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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


Form 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


Commission file number 000-31579


HYDRIL COMPANY


(Exact name of registrant as specified in its charter)


|                                                                                               |  |                                      
|---------------------------------------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                                                       |  | 95-2777268                           
|(State or other jurisdiction of
     incorporation or organization)                            |  | (IRS Employer
    Identification No.)
|                                                                                              
|3300 North Sam Houston Parkway
    East Houston, Texas(Address of principal executive offices) |  | 77032-3411(Zip Code)                 

Registrants telephone number, including area code


(281) 449-2000


Securities registered pursuant to Section 12(g) of the
Act:


Title of each class


Common Stock, par value $.50 per share


Rights to Purchase preferred Stock


þ o


o


þ o








| |                                                   
| | --------------------------------------------------
| | Common stock outstanding: 19,125,647 shares       
|
| | Class B common stock outstanding: 4,272,290 shares











---










HYDRIL COMPANY


Form 10-K


For the Year Ended December 31, 2003


Index


|                                                         |  |                                                                                                        |    |      |    |  |  | 
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- |  |  | 
|                                                         |  |                                                                                                        |    | Page |   
|                                                         |  |                                                                                                        |    |      |   
|PART I                                                  
|Item 1.                                                  |  | Business                                                                                               |    |      | 3  | 
|Item 2.                                                  |  | Properties                                                                                             |    |      | 13 | 
|Item 3.                                                  |  | Legal Proceedings                                                                                      |    |      | 14 | 
|Item 4.                                                  |  | Submission of Matters to a Vote of Security
    Holders                                                |    |      | 14 | 
|Item S-K 401(b)                                          |  | Executive Officers of the Registrant                                                                   |    |      | 14 | 
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer of Equity Securities |    |      | 15 | 
|Item 6.                                                  |  | Selected Financial Data                                                                                |    |      | 16 | 
|Item 7.                                                  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations              |    |      | 17 | 
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosures
    About Market Risk                                         |    |      | 38 | 
|Item 8.                                                  |  | Financial Statements and Supplementary
    Data                                                        |    |      | 39 | 
|Item 9.                                                  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure               |    |      | 69 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                                |    |      | 69 | 
|Item 9B.                                                 |  | Other Information                                                                                      |    |      | 69 | 
|PART III                                                
|Item 10.                                                 |  | Directors and Executive Officers of the
    Registrant                                                 |    |      | 69 | 
|Item 11.                                                 |  | Executive Compensation                                                                                 |    |      | 69 | 
|Item 12.                                                 |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters     |    |      | 70 | 
|Item 13.                                                 |  | Certain Relationships and Related
    Transactions                                                     |    |      | 70 | 
|Item 14.                                                 |  | Principal Accounting Fees and Services                                                                 |    |      | 70 | 
|PART IV                                                 
|Item 15.                                                 |  | Exhibits and Financial Statement
    Schedules                                                         |    |      | 70 | 
|Signatures                                               |  |                                                                                                        | 72 |     
|Employment Agreement - Neil Russell                     
|Form of Stock Option Award Agmt - Employees             
|Form of Stock Option Award Agmt - Non-Employee Directors
|Form of Resricted Stock Unit Award Agmt - Employees     
|Form of Resricted Stock Award Agmt - Employees          
|Description of Non-Employee Director Compensation       
|Subsidiaries of the Registrant                          
|Consent of Independent Registered Accounting Firm       
|Powers of Attorney                                      
|Certification of CEO Pursuant to Rule 13a-14(a)         
|Certification of CFO Pursuant to Rule 13a-14(a)         
|Certification of CEO Pursuant to Section 1350           
|Certification of CFO Pursuant to Section 1350           





Cautionary Statement Regarding Forward-Looking Information


This annual report 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 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 impact of geo-political and other events affecting
international markets and trade, Hydrils ability to
successfully develop new 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. Please read
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-RISK FACTORS for more
information about many of these risks and uncertainties. These
factors may cause our companys or our industrys
actual results, levels of activity, performance or achievements
to be materially different from those expressed or implied by
the forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
may, will, should,
could, expects, intends,
plans, anticipated, believes
estimated potential, or the negative of
these terms or other comparable terminology.


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


2



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PART I





ITEM 1  BUSINESS






OVERVIEW OF OUR INDUSTRY










3



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Market for Premium Connections






4



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|     |  |                   |     |  |                   |  |     |                |  |  |     | 
|---- |  | ----------------- | --- |  | ----------------- |  | --- | -------------- |  |  | --- | 
|     |  | Average           |     |  | Average           |  |     |               
|     |  | United States     |     |  | Gulf of Mexico    |  |     | Average        | 
|     |  | Rig Count         |     |  | Rigs              |  |     | International  | 
|     |  | Over 15,000 ft(1) |     |  | Under Contract(2) |  |     | Rig Count(3)   | 
|     |  |                   |     |  |                   |  |     |                | 
|Year |  | Number of Rigs    |     |  | Number of Rigs    |  |     | Number of Rigs | 
|     |  |                   |     |  |                   |  |     |                | 
|2000 |  |                   | 121 |  |                   |  | 165 |                |  |  | 652 | 
|2001 |  |                   | 161 |  |                   |  | 164 |                |  |  | 745 | 
|2002 |  |                   | 128 |  |                   |  | 127 |                |  |  | 732 | 
|2003 |  |                   | 143 |  |                   |  | 124 |                |  |  | 771 | 
|2004 |  |                   | 170 |  |                   |  | 118 |                |  |  | 836 | 






|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Source: Average rig count calculated by Hydril using weekly data
    published by Smith International.                                                                                                                                                                                      
|   
|(2) | Source: Average rigs under contract calculated by Hydril using
    weekly data published by ODS-Petrodata Group.                                                                                                                                                                            
|   
|(3) | Source: Average 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.



Market for Pressure Control Equipment






5



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|     |  |                    |     |  |                     |  |       | 
|---- |  | ------------------ | --- |  | ------------------- |  | ----- | 
|     |  | Average            |     |  | Average             | 
|     |  | Worldwide Offshore |     |  | United States Total | 
|     |  | Rig Count(1)       |     |  | Rig Count(2)        | 
|     |  |                    |     |  |                     | 
|Year |  | Number of Rigs     |     |  | Number of Rigs      | 
|     |  |                    |     |  |                     | 
|2000 |  |                    | 331 |  |                     |  | 918   | 
|2001 |  |                    | 378 |  |                     |  | 1,156 | 
|2002 |  |                    | 344 |  |                     |  | 830   | 
|2003 |  |                    | 338 |  |                     |  | 1,032 | 
|2004 |  |                    | 342 |  |                     |  | 1,192 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Source: Average rig count calculated by Hydril using weekly data
    for the United States and Canada, and monthly data for the
    international regions, as published by Baker Hughes
    International. The worldwide offshore rig count includes data
    for Europe, the Middle East, Africa, Latin America, Asia
    Pacific, the United States and Canada, and excludes the Former
    Soviet Union and China.
|   
|(2) | Source: Average rig count calculated by Hydril using weekly data
    published by Baker Hughes Incorporated.                                                                                                                                                                                                                                                                                                         

BUSINESS SEGMENTS


Our Premium Connection Business








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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Tension resistance. Our premium integral thread designs
    have high tension strength, which supports the weight of
    numerous sections of pipe strung together in deep wells.                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Torque capability. Our premium thread connection, in
    particular our proprietary Wedge
    Threadtm
    connection, is designed to have torque capability that
    approaches pipe body strength in casing applications and
    surpasses it in most drill pipe and tubing applications. This
    design prevents connection damage due to overtorque, facilitates
    easier assembly and disassembly and reduces wear and tear from
    recurring service to the pipe.                                                                               
|
| |  | Compression and bending flexibility. Our premium threads
    are designed to permit greater compression and bending of pipe
    strings than standard connections, which is particularly
    important in horizontal and extended-reach wells.                                                                                                                                                                                                                                                                                                            
|
| |  | Clearance. Our integral connections are machined directly
    onto the pipe, forming a smooth connection with little or no
    increase in diameter of the pipe. Coupled connections, on the
    other hand, use a bulkier third pipe, or coupling, to make a
    connection, resulting in less clearance inside the well. This
    integral quality is particularly important in deep drilling
    where well diameters become increasingly narrow because multiple
    strings of casing, production tubing, or drill pipe are utilized
    in one well.
|
| |  | Pressure tight sealing. Our metal-to-metal pressure tight
    sealing is designed to prevent both gas and fluid leakage, a
    critical factor in the case of extreme pressure and
    environmentally sensitive drilling.                                                                                                                                                                                                                                                                                                                                
|
| |  | Corrosion resistance. Our unique manufacturing processes
    and designs reduce the propensity for galling, especially when
    applied to corrosion resistant materials, and extend the useful
    life of the connections and drill string. Our corrosion barrier
    ring, when used on plastic coated tubing connections, provides
    the entire tubing string with continuous internal protection
    from corrosive well bore fluids and also extends the useful life
    of the connections and tubing string.                                    
|
| |  | Uniformity and compatibility. Our connections are
    manufactured worldwide with the same design, high tolerance
    specifications, and centrally manufactured tools and gauges,
    which enhances product uniformity and compatibility.                                                                                                                                                                                                                                                                                                               





Our Pressure Control Business




7



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| |                          
| | -------------------------
| | Pressure Control Products

Blowout preventers.






| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Annular blowout preventers, which we invented more than
    65 years ago, seal the well by hydraulically closing a
    large rubber collar around the drill pipe or against itself if
    nothing is in the well.
|
| |  | Ram blowout preventers seal the well by hydraulically driving
    metal rams against each other across the top of the well.                                                                                      

Diverters.


Drill Stem Valves.


Pulsation Dampeners.


Production Chokes.


Elastomers.


Integrated Systems.


8



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| |                                  
| | ---------------------------------
| | Aftermarket Products and Services





Research and Development












9



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Our Customers, End-Users and Distribution




Premium Connection Products.










Pressure Control Products.




10



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Our Competitors




Premium Connection Products.




Pressure Control Products.


Our Employees






Insurance




11



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Environmental Regulation














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International and Other Matters









ITEM 2  PROPERTIES




|                                        |  |             |         |  |             |                                                                                     
|--------------------------------------- |  | ----------- | ------- |  | ----------- | ------------------------------------------------------------------------------------
|                                        |  | Approximate |         |  |            
|                                        |  | Square      |         |  |            
|Location                                |  | Footage     |         |  | Description
|                                        |  |             |         |  |            
|United States                           |  |             |         |  |             |                                                                                     
|Houston, Texas                          |  |             | 293,800 |  |             | Pressure control products manufacturing; principal executive
    offices.           
|Houston, Texas                          |  |             | 179,000 |  |             | Premium connection manufacturing.                                                   
|Houston, Texas                          |  |             | 100,000 |  |             | Pressure control elastomer products manufacturing.                                  
|Bakersfield, California (leased)        |  |             | 8,000   |  |             | Premium connection manufacturing; warehouses pressure control
    replacement parts.
|Westwego, Louisiana                     |  |             | 40,000  |  |             | Premium connection manufacturing.                                                   
|International                           |  |             |         |  |             |                                                                                     
|Nisku, Alberta, Canada (leased)         |  |             | 48,000  |  |             | Premium connection manufacturing.                                                   
|Dartmouth, Nova Scotia, Canada (leased) |  |             | 15,600  |  |             | Premium connection manufacturing.                                                   
|Batam, Indonesia (land is leased)       |  |             | 30,000  |  |             | Premium connection manufacturing.                                                   
|Veracruz, Mexico                        |  |             | 124,000 |  |             | Premium connection manufacturing.                                                   
|Veracruz, Mexico                        |  |             | 21,200  |  |             | Thread protector manufacturing for premium connections.                             
|Warri, Nigeria                          |  |             | 20,000  |  |             | Repair and service of premium connections.                                          
|Aberdeen, Scotland                      |  |             | 20,000  |  |             | Premium connection manufacturing; warehouses pressure control
    replacement parts.



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ITEM 3  LEGAL PROCEEDINGS







ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS









|                  |                                     
|----------------- | ------------------------------------
|ITEM S-K 401(b)  | EXECUTIVE OFFICERS OF THE REGISTRANT



|                         |  |     |    |  |             |                                                                                             
|------------------------ |  | --- | -- |  | ----------- | --------------------------------------------------------------------------------------------
|Name                     |  | Age |    |  | Position(s)
|                         |  |     |    |  |            
|Richard C. Seaver        |  |     | 82 |  |             | Chairman of the Board                                                                       
|Christopher T. Seaver    |  |     | 56 |  |             | President, Chief Executive Officer and Director                                             
|Charles E. Jones         |  |     | 45 |  |             | Executive Vice President and Chief Operating Officer                                        
|Neil G. Russell          |  |     | 59 |  |             | Senior Vice President-Premium Connections and Senior Vice
    President-Business Development
|E. Charles Chauviere III |  |     | 40 |  |             | Vice President-Pressure Control                                                             
|Chris D. North           |  |     | 49 |  |             | Chief Financial Officer and Secretary                                                       

Richard C. Seaver


Christopher T. Seaver


Charles E. Jones


Neil G. Russell


E. Charles Chauviere III


Chris D.


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PART II





ITEM 5  MARKET FOR THE REGISTRANTS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS




|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|               |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|2003           |  |      |       |  |     |   |       | 
|First Quarter  |  | $    | 26.68 |  |     | $ | 21.65 | 
|Second Quarter |  |      | 28.20 |  |     |   | 21.77 | 
|Third Quarter  |  |      | 27.48 |  |     |   | 19.75 | 
|Fourth Quarter |  |      | 26.20 |  |     |   | 20.00 | 
|2004           |  |      |       |  |     |   |       | 
|First Quarter  |  | $    | 28.00 |  |     | $ | 22.98 | 
|Second Quarter |  |      | 31.95 |  |     |   | 24.37 | 
|Third Quarter  |  |      | 44.16 |  |     |   | 30.70 | 
|Fourth Quarter |  |      | 47.62 |  |     |   | 38.82 | 





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ITEM 6  SELECTED FINANCIAL DATA




|                    |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |         |        |         | 
|------------------- | ------------------------------------------------------------ | ------------------------------------- | ------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------ | ------- | 
|                    |                                                              | Years Ended December 31,              |              
|                    |                                                              |                                       |              
|                    |                                                              | 2004                                  |               |         | 2003    |         |   | 2002    |         |         | 2001 |         |         | 2000    |  
|                    |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |  
|                    |                                                              | (In thousands, except per share data) |              
|Operating Data:     |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |        
|                    | Revenue:                                                     |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                    |                                                              | Premium connection                    |               | $       | 184,782 |         |   | $       | 110,270 |         |      | $       | 127,116 |         |   | $       | 138,887 |         |   | $       | 94,983 |        
|                    |                                                              | Pressure control                      |               |         | 100,571 |         |   |         | 101,747 |         |      |         | 114,408 |         |   |         | 100,674 |         |   |         | 85,039 |        
|                    |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |  
|                    |                                                              |                                       | Total revenue |         |         | 285,353 |   |         |         | 212,017 |      |         |         | 241,524 |   |         |         | 239,561 |   |         |        | 180,022 | 
|                    | Gross profit                                                 |                                       |               | 118,413 |         |         |   | 81,893  |         |         |      | 90,670  |         |         |   | 84,217  |         |         |   | 56,220  |       
|                    | Selling, general and administration expenses                 |                                       |               | 52,007  |         |         |   | 47,730  |         |         |      | 46,345  |         |         |   | 41,887  |         |         |   | 34,802  |       
|                    |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |  
|                    | Operating income                                             |                                       |               | 66,406  |         |         |   | 34,163  |         |         |      | 44,325  |         |         |   | 42,330  |         |         |   | 21,418  |       
|                    | Interest expense                                             |                                       |               |        |         |         |   | 1,101   |         |         |      | 4,831   | (3)     |         |   | 4,403   |         |         |   | 4,963   |       
|                    | Interest income                                              |                                       |               | 1,113   |         |         |   | 724     |         |         |      | 1,477   |         |         |   | 2,874   |         |         |   | 2,320   |       
|                    | Other income (expense)                                       |                                       |               | (335    | )       |         |   | (135    | )       |         |      | (214    | )       |         |   | (1,082  | )(2)    |         |   | 5,433   | (1)   
|                    | Net income                                                   |                                       | $             | 46,487  | (5)     |         | $ | 25,578  | (4)     |         | $    | 26,492  |         |         | $ | 25,619  |         |         | $ | 15,614  |       
|                    | Earnings per share:                                          |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                    |                                                              | Basic                                 |               | $       | 2.02    |         |   | $       | 1.13    |         |      | $       | 1.18    |         |   | $       | 1.15    |         |   | $       | 0.78   |        
|                    |                                                              | Diluted                               |               | $       | 1.98    |         |   | $       | 1.11    |         |      | $       | 1.16    |         |   | $       | 1.13    |         |   | $       | 0.76   |        
|                    | Weighted average shares outstanding:                         |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                    |                                                              | Basic                                 |               |         | 22,996  |         |   |         | 22,711  |         |      |         | 22,414  |         |   |         | 22,211  |         |   |         | 20,023 |        
|                    |                                                              | Diluted                               |               |         | 23,432  |         |   |         | 23,001  |         |      |         | 22,833  |         |   |         | 22,575  |         |   |         | 20,557 |        
|Other Data:         |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |        
|                    | Capital expenditures                                         |                                       | $             | 12,356  |         |         | $ | 8,558   |         |         | $    | 17,928  |         |         | $ | 29,525  |         |         | $ | 13,575  |       
|                    | Depreciation                                                 |                                       |               | 12,637  |         |         |   | 11,900  |         |         |      | 10,827  |         |         |   | 9,207   |         |         |   | 8,579   |       
|Balance Sheet Data: |                                                              |                                       |               |         |         |         |   |         |         |         |      |         |         |         |   |         |         |         |   |        
|                    | Working capital                                              |                                       | $             | 176,222 |         |         | $ | 116,495 |         |         | $    | 90,483  |         |         | $ | 130,728 |         |         | $ | 116,911 |       
|                    | Property, net                                                |                                       |               | 102,368 |         |         |   | 105,047 |         |         |      | 107,031 |         |         |   | 100,038 |         |         |   | 79,070  |       
|                    | Total assets                                                 |                                       |               | 343,646 |         |         |   | 264,552 |         |         |      | 278,208 |         |         |   | 292,171 |         |         |   | 254,646 |       
|                    | Long-term debt and capital leases, excluding current portion |                                       |               |        |         |         |   |        |         |         |      |        |         |         |   | 60,000  |         |         |   | 60,286  |       
|                    | Other long-term liabilities                                  |                                       |               | 14,100  |         |         |   | 14,464  |         |         |      | 16,370  |         |         |   | 15,575  |         |         |   | 15,549  |       
|                    | Total stockholders equity                                   |                                       |               | 274,783 |         |         |   | 217,010 |         |         |      | 187,137 |         |         |   | 160,185 |         |         |   | 131,729 |       






|    |                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other income for 2000 includes a pre-tax gain of
    $3.6 million for the settlement of a dispute with a
    financial institution from which Hydril purchased put options to
    sell stock of Weatherford International in 1998 and a pre-tax
    gain of $1.9 million from the sale of real estate not used
    in operations.
|   
|(2) | Includes $0.6 million in expenses incurred in facilitating
    the offering of common stock by certain of the Companys
    stockholders during the second quarter of 2001 pursuant to a
    registration rights agreement.                                                                                                      
|   
|(3) | Includes a $1.2 million pre-tax make-whole premium
    attributable to the Companys prepayment of
    $30 million on its senior unsecured notes during the third
    quarter of 2002.                                                                                                                                           

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|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Includes a U.S. research and experimentation income tax
    credit of $3.7 million related to qualified spending for
    the ten-year period from 1992 through 2001.                                                                                                                                                       
|   
|(5) | Includes a U.S. research and experimentation income tax
    credit of $0.9 million related to qualified spending for
    the two-year period from 2002 through 2003, and a
    U.S. income tax benefit (extraterritorial income exclusion)
    of $1.3 million related to export shipments for the years
    2002 and 2003.




ITEM 7  MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




OVERVIEW












17



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18



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Revenue




Gross Profit




19



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Selling, General and Administration Expenses




Operating Income (Loss)




RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
2004 AND 2003


Revenue




Gross Profit




Selling, General and Administrative Expenses




20



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Operating Income




Interest Expense




Provision for Income Taxes




RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
2003 AND 2002


Revenue




Gross Profit




Selling, General and Administrative Expenses




21



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Operating Income




Interest Expense




Provision for Income Taxes




LIQUIDITY AND CAPITAL RESOURCES






Operating Activities






Investing Activities




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Financing Activities




Credit Facilities






Contractual Cash Obligations




|                               |  |                        |      |  |      |   |      |           |  |   |           |  |  |            |     |  |  |   |      | 
|------------------------------ |  | ---------------------- | ---- |  | ---- | - | ---- | --------- |  | - | --------- |  |  | ---------- | --- |  |  | - | ---- | 
|                               |  | Payments Due by Period |     
|                               |  |                        |     
|                               |  | Total                  |      |  | 2005 |   |      | 2006-2007 |  |   | 2008-2009 |  |  | Thereafter |    
|                               |  |                        |      |  |      |   |      |           |  |   |           |  |  |            |    
|                               |  | (In millions)          |     
|Operating leases(1)            |  | $                      | 2.7  |  |      | $ | 1.5  |           |  | $ | 1.1       |  |  | $          | 0.1 |  |  | $ |     | 
|Purchase Obligations(2)        |  |                        | 41.1 |  |      |   | 34.0 |           |  |   | 3.7       |  |  |            | 3.4 |  |  |   |     | 
|Other long-term liabilities(3) |  |                        | 14.2 |  |      |   | 0.7  |           |  |   | 1.4       |  |  |            | 1.4 |  |  |   | 10.7 | 
|                               |  |                        |      |  |      |   |      |           |  |   |           |  |  |            |    
|Total                          |  | $                      | 58.0 |  |      | $ | 36.2 |           |  | $ | 6.2       |  |  | $          | 4.9 |  |  | $ | 10.7 | 
|                               |  |                        |      |  |      |   |      |           |  |   |           |  |  |            |    






|    |                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents obligations for minimum payments under noncancelable
    operating leases. The Companys lease commitments are
    primarily for operating facilities, vehicles and equipment.                            
|   
|(2) | Represents obligations under outstanding purchase orders and
    other commitments and estimated future cash payments pursuant to
    contractual obligations related to investments for product-line
    expansions.
|   
|(3) | Represents estimated future cash payments for post-retirement
    health and life benefits, pension plan benefits and deferred
    compensation.                                                                     

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Other Indebtedness




Capital Expenditures










Dividends




BACKLOG




TAX MATTERS






24



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CRITICAL ACCOUNTING ESTIMATES




Revenue Recognition








25



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Inventories








Product Warranties






26



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Pension Plan








|                                                     |  |                 |      |   |                   |   |      |  
|---------------------------------------------------- |  | --------------- | ---- | - | ----------------- | - | ---- | -
|                                                     |  | Impact on       |      |   | Impact on         |  
|                                                     |  | 2004 Pre-Tax    |      |   | December 31, 2004 |  
|                                                     |  | Pension Expense |      |   | PBO               |  
|                                                     |  |                 |      |   |                   |  
|                                                     |  | (In millions)   |     
|Change in Assumption:                                |  |                 |      |   |                   |   |      |  
|50 basis point decrease in discount rate             |  | $               | 0.2  |   |                   | $ | 2.5  |  
|50 basis point increase in discount rate             |  |                 |      | * |                   |   | (2.3 | )
|50 basis point decrease in expected return on assets |  |                 | 0.1  |   |                   |   | n/a  |  
|50 basis point increase in expected return on assets |  |                 | (0.1 | ) |                   |   | n/a  |  






|  |                       
|- | ----------------------
|* | Amount was negligible.

Post Retirement Health and Life Benefits




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|                                                        |  |                      |     |  |                         |   |      |  
|------------------------------------------------------- |  | -------------------- | --- |  | ----------------------- | - | ---- | -
|                                                        |  | Impact on 2004       |     |  | Impact on December 31,  |  
|                                                        |  | Service and Interest |     |  | 2004 Benefit Obligation |  
|                                                        |  |                      |     |  |                         |  
|                                                        |  | (In millions)        |    
|Change in Assumption:                                   |  |                      |     |  |                         |   |      |  
|50 basis point decrease in discount rate                |  |                      | *   |  |                         | $ | 0.2  |  
|50 basis point increase in discount rate                |  |                      | *   |  |                         |   | (0.2 | )
|100 basis point decrease in healthcare cost trend rates |  |                      | n/a |  |                         |   | n/a  |  
|100 basis point increase in healthcare cost trend rates |  |                      | n/a |  |                         |   | n/a  |  






|  |                       
|- | ----------------------
|* | Amount was negligible.

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.



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| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                                
|
| |  | policies of national governments; and                                                                                                                        
|
| |  | war, civil disturbances and political instability.                                                                                                           





| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







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| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The intense competition in our industry could result in
    reduced profitability and loss of market share for us.





| |   |                                                  
| | - | -------------------------------------------------
| |  | 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;                                      
|
| |  | safety record; and                               
|
| |  | technology.                                      









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



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| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | political instability, civil disturbances, war and terrorism;                                  
|
| |  | nationalization, expropriation, and nullification of contracts;                                
|
| |  | changes in regulations and labor practices;                                                    
|
| |  | changes in currency exchange rates and potential devaluations;                                 
|
| |  | changes in currency restrictions which could limit the
    repatriations of profits or capital;
|
| |  | restrictive actions by local governments;                                                      
|
| |  | seizure of plant and equipment; and                                                            
|
| |  | changes in foreign tax laws.                                                                   





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | 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.   





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| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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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.











| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | design and commercially produce products that meet the needs of
    our customers;
|
| |  | successfully market new products; and                                             
|
| |  | obtain and maintain patent protection.                                            









| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Limitations on our ability to protect our intellectual
    property rights could cause a loss in revenue and any
    competitive advantage we hold.





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The loss of any member of our senior management and other
    key employees may adversely affect our results of
    operations.



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| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Our quarterly sales and earnings may vary significantly,
    which could cause our stock price to fluctuate.





| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 that can affect 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;                                                                                                                    
|
| |  | the level of long-term capital equipment project orders which
    varies with the level of new rig construction and refurbishment
    activity in the industry; and
|
| |  | changes in drilling and exploration plans which can be
    particularly volatile in international markets.                                                         





| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | We could be subject to substantial liability claims, which
    would adversely affect our results and financial
    condition.







| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to attract and retain skilled labor, the
    results of our manufacturing and services activities will be
    adversely affected.



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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.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could become subject to claims related to the release
    of hazardous substances which could adversely affect our results
    and financial condition.





| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Liability to customers under warranties may materially and
    adversely affect our earnings.





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



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| |   |                                                            
| | - | -----------------------------------------------------------
| |  | 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.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Excess cash is invested in marketable securities which may
    subject us to potential losses.



RECENT ACCOUNTING PRONOUNCEMENTS








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|           |                                                               
|---------- | --------------------------------------------------------------
|ITEM 7A.  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK

Interest rate risk






Foreign currency exchange rate risk






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|         |                                            
|-------- | -------------------------------------------
|ITEM 8  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HYDRIL


INDEX TO FINANCIAL STATEMENTS AND REPORTS


|                                                                                                                                                 |                                                                                                                   |      |    |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                                                                                                                                                 |                                                                                                                   | Page |   
|                                                                                                                                                 |                                                                                                                   |      |   
|MANAGEMENTS REPORT ON INTERNAL
    CONTROL OVER FINANCIAL REPORTING                                                                             |                                                                                                                   |      | 40 |   
|REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM (REGARDING MANAGEMENTS ASSESSMENT OF
    INTERNAL CONTROL OVER FINANCIAL REPORTING) |                                                                                                                   |      | 41 |   
|REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM (REGARDING AUDIT OF FINANCIAL STATEMENTS)                                            |                                                                                                                   |      | 43 |   
|FINANCIAL STATEMENTS:                                                                                                                            |                                                                                                                   |      |    |   
|                                                                                                                                                 | Consolidated Balance Sheets 
    December 31, 2004 and 2003                                                      |      |    | 44 | 
|                                                                                                                                                 | Consolidated Statements of
    Operations  Years Ended December 31, 2004, 2003
    and 2002                      |      |    | 46 | 
|                                                                                                                                                 | Consolidated Statements of Changes in
    Stockholders Equity  Years Ended
    December 31, 2004, 2003 and 2002 |      |    | 47 | 
|                                                                                                                                                 | Consolidated Statements of Cash
    Flows  Years Ended December 31, 2004, 2003 and
    2002                      |      |    | 48 | 
|NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS                                                                                                   |                                                                                                                   |      | 49 |   

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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING














40



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















41



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42



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






















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HYDRIL COMPANY





CONSOLIDATED BALANCE SHEETS


|                        |                                                |                                                                             |                      |          |        |         |   |          |        |         | 
|----------------------- | ---------------------------------------------- | --------------------------------------------------------------------------- | -------------------- | -------- | ------ | ------- | - | -------- | ------ | ------- | 
|                        |                                                | December 31,                                                                |                     
|                        |                                                |                                                                             |                     
|                        |                                                | 2004                                                                        |                      |          | 2003   |        
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                | (In thousands, except share                                                 |                     
|                        |                                                | and per share information)                                                  |                     
|CURRENT ASSETS:         |                                                |                                                                             |                      |          |        |         |   |         
|                        | Cash and cash equivalents                      |                                                                             | $                    | 51,733   |        |         | $ | 48,214   |       
|                        | Investments and marketable securities          |                                                                             |                      | 69,365   |        |         |   | 12,756   |       
|                        | Receivables:                                   |                                                                             |                      |          |        |         |   |          |       
|                        |                                                | Trade, less allowance for doubtful accounts: 2004, $1,214; 2003,
    $1,127 |                      |          | 56,053 |         |   |          | 35,415 |        
|                        |                                                | Contract costs and estimated earnings in excess of billings                 |                      |          | 4,860  |         |   |          | 4,366  |        
|                        |                                                | Other                                                                       |                      |          | 1,528  |         |   |          | 1,313  |        
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                |                                                                             | Total receivables    |          |        | 62,441  |   |          |        | 41,094  | 
|                        |                                                |                                                                             |                      |          |        |        
|                        | Inventories:                                   |                                                                             |                      |          |        |         |   |          |       
|                        |                                                | Finished goods                                                              |                      |          | 21,179 |         |   |          | 24,190 |        
|                        |                                                | Work-in-process                                                             |                      |          | 8,854  |         |   |          | 5,320  |        
|                        |                                                | Raw materials                                                               |                      |          | 4,787  |         |   |          | 6,906  |        
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                |                                                                             | Total inventories    |          |        | 34,820  |   |          |        | 36,416  | 
|                        |                                                |                                                                             |                      |          |        |        
|                        | Deferred tax asset                             |                                                                             |                      | 8,794    |        |         |   | 9,095    |       
|                        | Other current assets                           |                                                                             |                      | 3,422    |        |         |   | 4,422    |       
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                |                                                                             | Total current assets |          |        | 230,575 |   |          |        | 151,997 | 
|                        |                                                |                                                                             |                      |          |        |        
|PROPERTY:               |                                                |                                                                             |                      |          |        |         |   |         
|                        | Land and improvements                          |                                                                             |                      | 21,314   |        |         |   | 21,021   |       
|                        | Buildings and improvements                     |                                                                             |                      | 54,718   |        |         |   | 53,217   |       
|                        | Machinery and equipment                        |                                                                             |                      | 162,785  |        |         |   | 163,574  |       
|                        | Construction-in-progress                       |                                                                             |                      | 5,710    |        |         |   | 2,106    |       
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                |                                                                             | Total                |          |        | 244,527 |   |          |        | 239,918 | 
|                        | Less accumulated depreciation and amortization |                                                                             |                      | (142,159 | )      |         |   | (134,871 | )     
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                |                                                                             | Property, net        |          |        | 102,368 |   |          |        | 105,047 | 
|                        |                                                |                                                                             |                      |          |        |        
|OTHER LONG-TERM ASSETS: |                                                |                                                                             |                      |          |        |         |   |         
|                        | Investments                                    |                                                                             |                      | 3,501    |        |         |   | 958      |       
|                        | Deferred tax asset                             |                                                                             |                      | 588      |        |         |   | 3,465    |       
|                        | Other assets                                   |                                                                             |                      | 6,614    |        |         |   | 5,649    |       
|                        |                                                |                                                                             |                      |          |        |        
|                        |                                                |                                                                             | TOTAL                |          | $      | 343,646 |   |          | $      | 267,116 | 
|                        |                                                |                                                                             |                      |          |        |        



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HYDRIL COMPANY


CONSOLIDATED BALANCE SHEETS


|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |         |   |         |       |         | 
|--------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | ----- | ------- | - | ------- | ----- | ------- | 
|                                        |                                                             | December 31,                                                                                                                                                                          |                            
|                                        |                                                             |                                                                                                                                                                                       |                            
|                                        |                                                             | 2004                                                                                                                                                                                  |                             |         | 2003  |        
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|                                        |                                                             | (In thousands, except                                                                                                                                                                 |                            
|                                        |                                                             | share and per share                                                                                                                                                                   |                            
|                                        |                                                             | information)                                                                                                                                                                          |                            
|CURRENT LIABILITIES:                    |                                                             |                                                                                                                                                                                       |                             |         |       |         |   |        
|                                        | Accounts payable                                            |                                                                                                                                                                                       | $                           | 23,292  |       |         | $ | 13,481  |      
|                                        | Billings in excess of contract costs and estimated earnings |                                                                                                                                                                                       |                             | 342     |       |         |   | 487     |      
|                                        | Accrued liabilities                                         |                                                                                                                                                                                       |                             | 24,817  |       |         |   | 17,184  |      
|                                        | Income taxes payable                                        |                                                                                                                                                                                       |                             | 5,902   |       |         |   | 4,350   |      
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|                                        |                                                             |                                                                                                                                                                                       | Total current liabilities   |         |       | 54,353  |   |         |       | 35,502  | 
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|LONG-TERM LIABILITIES:                  |                                                             |                                                                                                                                                                                       |                             |         |       |         |   |        
|                                        | Deferred tax liability                                      |                                                                                                                                                                                       |                             | 410     |       |         |   | 140     |      
|                                        | Other                                                       |                                                                                                                                                                                       |                             | 14,100  |       |         |   | 14,464  |      
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|                                        |                                                             |                                                                                                                                                                                       | Total long-term liabilities |         |       | 14,510  |   |         |       | 14,604  | 
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|COMMITMENTS AND CONTINGENCIES (Note 11) |                                                             |                                                                                                                                                                                       |                             |         |       |         |   |        
|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; 18,651,458 and 16,058,792 shares
    issued and outstanding at December 31, 2004 and 2003,
    respectively        |                             |         | 9,326 |         |   |         | 8,029 |        
|                                        |                                                             | Class B common stock  authorized,
    32,000,000 shares of $.50 par value; 4,620,130 and
    6,757,721 shares issued and outstanding at
    December 31, 2004 and 2003, respectively |                             |         | 2,310 |         |   |         | 3,379 |        
|                                        | Additional paid in capital                                  |                                                                                                                                                                                       |                             | 61,810  |       |         |   | 49,312  |      
|                                        | Retained earnings                                           |                                                                                                                                                                                       |                             | 206,546 |       |         |   | 160,059 |      
|                                        | Deferred compensation                                       |                                                                                                                                                                                       |                             | (3,325  | )     |         |   | (1,801  | )    
|                                        | Accumulated other comprehensive loss                        |                                                                                                                                                                                       |                             | (1,884  | )     |         |   | (1,968  | )    
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|                                        |                                                             |                                                                                                                                                                                       | Total stockholders equity  |         |       | 274,783 |   |         |       | 217,010 | 
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        
|                                        |                                                             |                                                                                                                                                                                       | TOTAL                       |         | $     | 343,646 |   |         | $     | 267,116 | 
|                                        |                                                             |                                                                                                                                                                                       |                             |         |       |        



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HYDRIL COMPANY





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                            |                            |                                           |         |            |        |   |         |            |        |   |         |            |        | 
|------------------------------------------- | -------------------------- | ----------------------------------------- | ------- | ---------- | ------ | - | ------- | ---------- | ------ | - | ------- | ---------- | ------ | 
|                                            |                            | Year Ended December 31,                   |        
|                                            |                            |                                           |        
|                                            |                            | 2004                                      |         |            | 2003   |   |         | 2002       |       
|                                            |                            |                                           |         |            |        |   |         |            |       
|                                            |                            | (In thousands, except share and per share |        
|                                            |                            | amounts)                                  |        
|REVENUE                                     |                            | $                                         | 285,353 |            |        | $ | 212,017 |            |        | $ | 241,524 |           
|COST OF SALES                               |                            |                                           | 166,940 |            |        |   | 130,124 |            |        |   | 150,854 |           
|                                            |                            |                                           |         |            |        |   |         |            |       
|GROSS PROFIT                                |                            |                                           | 118,413 |            |        |   | 81,893  |            |        |   | 90,670  |           
|                                            |                            |                                           |         |            |        |   |         |            |       
|SELLING, GENERAL & ADMINISTRATION EXPENSES: |                            |                                           |         |            |        |   |         |            |        |   |         |           
|                                            | Engineering                |                                           |         | 11,618     |        |   |         | 13,455     |        |   |         | 12,912     |       
|                                            | Sales and marketing        |                                           |         | 18,473     |        |   |         | 16,287     |        |   |         | 16,773     |       
|                                            | General and administration |                                           |         | 21,916     |        |   |         | 17,988     |        |   |         | 16,660     |       
|                                            |                            |                                           |         |            |        |   |         |            |       
|                                            |                            | Total                                     |         |            | 52,007 |   |         |            | 47,730 |   |         |            | 46,345 | 
|                                            |                            |                                           |         |            |        |   |         |            |       
|OPERATING INCOME                            |                            |                                           | 66,406  |            |        |   | 34,163  |            |        |   | 44,325  |           
|INTEREST EXPENSE                            |                            |                                           |        |            |        |   | (1,101  | )          |        |   | (4,831  | )         
|INTEREST INCOME                             |                            |                                           | 1,113   |            |        |   | 724     |            |        |   | 1,477   |           
|OTHER EXPENSE, NET                          |                            |                                           | (335    | )          |        |   | (135    | )          |        |   | (214    | )         
|                                            |                            |                                           |         |            |        |   |         |            |       
|INCOME BEFORE INCOME TAXES                  |                            |                                           | 67,184  |            |        |   | 33,651  |            |        |   | 40,757  |           
|PROVISION FOR INCOME TAXES                  |                            |                                           | 20,697  |            |        |   | 8,073   |            |        |   | 14,265  |           
|                                            |                            |                                           |         |            |        |   |         |            |       
|NET INCOME                                  |                            | $                                         | 46,487  |            |        | $ | 25,578  |            |        | $ | 26,492  |           
|                                            |                            |                                           |         |            |        |   |         |            |       
|EARNINGS PER SHARE:                         |                            |                                           |         |            |        |   |         |            |        |   |         |           
|                                            | BASIC                      |                                           | $       | 2.02       |        |   | $       | 1.13       |        |   | $       | 1.18       |       
|                                            | DILUTED                    |                                           | $       | 1.98       |        |   | $       | 1.11       |        |   | $       | 1.16       |       
|WEIGHTED AVERAGE SHARES OUTSTANDING:        |                            |                                           |         |            |        |   |         |            |        |   |         |           
|                                            | BASIC                      |                                           |         | 22,996,401 |        |   |         | 22,710,838 |        |   |         | 22,414,111 |       
|                                            | DILUTED                    |                                           |         | 23,432,493 |        |   |         | 23,000,621 |        |   |         | 22,833,246 |       



46



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##### Table of Contents



HYDRIL COMPANY





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


For the Years Ended December 31, 2002, 2003 and 2004


|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |   |   |        |   |        |        |         |        |        |        | 
|---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------ | -------------------------- | ------- | ------------ | - | ----- | ---------- |  | - | ---------- | - | ----------- | -------- | ------ | - | ------------- | - | ------ | ------------ |  | - | ------- | ------ |  | ------ | ------ | - | - | - | ------ | - | ------ | ------ | ------- | ------ | ------ | ------ | 
|                                                                                                                                   |                                      |                                      |                            | Class B |              |   |       |            |  |   |            |   | Accumulated |          |        |  
|                                                                                                                                   |                                      | Common Stock                         |                            |         | Common Stock |   |       | Additional |  |   |            |   |             |          | Other  |   |               |  
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       | Paid in    |  |   | Retained   |   |             | Deferred |        |   | Comprehensive |   |        |             
|                                                                                                                                   |                                      | Shares                               |                            |         | Amount       |   |       | Shares     |  |   | Amount     |   |             | Capital  |        |   | Earnings      |   |        | Compensation |  |   | Loss    |        |  | Total  |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   |                                      | (In thousands, except share amounts) |                           
|Balance, December 31, 2001                                                                                                         |                                      |                                      | 14,359,596                 |         |              | $ | 7,180 |            |  |   | 7,966,404  |   |             | $        | 3,983  |   |               | $ | 41,033 |              |  | $ | 107,989 |        |  | $      |       |   |   | $ |       |   |        | $      | 160,185 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   | Net Income                           |                                      |                            |        |              |   | $     |           |  |   |            |  |             |          | $      |  |               |   |        |             |  |   | $       | 26,492 |  |        | $      |  |   |   | $      |  |        |        | $       | 26,492 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   | Other Comprehensive Loss, net of tax |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |   |   |        |   |        |        |         |        |       
|                                                                                                                                   |                                      | Minimum pension liability adjustment |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |  |   |        |   | (2,523 | )      |         |        | (2,523 | )     
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   |                                      |                                      | Total Comprehensive Income |         |              |  |       |            |  |  |            |   |             |         |        |   |               |  |        |              |  |  |         |        |  | 26,492 |        |   |   |  |        |   |        | (2,523 | )       |        |        | 23,969 | 
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|Issuance of Common stock-employee stock purchase plan and
    exercise of stock options                                            |                                      |                                      | 216,065                    |         |              |   | 108   |            |  |   |           |   |             |          |       |   |               |   | 1,485  |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 1,593   |       
|Tax benefit on option exercises                                                                                                    |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | 1,295  |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 1,295   |       
|Issuance of Class B Common stock-exercise of stock options                                                                         |                                      |                                      |                           |         |              |   |      |            |  |   | 20,000     |   |             |          | 10     |   |               |   | 85     |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 95      |       
|Conversion of Class B Common stock to Common stock                                                                                 |                                      |                                      | 793,977                    |         |              |   | 397   |            |  |   | (793,977   | ) |             |          | (397   | ) |               |   |       |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        |        |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|Balance, December 31, 2002                                                                                                         |                                      |                                      | 15,369,638                 |         |              | $ | 7,685 |            |  |   | 7,192,427  |   |             | $        | 3,596  |   |               | $ | 43,898 |              |  | $ | 134,481 |        |  | $      |       |   |   | $ | (2,523 | ) |        | $      | 187,137 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   | Net Income                           |                                      |                            |        |              |   | $     |           |  |   |            |  |             |          | $      |  |               |   |        |             |  |   | $       | 25,578 |  |        | $      |  |   |   | $      |  |        |        | $       | 25,578 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   | Other Comprehensive Loss, net of tax |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |   |   |        |   |        |        |         |        |       
|                                                                                                                                   |                                      | Minimum pension liability adjustment |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |  |   |        |   | 555    |        |         |        | 555    |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   |                                      |                                      | Total Comprehensive Income |         |              |  |       |            |  |  |            |   |             |         |        |   |               |  |        |              |  |  |         |        |  | 25,578 |        |   |   |  |        |   |        | 555    |         |        |        | 26,133 | 
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|Issuance of Common stock-employee stock purchase plan and
    exercise of stock options                                            |                                      |                                      | 239,448                    |         |              |   | 119   |            |  |   |           |   |             |          |       |   |               |   | 2,011  |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 2,130   |       
|Tax benefit on option exercises                                                                                                    |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | 1,295  |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 1,295   |       
|Issuance of Class B Common stock-exercise of stock options                                                                         |                                      |                                      |                           |         |              |   |      |            |  |   | 15,000     |   |             |          | 8      |   |               |   | 64     |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 72      |       
|Conversion of Class B Common stock to Common stock                                                                                 |                                      |                                      | 449,706                    |         |              |   | 225   |            |  |   | (449,706   | ) |             |          | (225   | ) |               |   |       |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        |        |       
|Awards of Restricted units/stock                                                                                                   |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | 2,066  |              |  |   |        |        |  |        | (2,066 | ) |   |   |       |   |        |        |        |       
|Amortization of deferred compensation                                                                                              |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   |       |              |  |   |        |        |  |        | 243    |   |   |   |       |   |        |        | 243     |       
|Forfeitures of restricted units                                                                                                    |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | (22    | )            |  |   |        |        |  |        | 22     |   |   |   |       |   |        |        |        |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|Balance, December 31, 2003                                                                                                         |                                      |                                      | 16,058,792                 |         |              | $ | 8,029 |            |  |   | 6,757,721  |   |             | $        | 3,379  |   |               | $ | 49,312 |              |  | $ | 160,059 |        |  | $      | (1,801 | ) |   | $ | (1,968 | ) |        | $      | 217,010 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   | Net Income                           |                                      |                            |        |              |   | $     |           |  |   |            |  |             |          | $      |  |               |   |        |             |  |   | $       | 46,487 |  |        | $      |  |   |   | $      |  |        |        | $       | 46,487 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   | Other Comprehensive Loss, net of tax |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |   |   |        |   |        |        |         |        |       
|                                                                                                                                   |                                      | Minimum pension liability adjustment |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |        |   |  |   |        |   | 84     |        |         |        | 84     |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|                                                                                                                                   |                                      |                                      | Total Comprehensive Income |         |              |  |       |            |  |  |            |   |             |         |        |   |               |  |        |              |  |  |         |        |  | 46,487 |        |   |   |  |        |   |        | 84     |         |        |        | 46,571 | 
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|Issuance of Common stock-employee stock purchase plan, exercise
    of stock options, restricted stock and vested restricted units |                                      |                                      | 446,218                    |         |              |   | 224   |            |  |   |           |   |             |          |       |   |               |   | 7,546  |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 7,770   |       
|Tax benefit on option exercises                                                                                                    |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | 2,773  |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 2,773   |       
|Issuance of Class B Common stock-exercise of stock options                                                                         |                                      |                                      |                           |         |              |   |      |            |  |   | 8,857      |   |             |          | 4      |   |               |   | 37     |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        | 41      |       
|Conversion of Class B Common stock to Common stock                                                                                 |                                      |                                      | 2,146,448                  |         |              |   | 1,073 |            |  |   | (2,146,448 | ) |             |          | (1,073 | ) |               |   |       |              |  |   |        |        |  |        |       |   |   |   |       |   |        |        |        |       
|Awards of Restricted units/stock                                                                                                   |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | 2,374  |              |  |   |        |        |  |        | (2,374 | ) |   |   |       |   |        |        |        |       
|Amortization of deferred compensation                                                                                              |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   |       |              |  |   |        |        |  |        | 618    |   |   |   |       |   |        |        | 618     |       
|Forfeitures of restricted units                                                                                                    |                                      |                                      |                           |         |              |   |      |            |  |   |           |   |             |          |       |   |               |   | (232   | )            |  |   |        |        |  |        | 232    |   |   |   |       |   |        |        |        |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       
|Balance, December 31, 2004                                                                                                         |                                      |                                      | 18,651,458                 |         |              | $ | 9,326 |            |  |   | 4,620,130  |   |             | $        | 2,310  |   |               | $ | 61,810 |              |  | $ | 206,546 |        |  | $      | (3,325 | ) |   | $ | (1,884 | ) |        | $      | 274,783 |       
|                                                                                                                                   |                                      |                                      |                            |         |              |   |       |            |  |   |            |   |             |          |        |   |               |   |        |              |  |   |         |        |  |        |       



47



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##### Table of Contents



HYDRIL COMPANY





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |         |        |        |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                     |                                                                                       | Year Ended December 31,                                     |                                                            
|                                                     |                                                                                       |                                                             |                                                            
|                                                     |                                                                                       | 2004                                                        |                                                             |                                                     | 2003   |         |         | 2002    |       
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|                                                     |                                                                                       | (In thousands)                                              |                                                            
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |        
|                                                     | Net income                                                                            |                                                             | $                                                           | 46,487                                              |        |         | $       | 25,578  |        |        | $       | 26,492  |       
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|                                                     | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |         |       
|                                                     |                                                                                       | Amortization of deferred compensation                       |                                                             |                                                     | 618    |         |         |         | 243    |        |         |         |       |       
|                                                     |                                                                                       | Depreciation                                                |                                                             |                                                     | 12,637 |         |         |         | 11,900 |        |         |         | 10,827 |       
|                                                     |                                                                                       | Deferred income taxes                                       |                                                             |                                                     | 3,127  |         |         |         | (1,539 | )      |         |         | 2,020  |       
|                                                     |                                                                                       | Provision for doubtful accounts                             |                                                             |                                                     | 81     |         |         |         | 236    |        |         |         | (136   | )     
|                                                     |                                                                                       | Gain on sale of real estate holdings not used in operations |                                                             |                                                     |       |         |         |         | (104   | )      |         |         |       |       
|                                                     |                                                                                       | Change in operating assets and liabilities:                 |                                                             |                                                     |        |         |         |         |        |        |         |         |        |       
|                                                     |                                                                                       |                                                             | Receivables                                                 |                                                     |        | (20,934 | )       |         |        | (1,175 | )       |         |        | 1,825  |        
|                                                     |                                                                                       |                                                             | Contract costs and estimated earnings in excess of billings |                                                     |        | (494    | )       |         |        | 463    |         |         |        | (4,829 | )      
|                                                     |                                                                                       |                                                             | Inventories                                                 |                                                     |        | 1,596   |         |         |        | 5,068  |         |         |        | 7,393  |        
|                                                     |                                                                                       |                                                             | Other current and noncurrent assets                         |                                                     |        | 6,276   |         |         |        | 95     |         |         |        | (1,939 | )      
|                                                     |                                                                                       |                                                             | Accounts payable                                            |                                                     |        | 9,811   |         |         |        | (242   | )       |         |        | (9,635 | )      
|                                                     |                                                                                       |                                                             | Billings in excess of contract costs and estimated earnings |                                                     |        | (145    | )       |         |        | (4,494 | )       |         |        | (7,660 | )      
|                                                     |                                                                                       |                                                             | Accrued liabilities                                         |                                                     |        | 7,717   |         |         |        | (3,917 | )       |         |        | 1,867  |        
|                                                     |                                                                                       |                                                             | Income taxes payable                                        |                                                     |        | 1,552   |         |         |        | 587    |         |         |        | 1,314  |        
|                                                     |                                                                                       |                                                             | Other long-term liabilities                                 |                                                     |        | (364    | )       |         |        | (4,470 | )       |         |        | 795    |        
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|                                                     |                                                                                       |                                                             |                                                             | Net cash provided by operating activities           |        |         | 67,965  |         |        |        | 28,229  |         |        |        | 28,334  |  
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|NET CASH FROM INVESTING ACTIVITIES:                  |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |        
|                                                     | Purchase of held-to-maturity investments                                              |                                                             |                                                             | (35,304                                             | )      |         |         | (18,931 | )      |        |         | (20,881 | )     
|                                                     | Proceeds from held-to-maturity investments                                            |                                                             |                                                             | 20,891                                              |        |         |         | 20,705  |        |        |         | 32,464  |       
|                                                     | Purchase of available for sale investments                                            |                                                             |                                                             | (47,495                                             | )      |         |         | (7,925  | )      |        |         |        |       
|                                                     | Proceeds from available for sale investments                                          |                                                             |                                                             | 2,755                                               |        |         |         | 2,000   |        |        |         |        |       
|                                                     | Capital expenditures                                                                  |                                                             |                                                             | (12,356                                             | )      |         |         | (8,558  | )      |        |         | (17,928 | )     
|                                                     | Other, net                                                                            |                                                             |                                                             | (750                                                | )      |         |         | (1,097  | )      |        |         |        |       
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|                                                     |                                                                                       |                                                             |                                                             | Net cash used in investing activities               |        |         | (72,259 | )       |        |        | (13,806 | )       |        |        | (6,345  | )
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|NET CASH FROM FINANCING ACTIVITIES:                  |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |        
|                                                     | Repayment of debt                                                                     |                                                             |                                                             |                                                    |        |         |         | (30,000 | )      |        |         | (30,234 | )     
|                                                     | Repayment of capital leases                                                           |                                                             |                                                             |                                                    |        |         |         |        |        |        |         | (52     | )     
|                                                     | Net proceeds from issuance of common stock                                            |                                                             |                                                             | 242                                                 |        |         |         | 230     |        |        |         | 185     |       
|                                                     | Net proceeds from exercise of stock options                                           |                                                             |                                                             | 7,571                                               |        |         |         | 1,971   |        |        |         | 1,503   |       
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|                                                     |                                                                                       |                                                             |                                                             | Net cash provided by (used in) financing activities |        |         | 7,813   |         |        |        | (27,799 | )       |        |        | (28,598 | )
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                       |                                                             | 3,519                                                       |                                                     |        |         | (13,376 | )       |        |        | (6,609  | )      
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                       |                                                             | 48,214                                                      |                                                     |        |         | 61,590  |         |        |        | 68,199  |        
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                       | $                                                           | 51,733                                                      |                                                     |        | $       | 48,214  |         |        | $      | 61,590  |        
|                                                     |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    |                                                                                       |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |        
|                                                     | Interest paid                                                                         |                                                             | $                                                           |                                                    |        |         | $       | 1,044   |        |        | $       | 4,700   |       
|                                                     | Income taxes paid:                                                                    |                                                             |                                                             |                                                     |        |         |         |         |        |        |         |         |       
|                                                     |                                                                                       | Domestic                                                    |                                                             |                                                     | 2,530  |         |         |         |       |        |         |         | 2,043  |       
|                                                     |                                                                                       | Foreign                                                     |                                                             |                                                     | 8,678  |         |         |         | 7,685  |        |         |         | 6,715  |       



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HYDRIL COMPANY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations


Principles of Consolidation


Use of Estimates


Revenue Recognition




Cash and Cash Equivalents


Investments






49



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Allowance for Doubtful Accounts 


|                             |  |                |       |   |      |   |       |      |  |   |       |  
|---------------------------- |  | -------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                             |  | 2004           |       |   | 2003 |   |       | 2002 | 
|                             |  |                |       |   |      |   |       |      | 
|                             |  | (In thousands) |      
|Beginning balance            |  | $              | 1,127 |   |      | $ | 1,039 |      |  | $ | 1,332 |  
|Additions charged to expense |  |                | 81    |   |      |   | 141   |      |  |   | 289   |  
|Accounts written off         |  |                | (37   | ) |      |   | (45   | )    |  |   | (103  | )
|Other adjustments            |  |                | 43    |   |      |   | (8    | )    |  |   | (479  | )
|                             |  |                |       |   |      |   |       |      | 
|Ending balance               |  | $              | 1,214 |   |      | $ | 1,127 |      |  | $ | 1,039 |  
|                             |  |                |       |   |      |   |       |      | 



Inventories




|                                            |                |                |        |       |      |   |       |        |  |   |        |       | 
|------------------------------------------- | -------------- | -------------- | ------ | ----- | ---- | - | ----- | ------ |  | - | ------ | ----- | 
|                                            |                | 2004           |        |       | 2003 |   |       | 2002   | 
|                                            |                |                |        |       |      |   |       |        | 
|                                            |                | (In thousands) |       
|Beginning balance                           |                | $              | 11,103 |       |      | $ | 7,727 |        |  | $ | 8,045  |      
|Provision for excess and obsolete inventory |                |                | 2,753  |       |      |   | 4,022 |        |  |   | 3,873  |      
|Inventory disposed of during the year       |                |                | (4,046 | )     |      |   | (646  | )      |  |   | (4,191 | )    
|                                            |                |                |        |       |      |   |       |        | 
|                                            | Ending balance |                | $      | 9,810 |      |   | $     | 11,103 |  |   | $      | 7,727 | 
|                                            |                |                |        |       |      |   |       |        | 

Property


|                           |  |  |             | 
|-------------------------- |  |  | ----------- | 
|Buildings and improvements |  |  | 15-45 years | 
|Machinery and equipment    |  |  | 3-12 years  | 



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Impairment of Long-Lived Assets




Product warranties


Research and Development Costs


Stock-Based Compensation




51



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                        |  |                                |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                        |  | Year Ended December 31         |       
|                                                                                                                                        |  |                                |       
|                                                                                                                                        |  | 2004                           |        |   | 2003 |   |        | 2002 | 
|                                                                                                                                        |  |                                |        |   |      |   |        |      | 
|                                                                                                                                        |  | (In thousands except per share |       
|                                                                                                                                        |  | data)                          |       
|Net income, as reported                                                                                                                 |  | $                              | 46,487 |   |      | $ | 25,578 |      |  | $ | 26,492 |  
|Deduct: Total stock-based employee compensation expense
    determined under the fair value based method for all awards, net
    of tax |  |                                | (1,888 | ) |      |   | (1,827 | )    |  |   | (1,661 | )
|                                                                                                                                        |  |                                |        |   |      |   |        |      | 
|Proforma net income                                                                                                                     |  | $                              | 44,599 |   |      | $ | 23,751 |      |  | $ | 24,831 |  
|                                                                                                                                        |  |                                |        |   |      |   |        |      | 
|Earnings per share:                                                                                                                     |  |                                |        |   |      |   |        |      |  |   |        |  
|Basic-as reported                                                                                                                       |  | $                              | 2.02   |   |      | $ | 1.13   |      |  | $ | 1.18   |  
|Basic-proforma                                                                                                                          |  | $                              | 1.94   |   |      | $ | 1.05   |      |  | $ | 1.11   |  
|Diluted-as reported                                                                                                                     |  | $                              | 1.98   |   |      | $ | 1.11   |      |  | $ | 1.16   |  
|Diluted-proforma                                                                                                                        |  | $                              | 1.90   |   |      | $ | 1.03   |      |  | $ | 1.09   |  



|                                                    |  |      |       |   |      |   |       |      |  |   |       |  
|--------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                    |  | 2004 |       |   | 2003 |   |       | 2002 | 
|                                                    |  |      |       |   |      |   |       |      | 
|Expected life (years)                               |  |      | 3.71  |   |      |   | 5.50  |      |  |   | 6.25  |  
|Interest rate                                       |  |      | 3.67  | % |      |   | 2.75  | %    |  |   | 3.18  | %
|Volatility                                          |  |      | 36.00 | % |      |   | 49.83 | %    |  |   | 50.18 | %
|Dividend yield                                      |  |      | 0     | % |      |   | 0     | %    |  |   | 0     | %
|Weighted-average fair value per share at grant date |  | $    | 9.34  |   |      | $ | 13.12 |      |  | $ | 13.26 |  

Environmental Liabilities


Income Taxes




52



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Foreign Currencies Translation


Concentration of Credit and Customer Risk


Reclassifications




|   |                                                    
|-- | ---------------------------------------------------
|2. | ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES



|                             |                                          |                |   |       |        |  |   |       |        | 
|---------------------------- | ---------------------------------------- | -------------- | - | ----- | ------ |  | - | ----- | ------ | 
|                             |                                          | December 31,   |  
|                             |                                          |                |  
|                             |                                          | 2004           |   |       | 2003   | 
|                             |                                          |                |   |       |        | 
|                             |                                          | (In thousands) |  
|Accrued liabilities:         |                                          |                |   |       |        |  |   |      
|                             | Accrued payroll, bonus and related       |                | $ | 7,270 |        |  | $ | 3,904 |       
|                             | Employee benefits                        |                |   | 4,031 |        |  |   | 3,272 |       
|                             | Product warranties                       |                |   | 2,341 |        |  |   | 2,192 |       
|                             | Taxes (property, sales, payroll, other)  |                |   | 6,145 |        |  |   | 4,479 |       
|                             | Other                                    |                |   | 5,030 |        |  |   | 3,337 |       
|                             |                                          |                |   |       |        | 
|                             |                                          | Total          |   | $     | 24,817 |  |   | $     | 17,184 | 
|                             |                                          |                |   |       |        | 
|Other long-term liabilities: |                                          |                |   |       |        |  |   |      
|                             | Post retirement health and life benefits |                | $ | 7,953 |        |  | $ | 8,695 |       
|                             | Deferred compensation                    |                |   | 2,745 |        |  |   | 2,334 |       
|                             | Income tax obligation                    |                |   | 2,564 |        |  |   | 2,564 |       
|                             | Pension plan benefits                    |                |   | 839   |        |  |   | 871   |       
|                             |                                          |                |   |       |        | 
|                             |                                          | Total          |   | $     | 14,101 |  |   | $     | 14,464 | 
|                             |                                          |                |   |       |        | 



|                                       |  |                |       |   |      |   |        |      |  |   |       |  
|-------------------------------------- |  | -------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                       |  | 2004           |       |   | 2003 |   |        | 2002 | 
|                                       |  |                |       |   |      |   |        |      | 
|                                       |  | (In thousands) |      
|Beginning balance                      |  | $              | 2,192 |   |      | $ | 3,274  |      |  | $ | 3,224 |  
|Claims paid                            |  |                | (530  | ) |      |   | (1,337 | )    |  |   | (690  | )
|Additional warranty charged to expense |  |                | 679   |   |      |   | 255    |      |  |   | 740   |  
|                                       |  |                |       |   |      |   |        |      | 
|Ending balance                         |  | $              | 2,341 |   |      | $ | 2,192  |      |  | $ | 3,274 |  
|                                       |  |                |       |   |      |   |        |      | 

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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                    
|-- | -------------------
|3. | LONG-TERM CONTRACTS



|                                                                              |       |                |         |       |      |   |         |       | 
|----------------------------------------------------------------------------- | ----- | -------------- | ------- | ----- | ---- | - | ------- | ----- | 
|                                                                              |       | December 31,   |        
|                                                                              |       |                |        
|                                                                              |       | 2004           |         |       | 2003 |  
|                                                                              |       |                |         |       |      |  
|                                                                              |       | (In thousands) |        
|Costs and estimated earnings on uncompleted contracts                         |       | $              | 23,860  |       |      | $ | 34,682  |      
|Less: billings to date                                                        |       |                | (19,342 | )     |      |   | (30,803 | )    
|                                                                              |       |                |         |       |      |  
|Excess of billings over costs and estimated earnings                          |       | $              | 4,518   |       |      | $ | 3,879   |      
|                                                                              |       |                |         |       |      |  
|Included in the accompanying balance sheets under the following
    captions: |       |                |         |       |      |   |         |      
|Contract costs and estimated earnings in excess of billings                   |       | $              | 4,860   |       |      | $ | 4,366   |      
|Billings in excess of contract costs and estimated earnings                   |       |                | (342    | )     |      |   | (487    | )    
|                                                                              |       |                |         |       |      |  
|                                                                              | Total |                | $       | 4,518 |      |   | $       | 3,879 | 
|                                                                              |       |                |         |       |      |  



|   |                
|-- | ---------------
|4. | LINES OF CREDIT

Revolving lines of credit




Covenants




|   |             
|-- | ------------
|5. | INCOME TAXES



|                           |  |                |        |  |      |   |        |      |  |   |        | 
|-------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                           |  | 2004           |        |  | 2003 |   |        | 2002 | 
|                           |  |                |        |  |      |   |        |      | 
|                           |  | (In thousands) |       
|United States              |  | $              | 28,804 |  |      | $ | 15,952 |      |  | $ | 16,337 | 
|Foreign                    |  |                | 38,380 |  |      |   | 17,699 |      |  |   | 24,420 | 
|                           |  |                |        |  |      |   |        |      | 
|Income before income taxes |  | $              | 67,184 |  |      | $ | 33,651 |      |  | $ | 40,757 | 
|                           |  |                |        |  |      |   |        |      | 

54



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|               |          |                |   |        |        |  |   |        |       |  |   |       |        | 
|-------------- | -------- | -------------- | - | ------ | ------ |  | - | ------ | ----- |  | - | ----- | ------ | 
|               |          | 2004           |   |        | 2003   |  |   | 2002   |      
|               |          |                |   |        |        |  |   |        |      
|               |          | (In thousands) |  
|United States: |          |                |   |        |        |  |   |        |       |  |   |      
|               | Current  |                | $ | 5,563  |        |  | $ | 3,959  |       |  | $ | 4,496 |       
|               | Deferred |                |   | 1,965  |        |  |   | (1,945 | )     |  |   | 1,482 |       
|Foreign:       |          |                |   |        |        |  |   |        |       |  |   |      
|               | Current  |                |   | 12,007 |        |  |   | 5,653  |       |  |   | 7,749 |       
|               | Deferred |                |   | 1,162  |        |  |   | 406    |       |  |   | 538   |       
|               |          |                |   |        |        |  |   |        |      
|               |          | Total          |   | $      | 20,697 |  |   | $      | 8,073 |  |   | $     | 14,265 | 
|               |          |                |   |        |        |  |   |        |      





|                                        |                |      |      |      |      |  |       |      |   |  |      |      |  
|--------------------------------------- | -------------- | ---- | ---- | ---- | ---- |  | ----- | ---- | - |  | ---- | ---- | -
|                                        |                | 2004 |      |      | 2003 |  |       | 2002 |  
|                                        |                |      |      |      |      |  |       |      |  
|Statutory rate                          |                |      | 35.0 | %    |      |  | 35.0  | %    |   |  | 35.0 | %   
|Nondeductible expenses                  |                |      | 0.1  | %    |      |  | 0.2   | %    |   |  | 0.7  | %   
|Research and experimentation tax credit |                |      | (2.1 | )%   |      |  | (11.0 | )%   |   |  |     |     
|Extraterritorial Income Exclusion       |                |      | (2.3 | )%   |      |  | (0.2  | )%   |   |  | (0.7 | )%  
|                                        |                |      |      |      |      |  |       |      |  
|                                        | Effective Rate |      |      | 30.7 | %    |  |       | 24.0 | % |  |      | 35.0 | %
|                                        |                |      |      |      |      |  |       |      |  



|                                                                 |                              |                |        |         |      |   |        |        |  
|---------------------------------------------------------------- | ---------------------------- | -------------- | ------ | ------- | ---- | - | ------ | ------ | -
|                                                                 |                              | 2004           |        |         | 2003 |  
|                                                                 |                              |                |        |         |      |  
|                                                                 |                              | (In thousands) |       
|Deferred tax assets:                                             |                              |                |        |         |      |   |        |       
|Inventory capitalization cost                                    |                              | $              | 2,433  |         |      | $ | 2,886  |       
|Accrued expenses and other items not deductible for tax purposes |                              |                | 7,823  |         |      |   | 8,124  |       
|Alternative minimum tax and research credits                     |                              |                | 12,624 |         |      |   | 5,457  |       
|Other                                                            |                              |                | 2,568  |         |      |   | 1,945  |       
|                                                                 |                              |                |        |         |      |  
|                                                                 | Total deferred tax assets    |                |        | 25,448  |      |   |        | 18,412 |  
|Deferred tax liabilities:                                        |                              |                |        |         |      |   |        |       
|Property, plant and equipment                                    |                              |                | (7,267 | )       |      |   | (5,848 | )     
|Unrepatriated foreign earnings and other foreign deferred taxes  |                              |                | (9,208 | )       |      |   | (144   | )     
|                                                                 |                              |                |        |         |      |  
|                                                                 | Total deferred tax liability |                |        | (16,475 | )    |   |        | (5,992 | )
|                                                                 |                              |                |        |         |      |  
|Net deferred tax asset                                           |                              | $              | 8,973  |         |      | $ | 12,420 |       
|                                                                 |                              |                |        |         |      |  

55



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |                  
|-- | -----------------
|6. | EMPLOYEE BENEFITS

Post Retirement Benefits






|                                        |                           |                                   |        |                 |                 |   |        |       |        |   |       |      |       |   |       |      |       | 
|--------------------------------------- | ------------------------- | --------------------------------- | ------ | --------------- | --------------- | - | ------ | ----- | ------ | - | ----- | ---- | ----- | - | ----- | ---- | ----- | 
|                                        |                           |                                   |        | Post Retirement |                
|                                        |                           | Defined Benefit                   |        |                 | Health and Life |  
|                                        |                           | Plan                              |        |                 | Benefits        |  
|                                        |                           |                                   |        |                 |                 |  
|                                        |                           | 2004                              |        |                 | 2003            |   |        | 2004  |        |   | 2003  |     
|                                        |                           |                                   |        |                 |                 |   |        |       |        |   |       |     
|                                        |                           | (In thousands)                    |       
|Change in benefit obligation:           |                           |                                   |        |                 |                 |   |        |       |        |   |       |      |       |   |       |     
|Benefit obligation at beginning of year |                           | $                                 | 30,589 |                 |                 | $ | 27,068 |       |        | $ | 6,902 |      |       | $ | 7,649 |     
|                                        | Service cost              |                                   |        |                |                 |   |        |      |        |   |       | 50   |       |   |       | 56   |      
|                                        | Interest cost             |                                   |        | 1,828           |                 |   |        | 1,747 |        |   |       | 347  |       |   |       | 403  |      
|                                        | Participant contributions |                                   |        |                |                 |   |        |      |        |   |       | 60   |       |   |       | 61   |      
|                                        | Benefits paid             |                                   |        | (674            | )               |   |        | (592  | )      |   |       | (711 | )     |   |       | (738 | )    
|                                        | Actuarial (gain)/loss     |                                   |        | 255             |                 |   |        | 2,366 |        |   |       | (790 | )     |   |       | (529 | )    
|                                        |                           |                                   |        |                 |                 |   |        |       |        |   |       |     
|                                        |                           | Benefit obligation at end of year |        | $               | 31,998          |   |        | $     | 30,589 |   |       | $    | 5,858 |   |       | $    | 6,902 | 
|                                        |                           |                                   |        |                 |                 |   |        |       |        |   |       |     

56



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                               |                                   |                                          |        |                 |                 |   |        |       |        |   |      |        |        |   |   |        |        |  
|---------------------------------------------- | --------------------------------- | ---------------------------------------- | ------ | --------------- | --------------- | - | ------ | ----- | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                               |                                   |                                          |        | Post Retirement |                
|                                               |                                   | Defined Benefit                          |        |                 | Health and Life |  
|                                               |                                   | Plan                                     |        |                 | Benefits        |  
|                                               |                                   |                                          |        |                 |                 |  
|                                               |                                   | 2004                                     |        |                 | 2003            |   |        | 2004  |        |   | 2003 |       
|                                               |                                   |                                          |        |                 |                 |   |        |       |        |   |      |       
|                                               |                                   | (In thousands)                           |       
|Change in plan assets:                         |                                   |                                          |        |                 |                 |   |        |       |        |   |      |        |        |   |   |       
|Fair value of plan assets at beginning of year |                                   | $                                        | 29,710 |                 |                 | $ | 18,455 |       |        | $ |     |        |        | $ |  |       
|                                               | Actual return on plan assets      |                                          |        | 2,160           |                 |   |        | 4,874 |        |   |      |       |        |   |   |       |       
|                                               | Employer contributions            |                                          |        |                |                 |   |        | 7,000 |        |   |      | 651    |        |   |   | 677    |       
|                                               | Participant contributions         |                                          |        |                |                 |   |        |      |        |   |      | 60     |        |   |   | 61     |       
|                                               | Benefits paid                     |                                          |        | (674            | )               |   |        | (592  | )      |   |      | (711   | )      |   |   | (738   | )     
|                                               | Administrative expenses           |                                          |        | (37             | )               |   |        | (27   | )      |   |      |       |        |   |   |       |       
|                                               |                                   |                                          |        |                 |                 |   |        |       |        |   |      |       
|                                               |                                   | Fair value of plan assets at end of year |        | $               | 31,159          |   |        | $     | 29,710 |   |      | $      |       |   |   | $      |       |  
|                                               |                                   |                                          |        |                 |                 |   |        |       |        |   |      |       
|Reconciliation of plan funded status:          |                                   |                                          |        |                 |                 |   |        |       |        |   |      |        |        |   |   |       
|                                               | Funded status                     |                                          | $      | (839            | )               |   | $      | (879  | )      |   | $    | (5,858 | )      |   | $ | (6,902 | )     
|                                               | Unrecognized actuarial loss       |                                          |        |                |                 |   |        |      |        |   |      | (177   | )      |   |   | 612    |       
|                                               | Unamortized prior service benefit |                                          |        |                |                 |   |        |      |        |   |      | (2,139 | )      |   |   | (2,626 | )     
|                                               |                                   |                                          |        |                 |                 |   |        |       |        |   |      |       
|                                               |                                   | Net amount recognized at year-end        |        | $               | (839            | ) |        | $     | (879   | ) |      | $      | (8,174 | ) |   | $      | (8,916 | )
|                                               |                                   |                                          |        |                 |                 |   |        |       |        |   |      |       

|                                         |                                              |                           |   |        |                          |  |   |        |     |  |      |        |     |      |   |      |      |   |   |      |     |   |   |      |    | 
|---------------------------------------- | -------------------------------------------- | ------------------------- | - | ------ | ------------------------ |  | - | ------ | --- |  | ---- | ------ | --- | ---- | - | ---- | ---- | - | - | ---- | --- | - | - | ---- | -- | 
|                                         |                                              | Defined Benefit           |   |        | Post Retirement          | 
|                                         |                                              | Plan                      |   |        | Health and Life Benefits | 
|                                         |                                              |                           |   |        |                          | 
|                                         |                                              | 2004                      |   |        | 2003                     |  |   | 2002   |     |  | 2004 |        |     | 2003 |   |      | 2002 |  
|                                         |                                              |                           |   |        |                          |  |   |        |     |  |      |        |     |      |   |      |      |  
|                                         |                                              | (In thousands)            |  
|Components of net periodic benefit cost: |                                              |                           |   |        |                          |  |   |        |     |  |      |        |     |      |   |      |      |   |   |      |     |   |   |     
|                                         | Service cost                                 |                           | $ |       |                          |  | $ |       |     |  | $    |       |     |      | $ | 50   |      |   | $ | 56   |     |   | $ | 58   |   
|                                         | Interest cost                                |                           |   | 1,828  |                          |  |   | 1,747  |     |  |      | 1,662  |     |      |   | 347  |      |   |   | 403  |     |   |   | 497  |   
|                                         | Expected return on plan assets               |                           |   | (1,760 | )                        |  |   | (1,755 | )   |  |      | (1,525 | )   |      |   |     |      |   |   |     |     |   |   |     |   
|                                         | Amortization of prior service cost (benefit) |                           |   | 16     |                          |  |   | 16     |     |  |      | 16     |     |      |   | (488 | )    |   |   | (488 | )   |   |   | (488 | ) 
|                                         | Amortization of net loss                     |                           |   | 20     |                          |  |   | 129    |     |  |      |       |     |      |   |     |      |   |   |     |     |   |   |     |   
|                                         |                                              |                           |   |        |                          |  |   |        |     |  |      |        |     |      |   |      |      |  
|                                         |                                              | Net periodic benefit cost |   | $      | 104                      |  |   | $      | 137 |  |      | $      | 153 |      |   | $    | (91  | ) |   | $    | (29 | ) |   | $    | 67 | 
|                                         |                                              |                           |   |        |                          |  |   |        |     |  |      |        |     |      |   |      |      |  



|                           |              |              |  |    |      |  |  |    |     | 
|-------------------------- | ------------ | ------------ |  | -- | ---- |  |  | -- | --- | 
|                           |              | Defined      | 
|                           |              | Benefit Plan | 
|                           |              |              | 
|                           |              | 2004         |  |    | 2003 | 
|                           |              |              |  |    |      | 
|Percentage of Plan Assets: |              |              |  |    |      |  |  |   
|                           | Equity       |              |  | 31 |      |  |  | 66 |    
|                           | Fixed income |              |  | 69 |      |  |  | 34 |    
|                           |              |              |  |    |      | 
|                           |              | Total        |  |    | 100  |  |  |    | 100 | 
|                           |              |              |  |    |      | 

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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                             |  |                |       |   |      |   |       |  
|-------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                             |  | Defined        |      
|                                             |  | Benefit Plan   |      
|                                             |  |                |      
|                                             |  | 2004           |       |   | 2003 |  
|                                             |  |                |       |   |      |  
|                                             |  | (In thousands) |      
|Accrued benefit liability                    |  | $              | (839  | ) |      | $ | (879  | )
|Intangible asset                             |  |                | 119   |   |      |   | 136   |  
|Accumulated other comprehensive income       |  |                | 2,899 |   |      |   | 3,027 |  
|                                             |  |                |       |   |      |  
|Net amount recognized at the end of the year |  | $              | 2,179 |   |      | $ | 2,284 |  
|                                             |  |                |       |   |      |  



|                                         |  |                |        |  |      |   |        | 
|---------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                         |  | Defined        |       
|                                         |  | Benefit Plan   |       
|                                         |  |                |       
|                                         |  | 2004           |        |  | 2003 |  
|                                         |  |                |        |  |      |  
|                                         |  | (In thousands) |       
|Projected benefit obligation             |  | $              | 31,998 |  |      | $ | 30,589 | 
|Accumulated benefit obligation           |  |                | 31,998 |  |      |   | 30,589 | 
|Fair value of plan assets at end of year |  |                | 31,159 |  |      |   | 29,710 | 







|                                                                 |  |                |    |  |          |   |     |  
|---------------------------------------------------------------- |  | -------------- | -- |  | -------- | - | --- | -
|                                                                 |  | One Percent    |   
|                                                                 |  |                |   
|                                                                 |  | Increase       |    |  | Decrease |  
|                                                                 |  |                |    |  |          |  
|                                                                 |  | (In thousands) |   
|Effect on total of service and interest cost components for 2004 |  | $              | 4  |  |          | $ | (4  | )
|Effect on December 31, 2004 benefit obligation                   |  |                | 67 |  |          |   | (65 | )

Defined Contribution Plans




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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Nonqualified Deferred Compensation
Arrangement


Other




|   |                     
|-- | --------------------
|7. | STOCKHOLDERS EQUITY

Common Stock




Preferred Stock


Registration Rights Agreement


Rights Agreement




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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Employee Stock Purchase Plan




|   |                         
|-- | ------------------------
|8. | OTHER COMPREHENSIVE LOSS





|   |                         
|-- | ------------------------
|9. | OTHER INCOME AND EXPENSE

Surplus Property Expenses




|    |                   
|--- | ------------------
|10. | EARNINGS PER SHARE



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |                                      |        |          |        |  |          |           |  |   |      | 
|------------------------------------ |  | ------------------------------------ | ------ | -------- | ------ |  | -------- | --------- |  | - | ---- | 
|                                     |  |                                      |        | Weighted |        |  |         
|                                     |  |                                      |        | Average  |        |  | Earnings |          
|                                     |  | Net Income                           |        |          | Shares |  |          | per Share | 
|                                     |  |                                      |        |          |        |  |          |           | 
|                                     |  | (In thousands except per share data) |       
|For the year ended December 31, 2002 |  |                                      |        |          |        |  |          |           |  |   |      | 
|Basic net income                     |  | $                                    | 26,492 |          |        |  | 22,414   |           |  | $ | 1.18 | 
|Effect of dilutive stock options     |  |                                      |       |          |        |  | 419      |           |  |   |     | 
|                                     |  |                                      |        |          |        |  |          |           | 
|Diluted net income                   |  | $                                    | 26,492 |          |        |  | 22,833   |           |  | $ | 1.16 | 
|                                     |  |                                      |        |          |        |  |          |           | 
|For the year ended December 31, 2003 |  |                                      |        |          |        |  |          |           |  |   |      | 
|Basic net income                     |  | $                                    | 25,578 |          |        |  | 22,711   |           |  | $ | 1.13 | 
|Effect of dilutive stock options     |  |                                      |       |          |        |  | 290      |           |  |   |     | 
|                                     |  |                                      |        |          |        |  |          |           | 
|Diluted net income                   |  | $                                    | 25,578 |          |        |  | 23,001   |           |  | $ | 1.11 | 
|                                     |  |                                      |        |          |        |  |          |           | 
|For the year ended December 31, 2004 |  |                                      |        |          |        |  |          |           |  |   |      | 
|Basic net income                     |  | $                                    | 46,487 |          |        |  | 22,996   |           |  | $ | 2.02 | 
|Effect of dilutive stock options     |  |                                      |       |          |        |  | 436      |           |  |   |     | 
|                                     |  |                                      |        |          |        |  |          |           | 
|Diluted net income                   |  | $                                    | 46,487 |          |        |  | 23,432   |           |  | $ | 1.98 | 
|                                     |  |                                      |        |          |        |  |          |           | 



|    |                              
|--- | -----------------------------
|11. | COMMITMENTS AND CONTINGENCIES

Leases




|                        |                              |                |       |       | 
|----------------------- | ---------------------------- | -------------- | ----- | ----- | 
|                        |                              | Operating      |      
|                        |                              |                |      
|                        |                              | (In thousands) |      
|2005                    |                              | $              | 1,529 |      
|2006                    |                              |                | 798   |      
|2007                    |                              |                | 348   |      
|2008                    |                              |                | 135   |      
|2009                    |                              |                | 2     |      
|Greater than five years |                              |                |      |      
|                        |                              |                |      
|                        | Total minimum lease payments |                | $     | 2,812 | 
|                        |                              |                |      



Litigation




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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                    
|--- | -----------------------------------
|12. | FAIR VALUE OF FINANCIAL INSTRUMENTS





|    |                          
|--- | -------------------------
|13. | EQUITY COMPENSATION PLANS









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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                         |  |        |           |                  |                |   |       | 
|---------------------------------------- |  | ------ | --------- | ---------------- | -------------- | - | ----- | 
|                                         |  |        |           | Weighted Average |               
|                                         |  | Shares |           |                  | Exercise Price |  
|                                         |  |        |           |                  |                |  
|Outstanding at December 31, 2001         |  |        | 1,439,873 |                  |                |   | 14.20 | 
|                                         |  |        |           |                  |                |  
|Granted                                  |  |        | 210,478   |                  |                |   | 25.36 | 
|Exercised                                |  |        | (223,699  | )                |                |   | 6.72  | 
|Forfeited                                |  |        |          |                  |                |   |      | 
|                                         |  |        |           |                  |                |  
|Outstanding at December 31, 2002         |  |        | 1,426,652 |                  |                | $ | 17.02 | 
|                                         |  |        |           |                  |                |  
|Granted                                  |  |        | 213,140   |                  |                |   | 27.21 | 
|Exercised                                |  |        | (243,034  | )                |                |   | 8.11  | 
|Forfeited                                |  |        | (56,161   | )                |                |   | 19.35 | 
|Outstanding at December 31, 2003         |  |        | 1,340,597 |                  |                | $ | 20.16 | 
|                                         |  |        |           |                  |                |  
|Granted                                  |  |        | 236,200   |                  |                |   | 28.97 | 
|Exercised                                |  |        | (432,971  | )                |                |   | 17.49 | 
|Forfeited                                |  |        | (74,220   | )                |                |   | 22.76 | 
|Outstanding at December 31, 2004         |  |        | 1,069,606 |                  |                | $ | 23.01 | 
|                                         |  |        |           |                  |                |  
|Options exercisable at December 31, 2002 |  |        | 339,406   |                  |                | $ | 15.09 | 
|Options exercisable at December 31, 2003 |  |        | 515,523   |                  |                | $ | 17.02 | 
|Options exercisable at December 31, 2004 |  |        | 344,006   |                  |                | $ | 19.52 | 



|                |  |        |           |                  |                  |  |                  |                |  |                  |                   |  |             |        |         |  |  |   |       | 
|--------------- |  | ------ | --------- | ---------------- | ---------------- |  | ---------------- | -------------- |  | ---------------- | ----------------- |  | ----------- | ------ | ------- |  |  | - | ----- | 
|                |  |        |           |                  |                  |  |                  |                |  | Weighted Average |                  
|                |  |        |           | Weighted Average |                  |  |                  |                |  |                  | Exercise Price of | 
|Range of        |  |        |           | Remaining        |                  |  | Weighted Average |                |  | Exercisable      |                   |  | Exercisable |       
|Exercise Prices |  | Shares |           |                  | Contractual Life |  |                  | Exercise Price |  |                  | Shares            |  |             | Shares |        
|                |  |        |           |                  |                  |  |                  |                |  |                  |                   |  |             |        |        
|$ 4.32 - $ 6.68 |  |        | 22,500    |                  |                  |  | 4.0              |                |  | $                | 4.32              |  |             |        | 22,500  |  |  | $ | 4.32  | 
|16.69 -  21.25  |  |        | 481,680   |                  |                  |  | 6.3              |                |  |                  | 18.54             |  |             |        | 235,080 |  |  |   | 18.39 | 
|23.37 -  26.71  |  |        | 139,272   |                  |                  |  | 7.4              |                |  |                  | 25.42             |  |             |        | 48,347  |  |  |   | 25.49 | 
|$26.71 - $30.05 |  |        | 406,778   |                  |                  |  | 8.9              |                |  |                  | 28.10             |  |             |        | 28,103  |  |  |   | 27.17 | 
|$30.05 - $33.39 |  |        | 19,376    |                  |                  |  | 8.0              |                |  |                  | 31.68             |  |             |        | 9,976   |  |  |   | 30.08 | 
|                |  |        |           |                  |                  |  |                  |                |  |                  |                   |  |             |        |        
|                |  |        | 1,069,606 |                  |                  |  | 7.4              |                |  | $                | 23.01             |  |             |        | 344,006 |  |  | $ | 19.52 | 
|                |  |        |           |                  |                  |  |                  |                |  |                  |                   |  |             |        |        



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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                                
|--- | -------------------------------
|14. | SEGMENT AND RELATED INFORMATION











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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                              |                          |                         |   |         |         |  |   |         |         |  |   |         |         | 
|----------------------------- | ------------------------ | ----------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                              |                          | Year Ended December 31, |  
|                              |                          |                         |  
|                              |                          | 2004                    |   |         | 2003    |  |   | 2002    |        
|                              |                          |                         |   |         |         |  |   |         |        
|                              |                          | (In thousands)          |  
|Revenue                       |                          |                         |   |         |         |  |   |         |         |  |   |        
|                              | Premium Connection       |                         | $ | 184,782 |         |  | $ | 110,270 |         |  | $ | 127,116 |        
|                              | Pressure Control         |                         |   | 100,571 |         |  |   | 101,747 |         |  |   | 114,408 |        
|                              |                          |                         |   |         |         |  |   |         |        
|                              |                          | Total                   |   | $       | 285,353 |  |   | $       | 212,017 |  |   | $       | 241,524 | 
|                              |                          |                         |   |         |         |  |   |         |        
|Operating income (loss)       |                          |                         |   |         |         |  |   |         |         |  |   |        
|                              | Premium Connection       |                         | $ | 60,899  |         |  | $ | 27,611  |         |  | $ | 36,721  |        
|                              | Pressure Control         |                         |   | 20,971  |         |  |   | 20,261  |         |  |   | 19,721  |        
|                              | Corporate Administration |                         |   | (15,464 | )       |  |   | (13,709 | )       |  |   | (12,117 | )      
|                              |                          |                         |   |         |         |  |   |         |        
|                              |                          | Total                   |   | $       | 66,406  |  |   | $       | 34,163  |  |   | $       | 44,325  | 
|                              |                          |                         |   |         |         |  |   |         |        
|Depreciation and amortization |                          |                         |   |         |         |  |   |         |         |  |   |        
|                              | Premium Connection       |                         | $ | 7,815   |         |  | $ | 7,367   |         |  | $ | 6,686   |        
|                              | Pressure Control         |                         |   | 2,920   |         |  |   | 2,769   |         |  |   | 2,394   |        
|                              | Corporate Administration |                         |   | 1,902   |         |  |   | 1,764   |         |  |   | 1,747   |        
|                              |                          |                         |   |         |         |  |   |         |        
|                              |                          | Total                   |   | $       | 12,637  |  |   | $       | 11,900  |  |   | $       | 10,827  | 
|                              |                          |                         |   |         |         |  |   |         |        
|Capital expenditures          |                          |                         |   |         |         |  |   |         |         |  |   |        
|                              | Premium Connection       |                         | $ | 8,188   |         |  | $ | 3,699   |         |  | $ | 9,601   |        
|                              | Pressure Control         |                         |   | 2,390   |         |  |   | 3,548   |         |  |   | 7,138   |        
|                              | Corporate Administration |                         |   | 1,778   |         |  |   | 1,311   |         |  |   | 1,189   |        
|                              |                          |                         |   |         |         |  |   |         |        
|                              |                          | Total                   |   | $       | 12,356  |  |   | $       | 8,558   |  |   | $       | 17,928  | 
|                              |                          |                         |   |         |         |  |   |         |        
|Total assets                  |                          |                         |   |         |         |  |   |         |         |  |   |        
|                              | Premium Connection       |                         | $ | 121,333 |         |  | $ | 98,071  |         |  | $ | 103,822 |        
|                              | Pressure Control         |                         |   | 68,900  |         |  |   | 73,375  |         |  |   | 74,394  |        
|                              | Corporate Administration |                         |   | 153,413 |         |  |   | 95,670  |         |  |   | 99,992  |        
|                              |                          |                         |   |         |         |  |   |         |        
|                              |                          | Total                   |   | $       | 343,646 |  |   | $       | 267,116 |  |   | $       | 278,208 | 
|                              |                          |                         |   |         |         |  |   |         |        

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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                     |                          |                             |   |         |         |  |   |         |         |  |   |         |         | 
|-------------------- | ------------------------ | --------------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                     |                          | Year Ended December 31,     |  
|                     |                          |                             |  
|                     |                          | 2004                        |   |         | 2003    |  |   | 2002    |        
|                     |                          |                             |   |         |         |  |   |         |        
|Revenue(1)           |                          |                             |   |         |         |  |   |         |         |  |   |        
|                     | United States            |                             | $ | 141,418 |         |  | $ | 132,960 |         |  | $ | 148,857 |        
|                     | Other Western Hemisphere |                             |   | 59,656  |         |  |   | 35,355  |         |  |   | 34,008  |        
|                     |                          |                             |   |         |         |  |   |         |        
|                     |                          | Subtotal Western Hemisphere |   |         | 201,074 |  |   |         | 168,315 |  |   |         | 182,865 | 
|                     |                          |                             |   |         |         |  |   |         |        
|                     | Eastern Hemisphere       |                             |   | 84,279  |         |  |   | 43,702  |         |  |   | 58,659  |        
|                     |                          |                             |   |         |         |  |   |         |        
|                     |                          | Total                       |   | $       | 285,353 |  |   | $       | 212,017 |  |   | $       | 241,524 | 
|                     |                          |                             |   |         |         |  |   |         |        
|Long-lived assets(2) |                          |                             |   |         |         |  |   |         |         |  |   |        
|                     | United States            |                             | $ | 81,063  |         |  | $ | 83,447  |         |  | $ | 86,035  |        
|                     | Other Western Hemisphere |                             |   | 18,337  |         |  |   | 15,961  |         |  |   | 14,959  |        
|                     |                          |                             |   |         |         |  |   |         |        
|                     |                          | Subtotal Western Hemisphere |   | $       | 99,400  |  |   | $       | 99,408  |  |   | $       | 100,994 | 
|                     |                          |                             |   |         |         |  |   |         |        
|                     | Eastern Hemisphere       |                             |   | 9,583   |         |  |   | 11,288  |         |  |   | 10,943  |        
|                     |                          |                             |   |         |         |  |   |         |        
|                     |                          | Total                       |   | $       | 108,983 |  |   | $       | 110,696 |  |   | $       | 111,937 | 
|                     |                          |                             |   |         |         |  |   |         |        






|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Revenue is presented on the basis of selling location.                                               
|   
|(2) | Includes net property and other long-term assets, (excludes
    investments and deferred tax assets).









|    |                                                  
|--- | -------------------------------------------------
|15. | SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)

|                    |         |                                       |        |      |         |   |        |         |  |   |         |      |  |   |        |      | 
|------------------- | ------- | ------------------------------------- | ------ | ---- | ------- | - | ------ | ------- |  | - | ------- | ---- |  | - | ------ | ---- | 
|                    |         | Year Ended December 31, 2004          |       
|                    |         |                                       |       
|                    |         | First                                 |        |      | Second  |   |        | Third   |  |   | Fourth  |     
|                    |         | Quarter                               |        |      | Quarter |   |        | Quarter |  |   | Quarter |     
|                    |         |                                       |        |      |         |   |        |         |  |   |         |     
|                    |         | (In thousands, except per share data) |       
|Revenue             |         | $                                     | 57,497 |      |         | $ | 62,905 |         |  | $ | 78,427  |      |  | $ | 86,524 |     
|Gross profit        |         |                                       | 22,350 |      |         |   | 26,071 |         |  |   | 33,076  |      |  |   | 36,916 |     
|Operating income    |         |                                       | 10,457 |      |         |   | 13,368 |         |  |   | 19,768  |      |  |   | 22,813 |     
|Net income          |         |                                       | 7,874  | (1)  |         |   | 9,023  |         |  |   | 14,441  | (2)  |  |   | 15,149 |     
|Earnings per share: |         |                                       |        |      |         |   |        |         |  |   |         |      |  |   |        |     
|                    | Basic   |                                       | $      | 0.34 |         |   | $      | 0.39    |  |   | $       | 0.63 |  |   | $      | 0.65 | 
|                    | Diluted |                                       | $      | 0.34 |         |   | $      | 0.39    |  |   | $       | 0.61 |  |   | $      | 0.64 | 

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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                    |         |                                       |        |      |         |   |        |         |  |   |         |      |  |   |        |      | 
|------------------- | ------- | ------------------------------------- | ------ | ---- | ------- | - | ------ | ------- |  | - | ------- | ---- |  | - | ------ | ---- | 
|                    |         | Year Ended December 31, 2003          |       
|                    |         |                                       |       
|                    |         | First                                 |        |      | Second  |   |        | Third   |  |   | Fourth  |     
|                    |         | Quarter                               |        |      | Quarter |   |        | Quarter |  |   | Quarter |     
|                    |         |                                       |        |      |         |   |        |         |  |   |         |     
|                    |         | (In thousands, except per share data) |       
|Revenue             |         | $                                     | 57,338 |      |         | $ | 54,551 |         |  | $ | 50,243  |      |  | $ | 49,885 |     
|Gross profit        |         |                                       | 22,299 |      |         |   | 21,610 |         |  |   | 18,799  |      |  |   | 19,185 |     
|Operating income    |         |                                       | 10,328 |      |         |   | 9,688  |         |  |   | 6,167   |      |  |   | 7,980  |     
|Net income          |         |                                       | 6,463  |      |         |   | 6,163  |         |  |   | 7,726   | (3)  |  |   | 5,226  |     
|Earnings per share: |         |                                       |        |      |         |   |        |         |  |   |         |      |  |   |        |     
|                    | Basic   |                                       | $      | 0.29 |         |   | $      | 0.27    |  |   | $       | 0.34 |  |   | $      | 0.23 | 
|                    | Diluted |                                       | $      | 0.28 |         |   | $      | 0.27    |  |   | $       | 0.34 |  |   | $      | 0.23 | 






|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a U.S. research and experimentation income tax
    credit of $920,000 related to qualified spending for the
    two-year period from 2002 and 2003.      
|   
|(2) | Includes a U.S. income tax benefit (extraterritorial income
    exclusion) of $1,300,000 related to export shipments for the
    years 2002 through 2003.         
|   
|(3) | Includes a U.S. research and experimentation income tax
    credit of $3,705,000 related to qualified spending for the
    ten-year period from 1992 through 2001.



|    |                                 
|--- | --------------------------------
|16. | RECENT ACCOUNTING PRONOUNCEMENTS







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HYDRIL COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












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ITEM 9  CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE







ITEM 9A  CONTROLS AND PROCEDURES







ITEM 9B  OTHER INFORMATION







PART III







ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT









ITEM 11  EXECUTIVE COMPENSATION




69



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##### Table of Contents








|          |                                                                                                   
|--------- | --------------------------------------------------------------------------------------------------
|ITEM 12  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS








|          |                                               
|--------- | ----------------------------------------------
|ITEM 13  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS






ITEM 14  PRINCIPAL ACCOUNTING FEES AND
SERVICES







PART IV







|          |                                           
|--------- | ------------------------------------------
|ITEM 15  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





| |                        
| | -----------------------
| | 1. Financial Statements



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | All financial statements of the Registrant as set forth under
    Item 8 of this Annual Report on Form 10-K.



| |                                 
| | --------------------------------
| | 2. Financial Statement Schedules



| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules have been omitted because either they are not
    applicable or the required information is shown in the financial
    statements.



| |            
| | -----------
| | 3. Exhibits

|        |    |      |  |   |  |                                                                                                                                                                                                                                                                      
|------- | -- | ---- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |  |  
|No.     |    |      |  |  
|        |    |      |  |  
|        | 3  | .1*  |  |  |  | Restated Certificate of Incorporation of the Company
    (incorporated by reference to Exhibit 3.1 of the
    Companys Form 10-Q filed with the Commission on
    November 14, 2000).                                                                               
|       
|        | 3  | .2*  |  |  |  | Restated Bylaws of the Company (incorporated by reference to
    Exhibit 3.2 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                        
|       
|        | 4  | .1*  |  |  |  | Form of Specimen Common Stock Certificate (incorporated by
    reference to Exhibit 4.1 of Amendment No. 1 to the
    Registration Statement on Form S-1 of the Company filed
    with the Commission on July 31, 2000).                                             
|       
|        | 4  | .2*  |  |  |  | Registration Rights Agreement among the Company and the
    stockholders named therein (incorporated by reference to
    Exhibit 4.2 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).
|       
|        | 10 | .1*  |  |  |  | Loan Agreement dated as of June 30, 2003 among Hydril
    Company, Banc One Capital Markets, Inc. and Bank One, NA.
    (incorporated by reference to exhibit 10.1 of the
    Companys Form 10-Q dated June 30, 2003).                                              
|       
|        | 10 | .2*+ |  |  |  | Employment Agreement with Neil Russell dated October 1,
    2002 (incorporated by reference to Exhibit 10.1 of the
    Companys Form 10-Q for the quarter ended
    September 30, 2002).                                                                            
|       
|        | 10 | .3+  |  |  |  | Employment Agreement with Neil Russell dated March 12, 2004.                                                                                                                                                                                                         
|       
|        | 10 | .4*+ |  |  |  | Hydril Company 1999 Stock Option Plan (incorporated by reference
    to Exhibit 10.1 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                

70



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##### Table of Contents



|        |    |       |  |   |  |                                                                                                                                                                                                                           
|------- | -- | ----- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |  |   | 
|No.     |    |       |  |   | 
|        |    |       |  |   | 
|       
|        | 10 | .5*+  |  |  |  | Hydril Company 2000 Incentive Plan (incorporated by reference to
    Exhibit 10.3 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).        
|       
|        | 10 | .6*+  |  |  |  | Amendment to Hydril Company 2000 Incentive Plan (incorporated by
    reference to Exhibit 10.5 of the Companys
    Form 10-K for the year-ended December 31, 2003).                                                      
|       
|        | 10 | .7+   |  |  |  | Form of Stock Option Award Agreement for Employees under the
    Hydril Company 2000 Incentive Plan.                                                                                                                      
|       
|        | 10 | .8+   |  |  |  | Form of Stock Option Award Agreement for Non-employee Directors
    under the Hydril Company 2000 Incentive Plan.                                                                                                         
|       
|        | 10 | .9+   |  |  |  | Form of Restricted Stock Unit Award Agreement for Employees
    under the Hydril Company 2000 Incentive Plan.                                                                                                             
|       
|        | 10 | .10+  |  |  |  | Form of Restricted Stock Award Agreement for Employees under the
    Hydril Company 2000 Incentive Plan.                                                                                                                  
|       
|        | 10 | .11*+ |  |  |  | Form of Indemnification Agreement (incorporated by reference to
    Exhibit 10.5 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).         
|       
|        | 10 | .12*+ |  |  |  | Employee Stock Purchase Plan (incorporated by reference to
    Exhibit 10.6 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).              
|       
|        | 10 | .13*+ |  |  |  | Hydril Company Restoration Plan (incorporated by reference to
    Exhibit 10.13 of the Companys Form  10-K
    for the year-ended December 31, 2001).                                                                    
|       
|        | 10 | .14*+ |  |  |  | Form of Change in Control Agreement (incorporated by reference
    to Exhibit 10.14 of the Companys Form  10-Q
    for the quarter ended June 30, 2004).                                                                 
|       
|        | 10 | .15*+ |  |  |  | Form of Change in Control Renewal Agreement (incorporated by
    reference to Exhibit 10.1 of the Companys
    Form 8-K filed with the Commission on February 18,
    2005).                                             
|       
|        | 10 | .16*+ |  |  |  | Form of 2004 Non-employee Directors Deferred Share Unit
    Agreement (incorporated by reference to Exhibit 10.1 of the
    Companys Form 10-Q for the quarter ended
    June 30, 2004).                                
|       
|        | 10 | .17+  |  |  |  | Description of Non-employee Director Compensation.                                                                                                                                                                        
|       
|        | 10 | .18*+ |  |  |  | Executive Officer 2005 Bonus Criteria under the 2005 Management
    Incentive Plan (incorporated by reference to the Companys
    Form 8-K filed with the Commission on March 16, 2005).                                 
|       
|        | 10 | .19*+ |  |  |  | Executive Officer Bonuses with respect to 2004 (incorporated by
    reference to the Companys Form 8-K filed with the
    Commission on March 16, 2005).                                                                 
|       
|        | 10 | .20*+ |  |  |  | 2005 Management Incentive Plan (incorporated by reference to
    exhibit 10.1 of the Companys Form 8-K filed with
    the Commission on March 16, 2005).                                                                 
|       
|        | 10 | .21*+ |  |  |  | Executive Officer Salaries (incorporated by reference to the
    Companys Form 8-K filed with the Commission on
    March 16, 2005).                                                                                     
|       
|        | 21 | .1    |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                           
|       
|        | 23 | .1    |  |  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                 
|       
|        | 24 | .1    |  |  |  | Powers of Attorney.                                                                                                                                                                                                       
|       
|        | 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.



|  |                                                   
|- | --------------------------------------------------
|+ | Denotes management compensatory plan or agreement.

71



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##### Table of Contents






SIGNATURE






| |               
| | --------------
| | HYDRIL COMPANY



| |     |                   
| | --- | ------------------
| | By: | /s/ Chris D. North

| |                                                                        
| | -----------------------------------------------------------------------
| |                                                                        
| | Chris D. North                                                         
| | Chief Financial Officer                                                
| | (Authorized officer and principal accounting and financial
    officer)



|                                                   |  |                                                                                                 |  |  |  | 
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  |  |  | 
|Signature                                          |  | Title                                                                                           |  | 
|                                                   |  |                                                                                                 |  | 
|                                                  
|/s/ CHRISTOPHER T. SEAVERChristopher
    T. Seaver |  | President, Chief Executive Officer and Director (Principal
    Executive Officer)               |  | 
|                                                  
|/s/ Chris D. NorthChris
    D. North               |  | Chief Financial Officer (Authorized Officer and Principal
    Accounting and Financial Officer) |  | 
|                                                  
|*Richard
    C. Seaver                             |  | Chairman of the Board                                                                           |  | 
|                                                  
|*Jerry
    S. Cox                                  |  | Director                                                                                        |  | 
|                                                  
|Roger
    Goodan                                   |  | Director                                                                                        |  | 
|                                                  
|*Gordon
    T. Hall                                |  | Director                                                                                        |  | 
|                                                  
|*Kenneth
    S. McCormick                          |  | Director                                                                                        |  | 
|                                                  
|*Patrick
    T. Seaver                             |  | Director                                                                                        |  | 
|                                                  
|*T.
    Don Stacy                                  |  | Director                                                                                        |  | 
|                                                  
|*Lew
    O. Ward                                   |  | Director                                                                                        |  | 
|                                                  
|*By:                                               |  | /s/ CHRISTOPHER T. SEAVERChristopher
    T. Seaver
    Attorney-in-fact                         |  |  |  | 

72



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##### Table of Contents






INDEX TO EXHIBITS


|        |    |       |  |   |  |                                                                                                                                                                                                                                                                      
|------- | -- | ----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |  |  
|No.     |    |       |  |  
|        |    |       |  |  
|        | 3  | .1*   |  |  |  | Restated Certificate of Incorporation of the Company
    (incorporated by reference to Exhibit 3.1 of the
    Companys Form 10-Q filed with the Commission on
    November 14, 2000).                                                                               
|       
|        | 3  | .2*   |  |  |  | Restated Bylaws of the Company (incorporated by reference to
    Exhibit 3.2 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                        
|       
|        | 4  | .1*   |  |  |  | Form of Specimen Common Stock Certificate (incorporated by
    reference to Exhibit 4.1 of Amendment No. 1 to the
    Registration Statement on Form S-1 of the Company filed
    with the Commission on July 31, 2000).                                             
|       
|        | 4  | .2*   |  |  |  | Registration Rights Agreement among the Company and the
    stockholders named therein (incorporated by reference to
    Exhibit 4.2 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).
|       
|        | 10 | .1*   |  |  |  | Loan Agreement dated as of June 30, 2003 among Hydril
    Company, Banc One Capital Markets, Inc. and Bank One, NA.
    (incorporated by reference to exhibit 10.1 of the
    Companys Form 10-Q dated June 30, 2003).                                              
|       
|        | 10 | .2*+  |  |  |  | Employment Agreement with Neil Russell dated October 1,
    2002 (incorporated by reference to Exhibit 10.1 of the
    Companys Form 10-Q for the quarter ended
    September 30, 2002).                                                                            
|       
|        | 10 | .3+   |  |  |  | Employment Agreement with Neil Russell dated March 12, 2004.                                                                                                                                                                                                         
|       
|        | 10 | .4*+  |  |  |  | Hydril Company 1999 Stock Option Plan (incorporated by reference
    to Exhibit 10.1 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                
|       
|        | 10 | .5*+  |  |  |  | Hydril Company 2000 Incentive Plan (incorporated by reference to
    Exhibit 10.3 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                   
|       
|        | 10 | .6*+  |  |  |  | Amendment to Hydril Company 2000 Incentive Plan (incorporated by
    reference to Exhibit 10.5 of the Companys
    Form 10-K for the year-ended December 31, 2003).                                                                                                 
|       
|        | 10 | .7+   |  |  |  | Form of Stock Option Award Agreement for Employees under the
    Hydril Company 2000 Incentive Plan.                                                                                                                                                                 
|       
|        | 10 | .8+   |  |  |  | Form of Stock Option Award Agreement for Non-employee Directors
    under the Hydril Company 2000 Incentive Plan.                                                                                                                                                    
|       
|        | 10 | .9+   |  |  |  | Form of Restricted Stock Unit Award Agreement for Employees
    under the Hydril Company 2000 Incentive Plan.                                                                                                                                                        
|       
|        | 10 | .10+  |  |  |  | Form of Restricted Stock Award Agreement for Employees under the
    Hydril Company 2000 Incentive Plan.                                                                                                                                                             
|       
|        | 10 | .11*+ |  |  |  | Form of Indemnification Agreement (incorporated by reference to
    Exhibit 10.5 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                    
|       
|        | 10 | .12*+ |  |  |  | Employee Stock Purchase Plan (incorporated by reference to
    Exhibit 10.6 of Amendment No. 1 to the Registration
    Statement on Form S-1 of the Company filed with the
    Commission on July 31, 2000).                                                         
|       
|        | 10 | .13*+ |  |  |  | Hydril Company Restoration Plan (incorporated by reference to
    Exhibit 10.13 of the Companys Form  10-K
    for the year-ended December 31, 2001).                                                                                                               
|       
|        | 10 | .14*+ |  |  |  | Form of Change in Control Agreement (incorporated by reference
    to Exhibit 10.14 of the Companys Form  10-Q
    for the quarter ended June 30, 2004).                                                                                                            
|       
|        | 10 | .15*+ |  |  |  | Form of Change in Control Renewal Agreement (incorporated by
    reference to Exhibit 10.1 of the Companys
    Form 8-K filed with the Commission on February 18,
    2005).                                                                                        
|       
|        | 10 | .16*+ |  |  |  | Form of 2004 Non-employee Directors Deferred Share Unit
    Agreement (incorporated by reference to Exhibit 10.1 of the
    Companys Form 10-Q for the quarter ended
    June 30, 2004).                                                                           
|       
|        | 10 | .17+  |  |  |  | Description of Non-employee Director Compensation.                                                                                                                                                                                                                   

73



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##### Table of Contents



|        |    |       |  |   |  |                                                                                                                                                                                                                           
|------- | -- | ----- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |  |   | 
|No.     |    |       |  |   | 
|        |    |       |  |   | 
|       
|        | 10 | .18*+ |  |  |  | Executive Officer 2005 Bonus Criteria under the 2005 Management
    Incentive Plan (incorporated by reference to the Companys
    Form 8-K filed with the Commission on March 16, 2005).                                 
|       
|        | 10 | .19*+ |  |  |  | Executive Officer Bonuses with respect to 2004 (incorporated by
    reference to the Companys Form 8-K filed with the
    Commission on March 16, 2005).                                                                 
|       
|        | 10 | .20*+ |  |  |  | 2005 Management Incentive Plan (incorporated by reference to
    exhibit 10.1 of the Companys Form 8-K filed with
    the Commission on March 16, 2005).                                                                 
|       
|        | 10 | .21*+ |  |  |  | Executive Officer Salaries (incorporated by reference to the
    Companys Form 8-K filed with the Commission on
    March 16, 2005).                                                                                     
|       
|        | 21 | .1    |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                           
|       
|        | 23 | .1    |  |  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                 
|       
|        | 24 | .1    |  |  |  | Powers of Attorney.                                                                                                                                                                                                       
|       
|        | 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.



|  |                                                   
|- | --------------------------------------------------
|+ | Denotes management compensatory plan or agreement.

74