 <C>                                   <C>
06/30/02............................129       ............................25
09/30/02............................134       ............................23
12/31/02............................119       ............................26
03/31/03............................126       ............................25
06/30/03............................131       ............................26
</TABLE>

<TABLE>
<CAPTION>
                  AVERAGE                                  AVERAGE
             WORLDWIDE OFFSHORE                           U.S. TOTAL
               RIG COUNT (3)                            RIG COUNT (4)
             ------------------                         -------------

QUARTER                           NUMBER                                NUMBER
ENDED                             OF RIGS                               OF RIGS
-----                             -------                               -------
<S>                                 <C>                                   <C>
06/30/02............................339       ..........................   806
09/30/02............................342       ..........................   853
12/31/02............................344       ..........................   847
03/31/03............................324       ..........................   901
06/30/03............................343       .......................... 1,028
</TABLE>

(1)  Source: Average rig count calculated by Hydril using weekly data published
     by Smith International.

(2)  Source: Average rig count calculated by Hydril using month-end data
     provided by ODS-Petrodata Group.

(3)  Source: Average rig count calculated by Hydril using weekly data for the
     United States and Canada, and monthly data for the international regions,
     as published by Baker Hughes International. The worldwide offshore rig
     count includes data for Europe, the Middle East, Africa, Latin America,
     Asia Pacific, the United States and Canada.

(4)  Source: Average rig count calculated by Hydril using weekly data published
     by Baker Hughes Incorporated.


     RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002

REVENUE

         Total revenue decreased $9.5 million, or 15%, to $54.6 million for the
three months ended June 30, 2003 compared to $64.1 million for the three months
ended June 30, 2002. Our premium connection revenue decreased $6.2 million, or
18%, to $28.1 million for the three months ended June 30, 2003 compared to $34.3
million for the prior year period. This decrease is primarily the result of
lower international pipe sales and reduced demand for products and services in
key international markets as a result of political instabilities, primarily in
Nigeria and Venezuela. Pressure control revenue decreased $3.3 million, or 11%,
to $26.5 million for the three months ended June 30, 2003 compared to $29.8
million for


                                       16

<PAGE>
the same period in 2002. Capital equipment revenue decreased 31% primarily due
to a lower level of projects in backlog as several projects were completed and
new purchase orders were at only modest levels. This decrease was partially
offset by a 16% increase in aftermarket revenue.


GROSS PROFIT

         Gross profit decreased $2.4 million to $21.6 million for the three
months ended June 30, 2003 from $24.0 million for the three months ended June
30, 2002. The decrease was primarily due to lower sales volumes in both our
segments which was partially offset by higher margins in the pressure control
segment resulting from the product mix shift to higher-margin aftermarket
replacement parts.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general, and administrative expenses for the second quarter of
2003 were $11.9 million compared to $12.0 million for the prior year period. As
a percentage of sales, selling, general, and administrative expenses were 22%
for the second quarter of 2003 compared to 19% for the second quarter of 2002.


OPERATING INCOME

         Operating income decreased $2.3 million to $9.7 million for the three
months ended June 30, 2003 compared to $12.0 million for the same period in
2002. Operating income for our premium connection segment decreased $3.0 million
to $7.2 million for the second quarter of 2003 from $10.2 million for the second
quarter of 2002. Operating income for our pressure control segment increased
$0.9 million to $5.8 million for the quarter ended June 30, 2003 compared to the
same period in 2002. Corporate and administrative expenses were $3.3 million for
the three months ended June 30, 2003 compared to $3.1 million for the prior year
period.


INTEREST EXPENSE

         Interest expense for the three months ended June 30, 2003 was $0.5
million compared to $1.1 million for the prior year period. The reduction in
interest expense was due to lower outstanding debt in the second quarter of
2003.


      RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

REVENUE

         Total revenue decreased $10.2 million, or 8%, to $111.9 million for the
six months ended June 30, 2003 compared to $122.1 million for the six months
ended June 30, 2002. Our premium connection revenue decreased $4.1 million, or
6%, to $59.5 million for the six months ended June 30, 2003 as compared to $63.6
million for the prior year period. This decrease is primarily the result of
lower international pipe sales. Pressure control revenue decreased $6.1 million,
or 10%, to $52.4 million for the six months ended June 30, 2003 compared to
$58.5 million for the same period in 2002. Pressure control capital equipment
revenue decreased 26% due to a lower level of projects in backlog, as several
projects were completed and new purchase orders were at only modest levels. This
decrease was partially offset by a 9% increase in aftermarket revenue.


                                       17


<PAGE>


GROSS PROFIT

         Gross profit decreased $0.8 million, or 2%, from $44.7 million for the
six months ended June 30, 2002 to $43.9 million for the six months ended June
30, 2003. The decline was not as significant as the revenue decrease because the
lower sales volumes in both of our segments was partially offset by a product
mix shift in our pressure control segment from lower-margin capital equipment to
higher-margin aftermarket replacement parts.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general, and administrative expenses for the first half of
2003 were $23.9 million compared to $23.2 million for the prior year period. The
increase was primarily due to higher engineering expenses related to research
and development activities. As a percentage of sales, selling, general, and
administrative expenses were 21% for the first half of 2003 compared to 19% for
the same period in 2002.


OPERATING INCOME

         Operating income decreased $1.5 million to $20.0 million for the six
months ended June 30, 2003 compared to $21.5 million for the same period in
2002. Operating income for our premium connection segment decreased $2.0 million
to $15.4 million for the first half of 2003 from $17.4 million for the first
half of 2002. Operating income for our pressure control segment increased $0.7
million to $11.1 million for the first half of 2003 compared to the same period
in 2002. Corporate and administrative expenses increased $0.3 million to $6.5
million for the six months ended June 30, 2003 compared to the prior year
period.


INTEREST EXPENSE

         Interest expense for the six months ended June 30, 2003 was $1.1
million compared to $2.2 million for the prior year period. The reduction in
interest expense was due to lower outstanding debt in the first half of 2003.


                         LIQUIDITY AND CAPITAL RESOURCES

         Our primary liquidity needs are to, fund capital expenditures, fund new
product development and to provide additional working capital. Our primary
source of funds is cash flow from operations. In addition, we have available $20
million in committed revolving credit facilities.


OPERATING ACTIVITIES

         For the six months ended June 30, 2003, cash provided by operating
activities was $17.2 million primarily due to earnings and contractual cash
payments received from customers on long-term capital equipment projects which
was partially offset by higher working capital requirements. Cash provided by
operating activities for the six months ended June 30, 2002 was primarily due to
earnings, contractual cash payments received from customers for progress made on
long-term capital equipment projects and utilization of deferred income tax
assets, partially offset by higher working capital requirements.


INVESTING ACTIVITIES

         Net cash used in investing activities was $5.9 million for the six
months ended June 30, 2003 compared to $11.6 million for the six months ended
June 30, 2002. Capital spending for the six months ended June 30, 2003 of $3.9
million included $1.6 million for our pressure


                                       18


<PAGE>

control segment and $1.8 million for our premium connection segment, in both
cases primarily to support manufacturing operations, and $0.5 million for
general corporate purposes. Capital spending of $11.6 million for the first half
of 2002 included $6.7 million in our premium connection segment primarily
related to plant capacity expansion and $4.2 million in our pressure control
segment to replace and refurbish machine tools as well as to construct a new
deepwater assembly building for blowout preventer stack assembly at our Houston
plant. Capital spending for the remainder of 2003 is expected to be in the range
of $5.0 to $6.0 million.


CREDIT FACILITIES

         We have two unsecured revolving lines of credit for working capital
requirements that provide up to $20.0 million in total committed revolving
credit borrowings through June 30, 2005. Of these, $15.0 million relates to our
U.S. operations and $5.0 million relates to our foreign operations. Under these
lines, we may borrow, at our election, at either a prime or LIBOR based interest
rate. Interest rates fluctuate depending on our leverage ratio and are prime
minus a spread ranging from 60 to 115 basis points or LIBOR plus a spread
ranging from 85 to 140 basis points. At June 30, 2003, there were no outstanding
borrowings under either facility. Our U.S. revolving credit agreement contains
covenants with respect to debt levels, tangible net worth and
debt-to-capitalization ratios. At June 30, 2003, we were in compliance with
these covenants. Our foreign line of credit does not contain any separate
financial covenants but contains cross-default provisions which would be
triggered by a default under our U.S. line of credit.

         The terms of the Company's credit facilities allows for the issuance of
letters of credit. The amount of outstanding letters of credit reduces the
amount available for borrowing under the credit facilities. The letters of
credit are generally short in duration and immaterial in amount. At June 30,
2003 there was approximately $0.3 million outstanding in letters of credit.


OTHER

         We had $30 million aggregate principal amount of 6.85% senior notes
which matured on June 30, 2003. On June 30, 2003, the notes were paid in full
including accrued interest, for a total of $30.5 million out of existing cash.


BACKLOG

         The pressure control capital equipment backlog was $19.2 million at
June 30, 2003, $32.5 million at December 31, 2002 and $44.0 million at June 30,
2002. The decrease from June 30, 2002 was the result of work completed and
revenue recognized on several large long-term capital equipment project orders.
Substantially all of the remaining revenue from projects currently in backlog is
expected to be recorded during the remainder of 2003. We recognize the revenue
and gross profit from pressure control long-term projects using the
percentage-of-completion accounting method. As revenue is recognized under the
percentage-of-completion method, the order value in backlog is reduced. It is
possible for orders to be cancelled; however, in the event of cancellations all
costs incurred would be billable to the customer. Our backlog of premium
connection and pressure control aftermarket parts and service are not a
meaningful measure of business prospects due to the quick turnover of such
orders.


                                       19


<PAGE>

                          CRITICAL ACCOUNTING POLICIES

         Our accounting policies are described in Note 1 "SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES" under Item 8 of our Annual Report on Form 10-K for the
year-ended December 31, 2002 filed with the Securities and Exchange Commission.
We prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States, which require us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expense during
the year. Actual results could differ from those estimates. We consider the
following policies to be most critical in understanding the judgments that are
involved in preparing our financial statements and the uncertainties that could
impact our results of operations, financial condition and cash flows.


REVENUE RECOGNITION

         Revenue for all products and services is recognized at the time such
products are delivered or services are performed, except as described below.

         Revenue from long-term contracts, which are generally contracts from
six to eighteen months and an estimated contract price in excess of $1.0
million, is recognized using the percentage-of-completion method measured by the
percentage of cost incurred to estimated final cost. Contract costs include all
direct material, labor and subcontract costs and those indirect costs related to
contract performance. If a long-term contract was anticipated to have an
estimated loss, such loss would be recognized in the period in which the loss
became apparent. It is possible but not contemplated that estimates of contract
costs could be revised significantly higher in the near term as a result of
unforeseen engineering and manufacturing changes.


INVENTORIES

         Inventories are stated at the lower of cost or market. Inventory costs
include material, labor and production overhead. Cost is determined by the
last-in, first-out method for substantially all pressure control products
(approximately 85% and 81% of total gross inventories at December 31, 2002 and
2001, respectively) and by the first-in, first-out method for all other
inventories.

         The Company periodically reviews its inventory for excess or obsolete
items and provides a reserve for the difference in the carrying value of excess
or obsolete items and their estimated net realizable value.


PRODUCT WARRANTIES

         The Company sells certain of its products to customers with a product
warranty that provides that customers can return a defective product during a
specified warranty period following the purchase in exchange for a replacement
product or for repair at no cost to the customer or the issuance of a credit to
the customer. The Company accrues its estimated exposure for product warranties
based on known warranty claims as well as current and historical warranty costs
incurred.


                                       20


<PAGE>


CONTINGENCIES

         Contingencies are accounted for in accordance with the FASB's SFAS No.
5, "Accounting for Contingencies." SFAS No. 5 requires that we record an
estimated loss from a loss contingency when information available prior to the
issuance of our financial statements indicates that it is probable that an asset
has been impaired or a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Accounting
for contingencies such as environmental, legal, and income tax matters requires
us to use our judgment. While we believe that our accruals for these matters are
adequate, if the actual loss from a contingency is significantly different than
the estimated loss, our results of operations may be adjusted in the period in
which the actual loss is realized.


                                  RISK FACTORS

         You should consider carefully the following risk factors and all other
information contained in this quarterly report on Form 10-Q and our Annual
Report on Form 10-K for the year-ended December 31, 2002. Any of the following
risks could impair our business, financial condition and operating results.


RISKS RELATING TO OUR BUSINESS

         A MATERIAL OR EXTENDED DECLINE IN EXPENDITURES BY THE OIL AND GAS
INDUSTRY, DUE TO A DECLINE IN OIL AND GAS PRICES OR OTHER ECONOMIC FACTORS,
WOULD REDUCE OUR REVENUE.

         Demand for our products and services is substantially dependent on the
level of capital expenditures by the oil and gas industry for the exploration
for and development of crude oil and natural gas reserves. In particular, demand
for our premium connections and our aftermarket pressure control products and
services is driven by the level of worldwide drilling activity, especially
drilling in harsh environments. Demand for our pressure control capital
equipment is directly affected by the number of drilling rigs being built or
refurbished. At this time, drilling rig utilization for many categories of rigs
is below capacity. Therefore in general, drilling contractors are not planning
significant refurbishment of drilling rigs or new rig construction. A
substantial or extended decline in worldwide drilling activity or in
construction or refurbishment of rigs will adversely affect the demand for our
products or services.

         Worldwide drilling activity is generally highly sensitive to oil and
gas prices and can be dependent on the industry's view of future oil and gas
prices, which have been historically characterized by significant volatility.
Oil and gas prices are affected by numerous factors, including:

     .    the level of worldwide oil and gas exploration and production
          activity;

     .    worldwide demand for energy, which is affected by worldwide economic
          conditions;

     .    the policies of the Organization of Petroleum Exporting Countries, or
          OPEC;

     .    significant decreases or increases in the production of oil or gas
          from countries due to war or civil unrest, such as Iraq, Venezuela and
          Nigeria;

     .    the cost of producing oil and gas;


                                       21



<PAGE>


     .    interest rates and the cost of capital;

     .    technological advances affecting energy consumption;

     .    environmental regulation;

     .    level of oil and gas inventories in storage;

     .    tax policies;

     .    policies of national governments; and

     .    war, civil disturbances and political instability.

         We expect prices for oil and natural gas to continue to be volatile and
affect the demand and pricing of our products and services. A material decline
in oil or gas prices could materially adversely affect our business. In
addition, recessions and other adverse economic conditions can also cause
declines in spending levels by the oil and gas industry, and thereby decrease
our revenue and materially adversely affect our business.

         WE RELY ON A FEW DISTRIBUTORS FOR SALES OF OUR PREMIUM CONNECTIONS IN
THE UNITED STATES AND CANADA; A LOSS OF ONE OR MORE OF OUR DISTRIBUTORS OR A
CHANGE IN THE METHOD OF DISTRIBUTION COULD ADVERSELY AFFECT OUR ABILITY TO SELL
OUR PRODUCTS.

         There are a limited number of distributors who buy steel tubulars,
contract with us to thread the tubulars and sell completed tubulars with our
premium connections. In 2002, our nine distributors accounted for 63% of our
premium connection sales in the United States and Canada.

         In the United States, tubular distributors have combined on a rapid
basis in recent years resulting in fewer distribution alternatives for our
products. In 1999, four distributors, one of which distributed our premium
connections, combined to become one of the largest distributors of tubulars in
the United States, and the combined company no longer distributes our products.
Because of the limited number of distributors, we have few alternatives if we
lose a distributor. Identifying and utilizing additional or replacement
distributors may not be accomplished quickly and could involve significant
additional costs. Even if we find replacement distributors, the terms of new
distribution agreements may not be favorable to us. In addition, distributors
may not be as well capitalized as our end-users and may present a higher credit
risk.

         We cannot assure you that the current distribution system for premium
connections will continue. For example, products may in the future be sold
directly by tubular manufacturers to end-users or through other distribution
channels such as the internet. If methods of distribution change, many of our
competitors may be better positioned to take advantage of those changes than we
are.

         THE INTENSE COMPETITION IN OUR INDUSTRY COULD RESULT IN REDUCED
PROFITABILITY AND LOSS OF MARKET SHARE FOR US.

         Contracts for our products and services are generally awarded on a
competitive basis, and competition is intense. The most important factors
considered by our customers in awarding contracts include:

     .    availability and capabilities of the equipment;


                                       22


<PAGE>


     .    ability to meet the customer's delivery schedule;

     .    price;

     .    reputation;

     .    experience;

     .    safety record, and

     .    technology.

         Many of our major competitors are diversified multinational companies
that are larger and have substantially greater financial resources, larger
operating staffs and greater budgets for marketing and research and development
than we do. They may be better able to compete in making equipment available
faster and more efficiently, meeting delivery schedules or reducing prices. In
addition, two or more of our major competitors could consolidate producing an
even larger company. Also our competitors may acquire product lines that would
allow them to offer a more complete package of drilling equipment and services
rather than providing only individual components. As a result of any of the
foregoing reasons, we could lose customers and market share to those
competitors. These companies may also be better able than we are to successfully
endure downturns in the oil and gas industry.

         THE LEVEL AND PRICING OF TUBULAR GOODS IMPORTED INTO THE UNITED STATES
AND CANADA COULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND OUR RESULTS OF
OPERATIONS.

         The level of imports of tubular goods, which has varied significantly
over time, affects the domestic tubular goods market. High levels of imports
reduce the volume sold by domestic producers and tend to reduce their selling
prices, both of which could have an adverse impact on our business. We believe
that United States import levels are affected by, among other things:

     .    United States and worldwide demand for tubular goods;

     .    the trade practices of and government subsidies to foreign producers;
          and

     .    the presence or absence of antidumping and countervailing duty orders.

         In many cases, foreign producers of tubular goods have been found to
have sold their products, which may include premium connections, for export to
the United States at prices that are lower than the cost of production or their
prices in their home market or a major third-country market, a practice commonly
referred to as "dumping." If not constrained by antidumping duty orders and
countervailing duty orders, which impose duties on imported tubulars to offset
dumping and subsidies provided by foreign governments, this practice allows
foreign producers to capture sales and market share from domestic producers.
Duty orders normally reduce the level of imported goods and result in higher
prices in the United States market. Duty orders may be modified or revoked as a
result of administrative reviews conducted at the request of a foreign producer
or other party.

         In addition, antidumping and countervailing duty orders may be revoked
as a result of periodic "sunset reviews". Under the sunset review procedure, an
order must be


                                       23


<PAGE>


revoked after five years unless the United States Department of Commerce and the
International Trade Commission determine that dumping is likely to continue or
recur and that material injury to the domestic injury is likely to continue or
recur. Antidumping duty orders continue to cover imports of tubulars from
Argentina, Italy, Japan, Korea and Mexico, and a countervailing duty order
continues to cover imports from Italy. On July 17, 2001, the Department of
Commerce ordered the continuation of the countervailing and antidumping duty
orders on tubular goods other than drill pipe on Argentina, Italy, Korea and
Mexico, and the continuation of the antidumping duty order on tubular goods,
inclusive of drill pipe, from Japan. If the orders covering imports from these
countries are revoked in full or in part or the duty rates lowered, we could be
exposed to increased competition from imports that could reduce our sales and
market share or force us to lower prices. Tubulars produced by domestic steel
mills and threaded by us may not be able to economically compete with tubulars
manufactured and threaded at steel mills outside the U.S. The Department of
Commerce intends to initiate the next five-year review of these orders no later
that June 2006. The sunset review for tubular products from Argentina, Italy,
Japan, Korea and Mexico will take place in 2006, with a decision expected by
April 2007.

         OUR INTERNATIONAL OPERATIONS MAY EXPERIENCE SEVERE INTERRUPTIONS DUE TO
POLITICAL, ECONOMIC AND OTHER RISKS.

         In 2002, approximately 69% of our total revenue was derived from
services or equipment ultimately provided or delivered to end-users outside the
United States, and approximately 30% of our revenue was derived from products
which were produced and used outside of the United States. We are, therefore,
significantly exposed to the risks customarily attendant to international
operations and investments in foreign countries. These risks include:

     .    political instability, civil disturbances, war and terrorism;

     .    nationalization, expropriation, and nullification of contracts;

     .    changes in regulations and labor practices;

     .    changes in currency exchange rates and potential devaluations;

     .    changes in currency restrictions which could limit the repatriations
          of profits or capital;

     .    restrictive actions by local governments

     .    seizure of plant and equipment; and

     .    changes in foreign tax laws.

         An interruption of our international operations could reduce our
earnings or adversely affect the value of our foreign assets. The occurrence of
any of these risks could also have an adverse effect on demand for our products
and services or our ability to provide them. We have manufacturing facilities in
Warri and Port Harcourt, Nigeria and in Batam, Indonesia and a portion of our
revenue is from sales to customers in these countries and surrounding areas. In
addition, a portion of our revenue is from sales to customers in Venezuela.
These countries in recent history have experienced civil disturbances and
violence, which have disrupted oil and gas exploration and production operations
located there. These disruptions have resulted in lower demand for our premium
connection


                                       24

<PAGE>


products and services and, accordingly have had an adverse affect on our results
of operations in recent periods and may continue to do so.

         THE OCCURRENCE OR THREAT OF TERRORIST ATTACKS COULD HAVE AN ADVERSE
AFFECT ON OUR RESULTS AND GROWTH PROSPECTS, AS WELL AS ON OUR ABILITY TO ACCESS
CAPITAL AND OBTAIN ADEQUATE INSURANCE.

         The occurrence or threat of future terrorist attacks such as those
against the United States on September 11, 2001 could adversely affect the
economies of the United States and other developed countries. A lower level of
economic activity could result in a decline in energy consumption, which could
cause a decrease in spending by oil and gas companies for exploration and
development. In addition, these risks could trigger increased volatility in
prices for crude oil and natural gas which could also adversely affect spending
by oil and gas companies. A decrease in spending for any reason could adversely
affect the markets for our products and thereby adversely affect our revenue and
margins and limit our future growth prospects. Moreover, these risks could cause
increased instability in the financial and insurance markets and adversely
affect our ability to access capital and to obtain insurance coverage that we
consider adequate or are otherwise required by our contracts with third parties.

         THE CONSOLIDATION OR LOSS OF END-USERS OF OUR PRODUCTS COULD ADVERSELY
AFFECT DEMAND FOR OUR PRODUCTS AND SERVICES AND REDUCE OUR REVENUE.

         Exploration and production company operators and drilling contractors
have undergone substantial consolidation in the last few years. Additional
consolidation is probable.

         Consolidation results in fewer end-users for our products. In addition,
merger activity among both major and independent oil and gas companies also
affects exploration, development and production activity, as these consolidated
companies attempt to increase efficiency and reduce costs. Generally, only the
more promising exploration and development projects from each merged entity are
likely to be pursued, which may result in overall lower post-merger exploration
and development budgets.

         In 2002, our largest premium connection customer accounted for 19% of
segment sales, and our ten largest premium connection customers accounted for
64% of total segment sales. In 2002, our two largest pressure control customers
accounted for 26% and 18% of segment sales and our ten largest pressure control
customers accounted for 70% of segment sales.

         The loss of one or more of our end-users or a reduction in exploration
and development budgets as a result of industry consolidation or other reasons
could adversely affect demand for our products and services and reduce our
revenue.

         WE MAY LOSE PREMIUM CONNECTION BUSINESS TO INTERNATIONAL AND DOMESTIC
COMPETITORS WHO PRODUCE THEIR OWN PIPE, AS WELL AS OTHER NEW ENTRANTS.

         In the United States and Canada and sometimes internationally, our
premium connections are added to steel tubulars purchased by a distributor from
third-party steel suppliers. After our premium connections are added, the
distributor sells the completed premium tubular to a customer at a price that
includes, but does not differentiate between, the costs of the steel pipe and
the connection. Pricing of premium connections can be


                                       25


<PAGE>


affected by steel prices, as the steel pipe is the largest component of the
overall price. We have no control over the price of the steel pipe that is
supplied for our connections.

         During 2002, we derived approximately 61% of our premium connection
segment revenue from services or equipment ultimately provided or delivered to
end-users for use outside of the United States. Many of our larger competitors,
especially internationally, are integrated steel producers, who produce, rather
than purchase, steel. For example, several foreign steel mills have formed a
corporation that is licensed to produce and sell a competing premium connections
product line outside of the United States and Canada. Foreign integrated steel
producers have more pricing flexibility for premium connections since they
control the production of both the steel tubulars to which the connections are
applied, as well as the premium connections. This inherent pricing and supply
control puts us at a competitive disadvantage, and we could lose business to
integrated steel producers even if we may have a better product. The recent
acquisition or future acquisitions of U.S. tubular steel manufacturing capacity
by foreign integrated steel producers could result in a loss of market share for
Hydril. Other domestic and foreign steel producers who do not currently
manufacture tubulars with premium connections may in the future enter the
premium connections business and compete with us.

         OVERCAPACITY IN THE PRESSURE CONTROL INDUSTRY AND HIGH FIXED COSTS
COULD EXACERBATE THE LEVEL OF PRICE COMPETITION FOR OUR PRODUCTS, ADVERSELY
AFFECTING OUR BUSINESS AND REVENUE.

         There currently is and historically has been overcapacity in the
pressure control equipment industry. When oil and gas prices fall, cash flows of
our customers are reduced, leading to lower levels of expenditures and reduced
demand for pressure control equipment. In addition, adverse economic conditions
can reduce demand for oil and gas, which in turn could decrease demand for our
pressure control products. Under these conditions, the overcapacity causes
increased price competition in the sale of pressure control products and
aftermarket services as competitors seek to capture the reduced business to
cover their high fixed costs and avoid the idling of manufacturing facilities.
Because we have multiple facilities that produce different types of pressure
control products, it is even more difficult for us to reduce our fixed costs
since to do so we might have to shut down more than one plant. During and after
periods of increasing oil and gas prices when sales of pressure control products
may be increasing, the overcapacity in the industry will tend to keep prices for
the sale of pressure control products lower than if overcapacity were not a
factor. As a result, when oil and gas prices are low, or are increasing from low
levels because of increased demand, our business and revenue may be adversely
affected because of either reduced sales volume or sales at lower prices or
both.
         IF WE DO NOT DEVELOP, PRODUCE AND COMMERCIALIZE NEW COMPETITIVE
TECHNOLOGIES AND PRODUCTS, OUR REVENUE MAY DECLINE.

         The markets for premium connections and pressure control products and
services are characterized by continual technological developments. As a result,
substantial improvements in the scope and quality of product function and
performance can occur over a short period of time. If we are not able to develop
commercially competitive products in a timely manner in response to changes in
technology, our business and revenue may be adversely affected. Our future
ability to develop new products depends on our ability to:


                                       26


<PAGE>

     .    design and commercially produce products that meet the needs of our
          customers;

     .    successfully market new products; and

     .    obtain and maintain patent protection.

         We may encounter resource constraints or technical or other
difficulties that could delay introduction of new products and services in the
future. Our competitors may introduce new products before we do and achieve a
competitive advantage.

         Additionally, the time and expense invested in product development may
not result in commercial applications and provide revenue. We have invested
significant amounts in the development of new technologies, such as advanced
composite tubing and subsea mudlift drilling. We could be required to write off
our entire investment in a new product that does not reach commercial viability.
Moreover, we may experience operating losses after new products are introduced
and commercialized because of high start-up costs, unexpected manufacturing
costs or problems, or lack of demand.

         IF WE ARE NOT SUCCESSFUL IN DEVELOPING AND COMMERCIALIZING SUBSEA
MUDLIFT DRILLING TECHNOLOGY OR OTHER NEW TECHNOLOGIES, OUR GROWTH PROSPECTS MAY
BE REDUCED OR WE MAY BE REQUIRED TO WRITE-OFF ANY CAPITALIZED INVESTMENT.

         We have been working with a number of exploration and production
company operators and drilling contractors to develop a subsea mudlift drilling
technology that, if successful, would enable exploration and production company
operators to economically drill for and produce oil and gas in ultra-deepwater
in excess of 5,000 feet. In October 2001, the subsea drilling project
successfully completed its final phase by drilling a test well in the Gulf of
Mexico. The joint industry project team has completed its work and Hydril is now
in the process of refining the design of the equipment and pursuing
commercialization of this technology. However, there are other groups of
companies in our industry that are also developing competing technologies for
deepwater drilling, and they may be ahead of us in completing development of
their technology. If one or more of these groups develops a commercially viable
technology before we do, they may gain a significant competitive advantage over
us.

         In addition, the cost to implement the technology may be high and there
may be little demand for the completed technology. We are devoting significant
resources to the development of subsea mudlift drilling technology.

         If we are unable to successfully develop and commercialize subsea
mudlift drilling, commercialize our advanced composite tubing, or successfully
implement other technological or R&D type activities, our growth prospects may
be reduced and the level of our future revenue may be materially and adversely
affected. In addition, if we are unsuccessful, we could be required to write-off
any capitalized investment in a product that does not reach commercial
viability.

         LIMITATIONS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
COULD CAUSE A LOSS IN REVENUE AND ANY COMPETITIVE ADVANTAGE WE HOLD.

         Some of our products and the processes we use to produce them have been
granted United States and international patent protection, or have patent
applications pending. Nevertheless, patents may not be granted from our
applications and, if patents are issued,


                                       27



<PAGE>


the claims allowed may not be sufficient to protect our technology. If our
patents are not enforceable, our business may be adversely affected. In
addition, if any of our products infringe patents held by others, our financial
results may be adversely affected. Our competitors may be able to independently
develop technology that is similar to ours without infringing on our patents.
The latter is especially true internationally where the protection of
intellectual property rights may not be as effective. In addition, obtaining and
maintaining intellectual property protection internationally may be
significantly more expensive than doing so domestically. We may have to spend
substantial time and money defending our patents. After our patents expire, our
competitors will not be legally constrained from developing products
substantially similar to ours.

         THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT AND OTHER KEY EMPLOYEES
MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

         Our success depends heavily on the continued services of our senior
management and other key employees. Our senior management consists of a small
number of individuals relative to other comparable or larger companies. These
individuals are Christopher T. Seaver, our President and Chief Executive
Officer, Charles E. Jones, our Executive Vice President and Chief Operating
Officer, Neil G. Russell, our Senior Vice President-Premium Connections and
Senior Vice President-Business Development, Chuck Chauviere-Vice
President-Pressure Control, and Michael C. Kearney, Chief Financial Officer and
Vice President-Administration. These individuals, as well as other key
employees, possess sales and marketing, engineering, manufacturing, financial
and administrative skills that are critical to the operation of our business. We
generally do not have employment or non-competition agreements with members of
our senior management or other key employees. If we lose or suffer an extended
interruption in the services of one or more of our senior officers or other key
employees, our results of operations may be adversely affected. Moreover, we may
not be able to attract and retain qualified personnel to succeed members of our
senior management and other key employees.

         IF WE ARE UNABLE TO ATTRACT AND RETAIN SKILLED LABOR, THE RESULTS OF
OUR MANUFACTURING AND SERVICES ACTIVITIES WILL BE ADVERSELY AFFECTED.

         Our ability to operate profitably and expand our operations depends in
part on our ability to attract and retain skilled manufacturing workers,
equipment operators, engineers and other technical personnel. Because of the
cyclical nature of our industry, many qualified workers choose to work in other
industries where they believe lay-offs as a result of cyclical downturns are
less likely. As a result, our growth may be limited by the scarcity of skilled
labor. Even if we are able to attract and retain employees, the intense
competition for them, especially when our industry is in the top of its cycle,
may increase our compensation costs. Additionally, a significant increase in the
wages paid by competing employers could result in a reduction in our skilled
labor force, increases in the rates of wages we must pay or both. If our
compensation costs increase or we cannot attract and retain skilled labor, the
immediate effect on us would be a reduction in our profits and the extended
effect would be diminishment of our production capacity and profitability and
impairment of any growth potential.

         WE MAY LOSE MONEY ON FIXED PRICE CONTRACTS, AND SUCH CONTRACTS COULD
CAUSE OUR QUARTERLY REVENUE AND EARNINGS TO FLUCTUATE SIGNIFICANTLY.


                                       28


<PAGE>


         Almost all of our pressure control projects, including all of our
larger engineered subsea control systems projects, are performed on a
fixed-price basis. This means that we are responsible for all cost overruns,
other than any resulting from change orders. Our costs and any gross profit
realized on our fixed-price contracts will often vary from the estimated amounts
on which these contracts were originally based. This may occur for various
reasons, including:

     .    errors in cost, design or production time estimates;

     .    engineering design changes;

     .    changes requested by customers; and

     .    changes in the availability and cost of labor and material.

         The variations and the risks inherent in engineered subsea control
systems projects may result in reduced profitability or losses on our projects.
Depending on the size of a project, variations from estimated contract
performance can have a significant impact on our operating results for any
particular fiscal quarter or year. Our significant losses in 1997 through 1999
on fixed-price contracts to provide pressure control equipment and subsea
control systems for pressure control equipment are an example of the problems we
can experience with fixed-price contracts.

         OUR QUARTERLY SALES AND EARNINGS MAY VARY SIGNIFICANTLY, WHICH COULD
CAUSE OUR STOCK PRICE TO FLUCTUATE.

         Fluctuations in quarterly revenue and earnings could adversely affect
the trading price of our common stock. Our quarterly revenue and earnings may
vary significantly from quarter to quarter depending upon:

     .    the level of drilling activity worldwide;

     .    the variability of customer orders, which are particularly
          unpredictable in international markets;

     .    the mix of our products sold and the margins on those products;

     .    new products offered and sold by us or our competitors and;

     .    weather conditions that can affect our customers' operations.

         Revenue derived from current or future pressure control long-term
projects is expected to be realized over periods of two to six quarters. As a
result, our revenue and earnings could fluctuate significantly from quarter to
quarter if there is any delay in completing these projects or if revenue is
recognized sooner than expected. In addition, our fixed costs cause our margins
to decrease when demand is low and manufacturing capacity is underutilized.

         WE COULD BE SUBJECT TO SUBSTANTIAL LIABILITY CLAIMS, WHICH WOULD
ADVERSELY AFFECT OUR RESULTS AND FINANCIAL CONDITION.

         Most of our products are used in hazardous drilling and production
applications where an accident or a failure of a product can cause personal
injury, loss of life, damage to property, equipment or the environment, or
suspension of operations. Damages arising


                                       29



<PAGE>


from an occurrence at a location where our products are used have in the past
and may in the future result in the assertion of potentially large claims
against us.

         While we maintain insurance coverage against these risks, this
insurance may not protect us against liability for some kinds of events,
including specified events involving pollution, or against losses resulting from
business interruption. Our insurance may not be adequate in risk coverage or
policy limits to cover all losses or liabilities that we may incur. Moreover, we
may not be able in the future to maintain insurance at levels of risk coverage
or policy limits that we deem adequate. Any significant claims made under our
policies will likely cause our premiums to increase. Any future damages caused
by our products or services that are not covered by insurance, are in excess of
policy limits or are subject to substantial deductibles, could reduce our
earnings and our cash available for operations.

         CHANGES IN REGULATION OR ENVIRONMENTAL COMPLIANCE COSTS AND LIABILITIES
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS AND FINANCIAL CONDITION.

         Our business is affected by changes in public policy, federal, state
and local laws and regulations relating to the energy industry. The adoption of
laws and regulations curtailing exploration and development drilling for oil and
gas for economic, environmental and other policy reasons may adversely affect
our operations by limiting available drilling and other opportunities in the oil
and gas exploration and production industry. Our operations and properties are
subject to increasingly stringent laws and regulations relating to environmental
protection, including laws and regulations governing air emissions, water
discharges, waste management and workplace safety. Many of our operations
require permits that may be revoked or modified, that we are required to renew
from time to time. Failure to comply with such laws, regulations or permits can
result in substantial fines and criminal sanctions, or require us to purchase
costly pollution control equipment or implement operational changes or
improvements. We incur, and expect to continue to incur, substantial capital and
operating costs to comply with environmental laws and regulations.

         WE COULD BECOME SUBJECT TO CLAIMS RELATED TO THE RELEASE OF HAZARDOUS
SUBSTANCES WHICH COULD ADVERSELY AFFECT OUR RESULTS AND FINANCIAL CONDITION.

         We use and generate hazardous substances and wastes in our
manufacturing operations. In addition, many of our current and former properties
are or have been used for industrial purposes for many years. Accordingly, we
could become subject to potentially material liabilities relating to the
investigation and cleanup of contaminated properties, including property owned
or leased by us now or in the past or third party sites to which we sent waste
for disposal. We also could become subject to claims alleging personal injury or
property damage as the result of exposures to, or releases of, hazardous
substances. In addition, stricter enforcement of existing laws and regulations,
the enactment of new laws and regulations, the discovery of previously unknown
contamination or the imposition of new or increased requirements could require
us to incur costs or become the basis of new or increased liabilities that could
reduce our earnings and our cash available for operations. See Note 11 to our
audited consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2002 for more information regarding
environmental contingencies.


                                       30



<PAGE>


         LIABILITY TO CUSTOMERS UNDER WARRANTIES MAY MATERIALLY AND ADVERSELY
AFFECT OUR EARNINGS.

         We provide warranties as to the proper operation and conformance to
specifications of the equipment we manufacture. Our equipment and premium
connections are complex and often deployed several miles below the earth's
surface in critical environments as well as subsea. Failure of this equipment or
our premium connections to operate properly or to meet specifications may
increase our costs by requiring additional engineering resources and services,
replacement of parts and equipment or monetary reimbursement to a customer. We
have in the past received warranty claims and we expect to continue to receive
them in the future. To the extent that we incur substantial warranty claims in
any period, our reputation, our ability to obtain future business and our
earnings could be materially and adversely affected.

         OUR REVOLVING CREDIT FACILITY CONTAINS COVENANTS THAT LIMIT OUR
OPERATING AND FINANCIAL FLEXIBILITY.

         Under the terms of our revolving credit facility, we must maintain
minimum levels of tangible net worth, not exceed levels of debt specified in the
agreement, and not exceed a maximum leverage ratio. A breach could permit the
lenders to accelerate the debt so that it is immediately due and payable. In
that event, no further borrowings would be available under the revolving credit
facility. Our ability to meet the financial ratios and tests under our revolving
credit facility can be affected by events beyond our control, and we may not be
able to satisfy those ratios and tests.

         EXCESS CASH IS INVESTED IN MARKETABLE SECURITIES WHICH MAY SUBJECT US
TO POTENTIAL LOSSES.

         We invest excess cash in various securities and money market mutual
funds rated as the highest quality by a nationally recognized rating agency.
However, changes in the financial markets, including interest rates, as well as
the performance of the issuing companies can affect the market value of our
short-term investments.



PART I, ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There have been no significant changes since December 31, 2002 in the
Company's exposure to market risk.


                                       31


<PAGE>


PART I, ITEM 4:  CONTROLS AND PROCEDURES

         Hydril's Chief Executive Officer and Chief Financial Officer have
evaluated the Company's disclosure controls and procedures as of June 30, 2003,
and they concluded that these controls and procedures are effective. There were
no changes in the Company's internal control over financial reporting that
occurred during the Company's last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.


PART II, ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Our annual meeting of shareholders was held on May 20, 2003. There were
82,565,608 votes represented at the meeting in person or by proxy, out of
87,357,286 votes entitled to be cast, constituting a quorum. The following are
the results of the vote:

<TABLE>
<CAPTION>
PROPOSALS:                                                                                                 BROKER
                                                                                                             NON-
                                        FOR           AGAINST           WITHHELD            ABSTAIN         VOTES
                                     ----------       -------           ---------           -------        -------
<S>                                  <C>              <C>               <C>                 <C>            <C>
ELECTION OF DIRECTORS
  Jerry S. Cox                       82,183,160            --             382,448               --             --
  Roger Goodan                       82,252,660            --             312,948               --             --
  Patrick T. Seaver                  77,610,799            --           4,954,809               --             --

APPROVAL OF APPOINTMENT
  OF DELOITTE & TOUCHE LLP
  AS INDEPENDENT PUBLIC
  ACCOUNTANTS                        82,336,411       228,797                  --              400             --
</TABLE>


                                       32


<PAGE>
PART II, ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

10.1 -- Loan Agreement dated as of June 30, 2003 among Hydril Company, Banc One
        Capital Markets, Inc. and Bank One, NA.

31.1 -- Certification by Christopher T. Seaver, Chief Executive Officer,
        pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2 -- Certification by Michael C. Kearney, Chief Financial Officer, pursuant
        to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1 -- Certification by Christopher T. Seaver, Chief Executive Officer,
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
        (Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18,
        United States Code).

32.2 -- Certification by Michael C. Kearney, Chief Financial Officer, pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and
        (b) of Section 1350, Chapter 63 of Title 18, United States Code).


Reports on Form 8-K:

         On April 22, 2003, we filed a report on Form 8-K furnishing pursuant to
Items 9 and 12 the news release issued by Hydril Company dated April 22, 2003.
Pursuant to Item 7, we attached the news release as an exhibit to the report.



                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                                      HYDRIL COMPANY


Date: August 13, 2003                 By: /s/ Michael C. Kearney
                                              ------------------
                                              Michael C. Kearney
                                              Chief Financial Officer and
                                              Vice President-Administration
                                              (Authorized officer and principal
                                              accounting and financial officer)


                                       33



<PAGE>

                                 EXHIBIT INDEX


Exhibit No.                        Description
-----------                        -----------

10.1 -- Loan Agreement dated as of June 30, 2003 among Hydril Company, Banc One
        Capital Markets, Inc. and Bank One, NA.

31.1 -- Certification by Christopher T. Seaver, Chief Executive Officer,
        pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2 -- Certification by Michael C. Kearney, Chief Financial Officer, pursuant
        to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1 -- Certification by Christopher T. Seaver, Chief Executive Officer,
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
        (Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18,
        United States Code).

32.2 -- Certification by Michael C. Kearney, Chief Financial Officer, pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and
        (b) of Section 1350, Chapter 63 of Title 18, United States Code).