##### Table of Contents

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FORM 10-Q



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UNITED STATES

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 September 30, 2005



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



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HYDRIL COMPANY

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|DELAWARE                                                       |  | 95-2777268                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer 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



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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 the filing requirements for at least 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 by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.    Yes ̈No  x



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 October 31, 2005:



Common stock, $.50 par value, 19,878,233 shares outstanding

Class B common stock, $.50 par value,3,728,725 shares outstanding



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##### Table of Contents

HYDRIL COMPANY



INDEX



|                                                                                                                  |  |     
|----------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                  |  | Page
|PART I  FINANCIAL INFORMATION                                                                                    |  |     
|                                                                                                                  | 
|Item 1.
Financial Statements                                                                                      |  |     
|                                                                                                                  | 
|Consolidated Balance Sheets  September 30, 2005 (unaudited) and December 31, 2004                                |  | 3   
|Unaudited Consolidated Statements of Operations  For the Three and Nine Months Ended September 30, 2005 and 2004 |  | 5   
|Unaudited Consolidated Statements of Cash Flows  For the Three and Nine Months Ended September 30, 2005 and 2004 |  | 6   
|Notes to Unaudited Consolidated Financial Statements                                                              |  | 7   
|                                                                                                                  | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 17  
|                                                                                                                  | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                |  | 37  
|                                                                                                                  | 
|Item 4.
Controls and Procedures                                                                                   |  | 37  
|                                                                                                                  | 
|PART IIOTHER INFORMATION                                                                                         |  |     
|                                                                                                                  | 
|Item 6.
Exhibits                                                                                                  |  | 37  



* * *



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, 2004 filed with the Securities and Exchange Commission, include, but are
not limited to, the impact of changes in oil and natural gas prices and worldwide and domestic economic conditions on drilling activity and demand for and pricing of Hydrils products, the effect of premium connection competitors who produce
their own pipe, limitations on the availability of steel pipe, the consolidation or loss of end-users of our products, risks associated with fixed price contracts for pressure control projects, the impact of geo-political and other events affecting
international markets and trade, Hydrils ability to successfully develop technologies and products and maintain and increase its market share, the impact of international and domestic trade laws and other conditions in the steel industry, the
loss of or change to distribution methods of premium connections in the U.S. and Canada, overcapacity in the pressure control industry, and high fixed costs that could affect the pricing of Hydrils products. 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.



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##### Table of Contents

HYDRIL COMPANY



Part I, Item 1: Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)



|                                                                      |  |                   |          |   |                  |   |          |  
|--------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                      |  | September 30,2005 |          |   | December 31,2004 |  
|                                                                      |  | (unaudited)       |          |   |                  |  
|CURRENT ASSETS:                                                       |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                             |  | $                 | 58,600   |   |                  | $ | 51,733   |  
|Investments and marketable securities                                 |  |                   | 106,609  |   |                  |   | 69,365   |  
|Receivables:                                                          |  |                   |          |   |                  |   |          |  
|Trade, less allowance for doubtful accounts: 2005, $922; 2004, $1,214 |  |                   | 59,757   |   |                  |   | 56,053   |  
|Contract costs and estimated earnings in excess of billings           |  |                   | 3,118    |   |                  |   | 4,860    |  
|Other                                                                 |  |                   | 1,744    |   |                  |   | 1,528    |  
|                                                                      |  |                   |          |   |                  |   |          |  
|Total receivables                                                     |  |                   | 64,619   |   |                  |   | 62,441   |  
|                                                                      |  |                   |          |   |                  |   |          |  
|Inventories:                                                          |  |                   |          |   |                  |   |          |  
|Finished goods                                                        |  |                   | 26,240   |   |                  |   | 21,179   |  
|Work-in-process                                                       |  |                   | 18,833   |   |                  |   | 8,854    |  
|Raw materials                                                         |  |                   | 8,802    |   |                  |   | 4,787    |  
|                                                                      |  |                   |          |   |                  |   |          |  
|Total inventories                                                     |  |                   | 53,875   |   |                  |   | 34,820   |  
|                                                                      |  |                   |          |   |                  |   |          |  
|Deferred tax asset                                                    |  |                   | 3,861    |   |                  |   | 8,794    |  
|Other current assets                                                  |  |                   | 2,719    |   |                  |   | 3,422    |  
|                                                                      |  |                   |          |   |                  |   |          |  
|Total current assets                                                  |  |                   | 290,283  |   |                  |   | 230,575  |  
|                                                                      |  |                   |          |   |                  |   |          |  
|PROPERTY:                                                             |  |                   |          |   |                  |   |          |  
|Land and improvements                                                 |  |                   | 20,774   |   |                  |   | 21,314   |  
|Buildings and equipment                                               |  |                   | 52,586   |   |                  |   | 54,718   |  
|Machinery and equipment                                               |  |                   | 173,472  |   |                  |   | 162,785  |  
|Construction-in-progress                                              |  |                   | 4,465    |   |                  |   | 5,710    |  
|                                                                      |  |                   |          |   |                  |   |          |  
|Total                                                                 |  |                   | 251,297  |   |                  |   | 244,527  |  
|Less accumulated depreciation and amortization                        |  |                   | (149,096 | ) |                  |   | (142,159 | )
|                                                                      |  |                   |          |   |                  |   |          |  
|Property, net                                                         |  |                   | 102,201  |   |                  |   | 102,368  |  
|                                                                      |  |                   |          |   |                  |   |          |  
|OTHER LONG-TERM ASSETS:                                               |  |                   |          |   |                  |   |          |  
|Investments                                                           |  |                   | 6,263    |   |                  |   | 3,501    |  
|Deferred tax asset                                                    |  |                   | 588      |   |                  |   | 588      |  
|Other assets                                                          |  |                   | 12,617   |   |                  |   | 6,614    |  
|                                                                      |  |                   |          |   |                  |   |          |  
|TOTAL                                                                 |  | $                 | 411,952  |   |                  | $ | 343,646  |  
|                                                                      |  |                   |          |   |                  |   |          |  



See notes to unaudited
consolidated financial statements



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##### Table of Contents

HYDRIL COMPANY



Part I, Item 1: Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)



|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                      |  | September 30,2005 |         |   | December, 31,2004 |  
|                                                                                                                                                                                      |  | (unaudited)       |         |   |                   |  
|CURRENT LIABILITIES:                                                                                                                                                                  |  |                   |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                                      |  | $                 | 23,969  |   |                   | $ | 23,292  |  
|Billings in excess of contract costs and estimated earnings                                                                                                                           |  |                   | 821     |   |                   |   | 342     |  
|Accrued liabilities                                                                                                                                                                   |  |                   | 25,563  |   |                   |   | 24,817  |  
|Income taxes payable                                                                                                                                                                  |  |                   | 7,889   |   |                   |   | 5,902   |  
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                             |  |                   | 58,242  |   |                   |   | 54,353  |  
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|LONG-TERM LIABILITIES:                                                                                                                                                                |  |                   |         |   |                   |   |         |  
|Deferred tax liability                                                                                                                                                                |  |                   | 384     |   |                   |   | 410     |  
|Other                                                                                                                                                                                 |  |                   | 15,240  |   |                   |   | 14,100  |  
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total long-term liabilities                                                                                                                                                           |  |                   | 15,624  |   |                   |   | 14,510  |  
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|CONTINGENCIES (Note 4)                                                                                                                                                                |  |                   |         |   |                   |   |         |  
|                                                                                                                                                                                      |  |                  
|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; 19,873,216 and 18,651,458 shares issued and outstanding at September 30,
2005 and December 31, 2004, respectively       |  |                   | 9,937   |   |                   |   | 9,326   |  
|Class B common stock-authorized, 32,000,000 shares of $.50 par value; 3,728,725 and 4,620,130 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively |  |                   | 1,864   |   |                   |   | 2,310   |  
|Additional paid in capital                                                                                                                                                            |  |                   | 77,239  |   |                   |   | 61,810  |  
|Retained earnings                                                                                                                                                                     |  |                   | 258,419 |   |                   |   | 206,546 |  
|Deferred compensation                                                                                                                                                                 |  |                   | (7,489  | ) |                   |   | (3,325  | )
|Accumulated other comprehensive loss                                                                                                                                                  |  |                   | (1,884  | ) |                   |   | (1,884  | )
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                                            |  |                   | 338,086 |   |                   |   | 274,783 |  
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  
|TOTAL                                                                                                                                                                                 |  | $                 | 411,952 |   |                   | $ | 343,646 |  
|                                                                                                                                                                                      |  |                   |         |   |                   |   |         |  



See notes to unaudited
consolidated financial statements



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##### Table of Contents

HYDRIL COMPANY



Part I,
Item 1: Unaudited Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Amounts)



|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|------------------------------------------- |  | ------------------------------- | ---------- | ---- | ------------------------------ | ---------- | ---- |  | ---- | ---------- |  | - | ---------- | -
|                                            |  | Three Months EndedSeptember 30, |            |      | Nine Months EndedSeptember 30, |           
|                                            |  | 2005                            |            | 2004 |                                |            | 2005 |  | 2004 |           
|REVENUE                                     |  | $                               | 92,974     |      | $                              | 78,427     |      |  | $    | 263,398    |  | $ | 198,828    |  
|COST OF SALES                               |  |                                 | 51,690     |      |                                | 45,351     |      |  |      | 146,242    |  |   | 117,331    |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|GROSS PROFIT                                |  |                                 | 41,284     |      |                                | 33,076     |      |  |      | 117,156    |  |   | 81,497     |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|SELLING, GENERAL & ADMINISTRATION EXPENSES: |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|Engineering                                 |  |                                 | 2,844      |      |                                | 2,710      |      |  |      | 8,852      |  |   | 8,498      |  
|Sales and marketing                         |  |                                 | 5,239      |      |                                | 4,891      |      |  |      | 15,672     |  |   | 13,589     |  
|General and administration                  |  |                                 | 6,026      |      |                                | 5,707      |      |  |      | 18,361     |  |   | 15,818     |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|Total                                       |  |                                 | 14,109     |      |                                | 13,308     |      |  |      | 42,885     |  |   | 37,905     |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|OPERATING INCOME                            |  |                                 | 27,175     |      |                                | 19,768     |      |  |      | 74,271     |  |   | 43,592     |  
|                                            |  |                                 |            |     
|INTEREST INCOME                             |  |                                 | 959        |      |                                | 293        |      |  |      | 2,563      |  |   | 647        |  
|OTHER INCOME (EXPENSE)                      |  |                                 | 1,318      |      |                                | (101       | )    |  |      | 1,065      |  |   | (74        | )
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|INCOME BEFORE INCOME TAXES                  |  |                                 | 29,452     |      |                                | 19,960     |      |  |      | 77,899     |  |   | 44,165     |  
|PROVISION FOR INCOME TAXES                  |  |                                 | 9,840      |      |                                | 5,519      |      |  |      | 26,026     |  |   | 12,828     |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|NET INCOME                                  |  | $                               | 19,612     |      | $                              | 14,441     |      |  | $    | 51,873     |  | $ | 31,337     |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|NET INCOME PER SHARE:                       |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|BASIC                                       |  | $                               | 0.83       |      | $                              | 0.63       |      |  | $    | 2.21       |  | $ | 1.37       |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|DILUTED                                     |  | $                               | 0.81       |      | $                              | 0.61       |      |  | $    | 2.16       |  | $ | 1.34       |  
|                                            |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|WEIGHTED AVERAGE SHARES OUTSTANDING:        |  |                                 |            |      |                                |            |      |  |      |            |  |   |            |  
|BASIC                                       |  |                                 | 23,550,685 |      |                                | 23,030,468 |      |  |      | 23,456,702 |  |   | 22,930,889 |  
|DILUTED                                     |  |                                 | 24,121,067 |      |                                | 23,553,551 |      |  |      | 23,993,313 |  |   | 23,304,555 |  



See notes to unaudited
consolidated financial statements



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##### Table of Contents

HYDRIL COMPANY



Part I,
Item 1: Unaudited Consolidated Statements of Cash Flows

(In Thousands)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2005                           |         |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 51,873  |   |      | $ | 31,337  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Amortization of deferred compensation                                             |  |                                | 1,124   |   |      |   | 461     |  
|Depreciation and amortization                                                     |  |                                | 10,108  |   |      |   | 9,344   |  
|Deferred income taxes                                                             |  |                                | 5,264   |   |      |   | 824     |  
|Gain on sale of real estate holdings not used in operations                       |  |                                | (2,199  | ) |      |   |        |  
|Provision for doubtful accounts                                                   |  |                                | (207    | ) |      |   | (63     | )
|Change in operating assets and liabilities:                                       |  |                                |         |   |      |   |         |  
|Receivables                                                                       |  |                                | (3,714  | ) |      |   | (18,962 | )
|Contract costs and estimated earnings in excess of billings                       |  |                                | 1,742   |   |      |   | 1,581   |  
|Inventories                                                                       |  |                                | (19,055 | ) |      |   | (689    | )
|Other current and noncurrent assets                                               |  |                                | 4,376   |   |      |   | 2,043   |  
|Accounts payable                                                                  |  |                                | 677     |   |      |   | 5,386   |  
|Billings in excess of contract costs and estimated earnings                       |  |                                | 479     |   |      |   | 1,335   |  
|Accrued liabilities                                                               |  |                                | 746     |   |      |   | 3,968   |  
|Income taxes payable                                                              |  |                                | 1,987   |   |      |   | 1,813   |  
|Other long-term liabilities                                                       |  |                                | 1,140   |   |      |   | 611     |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                | 54,341  |   |      |   | 38,989  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|NET CASH FROM INVESTING ACTIVITIES:                                               |  |                                |         |   |      |   |         |  
|Purchase of held-to-maturity investments                                          |  |                                | (17,605 | ) |      |   | (20,987 | )
|Proceeds from held-to-maturity investments                                        |  |                                | 23,750  |   |      |   | 12,017  |  
|Purchase of available for sale investments                                        |  |                                | (85,500 | ) |      |   | (24,344 | )
|Proceeds from available for sale investments                                      |  |                                | 39,349  |   |      |   | 100     |  
|Capital expenditures                                                              |  |                                | (10,690 | ) |      |   | (6,391  | )
|Proceeds from the sale of real estate not used in operations                      |  |                                | 2,936   |   |      |   |        |  
|Purchase of a product line                                                        |  |                                | (3,640  | ) |      |   |        |  
|Other, net                                                                        |  |                                | (2,606  | ) |      |   |        |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                | (54,006 | ) |      |   | (39,605 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|NET CASH FROM FINANCING ACTIVITIES:                                               |  |                                |         |   |      |   |         |  
|Net proceeds from issuance of common stock                                        |  |                                | 264     |   |      |   | 253     |  
|Net proceeds from exercise of stock options                                       |  |                                | 6,268   |   |      |   | 4,803   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by financing activities                                         |  |                                | 6,532   |   |      |   | 5,056   |  
|                                                                                  |  |                               
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                                | 6,867   |   |      |   | 4,440   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                  |  |                                | 51,733  |   |      |   | 48,214  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        |  | $                              | 58,600  |   |      | $ | 52,654  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                 |  |                                |         |   |      |   |         |  
|Interest paid                                                                     |  | $                              |        |   |      | $ |        |  
|Income taxes paid:                                                                |  |                                |         |   |      |   |         |  
|Domestic                                                                          |  |                                | 2,806   |   |      |   | 2,530   |  
|Foreign                                                                           |  |                                | 11,622  |   |      |   | 6,120   |  



See notes to unaudited
consolidated financial statements



6



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##### Table of Contents

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. The December 31, 2004 consolidated
balance sheet was derived from our audited financial statements. 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, 2004. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of results to be expected for the full year.



Investments The Company invests excess cash in various
securities and money market mutual funds rated as the highest quality by a nationally recognized rating agency.



The Company has investment securities classified as available for sale in accordance with Statement of Financial Accounting Standards
No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity Securities. At September 30, 2005 and December 31, 2004, the Company held $96,815,000 and $50,664,000 in available for
sale securities, respectively. The fair value of these securities as of September 30, 2005 and December 31, 2004 approximates the carrying value. The realized and unrealized gains and losses related to these available for sale
investments were immaterial to the results of operations. The contractual maturities of these investments vary with $1,000,000 maturing within one year and the balance maturing after ten years. While the contractual maturities of these investments
can be greater than one year, they are classified as short-term investments because they are redeemable in less than one year and it is managements



7



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##### Table of Contents

intent that they be available for use in current operations. Additionally, the interest rates on these instruments
typically reprice every seven to thirty five days depending on the contractual terms.



Additionally, the Company has investments classified as held-to-maturity and measured at amortized cost in accordance with SFAS 115. Management has the positive intent and ability to hold those
securities to maturity. As of September 30, 2005 and December 31, 2004, the Company held $16,057,000 and $22,202,000, respectively of corporate investment securities classified as held to maturity. Contractual
maturities of these securities at September 30, 2005 include $3,250,000 which mature in 2005 and $12,807,000 which mature in 2006 and 2007.



Stock Based Compensation  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 to the extent that the quoted market price of the stock at
the measurement date was equal to or less than the amount the employee is required to pay for the stock. In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 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 nine months ended September 30, 2005 and 2004:



|                                                                                                                                |      |                                 |        |      |                                |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------------- | ------ | ---- | ------------------------------ | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|(in thousands except per share data)                                                                                            |      | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |  
|                                                                                                                                | 2005 |                                 |        | 2004 |                                |   | 2005   |   |  | 2004 |       
|Net income, as reported                                                                                                         |      | $                               | 19,612 |      |                                | $ | 14,441 |   |  | $    | 51,873 |   |  | $ | 31,337 |  
|Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of
tax |      |                                 | (430   | )    |                                |   | (621   | ) |  |      | (1,346 | ) |  |   | (1,505 | )
|                                                                                                                                |      |                                 |        |      |                                |   |        |   |  |      |        |   |  |   |        |  
|Proforma net income                                                                                                             |      | $                               | 19,182 |      |                                | $ | 13,820 |   |  | $    | 50,527 |   |  | $ | 29,832 |  
|                                                                                                                                |      |                                 |        |      |                                |   |        |   |  |      |        |   |  |   |        |  
|Earnings per share:                                                                                                             |      |                                 |        |      |                                |   |        |   |  |      |        |   |  |   |        |  
|Basic-as reported                                                                                                               |      | $                               | 0.83   |      |                                | $ | 0.63   |   |  | $    | 2.21   |   |  | $ | 1.37   |  
|Basic-proforma                                                                                                                  |      | $                               | 0.81   |      |                                | $ | 0.60   |   |  | $    | 2.15   |   |  | $ | 1.30   |  
|                                                                                                                                |      |                                 |        |     
|Diluted-as reported                                                                                                             |      | $                               | 0.81   |      |                                | $ | 0.61   |   |  | $    | 2.16   |   |  | $ | 1.34   |  
|Diluted-proforma                                                                                                                |      | $                               | 0.80   |      |                                | $ | 0.59   |   |  | $    | 2.11   |   |  | $ | 1.28   |  



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On June 1, 2005, the Company granted a total of 85,400 restricted stock units 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 lapse over a five year period with sixty percent of the units vesting on the
third anniversary of the date of grant and twenty percent vesting on each of the fourth and fifth anniversary dates of the grant. In the event a grantee terminates employment with the Company, any restricted stock units remaining subject to
restrictions are forfeited. Restricted 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.



In addition, on June 1, 2005
the Company granted a total of 19,000 performance-based restricted stock units to executive officers. The vesting of these awards is dependent upon whether, and the extent to which, specified performance objectives relating to Return on Capital
Employed (ROCE) are attained for the three-year period ending December 31, 2007. ROCE is the Companys average annual after-tax operating income divided by average capital employed (total assets and short-term debt, including
current maturities of long-term debt minus current liabilities). None of these restricted stock units will vest unless the Company achieves a minimum ROCE specified by the Board of Directors for the three-year period and the ROCE achieved is equal
to or greater than the average ROCE for a specified peer group of companies. If these two minimum thresholds are met, then between twenty percent and one hundred percent of the units will vest upon completion of the three-year period, depending on
the Companys ROCE relative to that of the peer group for that period. The units will vest completely if the minimum thresholds are met and the Companys ROCE is in the top quartile of its peer group for the period. Restricted stock units
settle automatically in shares of common stock on a one-for-one basis upon vesting.



On June 1, 2005 each of the Companys non-employee directors received a grant of 2,000 deferred share units, for a total of 14,000 units. Each deferred share unit represents one hypothetical share of common
stock. The deferred share units vest and become payable three years from the date of grant if the director remains a member of the Companys Board of Directors at such time, or earlier under specified circumstances. Upon vesting, the deferred
share units are settled in cash at the fair market value of common stock on a one-for-one basis.



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Note 2  Product Warranty Liability



The change in the aggregate product warranty liability is as follows for the three and nine months ended September 30:



|                                                |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|----------------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|(in thousands)                                  |  | 2005                            |       |   | 2004                           |   |       | 2005 |  |   | 2004  |  
|Beginning balance                               |  | $                               | 1,924 |   |                                | $ | 2,058 |      |  | $ | 2,341 |   |  | $ | 2,194 |  
|Claims paid                                     |  |                                 | (136  | ) |                                |   | (136  | )    |  |   | (409  | ) |  |   | (431  | )
|Warranty activity charged (credited) to expense |  |                                 | (204  | ) |                                |   | (3    | )    |  |   | (348  | ) |  |   | 156   |  
|                                                |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Ending balance                                  |  | $                               | 1,584 |   |                                | $ | 1,919 |      |  | $ | 1,584 |   |  | $ | 1,919 |  
|                                                |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  



Note 3  LONG-TERM CONTRACTS



The components of long-term contracts as of
September 30, 2005 and December 31, 2004 consist of the following:



|                                                                          |  |                   |        |   |                  |   |         |  
|------------------------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------- | -
|(in thousands)                                                            |  | September 30,2005 |        |   | December 31,2004 |  
|Costs and estimated earnings on uncompleted contracts                     |  | $                 | 9,843  |   |                  | $ | 23,860  |  
|Less: billings to date                                                    |  |                   | (7,546 | ) |                  |   | (19,342 | )
|                                                                          |  |                   |        |   |                  |   |         |  
|Excess of costs and estimated earnings over billings                      |  | $                 | 2,297  |   |                  | $ | 4,518   |  
|                                                                          |  |                   |        |   |                  |   |         |  
|Included in the accompanying balance sheets under the following captions: |  |                   |        |   |                  |   |         |  
|Contract costs and estimated earnings in excess of billings               |  | $                 | 3,118  |   |                  | $ | 4,860   |  
|Billings in excess of contract costs and estimated earnings               |  |                   | (821   | ) |                  |   | (342    | )
|                                                                          |  |                   |        |   |                  |   |         |  
|Total                                                                     |  | $                 | 2,297  |   |                  | $ | 4,518   |  
|                                                                          |  |                   |        |   |                  |   |         |  



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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.



As previously disclosed, 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 continues to believe this matter will not materially affect its results of operation or financial condition.



The Company has agreed to guarantee up to approximately
$3,070,000 of the borrowings by issuing irrevocable standby letters of credit of an unconsolidated entity in which the Company has a 50% interest. As of September 30, 2005, the amount of outstanding borrowings subject to the Companys
guarantee was approximately $1,556,000. The Company does not expect this guarantee to have a material adverse effect on its financial condition or results of operations.



Note 5 LETTERS OF CREDIT



The Companys banking institution currently issues letters of credit on the Companys behalf based on its credit worthiness. The letters of
credit are generally short in duration and immaterial in amount. At September 30, 2005 there was approximately $1,807,000 outstanding in letters of credit.



Note 6  PROVISION FOR INCOME TAXES



During the first quarter of 2004, the Company completed a research and experimentation tax study which resulted in a $920,000 credit to the Companys
income tax provision. The research and experimentation tax credit covered qualified spending for the two-year period from 2002 through 2003. Expenses of $125,000 associated with the study are included in general and administrative expenses for that
quarter. Prior to 2003, the Company was an alternative minimum tax payer and accordingly could not benefit from the research and experimentation tax credit.



Additionally, during the third quarter of 2004, the Company recorded a $1,350,000 U.S. income tax benefit (extraterritorial income exclusion), related to
export shipments for the years 2002 and 2003. The extraterritorial income exclusion provides an exemption of gross income in computing the U.S. taxable income of eligible taxpayers. In general, only those goods sold or leased for use outside of the
U.S. are eligible for the exclusion.



Note 7  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



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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 unissued restricted stock and restricted stock units, less the number of
treasury shares from the assumed exercise 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 September 30, 2005 and 2004 were 23,550,685 and 23,030,468, respectively, while for the nine months ended September 30, 2005 and 2004 were 23,456,702 and 22,930,889,
respectively. Dilutive weighted average shares outstanding for the three months ended September 30, 2005 and 2004 were 24,121,067 and 23,553,551, respectively, while for the nine months ended September 30, 2005 and 2004 were 23,993,313 and
23,304,555, respectively.



The following table summarizes the
computation of basic and diluted net income per share:



|                                      |  |           |        |                         |        |                      |   |     
|------------------------------------- |  | --------- | ------ | ----------------------- | ------ | -------------------- | - | ----
|(in thousands except per share data)  |  | NetIncome |        | Weighted Average Shares |        | Net Income Per Share
|Three months ended September 30, 2005 |  |           |        |                         |        |                      |   |     
|Basic net income                      |  | $         | 19,612 |                         | 23,551 |                      | $ | 0.83
|Effect of dilutive securities         |  |           |       |                         | 570    |                      |   |    
|                                      |  |           |        |                         |        |                      |   |     
|Diluted net income                    |  | $         | 19,612 |                         | 24,121 |                      | $ | 0.81
|                                      |  |           |        |                         |        |                      |   |     
|Three months ended September 30, 2004 |  |           |        |                         |        |                      |   |     
|Basic net income                      |  | $         | 14,441 |                         | 23,030 |                      | $ | 0.63
|Effect of dilutive securities         |  |           |       |                         | 524    |                      |   |    
|                                      |  |           |        |                         |        |                      |   |     
|Diluted net income                    |  | $         | 14,441 |                         | 23,554 |                      | $ | 0.61
|                                      |  |           |        |                         |        |                      |   |     
|Nine months ended September 30, 2005  |  |           |        |                         |        |                      |   |     
|Basic net income                      |  | $         | 51,873 |                         | 23,457 |                      | $ | 2.21
|Effect of dilutive securities         |  |           |       |                         | 536    |                      |   |    
|                                      |  |           |        |                         |        |                      |   |     
|Diluted net income                    |  | $         | 51,873 |                         | 23,993 |                      | $ | 2.16
|                                      |  |           |        |                         |        |                      |   |     
|Nine months ended September 30, 2004  |  |           |        |                         |        |                      |   |     
|Basic net income                      |  | $         | 31,337 |                         | 22,931 |                      | $ | 1.37
|Effect of dilutive securities         |  |           |       |                         | 374    |                      |   |    
|                                      |  |           |        |                         |        |                      |   |     
|Diluted net income                    |  | $         | 31,337 |                         | 23,305 |                      | $ | 1.34
|                                      |  |           |        |                         |        |                      |   |     



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Note 8  EMPLOYEE BENEFITS



The Company has a defined benefit plan and post-retirement health and life benefits which are described in detail in Note 6
EMPLOYEE BENEFITS under Item 8 of our Annual Report on Form 10-K for the year-ended December 31, 2004. The table below shows the amount of estimated net periodic benefit costs under each plan for the three and nine months ended
September 30:



|                                             |      |                                                    |      |      |                                                                       |   |      |   |  |      |      |   |  |   |      |  
|-------------------------------------------- | ---- | -------------------------------------------------- | ---- | ---- | --------------------------------------------------------------------- | - | ---- | - |  | ---- | ---- | - |  | - | ---- | -
|(in thousands)                               |      | Defined Benefit PlanThree MonthsEndedSeptember 30, |      |      | Post-RetirementHealth and LifeBenefits ThreeMonths EndedSeptember 30, |  
|                                             | 2005 |                                                    |      | 2004 |                                                                       |   | 2005 |   |  | 2004 |     
|Components of net periodic benefit cost      |      |                                                    |      |      |                                                                       |   |      |   |  |      |      |   |  |   |      |  
|Service cost                                 |      | $                                                  |     |      |                                                                       | $ |     |   |  | $    | 14   |   |  | $ | 13   |  
|Interest cost                                |      |                                                    | 474  |      |                                                                       |   | 457  |   |  |      | 83   |   |  |   | 87   |  
|Expected return on plan assets               |      |                                                    | (461 | )    |                                                                       |   | (440 | ) |  |      |     |   |  |   |     |  
|Amortization of prior service cost (benefit) |      |                                                    | 4    |      |                                                                       |   | 4    |   |  |      | (122 | ) |  |   | (122 | )
|Amortization of net loss                     |      |                                                    |     |      |                                                                       |   | 5    |   |  |      |     |   |  |   |     |  
|                                             |      |                                                    |      |      |                                                                       |   |      |   |  |      |      |   |  |   |      |  
|Net periodic cost                            |      | $                                                  | 17   |      |                                                                       | $ | 26   |   |  | $    | (25  | ) |  | $ | (22  | )
|                                             |      |                                                    |      |      |                                                                       |   |      |   |  |      |      |   |  |   |      |  



|                                             |      |                                                    |        |      |                                                                      |   |        |   |  |      |      |   |  |   |      |  
|-------------------------------------------- | ---- | -------------------------------------------------- | ------ | ---- | -------------------------------------------------------------------- | - | ------ | - |  | ---- | ---- | - |  | - | ---- | -
|(in thousands)                               |      | Defined Benefit PlanNine Months EndedSeptember 30, |        |      | Post-RetirementHealth and LifeBenefits NineMonths EndedSeptember 30, |  
|                                             | 2005 |                                                    |        | 2004 |                                                                      |   | 2005   |   |  | 2004 |     
|Components of net periodic benefit cost      |      |                                                    |        |      |                                                                      |   |        |   |  |      |      |   |  |   |      |  
|Service cost                                 |      | $                                                  |       |      |                                                                      | $ |       |   |  | $    | 42   |   |  | $ | 39   |  
|Interest cost                                |      |                                                    | 1,421  |      |                                                                      |   | 1,371  |   |  |      | 249  |   |  |   | 260  |  
|Expected return on plan assets               |      |                                                    | (1,382 | )    |                                                                      |   | (1,320 | ) |  |      |     |   |  |   |     |  
|Amortization of prior service cost (benefit) |      |                                                    | 12     |      |                                                                      |   | 12     |   |  |      | (366 | ) |  |   | (366 | )
|Amortization of net loss                     |      |                                                    |       |      |                                                                      |   | 15     |   |  |      |     |   |  |   |     |  
|                                             |      |                                                    |        |      |                                                                      |   |        |   |  |      |      |   |  |   |      |  
|Net periodic cost                            |      | $                                                  | 50     |      |                                                                      | $ | 78     |   |  | $    | (75  | ) |  | $ | (67  | )
|                                             |      |                                                    |        |      |                                                                      |   |        |   |  |      |      |   |  |   |      |  



Note 9  OTHER INCOME AND
EXPENSE



Other income for the three months ended
September 30, 2005 was $1,318,000 compared to other expense of $101,000 for the three months ended September 30, 2004. The quarter ended September 30, 2005 included a $2,199,000 gain recorded from the sale of real estate not used in
operations. Also included was an increase in environmental reserves of $662,000 on other non-operational real estate assets.



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Note 10  IMPAIRMENT OF LONG-LIVED ASSETS



In the third quarter of 2004, the Company tested for recoverability the carrying value of its assets included in the
Advanced Composite product line, after concluding that it is more likely than not that these assets would be sold or disposed of significantly before the end of their estimated useful lives. Advanced Composite was a product line included within the
Companys Premium Connection segment. An impairment charge of $727,000 pretax was recorded as a component of cost of sales in the third quarter of 2004 as a result of this recoverability test and the net book value of these assets after such
charge was approximately $0.9 million (substantially all related to fixed assets). As previously disclosed in December 2004, the Company sold the fixed assets, inventory and intellectual property rights of Advanced Composities at an amount
approximating the then net book value of such assets.



Note 11 
SEGMENT AND RELATED INFORMATION



In accordance with 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.



Hydril is engaged worldwide in engineering, manufacturing and marketing of
premium connection and pressure control products for oil and gas drilling and production. The Company sells its products to steel pipe distributors, major and independent, domestic and international oil and gas companies and drilling contractors.
The Companys products are used in drilling environments where extreme pressure, temperature, corrosion and mechanical stress are encountered, as well as in environmentally sensitive drilling. These harsh conditions are typical for deepwater,
deep-formation and horizontal or extended reach oil and gas wells.



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 or extended reach 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 Bakersfield, California; Nisku, Alberta, and Dartmouth, Nova Scotia, Canada; Batam, Indonesia; Westwego,
Louisiana; Veracruz, Mexico; Warri, Nigeria; Aberdeen, Scotland and Houston, Texas.



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 and one in New Mills, England.



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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, 2004 filed with the Securities and Exchange Commission. The Company evaluates segment performance based on operating
income or loss.



Financial data for the business segments for
the three and nine months ended September 30, 2005 and 2004 is as follows:



|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|------------------------------------- | ---- | ------------------------------- | ------ | ---- | ------------------------------ | - | ------ | - |  | ---- | ------- | - |  | - | ------- | -
|(in thousands)                        |      | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |  
|                                      | 2005 |                                 |        | 2004 |                                |   | 2005   |   |  | 2004 |        
|Revenue                               |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Premium Connection                    |      | $                               | 62,928 |      |                                | $ | 53,404 |   |  | $    | 173,340 |   |  | $ | 126,392 |  
|Pressure Control                      |      |                                 | 30,046 |      |                                |   | 25,023 |   |  |      | 90,058  |   |  |   | 72,436  |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Total                                 |      | $                               | 92,974 |      |                                | $ | 78,427 |   |  | $    | 263,398 |   |  | $ | 198,828 |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Operating income (loss)               |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Premium Connection                    |      | $                               | 22,974 |      |                                | $ | 18,264 |   |  | $    | 61,270  |   |  | $ | 40,438  |  
|Pressure Control                      |      |                                 | 8,628  |      |                                |   | 5,441  |   |  |      | 26,006  |   |  |   | 14,718  |  
|Corporate Administration              |      |                                 | (4,427 | )    |                                |   | (3,937 | ) |  |      | (13,005 | ) |  |   | (11,564 | )
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Total                                 |      | $                               | 27,175 |      |                                | $ | 19,768 |   |  | $    | 74,271  |   |  | $ | 43,592  |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Depreciation and amortization expense |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Premium Connection                    |      | $                               | 2,181  |      |                                | $ | 1,941  |   |  | $    | 6,300   |   |  | $ | 5,747   |  
|Pressure Control                      |      |                                 | 797    |      |                                |   | 731    |   |  |      | 2,312   |   |  |   | 2,174   |  
|Corporate Administration              |      |                                 | 490    |      |                                |   | 467    |   |  |      | 1,496   |   |  |   | 1,423   |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Total                                 |      | $                               | 3,468  |      |                                | $ | 3,139  |   |  | $    | 10,108  |   |  | $ | 9,344   |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Capital expenditures                  |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Premium Connection                    |      | $                               | 3,379  |      |                                | $ | 2,909  |   |  | $    | 8,949   |   |  | $ | 4,864   |  
|Pressure Control                      |      |                                 | 458    |      |                                |   | 397    |   |  |      | 1,474   |   |  |   | 1,169   |  
|Corporate Administration              |      |                                 | 89     |      |                                |   | 99     |   |  |      | 267     |   |  |   | 358     |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  
|Total                                 |      | $                               | 3,926  |      |                                | $ | 3,405  |   |  | $    | 10,690  |   |  | $ | 6,391   |  
|                                      |      |                                 |        |      |                                |   |        |   |  |      |         |   |  |   |         |  



Note 12  RECENT ACCOUNTING
PROUNOUNCEMENTS



In December 2004, the FASB issued
Statement of Financial Accounting Standards No. 123-Revised 2004 (SFAS 123(R)), Share-Based Payment. This is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB
No. 25, Accounting for Stock Issued to Employees. Under SFAS 123(R), the Company will be required to measure the cost of employee services received in exchange for stock based on the grant-date fair value (with limited exceptions).
That cost will be recognized over the



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period during which an employee is required to provide service in exchange for the award (usually the vesting period).
The fair value will be estimated using an option-pricing model. Excess tax benefits, as defined in SFAS 123(R), will be recognized as an addition to paid-in capital. This is effective beginning in the first quarter of the first fiscal year beginning
after June 15, 2005. The Company is currently in the process of evaluating the impact of SFAS 123(R). The pro forma table in Note 1 of the Notes to the Consolidated Financial Statements illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS 123. We will adopt SFAS 123(R) on January 1, 2006.



In May 2005, the FASB issued SFAS No. 154 (SFAS 154), Accounting Changes and Error Corrections-a replacement of APB Opinion
No. 20 and FASB statement No. 3. SFAS 154 replaces APB No. 20, Accounting Changes and FASB No. 3, Reporting Accounting Changes in Interim Financial Statements and provides guidance on the accounting
and reporting of accounting changes and error corrections. The statement applies to all voluntary changes in accounting principle as well as all changes required by an accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company believes the implementation of SFAS 154 will not have a material
effect on the Companys results of operations or financial condition.



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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 and Managements Discussion and Analysis of Financial Condition and
Results of Operations included in Hydrils Annual Report on Form 10-K for the year ended December 31, 2004.



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. Hydril applies premium threaded connections to tubulars owned by its customers and purchases pipe in certain international markets for threading and resale. 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 or extended reach 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 in these same environments. 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 on original equipment from 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 categorized by significant volatility. Generally, increasing oil and gas prices, usually referred to as commodity prices, result in increased oil and gas
exploration and production, which translates into greater demand for oilfield products and services. Conversely, falling commodity prices generally result in reduced demand for oilfield products and services. Historically, changes in budgets and
activity levels by oil and gas exploration and production companies have lagged significant movements in commodity prices.



Premium Connections



Our premium connection products are marketed primarily to exploration and production company operators, who are the end-users. The premium connection
market is driven by the level of worldwide drilling activity, in particular by the number of rigs drilling at target depths greater than 15,000 feet and the number of rigs drilling offshore,



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although the rate of consumption varies widely among markets based on specific geological formations, customer history
and preference, and available alternatives. The majority of wells with a target depth greater than 15,000 feet have been drilled in North America. These depths require substantially more premium connections than shallower wells.



Internationally, while the total international rig count is a general
indicator of the premium connection market, spending on exploration and production is typically spread unevenly between various regions and can be subject to significant volatility. There are many variables, including political and civil unrest,
which may adversely impact the level of drilling activity in particular countries or regions. In addition, our international presence is concentrated in particular geographic regions which may not always correspond to where drilling activity is
heaviest. 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. See RISK FACTORS: 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 and The intense competition on our industry could result in reduced profitability and loss of market
share for us. The following table shows the average rig count for rigs drilling at target depths greater than 15,000 feet in the United States, the average number of rigs under contract in the Gulf of Mexico and the average international rig
count for the last five quarters:



|                                                   |  |                                                |  |                                     |  |               
|-------------------------------------------------- |  | ---------------------------------------------- |  | ----------------------------------- |  | --------------
|Average United States Rig Count Over 15,000 ft (1) |  | Average Gulf Of Mexico Rigs Under Contract (2) |  | Average International Rig Count (3)
|Quarter Ended                                      |  | Number of Rigs                                 |  | Number of Rigs                      |  | Number of Rigs
|09/30/04                                           |  | 169                                            |  | 119                                 |  | 846           
|12/31/04                                           |  | 175                                            |  | 123                                 |  | 862           
|03/31/05                                           |  | 181                                            |  | 131                                 |  | 876           
|06/30/05                                           |  | 186                                            |  | 131                                 |  | 916           
|09/30/05                                           |  | 196                                            |  | 130                                 |  | 911           

---

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

|(2) | Average rigs under contract calculated by Hydril using weekly data published by ODS-Petrodata Group.
|--- | ----------------------------------------------------------------------------------------------------

|(3) | Average international rig count calculated by Hydril using monthly data published by Baker Hughes Incorporated. The international rig count includes data for Europe, the Middle
East, Africa, Latin America and Asia Pacific, and excludes data for Canada and the United States.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pressure Control



We sell our pressure control products primarily to drilling contractors for use in oil and gas drilling and to a lesser extent to exploration and
production companies for oil and gas production. The main factors that affect sales of pressure control capital equipment



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products are the level of construction of new offshore drilling rigs and the replacement and upgrading of equipment for
existing offshore drilling rigs. 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:



|                                         |  |                                          |  |               
|---------------------------------------- |  | ---------------------------------------- |  | --------------
|Average Worldwide Offshore Rig Count (1) |  | Average United States TotalRig Count (2)
|Quarter Ended                            |  | Number of Rigs                           |  | Number of Rigs
|09/30/04                                 |  | 333                                      |  | 1,229         
|12/31/04                                 |  | 351                                      |  | 1,249         
|03/31/05                                 |  | 350                                      |  | 1,279         
|06/30/05                                 |  | 374                                      |  | 1,336         
|09/30/05                                 |  | 375                                      |  | 1,428         

---

|(1) | Average worldwide offshore 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 Incorporated. The worldwide offshore rig count includes data for Europe, the Middle East, Africa, Latin America, Asia Pacific, the United States and Canada, and excludes the former Soviet Union and China.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Average United States total rig count calculated by Hydril using weekly data published by Baker Hughes Incorporated.
|--- | --------------------------------------------------------------------------------------------------------------------



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND
2004



Revenue



Total revenue increased $14.5 million, to $92.9 million for the three months
ended September 30, 2005 compared to $78.4 million for the three months ended September 30, 2004. Our premium connection revenue increased $9.5 million, or 18%, to $62.9 million for the three months ended September 30, 2005 compared
to $53.4 million for the prior year period. This increase was primarily the result of higher demand for our products worldwide, including pipe purchased by us for threading and resale in certain international markets. In North America, which was
responsible for about half of the increase, higher levels of deep formation drilling activity drove higher revenue, which was partially offset by the temporary shut-down of our Gulf Coast plants due to the two hurricanes that occurred during the
quarter. Pressure control revenue increased $5.0 million, or 20%, to $30.0 million for the three months ended September 30, 2005 compared to $25.0 million for the same period in 2004. Pressure control capital equipment revenue increased 53%
primarily due to improved industry fundamentals resulting in higher levels of construction of drilling rigs that require the type of equipment we manufacture. Aftermarket pressure control revenue increased slightly over the prior year period.



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Gross Profit



Gross profit increased $8.2 million to $41.3 million for the three months ended September 30, 2005 compared to $33.1 million for the prior year
period. Gross profit for our premium connection segment increased 21% over the prior year quarter due primarily to higher demand for our products worldwide which led to higher plant utilization and higher pricing levels in select international
markets and in the U.S. Gross profit for our pressure control segment increased 33% from the prior year period due primarily to increased production volume for pressure control capital equipment.



Selling, General and Administrative Expenses



Selling, general, and administrative expenses for the three months ended
September 30, 2005 were $14.1 million compared to $13.3 million for the prior year quarter. The increase over the prior year quarter was due to higher agent commissions associated with higher international sales, increases in sales and
marketing expenses and amortization of deferred compensation related to awards of restricted stock units. As a percentage of revenue, selling, general, and administrative expenses were 15% for the third quarter of 2005 compared to 17% for the prior
year quarter.



Operating Income



Operating income increased $7.4 million to $27.2 million for the three
months ended September 30, 2005 compared to $19.8 million for the same period in 2004. Operating income for our premium connection segment increased $4.7 million to $23.0 million for the third quarter of 2005 from $18.3 million for the third
quarter of 2004. Operating income for our pressure control segment increased $3.2 million to $8.6 million for the quarter ended September 30, 2005 compared to $5.4 million for the same period in 2004. Corporate and administrative expenses were
$4.4 million for the three months ended September 30, 2005 compared to $3.9 million for the prior year period.



Other Income and Expense



Other income for the three months ended September 30, 2005 was $1.3 million compared to other expense of $0.1 million for the three months ended
September 30, 2004. The current year quarter included a $2.2 million gain recorded from the sale of real estate not used in operations. Also included was an increase in environmental reserves of $0.7 million on other non-operational real estate
assets.



Provision (Benefit) for Income Taxes



Income tax expense was $9.8 million for the three months ended
September 30, 2005, compared to $5.5 million for the three months ended September 30, 2004. The prior year quarter included a $1.3 million U.S. income tax benefit (extraterritorial income exclusion), related to export shipments for the
years 2002 and 2003.



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RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004



Revenue



Total revenue increased $64.6 million, to $263.4 million for the nine months ended September 30, 2005 compared to
$198.8 million for the nine months ended September 30, 2004. Our premium connection revenue increased $46.9 million, or 37%, to $173.3 million for the nine months ended September 30, 2005 compared to $126.4 million for the prior year
period. This increase was primarily the result of higher demand for our products worldwide, including pipe purchased by us for threading and resale in certain international markets. In North America, which was responsible for about half of the
increase, higher levels of deep formation drilling activity drove higher revenue, which was partially offset by the temporary shut-down of our Gulf Coast plants due to the two hurricanes that occurred during the third quarter. Pressure control
revenue increased $17.6 million, or 24%, to $90.1 million for the nine months ended September 30, 2005 compared to $72.4 million for the same period in 2004. Pressure control capital equipment revenue increased 44% primarily due to improved
industry fundamentals resulting in higher levels of construction of drilling rigs that require the type of equipment we manufacture. Aftermarket pressure control revenue increased 13% primarily due to higher worldwide offshore and U.S. total rig
counts, resulting in increases in the consumption of spare parts in the drilling process.



Gross Profit



Gross
profit increased $35.7 million to $117.2 million for the nine months ended September 30 2005 compared to $81.5 million for the prior year period. Gross profit for our premium connection segment increased 44% due primarily to higher demand for
our products worldwide which led to higher plant utilization and higher pricing levels in select international markets and in the U.S. Gross profit for our pressure control segment increased 44% from the prior year due primarily to lower excess and
obsolete inventory charges due to an improving business environment, increased demand for higher-margin aftermarket products and increased production volume for our pressure control capital equipment.



Selling, General and Administrative Expenses



Selling, general, and administrative expenses for the nine months ended
September 30, 2005 were $42.9 million compared to $37.9 million for the prior year period. The increase over the prior year period was due to higher agent commissions associated with higher international sales, increases in sales and marketing
expenses and amortization of deferred compensation related to awards of restricted stock units. As a percentage of revenue, selling, general, and administrative expenses were 16% for the first nine months ended September 30, 2005 compared to
19% for the prior year period.



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Operating Income



Operating income increased $30.7 million to $74.3 million for the nine months ended September 30, 2005 compared to $43.6 million for the same period
in 2004. Operating income for our premium connection segment increased $20.8 million to $61.2 million for the first nine months of 2005 from $40.4 million for the same period in 2004. Operating income for our pressure control segment increased $11.3
million to $26.0 million for the nine months ended September 30, 2005 compared to $14.7 million for the same period in 2004. Corporate and administrative expenses were $13.0 million for the first nine months of 2005 compared to $11.6 million
for the prior year period.



Other Income and Expense



Other income for the nine months ended September 30, 2005 was $1.1
million compared to other expense of $74,000 for the nine months ended September 30, 2004. The 2005 period included a $2.2 million gain recorded from the sale of real estate not used in operations. Also included was an increase in environmental
reserves of $0.7 million on non-operational real estate assets.



Provision
for Income Taxes



Income tax expense was $26.0 million for
the nine months ended September 30, 2005, compared to $12.8 million for the nine months ended September 30, 2004. The nine months ended September 30, 2004 included a $1.3 million U.S. income tax benefit (extraterritorial income
exclusion), related to export shipments and a $0.9 million research and experimentation U.S. tax credit. The extraterritorial income exclusion deduction recorded in 2004 is for years 2002 and 2003. The research and experimentation credit recorded in
2004 covers qualified spending for the two-year period from 2002 to 2003. Prior to 2003, the Company was an alternative minimum tax payer and accordingly could not benefit from the research and experimentation tax credit.



LIQUIDITY AND CAPITAL RESOURCES



Our primary liquidity needs are to fund capital expenditures, fund new
product development and provide additional working capital. Our primary source of funds is cash flow from operations. In addition, we had available cash, cash equivalents and investments of $171.5 million at September 30, 2005.



We believe that cash from operations and existing cash, cash equivalents and
investment balances will be sufficient to meet anticipated cash requirements, including working capital needs, contractual obligations and planned capital expenditures, for at least the next 12 months. In the longer term, if we were to need
additional cash, we anticipate that we could enter into credit facilities and that we could also raise additional funds through issuing debt or equity securities.



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Operating Activities



For the nine months ended September 30, 2005, cash provided by operating activities was $54.3 million which primarily resulted from earnings and
contractual cash payments received on long-term capital equipment projects, which was partially offset by higher working capital requirements which included increases in inventories of approximately $19.1 million driven by higher demand in both of
our segments. For the nine months ended September 30, 2004, cash provided by operating activities was $39.0 million primarily due to earnings and contractual cash payments received from customers on long-term capital equipment projects, which
was partially offset by slightly higher working capital requirements.



Investing Activities



Net cash used in
investing activities was $54.0 million for the nine months ended September 30, 2005 compared to $39.6 million for the nine months ended September 30, 2004. The investment of cash in the 2005 period was primarily for net investments in
marketable securities of $40.0 million, capital spending of $10.7 million and the purchase of a pressure control product line for $3.6 million. The investment of cash in 2004 included $33.2 million for net investments in marketable securities and
$6.4 million for capital spending.



Capital spending for the
nine months ended September 30, 2005 of $10.7 million included $8.9 million for our premium connection segment and $1.5 million for our pressure control segment, in both cases primarily to support manufacturing operations and to add
manufacturing capacity to support increasing demands for our products, and $0.3 million for general corporate purposes. Capital spending for the nine months ended September 30, 2004 of $6.4 million included $4.9 million for our premium
connection segment and $1.2 million for our pressure control segment, in both cases primarily to support manufacturing operations, and $0.3 million for general corporate purposes. Capital spending for the fourth quarter of 2005 is expected to be
approximately $6.0 to $7.0 million.



Letters of Credit



The Companys banking institution currently issues letters of credit on
the Companys behalf based on its credit worthiness. The letters of credit are generally short in duration and immaterial in amount. At September 30, 2005 there was approximately $1.8 million outstanding in letters of credit.



The Company has agreed to guarantee up to approximately $3.1 million of
the borrowings by issuing irrevocable standby letters of credit of an unconsolidated entity in which the Company has a 50% interest. As of September 30, 2005, the amount of outstanding borrowings subject to the Companys guarantee was
approximately $1.6 million. The Company does not expect this guarantee to have a material adverse effect on its financial condition or results of operations.



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Backlog



The pressure control capital equipment backlog, which includes long-term projects and other capital equipment orders, was $61.2 million at
September 30, 2005, $14.6 million at December 31, 2004 and $15.9 million at September 30, 2004. The increase in our backlog reflects $49.1 million in long-term project orders received during the first nine months of 2005 for blowout
prevention and control system equipment. 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. Revenue for capital equipment that is not part of long-term projects is recognized using the completed contract method. It is possible for orders to be cancelled; however, in the event of cancellations generally
all costs incurred would be billable to the customer. Our backlog of premium connection and pressure control aftermarket parts and service historically has not been a meaningful measure of business prospects due to the quick turnover of such
orders.



CRITICAL ACCOUNTING ESTIMATES



Our significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2004. 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. The estimates in the areas we consider 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 are described under Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Estimates in our
Annual Report on Form 10-K.



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, 2004. Any of the following risks could impair our business, financial condition and operating results.



We may lose premium connection business to international and domestic
competitors who produce their own pipe, as well as other new entrants or lose business due to limitations on the availability of pipe for threading.



Our premium connections are applied to steel tubulars produced by steel mills. In the United States and Canada and sometimes internationally, our premium
connections are applied to steel tubulars purchased by a distributor from the steel suppliers. In international markets distribution is more varied. We also purchase the tubulars from the steel producers, thread them and sell the complete product,
or thread tubulars held by the



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steel producer, which the producer then sells, or thread tubulars owned by the end-user. In any case, the price paid by
the purchaser includes, but does not differentiate between, the costs of the steel pipe and the connection. Pricing of premium connections can be affected by steel prices, as the steel pipe is the largest component of the overall price. We have no
control over the availability or the price of the steel pipe. Prices for steel pipe have increased in recent periods due to higher worldwide demand for steel, which in turn has contributed to a tight supply of tubulars for oil and gas applications.
If these conditions persist and demand for pipe increases, we or our distributors could have difficulty obtaining plain-end pipe for us to thread. If we or our distributors are not able to obtain pipe for threading to satisfy customer demand, our
business would be adversely affected.



A number of steel
producers, especially internationally, are integrated steel producers, who both produce and thread steel tubulars. 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. There are also some steel producers which market their own premium connections in North America. Due to the current tight supply of steel and steel tubulars and low levels of
inventory of tubular goods for oil and gas applications in the industry generally, integrated producers may attempt to require that all or a greater portion of the pipe they produce bear their premium connections or change distribution methods in a
way that is adverse to us. Integrated steel producers also 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 plain end pipe is available and 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. In addition, 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.



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;
| | - |  | -----------------------------------------------



| |  |  | ability to meet the customers delivery schedule;
| | - |  | -------------------------------------------------



| |  |  | price and indexes affecting price;
| | - |  | ----------------------------------



| |  |  | pipe costs and their impact on contract prices;
| | - |  | -----------------------------------------------



| |  |  | reputation;
| | - |  | -----------



| |  |  | experience;
| | - |  | -----------



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| |  |  | 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 or consolidate with another company in the oilfield services and equipment industry, and as a result be able to offer a more complete package of drilling equipment and services
rather than providing only individual components. For example, National Oilwell, a manufacturer and supplier of oilfield equipment, systems and services that has historically purchased Hydril pressure control equipment, recently merged with Varco
International, a manufacturer of pressure control equipment and one of our primary competitors. As a result of any of the foregoing reasons, we could lose customers and market share to those competitors. These companies may also be in a better
position to endure downturns in the oil and gas industry.



We
do not do business in as many countries as some of our larger multinational competitors and in some cases even where we do business, we do not have as significant a presence. Our lack of geographic diversity and penetration may have a material
adverse affect on our results of operations and competitive position. Spending on exploration and production is typically spread unevenly between various regions with changes in geographic spending patterns arising as discoveries are made, the price
of oil and gas changes, political changes take place or other factors occur that make drilling more or less attractive in a given geographic area. As a result, even when international rig counts and drilling activity increase overall, if the
increased activity is not in countries in which we have a strong presence, we may not experience any increase in business and may lose market share.



Moreover, some of our competitors with greater financial resources and multinational presence have relocated manufacturing operations to countries where
they have substantially lower labor costs and lower general overhead costs. The relocation by competitors of manufacturing operations to low cost environments may continue in the future. As a result, our competitors may have lower costs than we do
and be able to sell their products at prices significantly below ours.



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. A substantial or extended



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decline in drilling activity will adversely affect the demand for our products and services. Demand for our pressure
control capital equipment is directly affected by the number of drilling rigs being built or refurbished. Drilling rig utilization and day rates though improved, have not experienced sufficiently sustained improvements to result in significant
refurbishment of drilling rigs or new rig construction. An extended decline in capital equipment orders could adversely affect revenue and operating income for our pressure control segment and could result in additional charges if we are required to
take cost reduction measures in light of business conditions.



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 in Iraq, Nigeria and Venezuela;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the cost of producing oil and gas;
| | - |  | ----------------------------------



| |  |  | interest rates and the cost of capital;
| | - |  | ---------------------------------------



| |  |  | technological advances affecting hydrocarbon consumption, particularly oil and gas;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | environmental regulation;
| | - |  | -------------------------



| |  |  | level of oil and gas inventories in storage;
| | - |  | --------------------------------------------



| |  |  | tax policies, including windfall profit taxes on oil and gas companies, such as have recently been proposed in the United States Congress;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | extended disruptions of oil and gas drilling and production, refining or pipeline operations as a result of weather-related factors, such as hurricanes or tropical storms in the
Gulf of Mexico or other natural disasters;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.



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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. In addition, many oil and gas properties will be transferred over time to different potential
customers.



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. Moreover, some end-users are not as risk-averse and, as
such, do not use as many premium products in drilling deep formation wells.



We are subject to the usual risks associated with having a limited number of customers and end-users. The end-users of our products, who are not always our direct customers, are primarily international and domestic
independent, major and state-owned oil and gas companies and drilling contractors. During 2004, we sold products to and services to approximately 1,030 customers. For 2004, Petroleos de Venezuela S.A. (PdVSA), the state-owned oil and gas company of
Venezuela, represented 11% of our consolidated revenue; and we estimate that Petroleos Mexicanos (Pemex), the state-owned oil and gas company of Mexico, ultimately represented 14% of our consolidated revenue. In 2004, our two largest premium
connection customers accounted for 23% and 17% of segment sales, and our ten largest premium connection customers accounted for 71% of total segment sales. In 2004, our two largest pressure control customers each accounted for 12% of segment sales
and our ten largest pressure control customers accounted for 62% of segment sales.



The loss of one or more of our significant customers or end-users, a reduction in exploration and development budgets as a result of industry consolidation or other reasons or a transfer of deep formation drilling
prospects to end-users that do not rely as heavily on premium products could adversely affect demand for our products and services and reduce our revenue.



Our international operations may experience severe interruptions due to political, economic and other risks.



In 2004, 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 41% 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;
| | - |  | -------------------------------------------------------------



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| |  |  | 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, 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 as well as day-to-day operations and oversight of our business from time to time. These disruptions have affected our operations and resulted in lower demand for our premium connection products and services
and, accordingly have had an adverse affect on our results of operations in previous periods and may do so in the future.



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 have recently experienced tightening in the relevant labor markets, and if that trend continues, it may have an adverse affect on our results of operations and potential for
growth.



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We may lose money on fixed price contracts, and such contracts could cause our quarterly revenue and
earnings to fluctuate significantly.



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 could vary from the estimated amounts on which these contracts were originally based. This may occur for various reasons, including:



| |  |  | changes in cost, estimates or expected production time;
| | - |  | -------------------------------------------------------



| |  |  | 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.



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 2004, our eight distributors accounted for 64% 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.



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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 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 currently cover imports of tubulars from Argentina, Italy, Japan, Korea and Mexico, and a countervailing duty order
currently covers imports from Italy. In the case of Argentina, Italy, Korea and Mexico, these orders apply to tubular goods other than drill pipe. In the case of Japan, the antidumping order covers all tubular goods, including drill pipe. 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, with a decision expected by April 2007.



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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 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.



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 new technologies and
products that are commercially successful, our revenue may decline or we may be required to write-off any capitalized investment.



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



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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:



| |  |  | 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.



For example, while we have incurred significant amounts in the development of
new technologies, such as subsea mudlift drilling, demand for new products may be limited for various reasons. In the case of subsea mudlift drilling, due in part to the cost to implement the technology, we do not anticipate any customer orders for
the product in the near future. In addition, 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 or
develop more cost-effective competing products.



If we are
unable to successfully implement 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, we would be required to write-off any
capitalized investment in a product that is not a commercial success and does not have an alternative use. For example, in the case of advanced composite tubing, we wrote off a portion of our investment in the third quarter of 2004, recording a
pre-tax impairment charge of $0.7 million, and then sold the fixed assets, inventory and intellectual property rights at an amount approximating the net book value of such assets at the end of 2004. 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.



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, 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



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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, our Vice President-Pressure Control, and Chris D. North,
our Chief Financial Officer. 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.



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, as well as the particular geographic focus of the activity;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -------------------------------------------------------



| |  |  | weather conditions or other natural disasters that can affect our operations or our customers operations;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | changes in commodity prices and currency exchange rates, which in some cases affect the prices for our products;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | pipe costs and their impact on contract prices;
| | - |  | -----------------------------------------------



| |  |  | delays in the delivery or other limitations on the availability of plain-end pipe from steel mills for threading by us for our customers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the level of long-term capital equipment project orders which varies with the level of new rig construction and refurbishment activity in the industry;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in drilling and exploration plans which can be particularly volatile in international markets; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | delays in the delivery of finished products to customers due to limitations on the availability of marine transportation, particularly internationally.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



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 have catastrophic
consequences. For example, if one of our blowout preventers fails, the oil and gases from the well may ignite or the equipment and tubulars in the well may be suddenly propelled out of the well, potentially resulting in injury or death of personnel,
destruction of drilling equipment, environmental damage and suspension of operations. Damages arising 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.



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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 4 to our consolidated
financial statements included elsewhere in this report for more information regarding environmental contingencies.



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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 pressure control equipment and premium connections are often deployed in critical environments including subsea applications. 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.



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, 2004 in the Companys exposure to market risk.



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 September 30, 2005 and they have 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 6: Exhibits



Exhibits:



| | 10.1*  | Form of Change in Control Renewal Agreement for Executive Officers (through December 31, 2005) (incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed with the Securities and Exchange Commission on August 1, 2005).
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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 Chris D. North, 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 Chris D. North, 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).
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|* | Incorporated by reference as indicated.
|- | ---------------------------------------



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: November 9, 2005 |  | By:            |  | /s/ Chris D. North                                                 
|                       |  |                |  | Chris D. North                                                     
|                       |  |                |  | Chief Financial Officer                                            
|                       |  |                |  | (Authorized officer and principal accounting and financial officer)



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