##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2007
 Commission file number 1-8226
 
 GREY WOLF, INC.
  Texas
    
    74-2144774(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 10370 Richmond Avenue, Suite 600, Houston, Texas
    
    77042(Address of principal executive offices)
    
    (Zip Code)
   Name of each exchangeTitle of each class
    
    on which registeredCommon Stock, par value $0.10
Rights to Purchase Junior Participating 
Preferred Stock, par value $1.00
    
    American Stock Exchange
American Stock Exchange
  þ o
 o þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



GREY WOLF, INC.
 
  
 PagePart IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    9Item 1B.
    
    Unresolved Staff Comments
    
    
    16Item 2.
    
    Properties
    
    
    16Item 3.
    
    Legal Proceedings
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Part IIItem 5.
    
    Market for Registrants Common Equity and Related Shareholder Matters
and Issuer Purchases of Equity Securities
    
    
    18Item 6.
    
    Selected Financial Data
    
    
    20Item 7.
    
    Managements Discussion and Analysis Of Financial Condition
and Results Of Operations
    
    
    21Item 7A.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    35Item 8.
    
    Financial Statements and Supplementary Data
    
    
    36Item 9.
    
    Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    62Item 9A.
    
    Controls and Procedures
    
    
    62Item 9B.
    
    Other Information
    
    
    62Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    62Item 11.
    
    Executive Compensation
    
    
    62Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    63Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    63Item 14.
    
    Principal Accountant Fees and Services
    
    
    63Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    64Signatures
    
    
    68List of SubsidiariesConsent of KPMG LLPCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification Pursuant to Section 1350
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PART I
 
 Item 1. Business
 General
   Business Strategy
   
    
    delivering quality, value-added service to our customers;
    
    maintaining a strong position in the markets where we operate;
    
    responding to market conditions by balancing dayrates we receive on our rigs with
the number of rigs we market;
  
    
    using term contracts to provide sufficient cash flow to recover, after operating
expenses, a majority of the initial capital expended for the purchase of new rigs;
    
    maintaining a premium fleet of equipment with a bias toward deep and
horizontal/directional drilling;
    
    enhancing cash flow through our turnkey and trucking operations and use of our top
drives;
    
    controlling costs and exercising capital spending discipline;
  
    
    searching for new market opportunities where we believe our quality fleet of rigs
would be able to generate attractive returns; and
    
    searching for potential strategic acquisition candidates.
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Industry Overview
  Current Conditions and Outlook
    Operations
   
    
    Ark-La-Tex;
    
    Gulf Coast;
    
    Mississippi/Alabama;
    
    South Texas;
    
    Rocky Mountain;
    
    Mid-Continent
  -4-




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Ark-La-Tex Division.
  Gulf Coast Division.
  South Texas Division.
  Rocky Mountain Division.
 Mid-Continent District.
 Mexico.
 -5-




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Contracts
  Daywork Contracts.
  Turnkey Contracts.
  Customers and Marketing
   -6-




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Competitors
  
    
    the drilling capabilities and condition of drilling rigs;
    
    the quality of service and experience of rig crews;
    
    the safety record of the company and the particular drilling rig;
    
    the offering of ancillary services; and
    
    the ability to provide drilling equipment adaptable to, and personnel familiar
with, new technologies and drilling techniques;
    
    mobility and efficiency of rigs.
    Insurance
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Deductible/Limit
    
    Aggregate
    
    Self-Insured RetentionCoverage
    
    Per Occurrence
    
    Limit
    
    per OccurrenceWorkers compensation/
employer liability
    
    Statutory(1)/$1.0 million
    
    None
    
    $
    500,000Automobile liability
    
    $1.0 million
    
    None
    
    $
    500,000Commercial general
liability
    
    $1.0 million
    
    $2.0 million
    
    $
    250,000Commercial excess
liability
    
    $10.0 million
    
    $10.0 million
    
    Underlying insuranceCommercial excess
liability
    
    $90.0 million
    
    $90.0 million
    
    Underlying insurance
 
 (1)
    
    Workers compensation policy limits vary depending on the laws of the particular states in
which we operate.    Environmental Regulations
   -8-




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Employees
  
 Item 1A. Risk Factors
  A material or extended decline in expenditures by oil and natural gas exploration and production
companies, due to a decline or volatility in oil and natural gas prices, a decrease in demand for
oil and natural gas, an increase in rig supply or other factors, would reduce our revenue and
income.
  
    
    our revenues, cash flows and earnings;
    
    the fair market value of our rig fleet, which in turn could trigger a writedown of
the carrying value of these assets for accounting purposes;
    
    our ability to maintain or increase our borrowing capacity;
    
    our ability to obtain additional capital to finance our operations and make
acquisitions, and the cost of that capital; and
    
    our ability to retain skilled rig personnel who we would need in the event of an
increase in the demand for our services.
  
    
    weather conditions in the United States and elsewhere;
    
    economic conditions in the United States and elsewhere;
    
    actions by OPEC, the Organization of Petroleum Exporting Countries;
 -9-




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
    
    political instability in the Middle East, Venezuela, Nigeria and other major
producing regions;
    
    governmental regulations, both domestic and foreign;
    
    the pace adopted by foreign governments for exploration of their national reserves;
and
    
    the overall supply and demand for oil and natural gas.
 An economic downturn may adversely affect our business.
  The intense price competition and cyclical nature of our industry could have an adverse effect on
our revenues and profitability.
  
    
    the drilling capabilities and condition of drilling rigs;
    
    the quality of service and experience of rig crews;
    
    the safety record of the company and the particular drilling rig;
    
    the offering of ancillary services;
    
    the ability to provide drilling equipment adaptable to, and personnel familiar
with, new technologies and drilling techniques; and
    
    mobility and efficiency of rigs.
    We face competition from competitors with greater resources.
  
    
    build new rigs or acquire existing rigs to be able to place rigs into service more
quickly than us in periods of high drilling demand;
    
    compete more effectively on the basis of price and technology;
    
    better withstand industry downturns; and
    
    retain skilled rig personnel.
 -10-




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Our drilling operations involve operating hazards which if not adequately insured or indemnified
against could adversely affect our results of operations and financial condition.
  
    
    blowouts;
    
    reservoir damage;
    
    cratering;
    
    fires, pollution and explosions;
    
    collapse of the borehole;
    
    lost or stuck drill strings; and
    
    damage or loss from natural disasters.
  
    
    suspension of drilling operations;
    
    damage to the environment;
    
    damage to, or destruction of, our property and equipment and that of others;
    
    personal injury and loss of life; and
    
    damage to producing or potentially productive oil and natural gas formations
through which we drill.
  Business acquisitions entail numerous risks and may disrupt our business or distract management
attention.
  
    
    unanticipated costs and liabilities;
    
    difficulty of integrating the operations and assets of the acquired business;
    
    our ability to properly access and maintain an effective internal control
environment over an acquired company, in order to comply with public reporting
requirements;
    
    potential loss of key employees and customers of the acquired companies; and
    
    an increase in our expenses and working capital requirements.
  Our operations are subject to environmental laws that may expose us to liabilities for
noncompliance, which may adversely affect us.
  
    
    environmental quality;
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
    
    pollution control; and
    
    remediation of environmental contamination.
  We may incur losses in future years resulting from downturns in the land drilling industry
  Unexpected cost overruns on our turnkey drilling jobs could adversely affect us.
  We could be adversely affected if delivery times for rigs and rig equipment lengthen.
  
    
    deployment of newly-built rigs;
    
    upgrades to our marketed fleet of rigs; and
    
    repair and maintenance of our rigs.
 We could be adversely affected if the demand for qualified rig personnel increases.
   -12-




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Our credit agreement may prohibit us from participation in certain transactions that we may
consider advantageous.
   We have a significant amount of indebtedness and could incur additional indebtedness, which could
materially and adversely affect our financial condition and results of operations and prevent us
from fulfilling our obligations under the notes and our other outstanding indebtedness.
   
    
    make it more difficult for us to satisfy our obligations with respect to the 3.75%
Notes and the Floating Rate Notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness which will limit the amount of cash flow we can use to
fund working capital, capital expenditures and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate;
    
    place us at a competitive disadvantage compared to our competitors that have less
debt; and
    
    limit our ability to borrow additional funds.
   -13-




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Our existing senior indebtedness is, and any senior indebtedness we incur will be, effectively
subordinated to any present or future obligations to secured creditors and liabilities of our
subsidiaries.
  To service our indebtedness, we will require a significant amount of cash. Our ability to generate
cash depends on many factors beyond our control.
  Credit ratings affect our ability to obtain financing and the cost of such financing.
  Investors in our common stock should not expect to receive dividend income, and will be dependent
on the appreciation of our common stock to earn a return on their investment.
  Certain provisions of our organizational documents, securities and credit agreement have
anti-takeover effects which may prevent our shareholders from receiving the maximum value for their
shares.
  
    
    classification of our board of directors into three classes, with each class
serving a staggered three year term;
    
    giving our board of directors the exclusive authority to adopt, amend or repeal our
bylaws and thus prohibiting shareholders from doing so;
    
    requiring our shareholders to give advance notice of their intent to submit a
proposal at the annual meeting; and
 -14-




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
    
    limiting the ability of our shareholders to call a special meeting and act by
written consent.
   Large amounts of our common stock may be resold into the market in the future which could cause the
market price of our common stock to drop significantly, even if our business is doing well.
  Forward-Looking Statements
  
    
    business strategy;
    
    demand for our services;
    
    spending by our customers;
    
    projected rig activity;
    
    increases in rig supply and its effects on us;
    
    projected interest expense;
    
    cost of building new rigs, delivery times and deployment destinations of these
rigs;
    
    projected dayrates;
    
    the ability to recover the purchase price of rigs from term contracts;
    
    the availability and financial terms of term contracts;
    
    rigs expected to be engaged in turnkey operations;
    
    projected tax rate;
    
    wage rates and retention of employees;
    
    sufficiency of our capital resources and liquidity;
    
    projected depreciation and capital expenditures;
    
    future common stock repurchases by us and our expected dividend policy; and
    
    projected sources and uses of cash.
    -15-




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Item 1b. Unresolved Staff Comments.
  
 Item 2. Properties
 Drilling Equipment
       -16-




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Maximum Rated Depth Capacity (1)10,000
    
    15,000
    
    20,000to 14,999
    
    to 19,999
    
    and Deeper
    
    TotalArk-La-TexDiesel Electric
    
    
    1
    
    
    
    12
    
    
    
    5
    
    
    
    18Trailer-Mounted
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    3
    (2)Mechanical
    
    
    1
    
    
    
    4
    
    
    
    3
    
    
    
    8Gulf Coast
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diesel Electric
    
    
    
    
    
    
    4
    
    
    
    16
    
    
    
    20Mechanical
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    5South Texas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diesel Electric
    
    
    
    
    
    
    5
    
    
    
    11
    
    
    
    16Trailer-Mounted
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Mechanical
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    5Rocky Mountain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diesel Electric
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    9Mechanical
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Mid-Continent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diesel Electric
    
    
    1
    
    
    
    4
    
    
    
    6
    
    
    
    11Trailer-Mounted
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Mechanical
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    6MexicoDiesel Electric
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Total Rig Fleet (3)
    
    
    31
    
    
    
    41
    
    
    
    49
    
    
    
    121
 
 (1)
    
    The actual drilling capacity of a rig may be less than its rated capacity due to numerous
factors, such as the length of the drill string and casing size. The intended well depth and
the drill site conditions determine the length of the drill string and other equipment needed
to drill a well.(2)
    
    Includes one diesel electric rig.(3)
    
    We have two new 1,500 hp built-for-purpose rigs on order, expected to be delivered in the
second and third quarters of 2008, that will bring the total rig fleet to 123. The maximum
depth capacity of each of these rigs is 18,000 feet. Facilities
  Location
    
    Interest
    
    UsesHouston, Texas
    
    Leased
    
    Corporate OfficeAlice, Texas
    
    Owned
    
    Division Office, Rig Yard, Truck YardEunice, Louisiana
    
    Owned
    
    Division Office, Rig YardHaughton, Louisiana
    
    Owned
    
    Rig YardShreveport, Louisiana
    
    Leased
    
    Division OfficeShreveport, Louisiana
    
    Owned
    
    Truck YardCasper, Wyoming
    
    Owned
    
    Division Office, Rig YardGrand Junction, Colorado
    
    Leased
    
    Division Satellite OfficeMidland, Texas
    
    Leased
    
    District OfficeVillahermosa, Mexico
    
    Leased
    
    Division Office, Rig Yard, Employee Housing
  -17-




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Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Shareholder Matters 
and Issuer Purchases of Equity Securities
 Market Data
  High
    
    LowPeriod from January 1, 2008 to February 18, 2008
    
    $
    6.55
    
    
    $
    5.00Year Ended December 31, 2007Quarter ended March 31, 2007
    
    
    7.08
    
    
    
    6.38Quarter ended June 30, 2007
    
    
    8.60
    
    
    
    6.65Quarter ended September 30, 2007
    
    
    8.33
    
    
    
    6.18Quarter Ended December 31, 2007
    
    
    6.63
    
    
    
    4.85Year Ended December 31, 2006Quarter ended March 31, 2006
    
    
    8.93
    
    
    
    6.50Quarter ended June 30, 2006
    
    
    8.85
    
    
    
    6.61Quarter ended September 30, 2006
    
    
    7.79
    
    
    
    6.35Quarter ended December 31, 2006
    
    
    7.43
    
    
    
    6.10
   -18-




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Issuer Purchases of Equity Securities
  ApproximateTotal Number
    
    Dollar Value ofof Shares
    
    Shares that MayPurchased as
    
    Yet beTotal Number
    
    Average
    
    Part of Publicly
    
    Purchasedof Shares
    
    Price Paid
    
    Announced
    
    Under thePeriod
    
    Purchased (3)
    
    per Share
    
    Program
    
    Program(1)(2)October 1, 2007 to October 31, 2007
    
    
    1,137
    
    
    $
    6.16
    
    
    
    1,137
    
    
    $
    56,936November 1, 2007 to November 30, 2007
    
    
    991
    
    
    $
    5.71
    
    
    
    990
    
    
    $
    51,290December 1, 2007 to December 31, 2007
    
    
    3,960
    
    
    $
    5.33
    
    
    
    3,960
    
    
    $
    30,200
 
 (1)
    
    On May 25, 2006, we announced that our board of directors approved a plan authorizing
the repurchase of up to $100.0 million of Grey Wolf common stock in open market or in
privately negotiated block-trade transactions. On September 25, 2007, we announced that
our board of directors authorized a $50.0 million increase in our common stock repurchase
program for a total of $150.0 million. The number of shares to be purchased and the
timing of purchases will be based on several factors, including the price of the common
stock, general market conditions, available cash and alternate investment opportunities.
Our stock repurchase program is subject to termination prior to completion.(2)
    
    Through February 18, 2008, we repurchased an additional 399,000 shares at an average
price of $5.34, exclusive of commissions. Accordingly, at February 18, 2008 the
approximate dollar value of shares that may yet be repurchased under our plan was $28.1
million.(3)
    
    Our employees elected to have shares of stock withheld to cover payroll taxes when
shares of restricted stock vest. We then pay the taxes on their behalf and hold the
shares withheld as treasury stock. We had approximately 1,000 of such treasury share
purchases during the three months ended December 31, 2007. These share repurchases are
not covered under a publicly announced program. Stock Performance Graph
  
 -19-




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Comparison of Six Year Cumulative Total Return Among Grey Wolf, Inc., The Amex Composite and a
Peer Group
 Years Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Grey Wolf, Inc.
    
    
    $
    100.00
    
    
    
    $
    93.73
    
    
    
    $
    132.08
    
    
    
    $
    193.73
    
    
    
    $
    171.93
    
    
    
    $
    133.58Amex Composite
    
    
    
    100.00
    
    
    
    
    143.18
    
    
    
    
    175.20
    
    
    
    
    215.26
    
    
    
    
    257.04
    
    
    
    
    299.37Peer Group (1)
    
    
    
    100.00
    
    
    
    
    112.50
    
    
    
    
    140.96
    
    
    
    
    234.34
    
    
    
    
    180.07
    
    
    
    
    170.91
 
 (1)
    
    Consists of Nabors Industries, Inc., Parker Drilling Company, Helmerich & Payne,
Precision Drilling and Patterson UTI Energy, Inc. All of the members of the Peer Group
are providers of contract oil and gas land drilling services.  
 Item 6. Selected Financial Data
 Years Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(In thousands, except per share amounts)Revenues
    
    $
    906,577
    
    
    $
    945,527
    
    
    $
    696,979
    
    
    $
    424,634
    
    
    $
    285,974Net income (loss)
    
    
    169,892
    
    
    
    219,951
    
    
    
    120,637
    
    
    
    8,078
    
    
    
    (30,200
    )Net income (loss) per common shareBasic
    
    
    0.93
    
    
    
    1.16
    
    
    
    0.63
    
    
    
    0.04
    
    
    
    (0.17
    )Diluted
    
    
    0.79
    
    
    
    0.98
    
    
    
    0.54
    
    
    
    0.04
    
    
    
    (0.17
    )Total assets
    
    
    1,207,970
    
    
    
    1,086,984
    
    
    
    869,035
    
    
    
    635,876
    
    
    
    532,184Senior and contingent convertible notes &
other long-term debt
    
    
    275,000
    
    
    
    275,000
    
    
    
    275,000
    
    
    
    275,000
    
    
    
    234,898
 -20-




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Item 7.
    
    Managements Discussion And Analysis Of Financial Condition And Results Of Operations
  Overview
   New Rig Purchases
     Rig Activity
  -21-




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Domestic
    
    2006
    
    
    2007
    
    
    2008Land Rig
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Full
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Full
    
    
    1/1 toCount
    
    Q-1
    
    
    Q-2
    
    
    Q-3
    
    
    Q-4
    
    
    Year
    
    
    Q-1
    
    
    Q-2
    
    
    Q-3
    
    
    Q-4
    
    
    Year
    
    
    2/22Baker
Hughes
    
    
    1,417
    
    
    
    1,512
    
    
    
    1,603
    
    
    
    1,609
    
    
    
    1,535
    
    
    
    1,626
    
    
    
    1,653
    
    
    
    1,691
    
    
    
    1,705
    
    
    
    1,669
    
    
    
    1,676GreyWolf
    
    
    109
    
    
    
    108
    
    
    
    107
    
    
    
    110
    
    
    
    108
    
    
    
    110
    
    
    
    104
    
    
    
    104
    
    
    
    103
    
    
    
    105
    
    
    
    100
 Term Contracts
    Drilling Contract Rates
   Turnkey Contract Activity
 Results of
Operations
 -22-




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Stock Repurchase Program
  First Quarter 2008 Outlook
   Critical Accounting Policies
  Property and Equipment.
 Impairment of Long-Lived Assets.
 -23-




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Goodwill and Other Intangible Assets.
  Revenue Recognition.
 Insurance Accruals.
 -24-




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Income Taxes.
   -25-




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Financial Condition and Liquidity
  December 31,2007
    
    
    2006(Dollars in thousands)Amount
    
    
    %
    
    
    Amount
    
    
    %Working capital
    
    $
    338,804
    
    
    
    31
    
    
    $
    304,764
    
    
    
    32Property and equipment, net
    
    
    737,944
    
    
    
    67
    
    
    
    608,136
    
    
    
    65Goodwill
    
    
    10,377
    
    
    
    1
    
    
    
    10,377
    
    
    
    1Other noncurrent assets, net
    
    
    16,153
    
    
    
    1
    
    
    
    16,625
    
    
    
    2Total
    
    $
    1,103,278
    
    
    
    100
    
    
    $
    939,902
    
    
    
    100Long-term debt
    
    $
    275,000
    
    
    
    25
    
    
    $
    275,000
    
    
    
    29Other long-term liabilities
    
    
    168,769
    
    
    
    15
    
    
    
    131,108
    
    
    
    14Shareholders equity
    
    
    659,509
    
    
    
    60
    
    
    
    533,794
    
    
    
    57Total
    
    $
    1,103,278
    
    
    
    100
    
    
    $
    939,902
    
    
    
    100
 Significant Changes in Financial Condition
    3.75% Notes
  -26-




---



##### Table of Contents




    
    during any calendar quarter, if the closing sale price per share of our common stock
for at least 20 trading days in the period of 30 consecutive trading days ending on the
last trading day of the calendar quarter preceding the quarter in which the conversion
occurs, is more than 110% of the conversion price per share ($7.10 per share) on that
30th trading day;
    
    if we have called the 3.75% Notes for redemption;
    
    during any period that the credit ratings assigned to the 3.75% Notes by both
Moodys Investors Service (Moodys) and Standard & Poors Ratings Group (S&P) are
reduced below B1 and B+, respectively, or if neither rating agency is rating the 3.75%
Notes;
    
    during the five trading day period immediately following any nine consecutive
trading day period in which the average trading price per $1,000 principal amount of
the 3.75% Notes for each day of such period was less than 95% of the product of the
closing sale price per share of our common stock on that day multiplied by the number
of shares of common stock issuable upon conversion of $1,000 principal amount of the
3.75% Notes; or
    
    upon the occurrence of specified corporate transactions, including a change of control.
 th
 Floating Rate Notes
   -27-




---



##### Table of Contents




    
    during any calendar quarter, if the closing sale price per share of our common stock
for at least 20 trading days in the period of 30 consecutive trading days ending on the
last trading day of the calendar quarter preceding the quarter in which the conversion
occurs, is more than 120% of the conversion price per share ($7.81 per share) on that
30th trading day;
    
    if we have called the Floating Rate Notes for redemption;
    
    during any period that the credit ratings assigned to the 3.75% Notes by both
Moodys and S&P are reduced below B1 and B+, respectively, or if neither rating agency
is rating our 3.75% Notes;
    
    during the five trading day period immediately following any nine consecutive
trading day period in which the average trading price per $1,000 principal amount of
the Floating Rate Notes for each day of such period was less than 95% of the product of
the closing sale price per share of our common stock on that day multiplied by the
number of shares of common stock issuable upon conversion of $1,000 principal amount of
the Floating Rate Notes; or
    
    upon the occurrence of specified corporate transactions, including a change of control.
  CIT Facility
    
    
    1 to 1 EBITDA coverage of debt service, tested monthly on a trailing 12 month basis;
and
    
    minimum tangible net worth (as defined in the CIT Facility) at the end of each
quarter will be at least the prior year tangible net worth less non-cash write-downs
since the prior year-end and less fixed amounts for each quarter end for which the test
is calculated.
  -28-




---



##### Table of Contents




    
    default with respect to other indebtedness in excess of $350,000;
    
    legal judgments in excess of $350,000; or
    
    a change in control which means that we cease to own 100% of our two principal
subsidiaries, some person or group has either acquired beneficial ownership of 30% or
more of the Company or obtained the power to elect a majority of our board of
directors, or our board of directors ceases to consist of a majority of continuing
directors (as defined by the CIT Facility).
   Cash Flow
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Net cash provided by (used in):Operating activities
    
    $
    295,832
    
    
    $
    288,230
    
    
    $
    221,612Investing activities
    
    
    (225,500
    )
    
    
    (170,514
    )
    
    
    (128,250
    )Financing activities
    
    
    (52,404
    )
    
    
    (61,088
    )
    
    
    8,073Net increase in cash
    
    $
    17,928
    
    
    $
    56,628
    
    
    $
    101,435
   -29-




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##### Table of Contents



Certain Contractual Commitments
  Payments Due by Period (1)Less than
    
    
    1-3
    
    
    4-5
    
    
    After 5Contractual Obligation
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    years3.75% Notes (2)Principal
    
    $
    150,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,000Interest
    
    
    87,188
    
    
    
    5,625
    
    
    
    11,250
    
    
    
    11,250
    
    
    
    59,063Floating Rate Notes (2)Principal
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Interest (3)
    
    
    95,063
    
    
    
    5,850
    
    
    
    11,700
    
    
    
    11,700
    
    
    
    65,813New rig purchases
    
    
    34,532
    
    
    
    34,532
    
    
    
    
    
    
    
    
    
    
    
    Rig equipment
    
    
    3,421
    
    
    
    3,421
    
    
    
    
    
    
    
    
    
    
    
    Drill pipe and collars
    
    
    5,521
    
    
    
    5,521
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    2,426
    
    
    
    1,014
    
    
    
    1,356
    
    
    
    56
    
    
    
    Total contractual
cash obligations
    
    $
    503,151
    
    
    $
    55,963
    
    
    $
    24,306
    
    
    $
    23,006
    
    
    $
    399,876
 
 (1)
    
    This assumes no conversion under, or acceleration of maturity dates due to redemption, breach
of, or default under, the terms of the applicable contractual obligation.(2)
    
    See Floating Rate Notes and 3.75% Notes, above, for information relating to covenants,
the breach of which could cause a default under, and acceleration of, the maturity date. Also
see 3.75% Notes and Floating Rate Notes for information related to the holders conversion
rights.(3)
    
    Assumes the 3-month LIBOR effective for the first quarter of 2008 of 4.73% minus a spread of
0.05%. -30-




---



##### Table of Contents



Payments Due by Period (1)Potential
    
    Total
    
    
    Less than
    
    
    1-3
    
    
    4-5
    
    
    Over 5Contractual Obligation
    
    Committed
    
    
    1 year
    
    
    years
    
    
    years
    
    
    YearsStandby letters of credit
    
    $
    30,916
    
    
    $
    
    
    
    $
    30,916
    
    
    $
    
    
    
    $
    Total
    
    $
    30,916
    
    
    $
    
    
    
    $
    30,916
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Assumes no acceleration of maturity date due to breach of, or default under, the potential
contractual obligation.  Projected Cash Sources and Uses
    Results of Operations
   -31-




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##### Table of Contents



Years Ended December 31,2007
    
    
    2006
    
    
    2005Earnings before interest expense, income
taxes, depreciation and amortization
    
    $
    376,668
    
    
    $
    431,975
    
    
    $
    265,775Depreciation and amortization
    
    
    (97,361
    )
    
    
    (74,010
    )
    
    
    (61,279
    )Interest expense
    
    
    (13,910
    )
    
    
    (13,614
    )
    
    
    (11,364
    )Total income tax expense
    
    
    (95,505
    )
    
    
    (124,400
    )
    
    
    (72,495
    )Net income applicable to common
shares
    
    $
    169,892
    
    
    $
    219,951
    
    
    $
    120,637
  Year Ended December 31, 2007Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total(Dollars in thousands, except averages per rig day worked)Rig days worked
    
    
    35,607
    
    
    
    2,871
    
    
    
    38,478Contract drilling revenues
    
    $
    752,045
    
    
    $
    154,532
    
    
    $
    906,577Drilling operations expenses
    
    
    (400,582
    )
    
    
    (113,265
    )
    
    
    (513,847
    )General and administrative expense
    
    
    (27,503
    )
    
    
    (1,936
    )
    
    
    (29,439
    )Interest income
    
    
    12,197
    
    
    
    1,005
    
    
    
    13,202Gain on sale of assets
    
    
    150
    
    
    
    25
    
    
    
    175EBITDA
    
    $
    336,307
    
    
    $
    40,361
    
    
    $
    376,668Averages per rig day worked:Contract drilling revenues
    
    $
    21,121
    
    
    $
    53,825
    
    
    $
    23,561EBITDA
    
    $
    9,445
    
    
    $
    14,058
    
    
    $
    9,789
 Year Ended December 31, 2006Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total(Dollars in thousands, except averages per rig day worked)Rig days worked
    
    
    35,662
    
    
    
    3,899
    
    
    
    39,561Contract drilling revenues
    
    $
    736,773
    
    
    $
    208,754
    
    
    $
    945,527Drilling operations expenses
    
    
    (368,637
    )
    
    
    (148,150
    )
    
    
    (516,787
    )General and administrative expense
    
    
    (22,025
    )
    
    
    (2,280
    )
    
    
    (24,305
    )Interest income
    
    
    10,365
    
    
    
    1,121
    
    
    
    11,486Gain on sale of assets
    
    
    10,633
    
    
    
    1,262
    
    
    
    11,895Gain on insurance proceeds
    
    
    3,675
    
    
    
    484
    
    
    
    4,159EBITDA
    
    $
    370,784
    
    
    $
    61,191
    
    
    $
    431,975Averages per rig day worked:Contract drilling revenues
    
    $
    20,660
    
    
    $
    53,540
    
    
    $
    23,901EBITDA
    
    $
    10,397
    
    
    $
    15,694
    
    
    $
    10,919
 -32-




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##### Table of Contents



Year Ended December 31, 2005Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total(Dollars in thousands, except averages per rig day worked)Rig days worked
    
    
    33,718
    
    
    
    3,511
    
    
    
    37,229Contract drilling revenues
    
    $
    538,250
    
    
    $
    158,729
    
    
    $
    696,979Drilling operations expenses
    
    
    (308,708
    )
    
    
    (109,936
    )
    
    
    (418,644
    )General and administrative expense
    
    
    (14,750
    )
    
    
    (1,498
    )
    
    
    (16,248
    )Interest income
    
    
    3,236
    
    
    
    337
    
    
    
    3,573Gain on sale of assets
    
    
    111
    
    
    
    4
    
    
    
    115EBITDA
    
    $
    218,139
    
    
    $
    47,636
    
    
    $
    265,775Averages per rig day worked:Contract drilling revenues
    
    $
    15,963
    
    
    $
    45,209
    
    
    $
    18,721EBITDA
    
    $
    6,470
    
    
    $
    13,568
    
    
    $
    7,139
 Comparison of Fiscal Years ended December 31, 2007 and 2006
  Daywork Operations
  Turnkey Operations
  Other
  -33-




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##### Table of Contents



Comparison of Fiscal Years ended December 31, 2006 and 2005
  Daywork Operations
  Turnkey Operations
  -34-




---



##### Table of Contents



Other
    Inflation and Changing Prices
  
 Item 7A. Quantitative and Qualitative Disclosure about Market Risk
 Interest Rate Risk.
 -35-




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to
Consolidated Financial Statements
and Financial Statement Schedule
 Managements Report on Internal Control Over Financial Reporting
    
    
    37Report of Independent Registered Public Accounting Firm
    
    
    38Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    40Consolidated Statements of Operations for the Years
Ended December 31, 2007, 2006 and 2005
    
    
    41Consolidated Statements of Shareholders Equity And Comprehensive Income
For the Years Ended December 31, 2007, 2006, and 2005
    
    
    42Consolidated Statements of Cash Flows for the Years
Ended December 31, 2007, 2006, and 2005
    
    
    43Notes to Consolidated Financial Statements
    
    
    44Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    61
  -36-




---



##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
 /s/ Thomas P. Richards
    
    /s/ David W. WehlmannThomas P. Richards
    
    David W. WehlmannChairman, President and Chief Executive Officer
    
    Executive Vice President and Chief Financial
Officer
  -37-




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Accounting for Uncertainty in Income Taxes  an
interpretation of FASB No. 109 Shared-Based
Payment
 Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
 KPMG LLP 
 -38-




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
    Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
  KPMG LLP 
 -39-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    247,701
    
    
    $
    229,773Restricted cash
    
    
    847
    
    
    
    817Accounts receivable, net of allowance of
of $3,169
    
    
    176,466
    
    
    
    206,523Prepaids and other current assets
    
    
    13,337
    
    
    
    7,817Deferred tax assets
    
    
    5,145
    
    
    
    6,916Total current assets
    
    
    443,496
    
    
    
    451,846Property and equipment:Land, buildings and improvements
    
    
    8,534
    
    
    
    7,044Drilling equipment
    
    
    1,331,401
    
    
    
    1,107,457Furniture and fixtures
    
    
    5,397
    
    
    
    4,839Total property and equipment
    
    
    1,345,332
    
    
    
    1,119,340Less: accumulated depreciation
    
    
    (607,388
    )
    
    
    (511,204
    )Net property and equipment
    
    
    737,944
    
    
    
    608,136Goodwill
    
    
    10,377
    
    
    
    10,377Other noncurrent assets, net
    
    
    16,153
    
    
    
    16,625$
    1,207,970
    
    
    $
    1,086,984LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable-trade
    
    $
    52,557
    
    
    $
    85,253Accrued workers compensation
    
    
    7,608
    
    
    
    7,435Payroll and related employee costs
    
    
    15,439
    
    
    
    15,952Accrued interest payable
    
    
    2,553
    
    
    
    2,536Current income taxes payable
    
    
    14,705
    
    
    
    20,641Other accrued liabilities
    
    
    11,830
    
    
    
    15,265Total current liabilities
    
    
    104,692
    
    
    
    147,082Contingent convertible senior notes
    
    
    275,000
    
    
    
    275,000Other long-term liabilities
    
    
    18,126
    
    
    
    9,877Deferred income taxes
    
    
    150,643
    
    
    
    121,231Commitments and contingent liabilities
    
    
    
    
    
    
    Shareholders equity:Series B Junior Participating Preferred stock; $1 par value;
250,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock; $0.10 par value;
shares authorized: 300,000,000; shares issued: 197,045,996
at December 31, 2007 and 195,228,691 at December 31, 2006;
shares outstanding: 178,345,603 at December 31, 2007
and 185,936,440 at December 31, 2006
    
    
    19,704
    
    
    
    19,523Additional paid-in capital
    
    
    393,894
    
    
    
    383,482Treasury stock, at cost: 18,700,393 shares at December 31, 2007
and 9,292,251 shares at December 31, 2006
    
    
    (121,096
    )
    
    
    (65,119
    )Retained earnings
    
    
    367,007
    
    
    
    195,908Total shareholders equity
    
    
    659,509
    
    
    
    533,794$
    1,207,970
    
    
    $
    1,086,984
 See accompanying notes to consolidated financial statements
 -40-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated
Statements of Operations
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Contract drilling
    
    $
    906,577
    
    
    $
    945,527
    
    
    $
    696,979Costs and expenses:Drilling operations
    
    
    513,847
    
    
    
    516,787
    
    
    
    418,644Depreciation and amortization
    
    
    97,361
    
    
    
    74,010
    
    
    
    61,279General and administrative
    
    
    29,439
    
    
    
    24,305
    
    
    
    16,248Gain on sale of assets
    
    
    (175
    )
    
    
    (11,895
    )
    
    
    (115
    )Gain on insurance proceeds
    
    
    
    
    
    
    (4,159
    )
    
    
    Total costs and expenses
    
    
    640,472
    
    
    
    599,048
    
    
    
    496,056Operating income
    
    
    266,105
    
    
    
    346,479
    
    
    
    200,923Other income (expense):Interest expense
    
    
    (13,910
    )
    
    
    (13,614
    )
    
    
    (11,364
    )Interest income
    
    
    13,202
    
    
    
    11,486
    
    
    
    3,573Other expense, net
    
    
    (708
    )
    
    
    (2,128
    )
    
    
    (7,791
    )Income before income taxes
    
    
    265,397
    
    
    
    344,351
    
    
    
    193,132Income tax expense:Current
    
    
    75,427
    
    
    
    123,114
    
    
    
    11,717Deferred
    
    
    20,078
    
    
    
    1,286
    
    
    
    60,778Total income tax expense
    
    
    95,505
    
    
    
    124,400
    
    
    
    72,495Net income
    
    $
    169,892
    
    
    $
    219,951
    
    
    $
    120,637Net income per common share (Note 1):Basic
    
    $
    0.93
    
    
    $
    1.16
    
    
    $
    0.63Diluted
    
    $
    0.79
    
    
    $
    0.98
    
    
    $
    0.54Weighted average common shares outstanding:Basic
    
    
    182,006
    
    
    
    190,088
    
    
    
    191,364Diluted
    
    
    225,649
    
    
    
    233,818
    
    
    
    235,412
 See accompanying notes to consolidated financial statements
 -41-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 Consolidated Statements of Shareholders Equity And Comprehensive Income
 Series BJuniorParticipating
    
    
    Common Stock
    
    
    
    
    
    
    Treasury StockPreferred
    
    
    
    
    
    
    Amount,
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    RetainedStock
    
    
    Number of
    
    
    at $0.10
    
    
    Paid-in
    
    
    Number
    
    
    Amount,
    
    
    Earnings$1 par Value
    
    
    Shares
    
    
    par value
    
    
    Capital
    
    
    of Shares
    
    
    at cost
    
    
    (Deficit)
    
    
    TotalBalance, December 31, 2004
    
    
    
    
    
    
    190,136
    
    
    $
    19,014
    
    
    $
    363,148
    
    
    
    
    
    
    $
    
    
    
    $
    (144,680
    )
    
    $
    237,482Exercise of stock options
    
    
    
    
    
    
    2,292
    
    
    
    229
    
    
    
    7,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,073Tax benefit of stock
option exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,842Issuance of restricted
stock,
net of forfeitures
    
    
    
    
    
    
    198
    
    
    
    20
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198Comprehensive net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,637
    
    
    
    120,637Balance, December 31, 2005
    
    
    
    
    
    
    192,626
    
    
    
    19,263
    
    
    
    374,012
    
    
    
    
    
    
    
    
    
    
    
    (24,043
    )
    
    
    369,232Exercise of stock options
    
    
    
    
    
    
    905
    
    
    
    90
    
    
    
    3,062
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,152Tax effect of share-based
payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,330Issuance of restricted
stock,
net of forfeitures
    
    
    
    
    
    
    1,697
    
    
    
    170
    
    
    
    (170
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,248
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,248Purchase of treasury stock
    
    
    
    
    
    
    (9,292
    )
    
    
    
    
    
    
    
    
    
    
    9,292
    
    
    
    (65,119
    )
    
    
    
    
    
    
    (65,119
    )Comprehensive net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219,951
    
    
    
    219,951Balance, December 31, 2006
    
    
    
    
    
    
    185,936
    
    
    
    19,523
    
    
    
    383,482
    
    
    
    9,292
    
    
    
    (65,119
    )
    
    
    195,908
    
    
    
    533,794Adjustment for the
adoption of
FASB Interpretation No.
(FIN) 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,207
    
    
    
    1,207Exercise of stock options
    
    
    
    
    
    
    802
    
    
    
    80
    
    
    
    2,785
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,865Tax effect of share-based
payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    749Issuance of restricted
stock,
net of forfeitures
    
    
    
    
    
    
    1,016
    
    
    
    101
    
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,979Purchase of treasury stock
    
    
    
    
    
    
    (9,408
    )
    
    
    
    
    
    
    
    
    
    
    9,408
    
    
    
    (55,977
    )
    
    
    
    
    
    
    (55,977
    )Comprehensive net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,892
    
    
    
    169,892Balance, December 31, 2007
    
    
    
    
    
    
    178,346
    
    
    $
    19,704
    
    
    $
    393,894
    
    
    
    18,700
    
    
    $
    (121,096
    )
    
    $
    367,007
    
    
    $
    659,509
 See accompanying notes to consolidated financial statements
 -42-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 Consolidated Statements of Cash Flows
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    169,892
    
    
    $
    219,951
    
    
    $
    120,637Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    97,361
    
    
    
    74,010
    
    
    
    61,279Gain on insurance proceeds
    
    
    
    
    
    
    (4,159
    )
    
    
    Gain on sale of assets
    
    
    (175
    )
    
    
    (11,895
    )
    
    
    (115
    )Provision for doubtful accounts
    
    
    
    
    
    
    495
    
    
    
    250Stock-based compensation expense
    
    
    6,979
    
    
    
    5,248
    
    
    
    198Deferred income taxes
    
    
    20,078
    
    
    
    1,286
    
    
    
    60,778Excess tax benefit of stock option exercises
    
    
    (708
    )
    
    
    (879
    )
    
    
    2,842Increase in restricted cash
    
    
    (30
    )
    
    
    (37
    )
    
    
    (22
    )(Increase) decrease in accounts receivable
    
    
    30,057
    
    
    
    (47,580
    )
    
    
    (61,623
    )(Increase) decrease in other current assets
    
    
    (5,520
    )
    
    
    193
    
    
    
    (2,913
    )Increase (decrease) in trade accounts payable
    
    
    (32,696
    )
    
    
    24,166
    
    
    
    18,333Increase (decrease) in accrued workers compensation
    
    
    3,315
    
    
    
    (1,530
    )
    
    
    6,257Increase (decrease) in other current liabilities
    
    
    (3,931
    )
    
    
    12,407
    
    
    
    8,019Increase in current taxes payable
    
    
    7,125
    
    
    
    15,830
    
    
    
    5,941Increase in other
    
    
    4,085
    
    
    
    724
    
    
    
    1,751Cash provided by operating activities
    
    
    295,832
    
    
    
    288,230
    
    
    
    221,612Cash flows from investing activities:Property and equipment additions
    
    
    (220,191
    )
    
    
    (197,161
    )
    
    
    (131,352
    )Insurance proceeds
    
    
    
    
    
    
    11,076
    
    
    
    Deposits for new rig purchases
    
    
    (9,771
    )
    
    
    (10,979
    )
    
    
    Proceeds from sale of assets
    
    
    4,462
    
    
    
    26,550
    
    
    
    3,102Cash used in investing activities
    
    
    (225,500
    )
    
    
    (170,514
    )
    
    
    (128,250
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    2,865
    
    
    
    3,152
    
    
    
    8,073Excess tax benefit of stock options
    
    
    708
    
    
    
    879
    
    
    
    Purchase of treasury stock
    
    
    (55,977
    )
    
    
    (65,119
    )
    
    
    Cash (used in) provided by financing activities
    
    
    (52,404
    )
    
    
    (61,088
    )
    
    
    8,073Net increase in cash and cash equivalents
    
    
    17,928
    
    
    
    56,628
    
    
    
    101,435Cash and cash equivalents, beginning of year
    
    
    229,773
    
    
    
    173,145
    
    
    
    71,710Cash and cash equivalents, end of year
    
    $
    247,701
    
    
    $
    229,773
    
    
    $
    173,145Supplemental Cash Flow DisclosureCash paid for interest
    
    $
    13,033
    
    
    $
    12,373
    
    
    $
    9,862Cash paid for taxes
    
    $
    66,150
    
    
    $
    107,052
    
    
    $
    2,985
 See accompanying notes to consolidated financial statements
 -43-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Summary of Significant Accounting Policies
 Nature of Operations.
 Property and Equipment.
 Useful Lives (in years)Drilling rigs and related equipment
    
    3-15Furniture and fixtures
    
    7Buildings and improvements
    
    5-20Vehicles
    
    3-6Other
    
    3-5
  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.
 Goodwill and Intangible Assets.
 Revenue Recognition.
 Accounts Receivable.
 -44-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Earnings per Share.
  Years Ended December 31,2007
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Numerator:Net income
    
    $
    169,892
    
    
    $
    219,951
    
    
    $
    120,637Add interest expense on ContingentConvertible Senior Notes, net of
related tax effects
    
    
    8,325
    
    
    
    8,117
    
    
    
    6,596Adjusted net income  diluted
    
    $
    178,217
    
    
    $
    228,068
    
    
    $
    127,233Denominator:Weighted average common shares
outstanding  basic
    
    
    182,006
    
    
    
    190,088
    
    
    
    191,364Effect of dilutive securities:Options  treasury stock method
    
    
    600
    
    
    
    887
    
    
    
    1,552Restricted stock  treasury stock method
    
    
    586
    
    
    
    386
    
    
    
    39Contingent Convertible Senior Notes
    
    
    42,457
    
    
    
    42,457
    
    
    
    42,457Weighted average common shares
outstanding  diluted
    
    
    225,649
    
    
    
    233,818
    
    
    
    235,412Earnings per common share:Basic
    
    $
    0.93
    
    
    $
    1.16
    
    
    $
    0.63Diluted
    
    $
    0.79
    
    
    $
    0.98
    
    
    $
    0.54
 -45-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years Ended December 31,2007
    
    2006
    
    2005Basic earnings per share:Unvested restricted stock
    
    
    2,504
    
    
    
    1,896
    
    
    
    198Diluted earnings per share:Anti-dilutive stock options
    
    
    1,411
    
    
    
    758
    
    
    
    Anti-dilutive restricted stock
    
    
    62
    
    
    
    
    
    
    
    135Total anti-dilutive securities excluded from
diluted earnings per share
    
    
    1,473
    
    
    
    758
    
    
    
    135
 Income Taxes.
 Share-Based Payment Arrangements. employees
   -46-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Weighted-AverageWeighted-
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateShares
    
    
    ExercisePrice
    
    
    Life
    
    
    IntrinsicValue(in thousands)
    
    
    
    
    
    
    (in years)
    
    
    (in thousands)Outstanding at January 1, 2007
    
    
    3,619
    
    
    $
    4.23Granted
    
    
    578
    
    
    
    6.67Exercised
    
    
    (802
    )
    
    
    3.57Forfeited
    
    
    (12
    )
    
    
    4.56Outstanding at December 31,
2007
    
    
    3,383
    
    
    $
    4.80
    
    
    
    5.83
    
    
    $
    3,643Exercisable at December 31,
2007
    
    
    1,864
    
    
    $
    4.03
    
    
    
    4.39
    
    
    $
    2,966
    Weighted-AverageGrant-DateShares
    
    
    Fair Value(in thousands)Non-vested at January 1, 2007
    
    
    1,896
    
    
    $
    7.16Granted
    
    
    1,067
    
    
    
    6.67Forfeited
    
    
    (52
    )
    
    
    7.21Vested
    
    
    (407
    )
    
    
    7.15Non-vested at December 31, 2007
    
    
    2,504
    
    
    $
    6.95
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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Net income, as reported
    
    $
    120,637Add: Stock-based compensation expense included
in reported net income, net of related tax effects
    
    
    124Deduct: Total stock-based compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (2,322
    )Pro forma net income
    
    $
    118,439Basic earnings per shareAs reported
    
    $
    0.63Pro forma
    
    $
    0.62Diluted earnings per shareAs reported
    
    $
    0.54Pro forma
    
    $
    0.53
  Fair Value of Financial Instruments.
 Cash Flow Information.
 Restricted Cash.
 Use of Estimates.
 Concentrations of Credit Risk.
 -48-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Comprehensive Income.
 Recent Accounting Pronouncements
    Reclassification.
 (2) Income Taxes
  -49-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Current
Federal
    
    $
    68,670
    
    
    $
    111,885
    
    
    $
    10,260Foreign
    
    
    
    
    
    
    
    
    
    
    107State
    
    
    6,757
    
    
    
    11,229
    
    
    
    1,350$
    75,427
    
    
    $
    123,114
    
    
    $
    11,717DeferredFederal
    
    $
    19,605
    
    
    $
    2,933
    
    
    $
    56,937State
    
    
    473
    
    
    
    (1,647
    )
    
    
    3,841$
    20,078
    
    
    $
    1,286
    
    
    $
    60,778
  Years Ended December 31,2007
    
    
    2006
    
    
    2005United States
    
    $
    268,185
    
    
    $
    344,351
    
    
    $
    193,132Mexico
    
    
    (2,788
    )
    
    
    
    
    
    
    $
    265,397
    
    
    $
    344,351
    
    
    $
    193,132
  December 31,2007
    
    
    2006Deferred tax assetsWorkers compensation accruals
    
    $
    7,244
    
    
    $
    6,072Long-term incentive plans
    
    
    3,240
    
    
    
    4,062Net operating losses
    
    
    781
    
    
    
    Other
    
    
    2,760
    
    
    
    3,11614,025
    
    
    
    13,250Less: valuation allowance
    
    
    (781
    )
    
    
    13,244
    
    
    
    13,250Deferred tax liabilitiesDepreciation
    
    
    143,162
    
    
    
    127,565Interest deductions on
Contingent Convertible Debt
    
    
    15,580
    
    
    
    158,742
    
    
    
    127,565Net deferred tax liability
    
    $
    145,498
    
    
    $
    114,315
  -50-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Years Ended December 31,2007
    
    
    2006
    
    
    2005Income tax expense at statutory rate
    
    $
    92,889
    
    
    $
    120,523
    
    
    $
    67,596Increase (decrease) in taxes resulting from:Permanent differencesSection 199 Manufacturing Deduction
    
    
    (4,537
    )
    
    
    (3,418
    )
    
    
    Basis differences in assets that were
purchased in capital stock acquisitions
    
    
    972
    
    
    
    972
    
    
    
    972State taxes, net
    
    
    4,529
    
    
    
    5,950
    
    
    
    3,131Valuation allowance on foreign tax assets
    
    
    781
    
    
    
    
    
    
    
    Other
    
    
    871
    
    
    
    373
    
    
    
    796Income tax expense
    
    $
    95,505
    
    
    $
    124,400
    
    
    $
    72,495
   -51-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Tax benefits unrecognized at January 1, 2007
    
    $
    1,446Increases from:Tax positions taken during a prior period
    
    
    Tax positions taken during the current period
    
    
    733Decreases from:Tax positions taken during a prior period
    
    
    (38
    )Settlements with taxing authorities
    
    
    Lapse of applicable statute of limitations
    
    
    Tax benefits unrecognized at December 31, 2007
    
    $
    2,141
 (3) Long-Term Debt
  December 31,2007
    
    
    2006Contingent Convertible Senior Notes due May 2023
    
    $
    150,000
    
    
    $
    150,000Floating Rate Contingent Convertible Senior Notes due April 2024
    
    
    125,000
    
    
    
    125,000$
    275,000
    
    
    $
    275,000Less current maturities
    
    
    
    
    
    
    Long-term debt
    
    $
    275,000
    
    
    $
    275,000
 3.75% Notes
   RedemptionPeriod
    
    PriceMay 14, 2008 through May 6, 2009
    
    
    101.88
    %May 7, 2009 through May 6, 2010
    
    
    101.50
    %May 7, 2010 through May 6, 2011
    
    
    101.13
    %
 -52-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 May 7, 2011 through May 6, 2012
    
    
    100.75
    %May 7, 2012 through May 6, 2013
    
    
    100.38
    %May 7, 2013 and thereafter
    
    
    100.00
    %
   
    
    during any calendar quarter, if the closing sale price per share of the Companys
common stock for at least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the calendar quarter preceding the quarter in which
the conversion occurs, is more than 110% of the conversion price per share ($7.10 per
share) on that 30th trading day;
    
    if the Company has called the 3.75% Notes for redemption;
    
    during any period that the credit ratings assigned to the 3.75% Notes by both
Moodys Investors Service (Moodys) and Standard & Poors Ratings Group (S&P) are
reduced below B1 and B+, respectively, or if neither rating agency is rating the 3.75%
Notes;
    
    during the five trading day period immediately following any nine consecutive
trading day period in which the average trading price per $1,000 principal amount of
the 3.75% Notes for each day of such period was less than 95% of the product of the
closing sale price per share of the Companys common stock on that day multiplied by
the number of shares of common stock issuable upon conversion of $1,000 principal
amount of the 3.75% Notes; or
    
    upon the occurrence of specified corporate transactions, including a change of
control.
 th
 Floating Rate Notes
  -53-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    during any calendar quarter, if the closing sale price per share of the Companys
common stock for at least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the calendar quarter preceding the quarter in which
the conversion occurs, is more than 120% of the conversion price per share ($7.81 per
share) on that 30th trading day;
    
    if the Company has called the Floating Rate Notes for redemption;
    
    during any period that the credit ratings assigned to the Companys 3.75% Notes by
both Moodys S&P are reduced below B1 and B+, respectively, or if neither rating agency
is rating the Companys 3.75% Notes;
    
    during the five trading day period immediately following any nine consecutive
trading day period in which the average trading price per $1,000 principal amount of
the Floating Rate Notes for each day of such period was less than 95% of the product of
the closing sale price per share of the Companys common stock on that day multiplied
by the number of shares of common stock issuable upon conversion of $1,000 principal
amount of the Floating Rate Notes; or
    
    upon the occurrence of specified corporate transactions, including a change of
control.
  CIT Facility
   -54-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
    
    1 to 1 EBITDA coverage of debt service, tested monthly on a trailing 12 month basis;
and
    
    minimum tangible net worth (as defined in the CIT Facility) at the end of each
quarter will be at least the prior year tangible net worth less non-cash write-downs
since the prior year-end and less fixed amounts for each quarter end for which the test
is calculated.
  
    
    default with respect to other indebtedness in excess of $350,000;
    
    legal judgments in excess of $350,000; or
    
    a change in control which means that the Company ceases to own 100% of its two
principal subsidiaries, some person or group that has either acquired beneficial
ownership of 30% or more of the Company or obtained the power to elect a majority of
the Companys board of directors, or the Companys board of directors ceases to consist
of a majority of continuing directors (as defined by the CIT Facility).
   (4) Capital Stock and Stock Option Plans
  -55-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
    
    incentive stock options;
    
    non-statutory stock options;
    
    restricted shares; and
    
    other stock-based and cash awards.
    (5) Related-Party Transactions
  -56-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (6) Commitments and Contingencies
 Operating Leases
  Year
    
    Amount2008
    
    $
    1,014,0002009
    
    
    701,0002010
    
    
    655,0002011
    
    
    56,0002012
    
    
    $
    2,426,000
  New Rig Purchases
  Contingencies
  (7) Employee Benefit Plan
  (8) Segment Information
    -57-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years ended December 31,2007
    
    
    2006
    
    
    2005RevenueUnited States
    
    $
    897,484
    
    
    $
    945,527
    
    
    $
    696,979Mexico
    
    
    9,093
    
    
    
    
    
    
    
    Total revenue
    
    $
    906,577
    
    
    $
    945,527
    
    
    $
    696,979Operating IncomeUnited States
    
    $
    265,651
    
    
    $
    346,479
    
    
    $
    200,923Mexico
    
    
    454
    
    
    
    
    
    
    
    Total operating income
    
    $
    266,105
    
    
    $
    346,479
    
    
    $
    200,923Capital expendituresUnited States(1)
    
    $
    229,555
    
    
    $
    208,140
    
    
    $
    131,352Mexico
    
    
    407
    
    
    
    
    
    
    
    Total capital expenditures
    
    $
    229,962
    
    
    $
    208,140
    
    
    $
    131,352AssetsUnited States
    
    $
    1,189,620
    
    
    $
    1,086,984
    
    
    $
    869,035Mexico
    
    
    18,350
    
    
    
    
    
    
    
    Total assets
    
    $
    1,207,970
    
    
    $
    1,086,984
    
    
    $
    869,035
 
 (1)
    
    Capital expenditures for the United States segment include deposits for new rig purchases.
For the years ended December 31, 2007 and 2006, deposits for new rig purchases were $9.8
million and $11.0 million, respectively. Concentrations
  (9) Insurance Recoveries
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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (10) Asset Sales
  (11) Treasury Stock
   (12) Quarterly Financial Data (unaudited)
  Quarter EndedMarch
    
    June
    
    September
    
    December2007
    
    2007
    
    2007
    
    2007Contract drilling revenues
    
    $
    242,013
    
    
    $
    227,520
    
    
    $
    223,999
    
    
    $
    213,045Operating income
    
    
    92,300
    
    
    
    65,733
    
    
    
    55,982
    
    
    
    52,090Income before income taxes
    
    
    91,967
    
    
    
    65,888
    
    
    
    55,795
    
    
    
    51,747Net income
    
    
    58,578
    
    
    
    41,708
    
    
    
    35,588
    
    
    
    34,018Net income per common share basic
    
    $
    0.32
    
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    0.19 diluted
    
    $
    0.27
    
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.16
 -59-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Quarter EndedMarch
    
    
    June
    
    
    September
    
    
    December2006
    
    
    2006
    
    
    2006
    
    
    2006Contract drilling revenues
    
    $
    222,879
    
    
    $
    239,590
    
    
    $
    242,728
    
    
    $
    240,330Operating income
    
    
    87,069
    
    
    
    90,425
    
    
    
    87,041
    
    
    
    81,944Income before income taxes
    
    
    85,916
    
    
    
    90,123
    
    
    
    86,726
    
    
    
    81,586Net income
    
    
    54,249
    
    
    
    57,915
    
    
    
    55,262
    
    
    
    52,525Net income per common share basic
    
    $
    0.28
    
    
    $
    0.30
    
    
    $
    0.29
    
    
    $
    0.28 diluted
    
    $
    0.24
    
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.24
 Quarter EndedMarch
    
    
    June
    
    
    September
    
    
    December2005
    
    
    2005
    
    
    2005
    
    
    2005Contract drilling revenues
    
    $
    149,992
    
    
    $
    161,315
    
    
    $
    181,523
    
    
    $
    204,149Operating income
    
    
    38,851
    
    
    
    46,150
    
    
    
    52,541
    
    
    
    63,381Income before income taxes
    
    
    36,684
    
    
    
    44,053
    
    
    
    50,661
    
    
    
    61,734Net income
    
    
    23,044
    
    
    
    27,633
    
    
    
    31,779
    
    
    
    38,181Net income per common share basic
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    0.20 diluted
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.17
 -60-




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##### Table of Contents



Schedule II
 GREY WOLF, INC. AND SUBSIDIARIES
 Valuation and Qualifying Accounts  (In thousands)
 Additions
    
    
    DeductionsBalance at
    
    
    Charged to
    
    
    From
    
    
    Balance atBeginning
    
    
    Bad Debt
    
    
    Bad Debt
    
    
    Endof Period
    
    
    Allowance
    
    
    Allowance
    
    
    of PeriodYear Ended December 31, 2005Allowance for doubtful accounts receivable
    
    $
    2,424
    
    
    $
    250
    
    
    $
    
    
    
    $
    2,674Year ended December 31, 2006Allowance for doubtful accounts receivable
    
    $
    2,674
    
    
    $
    495
    
    
    $
    
    
    
    $
    3,169Year ended December 31, 2007Allowance for doubtful accounts receivable
    
    $
    3,169
    
    
    $
    
    
    
    $
    
    
    
    $
    3,169
 -61-




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##### Table of Contents



Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
  Changes in Internal Controls
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  -62-




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Equity Compensation Plan InformationNumber of securities remainingWeighted average
    
    
    available for future issuanceNumber of securities to
    
    
    exercise
    
    
    under equity compensationbe issued upon exercise
    
    
    price of outstanding
    
    
    plansof outstanding options,
    
    
    options, warrants and
    
    
    (excluding securities reflectedwarrants and rights
    
    
    rights
    
    
    in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    2,682,252
    
    
    $
    5.231
    
    
    
    7,213,823Equity compensation
plans not approved
by security
holders(1)
    
    
    700,500
    
    
    
    3.154
    
    
    
    Total
    
    
    3,382,752
    
    
    $
    4.801
    
    
    
    7,213,823
 
 (1)
    
    Reflects options granted to non-employee Board members. These options have an exercise price
equal to the fair market value of the Common Stock on the date of grant, expire 10 years from the
date of grant.  
 Item 13. Certain Relationships and Related Transactions, and Director independence
  
 Item 14. Principal Accountant Fees and Services
  -63-




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  1. and 2. Financial Statements and Schedule
  3. Exhibits
 ExhibitNo.
    
    
    
    Documents2.1
    
    
    
    Agreement and Plan of Merger between Grey Wolf, Inc. and New
Patriot Drilling Corp. dated March 5, 2004 (incorporated by
reference to Exhibit 99 to Grey Wolfs Form 8-K dated March 8,
2004.3.1
    
    
    
    Articles of Incorporation of Grey Wolf, Inc., as amended
(incorporated herein by reference to Exhibit 3.1 to Form 10-Q dated
May 12, 1999).3.2
    
    
    
    By-Laws of Grey Wolf, Inc., as amended (incorporated herein by
reference to Exhibit 99.1 to Form 8-K dated March 23, 1999).4.1
    
    
    
    Rights Agreement dated as of September 21, 1998 by and between the
Company and American Stock Transfer and Trust Company as Rights
Agent (incorporated herein by reference to Exhibit 4.1 to Form 8-K
filed September 22, 1998).4.2
    
    
    
    Indenture, dated as of May 7, 2003, relating to the 3.75%
Contingent Convertible Senior Notes due 2023 between the Company,
the Guarantors, and JPMorgan Chase Bank, a New York Banking
Corporation, as Trustee (incorporated herein by reference to
Exhibit 4.2 to the Companys Registration Statement on Form S-3 No.
333-106997 filed July 14, 2003).4.3
    
    
    
    Supplemental Indenture, dated as of May 22, 2003, relating to the
3.75% Contingent Convertible Senior Notes due 2023 between the
Company, the Guarantors, and JPMorgan Chase Bank, a New York
Banking Corporation, as Trustee (incorporated herein by reference
to Exhibit 4.3 to the Companys Registration Statement on Form S-3
No. 333-106997 filed July 14, 2003).4.4
    
    
    
    Indenture, dated as of March 31, 2004, relating to the Floating
Rate Contingent Convertible Senior Notes Due 2024 between the
Company, the Guarantors, and J.P. Morgan Chase Bank, a New York
banking corporation, as Trustee (incorporated by reference to
Exhibit 4.1 to Form 10-Q dated May 5, 2004).4.5
    
    
    
    Registration Rights Agreement as of March 31, 2004 by and between
Grey Wolf, Inc., the Guarantors, and the Initial Purchasers of the
Floating Rate Contingent Convertible Senior Notes due 2024
(incorporated by reference to Exhibit 4.2 to the Quarterly Report
on Form 10-Q filed May 5, 2004).4.6
    
    
    
    Second Supplemental Indenture, dated as of March 31, 2004, relating
to the 3.75% Contingent Convertible Senior Notes due 2023 between
the Company, the Guarantors, and JP Morgan Chase Bank, a New York
Banking Corporation, as Trustee (incorporated by reference to
Exhibit 4.3 to the Quarterly Report on Form 10-Q filed May 5,
2004).+10.1
    
    
    
    DI Industries, Inc. 1996 Employee Stock Option Plan (incorporated
herein by reference to Grey Wolf, Inc. 1996 Annual Meeting of
Shareholders definitive proxy materials filed August 2, 1996).
 -64-




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##### Table of Contents



ExhibitNo.
    
    
    
    Documents+10.2
    
    
    
    Grey Wolf Inc. Amendment to 1996 Employee Stock Option Plan
(incorporated herein by reference to Exhibit 4.3 to Grey Wolf,
Inc.s Registration Statement on Form S-8 No. 333-41334 filed July
13, 2000).+10.3
    
    
    
    Grey Wolf, Inc. Second Amendment to 1996 Employee Stock Option Plan
dated May 14, 2002 (incorporated herein by reference to Exhibit 4.6
to Grey Wolf, Inc. Registration Statement on Form S-8 No. 333-90888
filed June 21, 2002).+10.4
    
    
    
    Form of Amendment to Non-Qualified Stock Option Agreements dated
November 13, 2001, by and between the Company and Thomas P.
Richards (incorporated herein by reference to Exhibit 10.13 to the
Grey Wolf, Inc. Annual Report on Form 10-K for the year ended
December 31, 2001, filed March 15, 2002).+10.5
    
    
    
    Form of Amendment to Non-Qualified Stock Option Agreements dated
November 13, 2001, by and between the Company and each of David W.
Wehlmann, Edward S. Jacob III, Kent D. Cauley, and Donald J.
Guedry, Jr. (incorporated herein by reference Exhibit 10.15 to the
to Grey Wolf, Inc. Annual Report on Form 10-K for the year ended
December 31, 2001, filed March 15, 2002).+10.6
    
    
    
    Grey Wolf, Inc. Executive Severance Plan effective November 15,
2001 (incorporated herein by reference to Exhibit 10.16 to the Grey
Wolf, Inc. Annual Report on Form 10-K for the year ended December
31, 2001, filed March 15, 2002).+10.7
    
    
    
    Amended and Restated Employment Agreement dated November 13, 2001,
by and between the Company and Thomas P. Richards (incorporated
herein by reference to Exhibit 10.17 to the Grey Wolf, Inc. Annual
Report on Form 10-K for the year ended December 31, 2001, filed
March 15, 2002).+10.8
    
    
    
    Amended and Restated Employment Agreement dated November 13, 2001,
by and between the Company and David W. Wehlmann (incorporated
herein by reference to Exhibit 10.18 to the Grey Wolf, Inc. Annual
Report on Form 10-K for the year ended December 31, 2001, filed
March 15, 2002).+10.9
    
    
    
    Amended and Restated Employment Agreement dated November 13, 2001,
by and between the Company and Edward S. Jacob III (incorporated
herein by reference to Exhibit 10.19 of the Grey Wolf, Inc. Annual
Report on Form 10-K for the year ended December 31, 2001, filed
March 15, 2002).+10.10
    
    
    
    Employment Agreement effective December 28, 2005 by and between
Robert J. Proffit (incorporated by reference to Exhibit 10.1 of the
Grey Wolf, Inc. Current Report on Form 8-K filed December 28,
2005).+10.11
    
    
    
    Employment Agreement effective July 30, 2007 by and between David
J. Crowley (incorporated by reference to Exhibit 10.1 of the Grey
Wolf, Inc. Current Report on Form 8-K filed July 30, 2007).+10.12
    
    
    
    Form of Non-Qualified Stock Option Agreement dated as of February
13, 2002, by and between the Company and each of Frank M. Brown,
William T. Donovan, James K.B. Nelson, Robert E. Rose, Steven A.
Webster, and William R. Ziegler (incorporated herein by reference
to Exhibit 10.22 of the Grey Wolf, Inc. Annual Report on Form 10-K
for the year ended December 31, 2001, filed March 15, 2002).+10.13
    
    
    
    Grey Wolf, Inc. 2003 Incentive Plan (incorporated herein by
reference to Appendix A to the Grey Wolf, Inc. 2003 Annual Meeting
of Shareholders definitive proxy materials filed March 28, 2003).+10.14
    
    
    
    Form of Non-Qualified Stock Option Agreement under the Grey Wolf,
Inc. 2003 Incentive Plan (incorporated by reference to Exhibit 10.1
to the Grey Wolf, Inc. Current Report on Form 8-K filed February
22, 2005).+10.15
    
    
    
    Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.2 to the Grey Wolf, Inc. current Report on Form 8-K
filed February 22, 2005).
 -65-




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##### Table of Contents



ExhibitNo.
    
    
    
    Documents+10.16
    
    
    
    Form of Stock Option Agreement under the 2003 Incentive Plan for
Thomas P. Richards (incorporated by reference to Exhibit 10.1 to
Grey Wolf, Inc. Current Report on Form 8-K filed February 21,
2006.)+10.17
    
    
    
    Form of Restricted Stock Agreement under the 2003 Incentive Plan
for Thomas P. Richards (incorporated by reference to Exhibit 10.2
to Grey Wolf, Inc. Current Report on Form 8-K filed February 21,
2006.)+10.18
    
    
    
    Form of Stock Option Agreement under the 2003 Incentive Plan for
the other executive officers (incorporated by reference to Exhibit
10.3 to Grey Wolf, Inc. Current Report on Form 8-K filed February
21, 2006.)+10.19
    
    
    
    Form of Restricted Stock Agreement under the 2003 Incentive Plan
for other executive officers (incorporated by reference to Exhibit
10.4 to Grey Wolf, Inc. Current Report on Form 8-K filed February
21, 2006).+10.20
    
    
    
    Form of Restricted Stock Agreement for Thomas P. Richards under the
Retention Plan (incorporated by reference to Exhibit 10.5 to Grey
Wolf, Inc. Current Report on Form 8-K filed February 21, 2006).+10.21
    
    
    
    Form of Restricted Stock Agreement for other executive officers
under the Retention Plan (incorporated by reference to Exhibit 10.6
to Grey Wolf, Inc. Current Report on Form 8-K filed February 21,
2006).+10.22
    
    
    
    Form of Restricted Stock Agreement for non-employee directors
(incorporated by reference to Exhibit 10.7 to Grey Wolf, Inc.
Current Report on Form 8-K filed February 21, 2006).+10.23
    
    
    
    Anticipated compensation of officers and directors for 2007
(incorporated by reference to Grey Wolf, Inc. Current Report on
Form 8-K filed February 16, 2007).10.24
    
    
    
    Revolving Credit Agreement dated as of January 14, 1999 among Grey
Wolf Drilling Company LP (as borrower), Grey Wolf, Inc. (as
guarantor), The CIT Group/Business Credit, Inc. (as agent) and
various financial institutions (as lenders) (incorporated herein by
reference to Exhibit 10.1 to Grey Wolf, Inc. current report on Form
8-K dated January 26, 1999).10.25
    
    
    
    First Amendment to Loan Agreement dated as of December 20, 2001, by
and among Grey Wolf Drilling Company, LP (as borrower) and Grey
Wolf, Inc. (as guarantor) and the CIT Group/Business Credit, Inc.
(as agent) and various financial institutions (as lenders)
(incorporated herein by reference to Exhibit 10.11 to Grey Wolf,
Inc. Annual Report on Form 10-K for the year ended December 31,
2001, filed March 14, 2002).10.26
    
    
    
    Second Amendment to Loan Agreement dated as of February 7, 2003 by
and among Grey Wolf Drilling Company L.P. (as borrower), Grey Wolf,
Inc. and various subsidiaries (as guarantors) and the CIT
Group/Business Credit, Inc. and various financial institutions (as
lenders) (incorporated herein by reference to Exhibit 10.24 to the
Grey Wolf, Inc. Annual Report on Form 10-K for the year ended
December 31, 2002, filed March 16, 2003).10.27
    
    
    
    Third Amendment to Loan Agreement as of May 1, 2003, by and among
Grey Wolf Drilling Company, L.P. (as borrower), Grey Wolf, Inc. and
various subsidiaries (as guarantors) and the CIT Group/Business
Credit, Inc. and various financial institutions (as lenders)
(incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q filed May 5, 2004).10.28
    
    
    
    Fourth Amendment to Loan Agreement as of March 31, 2004, by and
among Grey Wolf Drilling Company L.P. (as borrower), Grey Wolf,
Inc. and various subsidiaries (as guarantors) and the CIT
Group/Business Credit, Inc. and various financial institutions (as
lenders) (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q filed May 5, 2004).
 -66-




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##### Table of Contents



ExhibitNo.
    
    
    
    Documents10.29
    
    
    
    Fifth Amendment to the Loan Agreement dated December 31, 2004 by
and among Grey Wolf Drilling Company, L.P. (as borrower,) Grey
Wolf, Inc and various subsidiaries (as guarantor) and the CIT
Business Credit, Inc. (as agent) and various financial institutions
(as lenders) (incorporated by reference to Exhibit 10.6 of the Grey
Wolf, Inc. Current Report on Form 8-K filed January 5, 2005).10.30
    
    
    
    Sixth Amendment to the Loan Agreement dated September 13, 2005 by
and between Grey Wolf Drilling Company, L.P. (as borrower,) Grey
Wolf Inc. and various subsidiaries (as guarantor) and the CIT
Business Credit, inc. (as agent) and various financial institutions
(as lenders) (incorporated by reference to Exhibit 10.7 of the Grey
Wolf, Inc. Current Report on Form 8-K filed September 14, 2005).*21.1
    
    
    
    List of Subsidiaries of Grey Wolf, Inc.*23.1
    
    
    
    Consent of Independent Registered Public Accounting Firm, KPMG LLP*31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a).**32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Thomas
P. Richards, Chairman, President and Chief Executive Officer and
David W. Wehlmann, Executive Vice President and Chief Financial
Officer.
 
 +
    
    Management contract, compensation plan or arrangement*
    
    Filed herewith**
    
    Furnished, not filed, pursuant to Item 101(b) (32) of Regulation S-K. -67-




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##### Table of Contents



SIGNATURES
 th
 Grey Wolf, Inc.By:
    
    /s/ David W. WehlmannDavid W. Wehlmann, Executive Vice President andChief Financial Officer
  Signatures and Capacities
    
    DateBy:
    
    /s/ Thomas P. Richards

Thomas P. Richards, Chairman, President and Chief Executive Officer
    
    February 28, 2008(Principal Executive Officer)By:
    
    /s/ David W. Wehlmann

David W. Wehlmann, Executive Vice President and Chief Financial Officer
    
    February 28, 2008By:
    
    /s/ Kent D. Cauley

Kent D. Cauley, Vice President and Controller
    
    February 28, 2008By:
    
    /s/ William R. Ziegler

William R. Ziegler, Director
    
    February 28, 2008By:
    
    /s/ Frank M. Brown

Frank M. Brown, Director
    
    February 28, 2008By:
    
    /s/ William T. Donovan

William T. Donovan, Director
    
    February 28, 2008By:
    
    /s/ Robert E. Rose

Robert E. Rose, Director
    
    February 28, 2008By:
    
    /s/ Trevor M. Turbidy

Trevor M. Turbidy, Director
    
    February 28, 2008By:
    
    /s/ Steven A. Webster

Steven A. Webster, Director
    
    February 28, 2008
 -68-




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##### Table of Contents



ExhibitNo.
    
    
    
    Documents2.1
    
    
    
    Agreement and Plan of Merger between Grey Wolf, Inc. and New
Patriot Drilling Corp. dated March 5, 2004 (incorporated by
reference to Exhibit 99 to Grey Wolfs Form 8-K dated March 8,
2004.3.1
    
    
    
    Articles of Incorporation of Grey Wolf, Inc., as amended
(incorporated herein by reference to Exhibit 3.1 to Form 10-Q dated
May 12, 1999).3.2
    
    
    
    By-Laws of Grey Wolf, Inc., as amended (incorporated herein by
reference to Exhibit 99.1 to Form 8-K dated March 23, 1999).4.1
    
    
    
    Rights Agreement dated as of September 21, 1998 by and between the
Company and American Stock Transfer and Trust Company as Rights
Agent (incorporated herein by reference to Exhibit 4.1 to Form 8-K
filed September 22, 1998).4.2
    
    
    
    Indenture, dated as of May 7, 2003, relating to the 3.75%
Contingent Convertible Senior Notes due 2023 between the Company,
the Guarantors, and JPMorgan Chase Bank, a New York Banking
Corporation, as Trustee (incorporated herein by reference to
Exhibit 4.2 to the Companys Registration Statement on Form S-3 No.
333-106997 filed July 14, 2003).4.3
    
    
    
    Supplemental Indenture, dated as of May 22, 2003, relating to the
3.75% Contingent Convertible Senior Notes due 2023 between the
Company, the Guarantors, and JPMorgan Chase Bank, a New York
Banking Corporation, as Trustee (incorporated herein by reference
to Exhibit 4.3 to the Companys Registration Statement on Form S-3
No. 333-106997 filed July 14, 2003).4.4
    
    
    
    Indenture, dated as of March 31, 2004, relating to the Floating
Rate Contingent Convertible Senior Notes Due 2024 between the
Company, the Guarantors, and J.P. Morgan Chase Bank, a New York
banking corporation, as Trustee (incorporated by reference to
Exhibit 4.1 to Form 10-Q dated May 5, 2004).4.5
    
    
    
    Registration Rights Agreement as of March 31, 2004 by and between
Grey Wolf, Inc., the Guarantors, and the Initial Purchasers of the
Floating Rate Contingent Convertible Senior Notes due 2024
(incorporated by reference to Exhibit 4.2 to the Quarterly Report
on Form 10-Q filed May 5, 2004).4.6
    
    
    
    Second Supplemental Indenture, dated as of March 31, 2004, relating
to the 3.75% Contingent Convertible Senior Notes due 2023 between
the Company, the Guarantors, and JP Morgan Chase Bank, a New York
Banking Corporation, as Trustee (incorporated by reference to
Exhibit 4.3 to the Quarterly Report on Form 10-Q filed May 5,
2004).+10.1
    
    
    
    DI Industries, Inc. 1996 Employee Stock Option Plan (incorporated
herein by reference to Grey Wolf, Inc. 1996 Annual Meeting of
Shareholders definitive proxy materials filed August 2, 1996).+10.2
    
    
    
    Grey Wolf Inc. Amendment to 1996 Employee Stock Option Plan
(incorporated herein by reference to Exhibit 4.3 to Grey Wolf,
Inc.s Registration Statement on Form S-8 No. 333-41334 filed July
13, 2000).+10.3
    
    
    
    Grey Wolf, Inc. Second Amendment to 1996 Employee Stock Option Plan
dated May 14, 2002 (incorporated herein by reference to Exhibit 4.6
to Grey Wolf, Inc. Registration Statement on Form S-8 No. 333-90888
filed June 21, 2002).




---



##### Table of Contents



ExhibitNo.
    
    
    
    Documents+10.4
    
    
    
    Form of Amendment to Non-Qualified Stock Option Agreements dated
November 13, 2001, by and between the Company and Thomas P.
Richards (incorporated herein by reference to Exhibit 10.13 to the
Grey Wolf, Inc. Annual Report on Form 10-K for the year ended
December 31, 2001, filed March 15, 2002).+10.5
    
    
    
    Form of Amendment to Non-Qualified Stock Option Agreements dated
November 13, 2001, by and between the Company and each of David W.
Wehlmann, Edward S. Jacob III, Kent D. Cauley, and Donald J.
Guedry, Jr. (incorporated herein by reference Exhibit 10.15 to the
to Grey Wolf, Inc. Annual Report on Form 10-K for the year ended
December 31, 2001, filed March 15, 2002).+10.6
    
    
    
    Grey Wolf, Inc. Executive Severance Plan effective November 15,
2001 (incorporated herein by reference to Exhibit 10.16 to the Grey
Wolf, Inc. Annual Report on Form 10-K for the year ended December
31, 2001, filed March 15, 2002).+10.7
    
    
    
    Amended and Restated Employment Agreement dated November 13, 2001,
by and between the Company and Thomas P. Richards (incorporated
herein by reference to Exhibit 10.17 to the Grey Wolf, Inc. Annual
Report on Form 10-K for the year ended December 31, 2001, filed
March 15, 2002).+10.8
    
    
    
    Amended and Restated Employment Agreement dated November 13, 2001,
by and between the Company and David W. Wehlmann (incorporated
herein by reference to Exhibit 10.18 to the Grey Wolf, Inc. Annual
Report on Form 10-K for the year ended December 31, 2001, filed
March 15, 2002).+10.9
    
    
    
    Amended and Restated Employment Agreement dated November 13, 2001,
by and between the Company and Edward S. Jacob III (incorporated
herein by reference to Exhibit 10.19 of the Grey Wolf, Inc. Annual
Report on Form 10-K for the year ended December 31, 2001, filed
March 15, 2002).+10.10
    
    
    
    Employment Agreement effective December 28, 2005 by and between
Robert J. Proffit (incorporated by reference to Exhibit 10.1 of the
Grey Wolf, Inc. Current Report on Form 8-K filed December 28,
2005).+10.11
    
    
    
    Employment Agreement effective July 30, 2007 by and between David
J. Crowley (incorporated by reference to Exhibit 10.1 of the Grey
Wolf, Inc. Current Report on Form 8-K filed July 30, 2007).+10.12
    
    
    
    Form of Non-Qualified Stock Option Agreement dated as of February
13, 2002, by and between the Company and each of Frank M. Brown,
William T. Donovan, James K.B. Nelson, Robert E. Rose, Steven A.
Webster, and William R. Ziegler (incorporated herein by reference
to Exhibit 10.22 of the Grey Wolf, Inc. Annual Report on Form 10-K
for the year ended December 31, 2001, filed March 15, 2002).+10.13
    
    
    
    Grey Wolf, Inc. 2003 Incentive Plan (incorporated herein by
reference to Appendix A to the Grey Wolf, Inc. 2003 Annual Meeting
of Shareholders definitive proxy materials filed March 28, 2003).+10.14
    
    
    
    Form of Non-Qualified Stock Option Agreement under the Grey Wolf,
Inc. 2003 Incentive Plan (incorporated by reference to Exhibit 10.1
to the Grey Wolf, Inc. Current Report on Form 8-K filed February
22, 2005).+10.15
    
    
    
    Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.2 to the Grey Wolf, Inc. current Report on Form 8-K
filed February 22, 2005).+10.16
    
    
    
    Form of Stock Option Agreement under the 2003 Incentive Plan for
Thomas P. Richards (incorporated by reference to Exhibit 10.1 to
Grey Wolf, Inc. Current Report on Form 8-K filed February 21,
2006.)




---



##### Table of Contents



ExhibitNo.
    
    
    
    Documents+10.17
    
    
    
    Form of Restricted Stock Agreement under the 2003 Incentive Plan
for Thomas P. Richards (incorporated by reference to Exhibit 10.2
to Grey Wolf, Inc. Current Report on Form 8-K filed February 21,
2006.)+10.18
    
    
    
    Form of Stock Option Agreement under the 2003 Incentive Plan for
the other executive officers (incorporated by reference to Exhibit
10.3 to Grey Wolf, Inc. Current Report on Form 8-K filed February
21, 2006.)+10.19
    
    
    
    Form of Restricted Stock Agreement under the 2003 Incentive Plan
for other executive officers (incorporated by reference to Exhibit
10.4 to Grey Wolf, Inc. Current Report on Form 8-K filed February
21, 2006).+10.20
    
    
    
    Form of Restricted Stock Agreement for Thomas P. Richards under the
Retention Plan (incorporated by reference to Exhibit 10.5 to Grey
Wolf, Inc. Current Report on Form 8-K filed February 21, 2006).+10.21
    
    
    
    Form of Restricted Stock Agreement for other executive officers
under the Retention Plan (incorporated by reference to Exhibit 10.6
to Grey Wolf, Inc. Current Report on Form 8-K filed February 21,
2006).+10.22
    
    
    
    Form of Restricted Stock Agreement for non-employee directors
(incorporated by reference to Exhibit 10.7 to Grey Wolf, Inc.
Current Report on Form 8-K filed February 21, 2006).+10.23
    
    
    
    Anticipated compensation of officers and directors for 2007
(incorporated by reference to Grey Wolf, Inc. Current Report on
Form 8-K filed February 16, 2007).10.24
    
    
    
    Revolving Credit Agreement dated as of January 14, 1999 among Grey
Wolf Drilling Company LP (as borrower), Grey Wolf, Inc. (as
guarantor), The CIT Group/Business Credit, Inc. (as agent) and
various financial institutions (as lenders) (incorporated herein by
reference to Exhibit 10.1 to Grey Wolf, Inc. current report on Form
8-K dated January 26, 1999).10.25
    
    
    
    First Amendment to Loan Agreement dated as of December 20, 2001, by
and among Grey Wolf Drilling Company, LP (as borrower) and Grey
Wolf, Inc. (as guarantor) and the CIT Group/Business Credit, Inc.
(as agent) and various financial institutions (as lenders)
(incorporated herein by reference to Exhibit 10.11 to Grey Wolf,
Inc. Annual Report on Form 10-K for the year ended December 31,
2001, filed March 14, 2002).10.26
    
    
    
    Second Amendment to Loan Agreement dated as of February 7, 2003 by
and among Grey Wolf Drilling Company L.P. (as borrower), Grey Wolf,
Inc. and various subsidiaries (as guarantors) and the CIT
Group/Business Credit, Inc. and various financial institutions (as
lenders) (incorporated herein by reference to Exhibit 10.24 to the
Grey Wolf, Inc. Annual Report on Form 10-K for the year ended
December 31, 2002, filed March 16, 2003).10.27
    
    
    
    Third Amendment to Loan Agreement as of May 1, 2003, by and among
Grey Wolf Drilling Company, L.P. (as borrower), Grey Wolf, Inc. and
various subsidiaries (as guarantors) and the CIT Group/Business
Credit, Inc. and various financial institutions (as lenders)
(incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q filed May 5, 2004).10.28
    
    
    
    Fourth Amendment to Loan Agreement as of March 31, 2004, by and
among Grey Wolf Drilling Company L.P. (as borrower), Grey Wolf,
Inc. and various subsidiaries (as guarantors) and the CIT
Group/Business Credit, Inc. and various financial institutions (as
lenders) (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q filed May 5, 2004).




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##### Table of Contents



ExhibitNo.
    
    
    
    Documents10.29
    
    
    
    Fifth Amendment to the Loan Agreement dated December 31, 2004 by
and among Grey Wolf Drilling Company, L.P. (as borrower,) Grey
Wolf, Inc and various subsidiaries (as guarantor) and the CIT
Business Credit, Inc. (as agent) and various financial institutions
(as lenders) (incorporated by reference to Exhibit 10.6 of the Grey
Wolf, Inc. Current Report on Form 8-K filed January 5, 2005).10.30
    
    
    
    Sixth Amendment to the Loan Agreement dated September 13, 2005 by
and between Grey Wolf Drilling Company, L.P. (as borrower,) Grey
Wolf Inc. and various subsidiaries (as guarantor) and the CIT
Business Credit, inc. (as agent) and various financial institutions
(as lenders) (incorporated by reference to Exhibit 10.7 of the Grey
Wolf, Inc. Current Report on Form 8-K filed September 14, 2005).*21.1
    
    
    
    List of Subsidiaries of Grey Wolf, Inc.*23.1
    
    
    
    Consent of Independent Registered Public Accounting Firm, KPMG LLP*31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a).**32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Thomas
P. Richards, Chairman, President and Chief Executive Officer and
David W. Wehlmann, Executive Vice President and Chief Financial
Officer.
 
 +
    
    Management contract, compensation plan or arrangement*
    
    Filed herewith**
    
    Furnished, not filed, pursuant to Item 101(b) (32) of Regulation S-K.