##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2008
 or
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from  to
 Commission File Number 1-8226
 
 Grey Wolf, Inc.
  Texas
(State or jurisdiction of 
incorporation or organization)
    
    74-2144774
(I.R.S. Employer
Identification No.)
 10370 Richmond Avenue, Suite 600Houston, Texas
    
    77042(Address of principal executive offices)
    
    (Zip Code)
 (713) 435-6100
 þ o
  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. AND SUBSIDIARIES
Table of Contents
 PagePart I.Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Shareholders Equity
and Comprehensive Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II.Other InformationItem 1. Legal Proceedings
    
    
    32Item 1a. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    35Signatures
    
    
    36Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906
  -2-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    313,061
    
    
    $
    247,701Restricted cash
    
    
    867
    
    
    
    847Accounts receivable, net of allowance of $2,922 at June 30, 2008 and $3,169 at December 31, 2007
    
    
    159,091
    
    
    
    176,466Prepaids and other current assets
    
    
    12,968
    
    
    
    13,337Deferred tax assets
    
    
    6,037
    
    
    
    5,145Total current assets
    
    
    492,024
    
    
    
    443,496Property and equipment:Land, buildings and improvements
    
    
    9,099
    
    
    
    8,534Drilling equipment
    
    
    1,428,372
    
    
    
    1,331,401Furniture and fixtures
    
    
    5,815
    
    
    
    5,397Total property and equipment
    
    
    1,443,286
    
    
    
    1,345,332Less: accumulated depreciation
    
    
    (661,334
    )
    
    
    (607,388
    )Net property and equipment
    
    
    781,952
    
    
    
    737,944Goodwill
    
    
    10,377
    
    
    
    10,377Other noncurrent assets, net
    
    
    20,598
    
    
    
    16,153$
    1,304,951
    
    
    $
    1,207,970LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable-trade
    
    $
    74,595
    
    
    $
    52,557Accrued workers compensation
    
    
    5,580
    
    
    
    7,608Payroll and related employee costs
    
    
    16,311
    
    
    
    15,439Accrued interest payable
    
    
    1,811
    
    
    
    2,553Current income taxes payable
    
    
    11,584
    
    
    
    14,705Other accrued liabilities
    
    
    12,600
    
    
    
    11,830Total current liabilities
    
    
    122,481
    
    
    
    104,692Contingent convertible senior notes
    
    
    275,000
    
    
    
    275,000Other long-term liabilities
    
    
    19,605
    
    
    
    18,126Deferred income taxes
    
    
    162,349
    
    
    
    150,643Commitments 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: 500,000,000; shares issued: 198,193,049
at June 30, 2008 and 197,045,996 at December 31, 2007;
shares outstanding: 178,882,637 at June 30, 2008
and 178,345,603 at December 31, 2007
    
    
    19,819
    
    
    
    19,704Additional paid-in capital
    
    
    399,619
    
    
    
    393,894Treasury stock, at cost: 19,310,412 shares at June 30, 2008
and 18,700,393 shares at December 31, 2007
    
    
    (124,550
    )
    
    
    (121,096
    )Retained earnings
    
    
    430,628
    
    
    
    367,007Total shareholders equity
    
    
    725,516
    
    
    
    659,509$
    1,304,951
    
    
    $
    1,207,970
 See
accompanying notes to consolidated financial statements
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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Contract drilling revenue
    
    $
    216,707
    
    
    $
    227,520
    
    
    $
    418,229
    
    
    $
    469,533Costs and expenses:Drilling operations
    
    
    129,953
    
    
    
    132,307
    
    
    
    243,461
    
    
    
    253,260Depreciation and amortization
    
    
    26,994
    
    
    
    22,397
    
    
    
    54,753
    
    
    
    43,811General and administrative
    
    
    8,221
    
    
    
    7,159
    
    
    
    16,833
    
    
    
    14,558(Gain) loss on sale of assets
    
    
    12
    
    
    
    (76
    )
    
    
    50
    
    
    
    (129
    )Total costs and expenses
    
    
    165,180
    
    
    
    161,787
    
    
    
    315,097
    
    
    
    311,500Operating income
    
    
    51,527
    
    
    
    65,733
    
    
    
    103,132
    
    
    
    158,033Other income (expense):Interest income
    
    
    1,991
    
    
    
    3,593
    
    
    
    4,478
    
    
    
    6,752Interest expense
    
    
    (2,709
    )
    
    
    (3,438
    )
    
    
    (6,046
    )
    
    
    (6,930
    )Other income (expense), net
    
    
    (718
    )
    
    
    155
    
    
    
    (1,568
    )
    
    
    (178
    )Income before income taxes
    
    
    50,809
    
    
    
    65,888
    
    
    
    101,564
    
    
    
    157,855Income tax expense:Current
    
    
    14,001
    
    
    
    17,307
    
    
    
    27,129
    
    
    
    44,287Deferred
    
    
    4,510
    
    
    
    6,873
    
    
    
    10,814
    
    
    
    13,282Total income tax expense
    
    
    18,511
    
    
    
    24,180
    
    
    
    37,943
    
    
    
    57,569Net income
    
    $
    32,298
    
    
    $
    41,708
    
    
    $
    63,621
    
    
    $
    100,286Net income per common share (Note 2):Basic
    
    $
    0.18
    
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    0.55Diluted
    
    $
    0.15
    
    
    $
    0.19
    
    
    $
    0.31
    
    
    $
    0.46Weighted average common shares outstanding:Basic
    
    
    176,001
    
    
    
    183,009
    
    
    
    175,886
    
    
    
    183,016Diluted
    
    
    220,042
    
    
    
    226,734
    
    
    
    219,687
    
    
    
    226,655
 See
accompanying notes to consolidated financial statements
 -4-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Shareholders Equity and Comprehensive Income
 Common Stock
    
    
    Additional
    
    
    Treasury StockNumber of
    
    
    Amount,
    
    
    Paid-in
    
    
    Number of
    
    
    Amount,
    
    
    RetainedShares
    
    
    at $0.10 par value
    
    
    Capital
    
    
    Shares
    
    
    at cost
    
    
    Earnings
    
    
    TotalBalance, 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
    
    
    
    659,509Exercise of stock options
    
    
    144
    
    
    
    15
    
    
    
    737
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    752Tax effect of share-based
payments
    
    
    
    
    
    
    
    
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (168
    )Issuance of restricted stock,
net of forfeitures
    
    
    1,003
    
    
    
    100
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    5,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,256Purchase of treasury stock
    
    
    (610
    )
    
    
    
    
    
    
    
    
    
    
    610
    
    
    
    (3,454
    )
    
    
    
    
    
    
    (3,454
    )Comprehensive net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,621
    
    
    
    63,621Balance, June 30, 2008 (unaudited)
    
    
    178,883
    
    
    $
    19,819
    
    
    $
    399,619
    
    
    
    19,310
    
    
    $
    (124,550
    )
    
    $
    430,628
    
    
    $
    725,516
 See
accompanying notes to consolidated financial statements
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GREY WOLF, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
   Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    63,621
    
    
    $
    100,286Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    54,753
    
    
    
    43,811Deferred income taxes
    
    
    10,814
    
    
    
    13,282(Gain) loss on sale of assets
    
    
    50
    
    
    
    (129
    )Stock-based compensation expense
    
    
    5,256
    
    
    
    3,290Excess tax benefit of stock option exercises
and vested restricted stock
    
    
    (58
    )
    
    
    (696
    )Net effect of changes in assets and liabilities
related to operating accounts
    
    
    37,782
    
    
    
    30,475Cash provided by operating activities
    
    
    172,218
    
    
    
    190,319Cash flows from investing activities:Property and equipment additions
    
    
    (96,077
    )
    
    
    (122,842
    )Deposits for new rig purchases
    
    
    (5,766
    )
    
    
    Merger activity costs
    
    
    (4,362
    )
    
    
    Proceeds from sale of property and equipment
    
    
    1,991
    
    
    
    2,493Cash used in investing activities
    
    
    (104,214
    )
    
    
    (120,349
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    752
    
    
    
    2,794Excess tax benefit of stock option exercises
and vested restricted stock
    
    
    58
    
    
    
    696Purchase of treasury stock
    
    
    (3,454
    )
    
    
    (11,504
    )Cash used in financing activities
    
    
    (2,644
    )
    
    
    (8,014
    )Net increase in cash and cash equivalents
    
    
    65,360
    
    
    
    61,956Cash and cash equivalents, beginning of period
    
    
    247,701
    
    
    
    229,773Cash and cash equivalents, end of period
    
    $
    313,061
    
    
    $
    291,729Supplemental cash flow disclosure:Cash paid for interest
    
    $
    6,358
    
    
    $
    6,505Cash paid for taxes
    
    $
    31,096
    
    
    $
    43,295
 See accompanying notes to consolidated financial statements
 -6-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
  (1) General
   (2) Significant Accounting Policies
 Earnings Per Share
   -7-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share amounts)Numerator:Net income
    
    $
    32,298
    
    
    $
    41,708
    
    
    $
    63,621
    
    
    $
    100,286Add interest expense on contingent
convertible senior notes,
net of related tax effects
    
    
    1,558
    
    
    
    2,059
    
    
    
    3,451
    
    
    
    4,135Adjusted net incomediluted
    
    $
    33,856
    
    
    $
    43,767
    
    
    $
    67,072
    
    
    $
    104,421Denominator:Weighted average common
shares outstandingbasic
    
    
    176,001
    
    
    
    183,009
    
    
    
    175,886
    
    
    
    183,016Effect of dilutive securitiesOptionstreasury stock method
    
    
    716
    
    
    
    740
    
    
    
    596
    
    
    
    715Restricted stocktreasury
stock method
    
    
    868
    
    
    
    528
    
    
    
    748
    
    
    
    467Contingent convertible senior notes
    
    
    42,457
    
    
    
    42,457
    
    
    
    42,457
    
    
    
    42,457Weighted average common shares
outstandingdiluted
    
    
    220,042
    
    
    
    226,734
    
    
    
    219,687
    
    
    
    226,655Earnings per common share:Basic
    
    $
    0.18
    
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    0.55Diluted
    
    $
    0.15
    
    
    $
    0.19
    
    
    $
    0.31
    
    
    $
    0.46
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Basic earnings per share:Unvested restricted stock
    
    
    2,870
    
    
    
    2,166
    
    
    
    2,706
    
    
    
    2,112Diluted earnings per share:Anti-dilutive stock options
    
    
    918
    
    
    
    1,301
    
    
    
    1,400
    
    
    
    1,288Anti-dilutive restricted stock
    
    
    1
    
    
    
    1
    
    
    
    198
    
    
    
    Total anti-dilutive securities excluded from the
computation of diluted earnings per share
    
    
    919
    
    
    
    1,302
    
    
    
    1,598
    
    
    
    1,288
 -8-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
 Share-Based Payment Arrangements
   Recent Accounting Pronouncements
    -9-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
  (3) Accounting for Income Taxes
    -10-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
 (4) Long-Term Debt
  June 30,
    
    
    December 31,2008
    
    
    20073.75% Contingent Convertible
Senior Notes due May 2023
    
    $
    150,000
    
    
    $
    150,000Floating Rate Contingent Convertible
Senior Notes due April 2024
    
    
    125,000
    
    
    
    125,000275,000
    
    
    
    275,000Less current maturities
    
    
    
    
    
    
    Long-term debt
    
    $
    275,000
    
    
    $
    275,000
 3.75% Notes
     -11-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
  Floating Rate Notes
    CIT Facility
  -12-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
    (5) Segment Information
  -13-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenueUnited States
    
    $
    209,862
    
    
    $
    227,520
    
    
    $
    405,463
    
    
    $
    469,533Mexico
    
    
    6,845
    
    
    
    
    
    
    
    12,766
    
    
    
    Total revenue
    
    $
    216,707
    
    
    $
    227,520
    
    
    $
    418,229
    
    
    $
    469,533Operating IncomeUnited States
    
    $
    51,017
    
    
    $
    65,733
    
    
    $
    101,036
    
    
    $
    158,033Mexico
    
    
    510
    
    
    
    
    
    
    
    2,096
    
    
    
    Total operating income
    
    $
    51,527
    
    
    $
    65,733
    
    
    $
    103,132
    
    
    $
    158,033
 (6) Contingencies
  (7) Capital Stock and Option Plans
  
    
    incentive stock options;
    
    non-statutory stock options;
    
    restricted shares; and
    
    other stock-based and cash awards.
  -14-




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GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
    (8) Treasury Stock
   (9) Concentrations
   -15-




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##### Table of Contents



GREY WOLF, INC. AND SUBSIDIARIESNotes to Consolidated
Financial Statements
 (10) Subsequent Event
  -16-




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   Termination of Definitive Merger Agreement and Review of Strategic Alternatives
   New Rig Purchases
  -17-




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##### Table of Contents



Rig Activity
  Domestic
    
    2006
    
    2007
    
    2008Land Rig
    
    Full
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Full
    
    
    
    
    
    
    
    
    
    7/1Count
    
    Year
    
    Q-1
    
    Q-2
    
    Q-3
    
    Q-4
    
    Year
    
    Q-1
    
    Q-2
    
    to 7/25Baker Hughes
    
    
    1,535
    
    
    
    1,626
    
    
    
    1,653
    
    
    
    1,691
    
    
    
    1,705
    
    
    
    1,669
    
    
    
    1,690
    
    
    
    1,775
    
    
    
    1,842Grey Wolf
    
    
    108
    
    
    
    110
    
    
    
    104
    
    
    
    104
    
    
    
    103
    
    
    
    105
    
    
    
    100
    
    
    
    105
    
    
    
    109
 Term Contracts
   -18-




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Drilling Contract Rates
   Turnkey Contract Activity
 Reconciliation of
Non-GAAP Financial Measures
 Stock Repurchase Program
  Financial Outlook
   -19-




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Critical Accounting Policies
  Property and Equipment
  Impairment of Long-Lived Assets
  -20-




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Goodwill
   Revenue Recognition
  Insurance Accruals
  -21-




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Income Taxes
   -22-




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Financial Condition and Liquidity
  June 30, 2008
    
    
    December 31, 2007(Unaudited)(Dollars in thousands)Amount
    
    
    %
    
    
    Amount
    
    
    %Working capital
    
    $
    369,543
    
    
    
    31
    
    
    $
    338,804
    
    
    
    31Property and equipment, net
    
    
    781,952
    
    
    
    66
    
    
    
    737,944
    
    
    
    67Goodwill
    
    
    10,377
    
    
    
    1
    
    
    
    10,377
    
    
    
    1Other noncurrent assets, net
    
    
    20,598
    
    
    
    2
    
    
    
    16,153
    
    
    
    1Total
    
    $
    1,182,470
    
    
    
    100
    
    
    $
    1,103,278
    
    
    
    100Long-term debt
    
    $
    275,000
    
    
    
    23
    
    
    $
    275,000
    
    
    
    25Other long-term liabilities
    
    
    181,954
    
    
    
    15
    
    
    
    168,769
    
    
    
    15Shareholders equity
    
    
    725,516
    
    
    
    62
    
    
    
    659,509
    
    
    
    60Total
    
    $
    1,182,470
    
    
    
    100
    
    
    $
    1,103,278
    
    
    
    100
 Significant Changes in Financial Condition
    Long-Term Debt
  3.75% Notes
  -23-




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Floating Rate Notes
    -24-




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CIT Facility
    -25-




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Cash Flow
  Six Months EndedJune 30,2008
    
    
    2007(In thousands)(Unaudited)Net cash provided by (used in):Operating activities
    
    $
    172,218
    
    
    $
    190,319Investing activities
    
    
    (104,214
    )
    
    
    (120,349
    )Financing activities
    
    
    (2,644
    )
    
    
    (8,014
    )Net increase in cash
    
    $
    65,360
    
    
    $
    61,956
    Projected Cash Sources and Uses
  -26-




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Inflation and Changing Prices
  Results of Operations
  Reconciliation of Non-GAAP Financial Measures
  -27-




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)(Unaudited)Earnings before interest expense, income taxes,
depreciation and amortization
    
    $
    80,512
    
    
    $
    91,723
    
    
    $
    162,363
    
    
    $
    208,596Depreciation and amortization
    
    
    (26,994
    )
    
    
    (22,397
    )
    
    
    (54,753
    )
    
    
    (43,811
    )Interest expense
    
    
    (2,709
    )
    
    
    (3,438
    )
    
    
    (6,046
    )
    
    
    (6,930
    )Total income tax expense
    
    
    (18,511
    )
    
    
    (24,180
    )
    
    
    (37,943
    )
    
    
    (57,569
    )Net income applicable to common shares
    
    $
    32,298
    
    
    $
    41,708
    
    
    $
    63,621
    
    
    $
    100,286
 Comparison of the Three Months Ended June 30, 2008 and 2007
  Three Months Ended
    
    
    Three Months EndedJune 30, 2008
    
    
    June 30, 2007Daywork
    
    
    Turnkey
    
    
    
    
    
    
    Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    Total(Dollars in thousands except averages per rig day worked)(Unaudited)Rig days worked
    
    
    8,862
    
    
    
    665
    
    
    
    9,527
    
    
    
    8,715
    
    
    
    761
    
    
    
    9,476Contract drilling revenues
    
    $
    175,637
    
    
    $
    41,070
    
    
    $
    216,707
    
    
    $
    186,225
    
    
    $
    41,295
    
    
    $
    227,520Drilling operations expenses
    
    
    (100,280
    )
    
    
    (29,673
    )
    
    
    (129,953
    )
    
    
    (100,762
    )
    
    
    (31,545
    )
    
    
    (132,307
    )General and administrative
expenses
    
    
    (7,731
    )
    
    
    (490
    )
    
    
    (8,221
    )
    
    
    (6,659
    )
    
    
    (500
    )
    
    
    (7,159
    )Interest income
    
    
    1,860
    
    
    
    131
    
    
    
    1,991
    
    
    
    3,303
    
    
    
    290
    
    
    
    3,593Gain (loss) on sale of assets
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )
    
    
    72
    
    
    
    4
    
    
    
    76EBITDA
    
    $
    69,474
    
    
    $
    11,038
    
    
    $
    80,512
    
    
    $
    82,179
    
    
    $
    9,544
    
    
    $
    91,723Average per rig day worked:Contract drilling revenues
    
    $
    19,819
    
    
    $
    61,759
    
    
    $
    22,747
    
    
    $
    21,368
    
    
    $
    54,264
    
    
    $
    24,010EBITDA
    
    $
    7,840
    
    
    $
    16,598
    
    
    $
    8,451
    
    
    $
    9,430
    
    
    $
    12,541
    
    
    $
    9,680
  -28-




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Daywork Operations
  Turnkey Operations
  Other
    -29-




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Comparison of the Six Months Ended June 30, 2008 and 2007
  Six Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007Daywork
    
    
    Turnkey
    
    
    
    
    
    
    Daywork
    
    
    TurnkeyOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    Total(Dollars in thousands except averages per rig day worked)(Unaudited)Rig days worked
    
    
    17,395
    
    
    
    1,269
    
    
    
    18,664
    
    
    
    18,017
    
    
    
    1,380
    
    
    
    19,397Contract drilling revenues
    
    $
    347,981
    
    
    $
    70,248
    
    
    $
    418,229
    
    
    $
    393,589
    
    
    $
    75,944
    
    
    $
    469,533Drilling operations expenses
    
    
    (193,180
    )
    
    
    (50,281
    )
    
    
    (243,461
    )
    
    
    (200,625
    )
    
    
    (52,635
    )
    
    
    (253,260
    )General and administrative
expenses
    
    
    (15,850
    )
    
    
    (983
    )
    
    
    (16,833
    )
    
    
    (13,617
    )
    
    
    (941
    )
    
    
    (14,558
    )Interest income
    
    
    4,182
    
    
    
    296
    
    
    
    4,478
    
    
    
    6,264
    
    
    
    488
    
    
    
    6,752Gain on sale of assets
    
    
    (48
    )
    
    
    (2
    )
    
    
    (50
    )
    
    
    110
    
    
    
    19
    
    
    
    129EBITDA
    
    $
    143,085
    
    
    $
    19,278
    
    
    $
    162,363
    
    
    $
    185,721
    
    
    $
    22,875
    
    
    $
    208,596Average per rig day worked:Contract drilling
revenues
    
    $
    20,005
    
    
    $
    55,357
    
    
    $
    22,408
    
    
    $
    21,845
    
    
    $
    55,032
    
    
    $
    24,206EBITDA
    
    $
    8,226
    
    
    $
    15,191
    
    
    $
    8,699
    
    
    $
    10,308
    
    
    $
    16,576
    
    
    $
    10,754
  Daywork Operations
  Turnkey Operations
  -30-




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Other
    
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
 Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  -31-




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1a. Risk Factors
  We have incurred significant transaction costs in connection with the terminated merger with Basic
Energy Services, Inc. (Basic).
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    ApproximateShares
    
    Dollar Value ofPurchased as
    
    Shares that MayTotal Number
    
    Average
    
    Part of Publicly
    
    Yet be Purchasedof Shares
    
    Price Paid per
    
    Announced
    
    Under thePeriod
    
    Purchased(1)
    
    Share
    
    Program
    
    Program(2)April 1, 2008 to April 30, 2008
    
    
    3
    
    
    $
    7.09
    
    
    
    
    $
    28,070May 1, 2008 to May 31, 2008
    
    
    4
    
    
    $
    7.82
    
    
    
    
    $
    28,070June 1, 2008 to June 30, 2008
    
    
    1
    
    
    $
    9.38
    
    
    
    
    $
    28,070
 
 (1)
    
    Our employees may elect 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 8,000 of such treasury share purchases
during the three months ended June 30, 2008. These share repurchases are not covered under
a publicly announced program.(2)
    
    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. The stock
repurchase program is subject to termination prior to completion. -32-




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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
    
    business strategy;
    
    demand for our services;
    
    spending by our customers;
    
    projected rig activity;
    
    increases in rig supply and its effects on us;
    
    projected dayrates;
    
    projected interest expense;
    
    projected tax rate;
    
    rigs expected to be engaged in turnkey operations;
    
    cost of building new rigs, delivery times and deployment destinations of these rigs;
    
    the ability to recover the purchase price of rigs from term contracts;
    
    the availability and financial terms of term contracts;
    
    wage rates and retention of employees;
    
    sufficiency of our capital resources and liquidity;
    
    projected depreciation and capital expenditures;
    
    future common stock repurchases by us;
    
    projected sources and uses of cash; and
    
    matters discussed in Item 2 under the caption Financial Outlook.
  
    
    fluctuations in prices and demand for oil and natural gas;
    
    fluctuations in levels of oil and natural gas exploration and development
activities;
    
    fluctuations in demand for contract land drilling services;
    
    fluctuations in interest rates;
    
    the existence and competitive responses of our competitors;
    
    uninsured or underinsured casualty losses;
    
    technological changes and developments in the industry;
    
    the existence of operating risks inherent in the contract land drilling industry;
    
    U.S. and global economic conditions;
    
    the availability and terms of insurance coverage;
    
    the ability to attract and retain qualified personnel;
    
    unforeseen operating costs such as cost for environmental remediation and turnkey
cost overruns; and
    
    weather conditions.
 -33-




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-34-




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Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of Grey Wolf, Inc. (incorporated
herein by reference to Exhibit 3.1 to Form 8-K filed May 21, 2007).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).*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.
 
 *
    
    Filed herewith**
    
    Furnished, not filed, in accordance with Item 601(b)(32) of Regulation S-K. -35-




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SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 GREY WOLF, INC.Date: August 6, 2008
    By:
    /s/ David W. WehlmannDavid W. WehlmannExecutive Vice President and
     Chief Financial Officer -36-